-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BkM96i2+2T6F4xgMfNplvE2mIqA60rQT7zonOku3n1ukgYK/mJ7yxI0uDz3CIF4v iMsHvTufXZtVQkuAtvvleQ== 0000922423-97-000220.txt : 19970321 0000922423-97-000220.hdr.sgml : 19970321 ACCESSION NUMBER: 0000922423-97-000220 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970320 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUINNESS FLIGHT INVESTMENT FUNDS INC CENTRAL INDEX KEY: 0000919160 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-75340 FILM NUMBER: 97559668 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08360 FILM NUMBER: 97559667 BUSINESS ADDRESS: STREET 1: 201 SOUTH LAKE AVE STE 510 CITY: PASADENA STATE: CA ZIP: 91101 MAIL ADDRESS: STREET 1: 4455 E CAMELBACK RD STREET 2: STE 261E CITY: PHOENIX STATE: AZ ZIP: 85018 485APOS 1 AMENDMENT NO. 7 Reg. ICA No. 811-8360 File No. 33-75340 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [_] Post-Effective Amendment No. 7 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 7 GUINNESS FLIGHT INVESTMENT FUNDS (Exact Name of Registrant as Specified in Charter) 225 South Lake Avenue, Suite 777 Pasadena, California 91101 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, including Area Code: (818) 795-0039 Susan Penry-Williams, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 (Name and Address of Agent for Service) Copy to: Mr. James Atkinson Guinness Flight Investment Funds 225 South Lake Avenue, Suite 777 Pasadena, California 91101 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE: [_] Immediately upon filing pursuant to [_] On ( ) pursuant paragraph (b) to paragraph (b) [_] 60 days after filing pursuant to [x] On April 28, 1997 pursuant paragraph (a)(1) to paragraph (a)(1) [_] 75 days after filing pursuant to [_] On ( ) pursuant to paragraph (a)(2) paragraph (a)(2), of rule 485. IF APPROPRIATE, CHECK THE FOLLOWING BOX: [_] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT. REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940 AND ITS RULE 24F-2 NOTICE FOR ITS DECEMBER 31, 1995 FISCAL YEAR END WAS FILED ON FEBRUARY 28, 1997. CROSS-REFERENCE SHEET (Pursuant to Rule 404 showing location in each form of Prospectus of the responses to the Items in Part A and location in each form of Prospectus and the Statement of Additional Information of the responses to the Items in Part B of Form N-1A). GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND Item Number Form N-1A, Statement of Additional Part A Prospectus Caption Information Caption --------- ------------------ ------------------- 1 Front Cover Page * 2(a) Summary of Fund Expenses * (b) Summary * 3(a) Financial Highlights * (b) Not Applicable * (c) Performance * (d) Financial Highlights * 4(a) About the Funds; Investment * Objectives, Programs and Limitations (c) Investment Strategies, Policies * and Risks; Other Risk Considerations 5(a) The Funds' Management * (b) The Funds' Management - * Investment Adviser; Fees and Expenses (c) The Funds' Management - * Investment Adviser (d) The Funds' Management - The * Administrator, Distributor (e) How to Purchase Shares; How * to Redeem Shares; Dividends, Distributions and Tax Matters (f) The Funds' Management - Fees * and Expenses, Administrator (g) Not Applicable * 6(a) About the Funds * (b) Not Applicable * -1- Item Number Form N-1A, Statement of Additional Part A Prospectus Caption Information Caption --------- ------------------ ------------------- (c) Not Applicable * (d) Not Applicable * (e) Cover Page; General * Information (f) Dividends, Distributions and * Tax Matters - Dividends and Distributions (g) Dividends, Distributions and Tax Matters - Dividends Tax Matters - Tax Matters and Distributions (a) How to Purchase Shares * (b) How to Purchase Shares; * Determination of Net Asset Value (c) Not Applicable * (d) How to Purchase Shares - * Opening an Account, Additional Investments (e) Not Applicable * (f) The Funds' Management - Distribution Plan (a) How to Redeem Shares * (b) How to Redeem Shares * (c) How to Redeem Shares - * Redemption of Small Accounts (d) Not Applicable * 9 Not Applicable * -2- GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND Item Number Form N-1A, Statement of Additional Part B Prospectus Caption Information Caption - --------- ------------------ ----------------------- 10 * Front Cover Page 11 * Front Cover Page 12 * Not Applicable 13 Investment Objective, Programs Investment Objective and Policies; and Limitations Investment Strategies and Risks; Investment Restrictions and Policies 14 * Management of the Funds 15(a) * Not Applicable (b) * Shareholder Reports (c) * Management of the Funds 16(a) The Funds' Management - The Investment Adviser and Investment Adviser Advisory Agreements (b) The Funds' Management The Investment Adviser and Advisory Agreements (c) * Distribution Agreement and Distribution and Service Plans (d) The Funds' Management - Distribution Agreement and Administrator Distribution and Service Plans (e) * Not Applicable (f) The Funds' Management - Distribution Agreement and Distribution Plan Distribution and Service Plans (g) * Not Applicable -3- Item Number Form N-1A, Statement of Additional Part B Prospectus Caption Information Caption - --------- ------------------ ----------------------- (h) General Information - Transfer * Agent, Custodian, Independent Accountants (i) * Not Applicable 17 Investment Objectives, Programs Portfolio Transactions and Limitations 18 Description of the Funds 19(a) How to Purchase Shares; * How to Redeem Shares (b) Determination of Net Asset Value Computation of Net Asset Value (c) * Not Applicable 20 Dividends, Distributions and Tax Matters Tax Matters 21(a) * Distribution Agreement and Distribution and Service Plan (b) * Distribution Agreement and Distribution and Service Plan (c) * Not Applicable 22 * Performance Information 23 * Financial Statements BY THIS AMENDMENT TO THE REGISTRATION STATEMENT (No. 811-8360) 0N FORM N-1A OF GUINNESS FLIGHT, THE BOARD OF TRUSTEES OF GUINNESS FLIGHT INVESTMENT FUNDS, A DELAWARE BUSINESS TRUST, ADOPTS THE REGISTRATION STATEMENT OF GUINNESS FLIGHT INVESTMENT FUNDS, INC. UNDER THE SECURITIES ACT OF 1933 AND THE NOTIFICATION OF REGISTRATION AND REGISTRATION STATEMENT OF GUINNESS FLIGHT INVESTMENT FUNDS, INC. UNDER THE INVESTMENT COMPANY ACT OF 1940. Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement. -4- Please read this prospectus before investing. It is designed to provide you with information and to help you decide if the goals of the Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong Kong Fund, or the Guinness Flight Global Government Bond Fund match your own. It should be retained for future reference. A Statement of Additional Information, dated April 28, 1997, has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Statement of Additional Information is available without charge upon request by calling the Funds at 1-800-915-6565. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION , NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS PAGE 1 Guinness Flight Asia Blue Chip Fund (The "Asia Blue Chip Fund's") investment objective is long-term capital appreciation through investments in equity securities of well established and sizable companies located in the Asian continent. In pursuit of its investment objective, the Asia Blue Chip Fund intends to invest 65% to 100% of its total assets in a portfolio of "blue chip" companies traded primarily on the markets of the Asian continent. For the purposes of this Fund, the Investment Adviser has defined a "blue chip" company to be a company that has a market capitalization of at least $1 billion and a reputation for quality and wide acceptance of its products or services, as well as a strong history of profitability. Generally, the Asian continent includes the relatively more developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as the relatively less developed and emerging markets of Korea and Taiwan in North Asia; of China; of Indonesia, the Philippines, and Vietnam in the ASEAN region; and of India, Pakistan, Sri Lanka, and Bangladesh in East Asia. Under normal market conditions, the Asia Blue Chip Fund will invest in a minimum of four countries.An investment in this Fund may be more volatile than an investment in a fund which invests only in U.S. "blue chip" companies. (See "Investment Objectives, Programs and Limitations," for a more detailed discussion.) Guinness Flight Asia Small Cap Fund (The "Asia Small Cap Fund's") investment objective is long-term capital appreciation through investments in equity securities of smaller capitalization issuers located in the Asian continent. In pursuit of its investment objective, the Asia Small Cap Fund intends to invest 65% to 100% of its total assets in a portfolio of equity securities of companies traded primarily on the markets of the Asian continent that have a market capitalization of no more than $1 billion. Generally, the Asian continent includes the relatively more developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as the relatively less developed and emerging markets of Korea and Taiwan in North Asia; of China; of Indonesia, the Philippines, and Vietnam in the ASEAN region; and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under normal market conditions, the Asia Small Cap Fund will invest in a minimum of four countries. (See "Investment Objectives, Programs and Limitations," for a more detailed discussion.) Summary 2 Summary of The Funds' Expenses 4 Financial Highlights 6 Investment Objectives, Programs and Limitations 10 Investment Strategies, Policies and Risks 14 Other Risk Considerations 16 Performance 20 The Funds' Management 20 How to Purchase Shares 24 - 2 - How to Redeem Shares 26 Shareholder Services 28 Determination of Net Asset Value 29 Dividends, Distributions and Tax Matters 30 About the Funds 33 General Information 34 Guinness Flight China & Hong Kong Fund (The "China Fund") seeks to provide investors with long term capital growth through investments in the securities of China and Hong Kong. Under normal conditions, 85% to 100% of the China Fund's total assets will be invested in equity securities primarily traded in the markets of China and Hong Kong or in equity securities of companies that derive a substantial portion of their revenues from business activities with or in China and/or Hong Kong, but which are listed on major exchanges elsewhere (e.g., London, New York, Singapore, and Australia). To date, a majority of the securities held by the China Fund are listed in Hong Kong. (See "Investment Objectives, Programs and Limitations," for a more detailed discussion.) Guinness Flight Global Government Bond Fund (The "Global Government Fund") intends to provide investors with both current income and capital appreciation. The Global Government Fund will invest in the debt instruments of governments throughout the world. (See "Investment Objectives, Programs and Limitations," for a more detailed discussion.) Summary The Funds. Guinness Flight Investment Funds (the "Guinness Funds") is a Delaware business trust organized as an open-end, series, management investment company. Currently, the Guinness Funds offer four separate series portfolios: Guinness Flight Asia Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small Cap Fund ("Asia Small Cap Fund"), Guinness Flight China & Hong Kong Fund (the "China Fund"), and Guinness Flight Global Government Bond Fund (the "Global Government Fund")(collectively, the "Funds"), each of which pursues unique investment strategies. Risk Considerations. An investor should be aware that there are risks associated with certain investment techniques and strategies employed by the Funds, including those relating to investments in foreign securities. Such risks include among others currency fluctuations, expropriation, confiscation, diplomatic developments, and social instability. Each Fund's net asset value per share can be expected to fluctuate. Accordingly, investors should consider an investment in a Fund as a supplement to an overall investment program and should invest only if they are willing to undertake the risks involved. See "Investment Strategies, Policies and Risks" and "Other Risk Considerations." The Investment Adviser. Guinness Flight Investment Management Limited ("Guinness Flight") serves as the Funds' investment adviser pursuant to an investment advisory agreement (the "Advisory Agreement"). Under the terms of the Advisory Agreement, Guinness Flight supervises all aspects of the Funds' operations and provides investment advisory - 3 - services to the Funds. As compensation for these services, Guinness Flight receives a fee based on the Funds' average daily net assets. See "Management of the Funds." Purchasing Shares. Shares of the Funds are offered by this Prospectus at net asset value. The minimum investment in the Funds is $2,500 or $1,000 for investments through tax-qualified retirement plans. Current shareholders of any Fund may make an initial purchase of shares of another Fund in the family for a minimum of $1,000. The minimum investment in the Funds for gift accounts is $250. Additional investments must be at least $250. The Funds may reduce or waive the minimum investment under certain conditions. See "How to Purchase Shares." Exchange Privilege. Shares of a Fund may be exchanged for shares of any other Fund, or for shares of the SSgA Money Market Fund, in the manner and subject to the policies set forth herein. See "Shareholder Services--Exchange Privilege." Redeeming Shares. Shareholders may redeem all or a portion of their shares at net asset value at any time. Under certain circumstances, a redemption fee of 1.00% will be charged to any shareholder of the Asia Blue Chip Fund, Asia Small Cap Fund or China Fund who redeems shares purchased less than 30 days prior to redemption. See "How to Redeem Shares" and "Redemption Fee." Distributions. The Asia Blue Chip Fund, Asia Small Cap Fund and China Fund declare and pay dividends from net investment income, if any, on a semi-annual basis. The Global Government Fund declares and pays dividends monthly. In addition, the Funds make distributions of realized capital gains, if any, on a semi-annual basis. Dividends and distributions of the Funds may be paid directly to you by check, or reinvested in additional shares of the Funds, including, subject to certain conditions, in shares of a Fund other than the Fund making the distribution. See "Dividends, Distributions and Tax Matters." Summary of The Funds' Expenses A. Shareholder Transaction Expenses
Asia Asia Blue Small Global Chip Cap China Gov't ---- --- ----- ----- Sales Charge Imposed on Purchases none none none none Sales Charge Imposed on Reinvested Dividends none none none none Deferred Sales Charge Imposed on Redemptions none none none none Redemption Fee + + + none Exchange Fee none none none none
+ Under certain circumstances, a redemption fee of 1.00% applies to investors who redeem shares purchased less than 30 days prior to redemption. See "How to Redeem Shares--Redemption Fee." B. Annual Fund Operating Expenses (as a percentage of average daily net assets)
Asia Asia Blue Small Global Chip Cap China Gov't ---- --- ----- ----- Advisory Fee 1.00% 1.00% 1.00% .75% Rule 12b-1 Fee .00% .00% .00% .00% Other Expenses (after expense reimbursement) .98% .98% .98% .00% ---- ---- ---- ---- Total Fund Operating Expenses (after expense reimbursement) 1.98% 1.98% 1.98% .75% ++
++ Guinness Flight has undertaken to cap Total Fund Operating Expenses at .75% for the Global Government Fund by reimbursing the Fund for all "Other Expenses." The Global Government Fund will notify its shareholders in writing at least 30 days prior to any adjustments to the cap on its Total Fund Operating Expenses. - 4 - C. Example: You would pay the following expenses on a $1,000 investment in a Fund, assuming (1) a 5% annual return and (2) full redemption at the end of each time period: One Year $20 $20 $20 $8 Three Year $62 $62 $62 $24 Five Year $107 $107 $107 $42 Ten Year $231 $231 $231 $93 Explanation of Table: The purpose of the table is to assist you in understanding the various costs and expenses that an investor in a Fund would bear directly or indirectly. A. Shareholder Transaction Expenses represent charges paid when you purchase, redeem or exchange shares of a Fund. See "How to Purchase Shares," "How to Redeem Shares" and "Redemption Fee." B. Annual Fund Operating Expenses are based on a Fund's operating expenses for the current fiscal year. The Funds incur "other expenses" for maintaining shareholder records, furnishing shareholder statements and reports, and other services. For the Asia Blue Chip Fund and Asia Small Cap Fund, "other expenses" is based on estimated amounts for the current fiscal year. Guinness Flight or the Administrator may, from time to time, voluntarily agree to defer or waive fees or absorb some or all of the expenses of the Funds. To the extent that they should do so, either may seek repayment of such deferred fees or absorbed expenses after this practice is discontinued. However, no repayment will be made if the expense ratio of the Asia Blue Chip Fund, Asia Small Cap Fund, China Fund or the Global Government Fund would exceed 1.98%, 1.98%, 1.98% and 0.75%, respectively. For the prior fiscal year, Guinness Flight absorbed some of the expenses of the China Fund and Global Government Fund. If Guinness Flight had not absorbed such expenses, "other expenses" for the China Fund and Global Government Fund would have been 2.02% and 20.77%, respectively and "total fund operating expenses" would have been 3.02% and 21.52%, respectively. Guinness Flight anticipates absorbing some of the expenses of the Asia Blue Chip Fund and Asia Small Cap Fund. Absent such expense reimbursements, "total fund operating expenses" for the Asia Blue Chip and Asia Small Cap Fund are estimated to equal approximately 3.00% and 3.00%, respectively. See "The Funds' Management." - 5 - C. Example of Expenses. The hypothetical example illustrates the expenses associated with a $1,000 investment in a Fund over periods of one, three, five and ten years based on the estimated expenses in the above table and an assumed annual rate of return of 5%. The 5% return and expenses should not be considered indications of actual or expected Fund performance or expenses, both of which may vary. Financial Highlights The tables below set forth certain financial information with respect to a share outstanding for each of the Funds for the periods indicated. The following information for the China Fund and Global Government Fund for the fiscal period from June 30, 1994 (commencement of operations) to December 31, 1994 has been audited by Coopers & Lybrand L.L.P., and the information for the fiscal year ended December 31, 1995 by Ernst & Young LLP, independent accountants to the Funds. Information for the fiscal period ended June 30, 1996 is unaudited. The unqualified report of Ernst & Young LLP, covering the fiscal period ending _________ is included in the Statement of Additional Information, which may be obtained by calling the telephone number on the Prospectus cover page. The unqualified opinion of Coopers & Lybrand L.L.P. for the financial highlights of the China Fund and the Global Government Fund appears in the annual report for the fiscal period ended December 31, 1994. The financial highlights should be read in conjunction with each Fund's audited financial statements for the periods indicated. Guinness Flight Asia Blue Chip Fund Financial Highlights for a capital share outstanding throughout the period (Unaudited) April 29, 1996* through June 30, 1996 Net asset value, beginning of period $12.50 Income from investment operations: Net investment loss (0.01) Net realized and unrealized loss on investments (0.11) Total from investment operations (0.12) ------ Net asset value, end of period $12.38 ====== Total return (0.96)% Ratios/supplemental data: Net assets, end of period (thousands) $1,018 Ratio of expenses to average net assets:+ Before expense reimbursement 24.55% After expense reimbursement 1.98% Ratio of net investment loss to average net assets:+ Before expense reimbursement (23.07)% After expense reimbursement (0.50)% Portfolio turnover rate 0.00% Average Commission Rate Paid++ $0.0190 * Commencement of operations. + Annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. - 6 - Guinness Flight Asia Small Cap Fund Financial Highlights for a capital share outstanding throughout the period (Unaudited) April 29, 1996* through June 30, 1996 Net asset value, beginning of period $12.50 ------ Income from investment operations: Net investment income 0.03 Net realized and unrealized gain on investments 0.55 Total from investment operations 0.58 ---- Less distributions from net investment income (0.02) ------ Net asset value, end of period $13.06 ====== Total return 4.61% Ratios/supplemental data: Net assets, end of period (thousands) $1,790 Ratio of expenses to average net assets: Before expense reimbursement 17.60% After expense reimbursement 1.98% Ratio of net investment income to average net assets: Before expense reimbursement (13.56)% After expense reimbursement 2.06% Portfolio turnover rate 2.91% Average Commission Rate Paid $0.0029 * Commencement of operations. + Annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. -7- Guinness Flight China & Hong Kong Fund Financial Highlights for a capital share outstanding throughout the period
For the Six Months Ended For the Year June 30, 1994* June 30, 1996 Ended through (Unaudited) December 31, 1995 December 31, 1994 Net asset value, beginning of period $13.64 $11.47 $12.50 Income from investment operations: Net investment income .14 .14 .04 Net realized and un ealized gain (loss) on investments 1.26 2.20 (.96) ---- ---- ----- Total from investment operations 1.40 2.34 (.92) ---- ---- ----- Less distributions: Dividends from net investment income (.14) (.14) (.04) Distributions from net capital gains (.20) (.03) (.07) ----- ----- ----- Total distributions (.34) (.17) (.11) ----- ----- ----- Net asset value, end of period $14.70 $13.64 $11.47 ====== ====== ====== Total return 10.27% 20.45% (7.74)% Ratios/supplemental data: Net assets, end of period (thousands) 165,601 $55,740 $2,287 Ratio of expenses to average net assets: Before expense reimbursement 1.70% 3.02% 19.92%+ After expense reimbursement 1.98% 1.98% 2.00%+ Ratio of net investment income to average net assets: Before expense reimbursement 2.44% 0.49% (17.15)%+ After expense reimbursement 2.17% 1.52% 0.78% + Portfolio turnover rate 17.90% 10.89% 27.25% Average commission rate+++ $0.0080 -- -- BANK LOANS Amount outstanding at end of period $(000) -- -- -- Average amount of loans outstanding during the period (monthly average) (000) $1,413 -- -- Average number of shares outstanding during the period (monthly average) (000) 10,128 -- -- Average amount of debt per share during the period $0.14 -- --
* Commencement of operations. + Annualized. ++ Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the "ratio of expenses to average net assets before expense reimbursement" would have been 3.04%. +++ For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. -8- Guinness Flight Global Government Bond Fund Financial Highlights (for a capital share outstanding throughout the period)
For the Six Months Ended For the Year June 30, 1994* June 30, 1996 Ended through (Unaudited) December 31, 1995 December 31, 1994 Net asset value, beginning of period $12.77 $12.00 $12.50 Income from investment operations: Net investment income .31 .69 .29 Net realized and unrealized gain (loss) on investments .01 1.01 (.58) --- ---- ----- Total from investment operations .32 1.70 (.29) --- ---- ----- Less distributions: Dividends from net investment income (.05) (.65) (.21) Distributions from net capital gains (.10) (.28) -0- ----- ----- --- Total distributions (.15) (.93) (.21) ----- ----- ----- Net asset value, end of period $12.95 $12.77 $12.00 ====== ====== ====== Total return .13% 14.49% (2.33)% Ratios/supplemental data: Net assets, end of period (thousands) $1,565 $1,153 $751 Ratio of expenses to average net assets: Before expense reimbursement 14.75% 21.52% 40.78% After expense reimbursement 1.73% 1.73% 1.75% Ratio of net investment income to average net assets: Before expense reimbursement (8.09)% (14.26)% (34.18)% After expense reimbursement 5.04% 5.53% 4.86% Portfolio turnover rate 127.15% 202.54% 46.15%
* Commencement of operations. + Annualized. ++ Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the "ratio of expenses to average net assets before expense reimbursement" would have been 21.68%. See accompanying notes to financial statements. - 9 - Investment Objectives, Programs and Limitations The Asia Blue Chip Fund. The Asia Blue Chip Fund's investment objective is long-term capital appreciation through investments in equity securities of well established and sizable companies located in the Asian continent. In pursuit of its investment objective, the Asia Blue Chip Fund intends to invest 65% to 100% of its total assets in a portfolio of "blue chip" companies traded primarily on the markets of the Asian continent. For purposes of this Fund, the Investment Adviser has defined a "blue chip" company to be a company that has a market capitalization of at least $1 billion and a reputation for quality and wide acceptance of its products or services, as well as a strong history of profitability. An investment in this Fund, however, may be more volatile than an investment in a fund which invests only in U.S "blue chip" companies. Generally, the Asian continent includes the relatively more developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as the relatively less developed and emerging markets of Korea and Taiwan in North Asia; of China; of Indonesia, the Philippines, and Vietnam in the ASEAN region; and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under normal market conditions, the Asia Blue Chip Fund will invest in a minimum of four countries. As a matter of fundamental policy, the Asia Blue Chip Fund will not invest more than 25% of its assets in the securities (other than U.S. Government securities) of issuers in any one industry, as defined by the Current Directory of Companies Filing Annual Reports with the Securities and Exchange Commission. Equity securities, for purposes of the 65% policy, will be limited to common and preferred stocks; special classes of shares available only to foreign persons in markets that restrict the ownership of certain classes of equity to nationals or residents of the county; convertible preferred stocks; and convertible investment grade instruments. In addition, the Asia Blue Chip Fund may invest up to 5% of its net assets in options on equity securities and up to 5% of its net assets in warrants, including options and warrants traded in over-the-counter markets. Notwithstanding the above information, the Asia Blue Chip Fund reserves the right to invest up to 100% of its assets in cash, cash equivalents, or high quality short-term money market instruments for temporary defensive purposes during periods that Guinness Flight considers to be unsuitable for the Fund's normal investment strategy. The Asia Blue Chip Fund may also purchase and sell stock index futures to hedge against equity markets on a temporary basis. The Asia Small Cap Fund. The Asia Small Cap Fund's investment objective is long-term capital appreciation through investments in equity securities of smaller capitalization issuers located in the Asian continent. In pursuit of its investment objective, the Asia Small Cap Fund intends to invest 65% to 100% of its total assets in a portfolio of equity securities of companies traded primarily on the markets of the Asian continent that have a market capitalization of no more than $1 billion. Generally, the Asian continent includes the relatively more developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as the relatively less developed and emerging markets of Korea and Taiwan in North Asia; of China; of Indonesia, the Philippines, and Vietnam in the ASEAN region; and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under normal market conditions, the Asia Small Cap Fund will invest in a minimum of four countries. As a matter of fundamental policy, the Asia Small Cap Fund will not invest more than 25% of its assets in the securities (other than U.S. Government securities) of issuers in any one industry, as defined by the Current Directory of Companies Filing Annual Reports with the Securities and Exchange Commission. Equity securities, for purposes of the 65% policy, will be limited to common and preferred stocks; special classes of shares available only to foreign persons in markets that restrict the ownership of certain classes of equity to nationals or residents of the county; convertible preferred stocks; and convertible investment grade instruments. In addition, the Asia Small Cap Fund may invest up to 5% of its net assets in options on equity securities and up to 5% of its net assets in warrants, including options and warrants traded in over-the-counter markets. Notwithstanding the above information, the Asia Small Cap Fund reserves the right to invest up to 100% of its assets in cash, cash equivalents, or high quality short-term money market instruments for temporary defensive purposes during periods that Guinness Flight considers to be unsuitable for the Fund's normal investment strategy. The Asia Small Cap Fund may also purchase and sell stock index futures to hedge against equity markets on a temporary basis. The China Fund. The China Fund seeks to provide investors with long-term capital growth. Under normal market conditions, 85% to 100% of the China Fund's total assets will be invested in equity securities primarily traded in the markets of China and Hong Kong or in equity securities of companies that derive a substantial portion of their revenues from business activities - 10 - with or in China and/or Hong Kong, but which are listed on major exchanges elsewhere (e.g., London, New York, Singapore and Australia). To date, a majority of the securities held by the China Fund are listed in Hong Kong. The principal offices of these issuers may be located outside China and Hong Kong. The China Fund will not invest more than 15% of its total assets in any equity securities other than those of such issuers. As a matter of fundamental policy, the China Fund will not invest more than 25% of its total assets in the securities (other than U.S. Government securities) of issuers in any one industry, as defined by the Current Directory of Companies Filing Annual Reports with the Securities and Exchange Commission. Equity securities, for purposes of the 85% policy, will be limited to common and preferred stocks; special classes of shares available only to foreign persons in markets that restrict the ownership of certain classes of equity to nationals or residents of the country; convertible preferred stocks; and convertible investment grade instruments. In addition, the China Fund may invest up to 5% of its net assets in options on equity securities and up to 5% of its net assets in warrants, including options and warrants traded in over-the-counter markets. Notwithstanding the above information, the China Fund reserves the right to invest up to 100% of its assets in cash, cash equivalents, or high quality short-term money market instruments for temporary defensive purposes during periods that Guinness Flight considers to be unsuitable for the Fund's normal investment strategy. The China Fund may also purchase and sell stock index futures to hedge against equity markets on a temporary basis. The Global Government Fund. The Global Government Fund intends to provide investors with current income while seeking opportunities for capital appreciation. The Global Government Fund's portfolio is managed in accordance with a global investment strategy, which means that the Global Government Fund's investments will be allocated among securities denominated in the United States dollar and the currencies of a number of foreign countries. Fundamental economic strength, credit quality and interest rate trends are the principal factors considered by Guinness Flight in determining whether to increase or decrease the emphasis placed upon a particular type of security in the Global Government Fund's portfolio. Guinness Flight may further evaluate among other things, foreign yield curves and regulatory and political factors, including the fiscal and monetary policies of the countries in which the Global Government Fund may invest. Although the Global Government Fund intends to invest substantially all of its total assets directly in the debt of governments (or any of their political subdivisions, authorities, agencies or instrumentalities), or of supranational entities, throughout the world, the Global Government Fund may also invest in certain futures, options, foreign currency contracts, repurchase agreements, and other investments described below. Under normal market conditions, the Global Government Fund will invest at least 65% of its total assets in bonds issued by the governments of at least three different countries. For the purpose of this policy, a bond is a debt instrument. The Global Government Fund will neither invest more than 25% of its net assets in securities issued by a single foreign government, or in supranational entities as a group, nor invest more than 25% of its net assets in securities denominated in a single currency other than the U.S. Dollar, British Pound Sterling, Canadian Dollar, French Franc, German Mark and Japanese Yen. The Global Government Fund will invest in the entire range of maturities and may adjust the average maturity of the investments held in the portfolio from time to time, depending upon its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. The Global Government Fund presently expects to invest in both dollar and non-dollar denominated securities of issuers in the United States and the industrialized Western European countries; in Canada, Japan, Australia and New Zealand; and in Latin America. The Global Government Fund may invest up to 15% of its assets in the fixed income securities of issuers in emerging market countries. An emerging market is any country that the World Bank has determined to have a low or middle income economy and may include every country in the world except the United States, Australia, Canada, Japan, New Zealand and most countries located in Western Europe such as Belgium, Denmark, France, Germany, Great Britain, Italy, the Netherlands, Norway, Spain, Sweden and Switzerland. Debt instruments of emerging market countries may be below investment grade, commonly referred to as "junk bonds." "Investment grade" securities are those rated within the four highest quality grades as determined by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"). Securities rated Aaa by Moody's and AAA by Standard & Poor's are judged to be of the best quality and carry the smallest degree of risk. Securities rated Baa by Moody's and BBB by Standard & Poor's lack high quality investment characteristics and, in fact, have speculative - 11 - characteristics as well. Debt instruments that are deemed to be below investment grade entail greater risks of untimely interest and principal payments, default, and price volatility than investment grade securities, and may present problems of liquidity and valuation. See Appendix A of the Statement of Additional Information for additional information concerning investment grade debt ratings. In order to protect and enhance the capital value of the Global Government Fund, Guinness Flight employs an investment technique known as "Currency Overlay" which allows Guinness Flight to manage the currency exposure of the underlying bond portfolio. Using the Currency Overlay, Guinness Flight constructs a portfolio of bonds denominated in a variety of currencies and then, using forwards, options and futures contracts, reconstructs the currency portion of the bond portfolio. The use of this technique allows Guinness Flight to invest in the bond markets that it believes offers the best opportunities for total return regardless of the prospects for the currencies involved, and then to invest in the currencies that Guinness Flight believes offer the best opportunities to protect and enhance capital. Guinness Flight intends to place the Fund in the major currencies perceived to be in, or about to enter, a strengthening phase and to avoid those in, or about to enter, a phase of relative weakness. In making currency decisions, a wholly international stance is pursued by Guinness Flight. Consideration is given to both fundamental economic and financial data such as relative GNP growth, the Balance of Payments position, inflation and interest rates, as well as short-term factors such as political events and market sentiment. The Currency Overlay is employed on a medium to long-term basis and not on a day to day trading approach. Not more than 5% of the Global Government Fund's assets may be invested in initial margins or premiums for the futures and options needed to construct the Currency Overlay. Where Guinness Flight misperceives certain economic trends, the Global Government Fund's net asset value may be adversely affected as a result of this investment technique. Notwithstanding the above, the Global Government Fund reserves the right to invest up to 100% of its assets in cash, cash equivalents, high quality short-term money market instruments, and in bills, notes or bonds issued by the United States Treasury Department or by other agencies of the United States Government for temporary defensive purposes during periods that Guinness Flight considers to be unsuitable for the Fund's normal investment strategy. The Global Government Fund may also purchase and sell index futures to hedge against maturity risk on a temporary basis. Investment Strategies, Policies and Risks Forward Foreign Currency Exchange Contracts. The Funds may purchase or sell forward foreign currency exchange contracts ("forward contracts") as part of their portfolio investment strategy. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. A Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security ("transaction hedge"). Additionally, for example, when a Fund believes that a foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency, or when a Fund believes that the U.S. dollar may suffer a substantial decline against foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount ("position hedge"). In this situation, the Fund may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount where the Fund believes that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated ("cross-hedge"). Unanticipated changes in currency prices may result in poorer overall performance for a Fund than if it had not entered into such contracts. Forward contracts may be considered to be "derivative securities." See "Investment Strategies and Risks" in the Statement of Additional Information. Covered Call Options. Call options may also be used as a means of participating in an anticipated price increase of a security on a more limited basis than would be possible if the security itself were purchased. The Funds may write only covered call options. Since it can be expected that a call option will be exercised if the market value of the underlying security increases to a level greater than the exercise price, this strategy will generally be used when Guinness Flight believes that the call premium received by the Fund plus anticipated appreciation in the price of the underlying security up to the exercise price of the call, will be greater than the appreciation in the price of the security. By writing a call option, a Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. - 12 - The Funds will not write any put options. Covered call options may be considered to be "derivative securities." See "Investment Strategies and Risks" in the Statement of Additional Information. Purchase and Sale of Options and Futures on Stock Indices. The Asia Blue Chip Fund, Asia Small Cap Fund and China Fund may purchase and sell options and futures on stock indices. If Guinness Flight expects general stock market prices to rise, it might purchase a call option on a stock index or a futures contract on that index as a hedge against an increase in prices of particular equity securities they ultimately want to buy. If in fact the stock index does rise, the prices of the particular equity securities intended to be purchased may also increase, but that increase would be offset in part by the increase in the value of a Fund's index option or futures contract resulting from the increase in the index. If, on the other hand, Guinness Flight expects general stock market prices to decline, it might purchase a put option or sell a futures contract on the index. If that index does in fact decline, the value of some or all of the equity securities in a Fund's portfolio may also be expected to decline, but that decrease would be offset in part by the increase in the value of the Fund's position in such put option or futures contract. Risks in the use of options and futures on stock indices result from the possibility that changes in the stock indices may differ substantially from the changes anticipated by the Funds when the hedged positions were established. Options and futures on stock indices may be considered to be "derivative securities." See "Investment Strategies and Risks" in the Statement of Additional Information. Illiquid Securities. The Funds will not invest more than 15% of their net assets in illiquid securities, including repurchase agreements with maturities in excess of seven days. Restricted Securities. The Funds may invest in securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the "1933 Act"). These securities are sometimes referred to as private placements. Although securities which may be resold only to "qualified institutional buyers" in accordance with the provisions of Rule 144A under the 1933 Act are technically considered "restricted securities," the Funds may purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above in the "Illiquid Securities" section, provided that a determination is made that such securities have a readily available trading market. Guinness Flight will determine the liquidity of Rule 144A securities under the supervision of the Guinness Funds' Board of Trustees. The liquidity of Rule 144A securities will be monitored by Guinness Flight, and if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, a Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities. Portfolio Turnover. Any particular security will be sold, and the proceeds reinvested, whenever such action is deemed prudent from the viewpoint of a Fund's investment objective, regardless of the holding period of that security. A higher rate of portfolio turnover may result in higher transaction costs, including brokerage commissions. To the extent that higher portfolio turnover results in a higher rate of net realized capital gains to a Fund, the portion of the Fund's distributions constituting taxable capital gains may increase. See "Dividends, Distributions and Tax Matters." Guinness Flight anticipates that the annual portfolio turnover rate will not exceed 100% for the Asia Blue Chip Fund, 100% for the Asia Small Cap Fund, and the China Fund, and 200% for the Global Government Fund. For further discussion with regard to the Funds' investment strategies, policies and risks, see "Investment Strategies and Risks" in the Funds' Statement of Additional Information. Other Risk Considerations The Asia Blue Chip Fund, Asia Small Cap Fund and China Fund -- Risk Considerations. The Chinese economy previously operated as a Socialist economic system, relying heavily upon government planning from 1949, the year in which the Communists seized power, to 1978, the year Deng Xiaoping instituted his first economic reforms. Economic reforms in China are transforming its economy into a market system that has stimulated significant economic growth. As a result of such reform, living standards of the 800 million rural workers has improved. Farm reform led to the doubling of China's farmers' incomes over the 1980's. The next stage of reform gave rise to small scale entrepreneurs and stimulated light and medium industry. In addition, a cheap and abundant supply of labor has attracted foreign investment - 13 - in China. Special Economic Zones (SEZ), five originally and over thirty today, were set up, providing tax advantages to foreign investors. Further, two stock exchanges have recently opened in China - the Shenzhen and the Shanghai. Class "A" and Class "B" shares are traded on both exchanges. While only resident Chinese can purchase Class "A" shares, foreign investors (such as the China Fund) can purchase Class "B" shares. Over the period 1978 to 1995, China's gross domestic product grew at approximately 10% per annum. By 1995, China had become one of the world's major trading nations. The World Bank forecasts that China will have the world's largest economy by 2003. In 1984 China and Britain signed the Joint Declaration which allowed for the termination of British rule in Hong Kong in July 1997, but which would maintain the existing capitalist economic and social system of Hong Kong for 50 years beyond that date. Article 5 of the Sino-British Declaration 26.9.84 provides: The current social and economic systems in Hong Kong will remain unchanged and so will the lifestyle. Rights and freedoms, including those of the person, of speech, of the press, of assembly, of association, of travel, of movement, of correspondence, of choice, of occupation, of academic research and of religious belief, will be ensured by law in the Hong Kong Special Administrative Region. Private property, ownership of enterprises, legitimate right of inheritance and foreign investment will be protected by law. Obviously there is a risk after June 30, 1997 when Hong Kong returns to China under the "one country two systems" proposal. However, Hong Kong and China are interdependent; 70% of foreign investment in China is from Hong Kong and China has large shareholdings in Hong Kong companies. Guinness Flight believes that China is unlikely to damage the Hong Kong economy and destroy the value of their investments. Today, Hong Kong's stock market, is one of the largest in the world and is highly liquid and extensively regulated. Notwithstanding the beliefs of Guinness Flight, investors should realize that there are significant risks to investing in Hong Kong and China, both before and after 1997, including: (1) that the transition to a successor to Deng Xiaoping may result in an open feud amongst China's leaders leading to political instability; (2) that hard line Marxist Leninists might regain the political initiative; (3) that social tensions caused by widely differing levels of economic prosperity within Chinese society might create unrest, as they did in the tragic events of 1989, culminating in the Tiananmen Square incident; and (4) that the threat of armed conflict exists over the unresolved situation concerning Taiwan. Nonetheless, Guinness Flight believes that the process of reform has now gone too far to be easily reversed and that China will not deliberately damage the Hong Kong economy in which it has become a substantial investor and on which so much of its industry depends. The Global Government Fund -- Risk Considerations. The obligations of foreign government entities, including supranational issuers, have various kinds of government support. Although obligations of foreign governmental entities include obligations issued or guaranteed by national provincial, state or other government with taxing power, or by their agencies, these obligations may or may not be supported by the full faith and credit of a foreign government. General Economic and Political Risks. The economies of foreign countries may differ unfavorably from the United States economy in such respects as growth of domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments positions. Further, such economies generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by economic conditions in countries in which they trade, as well as trade barriers, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by such countries. - 14 - With respect to any foreign country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, government regulations, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the Funds' investments in those countries. In addition, it may be more difficult to obtain a judgement in a court outside of the United States. Small Capitalization Issuers. An investor should be aware that investment in small capitalization issuers carry more risk than issuers with market capitalizations greater than $1 billion. Generally, small companies rely on limited product lines, financial resources, and business activities that make them more susceptible to setbacks or downturns. In addition, the stock of such companies may be more thinly traded. Accordingly, the performance of small capitalization issuers may be more volatile. Interest Rate Fluctuations. Generally, the value of fixed income securities will change as interest rates fluctuate. During periods of falling interest rates, the values of outstanding long term debt obligations generally rise. Conversely, during periods of rising interest rates, the value of such securities generally decline. The magnitude of these fluctuations generally will be greater for securities with longer maturities. Securities Markets. Trading volume on foreign stock exchanges is substantially less than that on the New York Stock Exchange. Further, securities of some foreign companies are less liquid and more volatile than securities of comparable United States companies. Securities without a readily available market will be treated as illiquid securities for purposes of the Funds' limitation on such purchases. Similarly, volume and liquidity in most foreign bond markets can be substantially less than in the United States, and consequently, volatility of price can be greater than in the United States. Fixed commissions on foreign markets are generally higher than negotiated commissions on United States exchanges, although the Funds will endeavor to achieve the most favorable net results on their portfolio transactions and may be able to purchase the securities in which the Funds may invest on other stock exchanges where commissions are negotiable. Many foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards practices and disclosure requirements comparable to those applicable to United States companies. Consequently, there may be less publicly available information about such companies than about United States companies. Further, there is generally less governmental supervision and regulations of foreign stock exchanges, brokers and listed companies than in the United States. Investment and Repatriation Restrictions. Some foreign countries have laws and regulations which currently preclude direct foreign investment in the securities of their companies. However, indirect foreign investment in the securities listed and traded on the stock exchanges in these countries is permitted by certain foreign countries through investment funds which have been specially authorized. See "Tax Matters" in the Statement of Additional Information for an additional discussion concerning such investment funds. The Funds may invest in these investment funds subject to the provisions of the 1940 Act. If a Fund invests in such investment funds, the Fund's shareholders will bear not only their proportionate share of the expenses of the Fund, but also will bear indirectly similar expenses of the underlying investment funds. Guinness Flight has agreed to waive its management fees with respect to the portion of a Fund's assets invested in shares of other open-end investment companies. A fund would continue to pay its own management fees and other expenses with respect to its investments in shares of closed-end investment companies. In addition to the foregoing investment restrictions, prior governmental approval for foreign investments may be required under certain circumstances in some foreign countries, and the extent of foreign investment in foreign companies may be subject to limitation. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violation of foreign investment limitations. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some foreign countries. A Fund could be adversely affected by delays in or a refusal to grant any required governmental approval for such repatriation. Foreign Currency Considerations. Although the Funds' investments generally will be denominated in foreign currencies and most income paid by such investments will be in foreign currencies, the Funds will compute and distribute their income in dollars. The computation of income will be made on the date of its receipt by a Fund at the foreign exchange rate in effect on that date. Therefore, if the value of the foreign currencies in which a Fund receives its income falls relative to the dollar between the receipt of the income and the making of Fund distributions, the Fund will be required to liquidate securities in order to make distributions if the Fund has insufficient cash in dollars to meet distribution requirements. - 15 - The value of the assets of a Fund as measured in dollars also may be affected favorably or unfavorably by fluctuations in currency rates and exchange control regulations. Further, a Fund may incur costs in connection with conversions between various currencies. For further discussion with regard to the Funds' other risk considerations, see "Other Risk Factors and Special Considerations" in the Funds' Statement of Additional Information. Performance A Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. Average annual total return figures are annualized and, therefore, represent the average annual percentage change over the period in question. To illustrate the components of overall performance, the Funds may separate their cumulative and average annual returns into income results and capital gains or losses. Yield is computed in accordance with a standardized formula described in the Statement of Additional Information and can be expected to fluctuate from time to time. It is not necessarily indicative of future results. Accordingly, the yield information may not provide a basis for comparison with investments which pay a fixed rate of interest for a stated period of time. Yield is a function of the type and quality of a Fund's investments, maturity and operating expense ratio. A shareholder's investment in a Fund is not insured or guaranteed. The performance of the Funds will vary from time to time and past results are not necessarily representative of future results. A Fund's performance is a function of its portfolio management in selecting the type and quality of portfolio securities, and is affected by operating expenses of the Fund as well as by general market conditions. The Funds' Management The overall management of the business and affairs of the Funds is vested in the Guinness Funds' Board of Trustees. The Board of Trustees approves all significant agreements between the Guinness Funds, on behalf of a Fund, and persons or companies furnishing services to a Fund. The day-to-day operations of each Fund are delegated to the officers of the Guinness Funds and to Guinness Flight, subject always to the investment objective and policies of each Fund and to the general supervision of the Guinness Funds' Board of Trustees. Information concerning the Board of Trustees may be found in the Statement of Additional Information. Investment Adviser. Guinness Flight is headquartered in London, England, at Lighterman's Court, 5 Gainsford Street, Tower Bridge SE1 2NE, has a U.S. office at 225 South Lake Avenue, Suite 777, Pasadena, California 91101 and an office at Upper Ground Floor, Far East Center, 16 Harcourt Road, Admiralty, Hong Kong. Guinness Flight serves as the investment adviser to each of the Funds pursuant to an Advisory Agreement dated as of _____________, 1997. Under the terms of the Advisory Agreement, Guinness Flight supervises all aspects of the Funds' operations and provides investment advisory services to the Funds. Guinness Flight was organized in 1985 and is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. The Funds are managed by a team of portfolio managers. The following are biographies of key personnel who are responsible for ultimate investment decisions. Michael Daley -- Mr. Daley joined Guinness Flight as a Director of the Fixed Income Team in 1994. Prior to joining Guinness Flight, he was a founding member in 1986 of Morgan Stanley Asset Management's London operation where he served as Director, Vice President and Head of Fixed Income. In 1991, he established his own firm, Strategic Value Management Limited. Mr. Daley serves as Co-Manager of the Global Government Fund. Richard Farrell -- Mr. Farrell joined Guinness Mahon, a predecessor entity of Guinness Flight, in 1978. He specializes in Far Eastern markets and currently is the investment adviser to the Guinness Flight Global - 16 - Strategy Fund's Japan Fund, Japan & Pacific Fund, and Japan Smaller Companies Fund. These funds are currently available only to overseas investors. As the head of Guinness Flight's Asia Equity Desk, Mr. Farrell has strategic input on all of Guinness Flight's Asia Equity Funds. In addition, Mr. Farrell serves as the Manager of the Asia Blue Chip Fund. Howard Flight -- Mr. Flight has been involved in asset management for over 25 years throughout the world. He joined Guinness Mahon in 1979 as a director of the investment department. In 1987, he became Joint Managing Director of Guinness Flight. Presently, he is responsible for Guinness Flight's currency and fixed interest as Investment Director. Until its dissolution, he was a member of H.M. Treasury Tax Consultative Committee. In 1997, he became Deputy Chairman of Guinness Flight Hambro Asset Management Limited. Timothy Guinness -- Mr. Guinness originally joined Guinness Mahon in 1977 in the Corporate Finance Department, and later transferred to the Investment Department, becoming Senior Investment Director in 1982. He served as Fund Manager of both the Guinness Flight Global Equity Fund and United Kingdom Equity Fund. These funds are currently available only to overseas investors. In 1987, he became Joint Managing Director and leads the Global Equity Team as Investment Director. In 1997, he became Chief Executive of Guinness Flight Hambro Asset Management Limited. Lynda Johnstone -- Ms. Johnstone joined Guinness Mahon in 1986 in the Investment Department as a member of the Equity Team. Currently, she is responsible for running the Guinness Flight Global Strategy Fund's, Hong Kong Fund and ASEAN Fund. These funds are currently available only to overseas investors. Ms. Johnstone is primarily responsible for the day-to-day management of the China Fund. Nerissa Lee -- Ms. Lee joined Guinness Flight in 1995 in Guinness Flight's Hong Kong office and specializes in Far Eastern markets. She has a degree in economics from Hong Kong University and 20 years of experience in Asian markets. She started in the research department of the Hong Kong Stock Exchange and has been managing funds for 8 years. Currently, Ms. Lee manages the Guinness Flight Global Strategy Fund's Asian Smaller Companies Fund and the Guinness Flight Select Fund's China Fund. These funds are offered only to offshore investors. Ms. Lee serves as the Manager of the Asia Small Cap Fund. Philip Saunders -- Mr. Saunders joined Guinness Mahon in 1980. He gained experience in all principal operating areas before joining the investment department on a permanent basis as a member of the Currency and Fixed Interest team. He assumed responsibility for the day to day management of the Guinness Flight managed currency, international and global bond funds and portfolios in 1984 and assumed responsibility as Fixed Income Investment Director in 1987. These funds are currently available only to overseas investors. John Stopford -- Mr. Stopford joined Guinness Flight in 1993. Currently, he is a member of the Fixed Income Team, specializing in "core" European bond markets. Prior to joining Guinness Flight, he was responsible for European fixed income fund management at Mitsui Trust Asset Management (U.K.) Ltd. Mr. Stopford serves as the Co-Manager of the Global Government Fund. Guinness Flight's legal counsel believes that Guinness Flight may provide services described in its Investment Advisory Agreement to the Funds without violating the federal banking law commonly known as the Glass-Steagall Act. The Act generally bars banks or investment advisers deemed to be controlled by banks from publicly underwriting or distributing certain securities. Because of stock ownership by a subsidiary of a foreign bank in Guinness Flight's parent, Guinness Flight Hambro Asset Management Limited, such restrictions may be deemed to apply. The U.S. Supreme Court in its 1981 decision in Board of Governors of the Federal Reserve System v. Investment Company Institute determined that, consistent with the requirements of the Act, a bank may serve as an investment adviser to a registered, closed-end investment company. Other decisions of banking regulators have supported the position that a bank may act as investment adviser to a registered, open-ended investment company. Based on the advice of its counsel, Guinness Flight believes that the Court's decision, and these other decisions of banking regulators, permit it to serve as investment adviser to a registered, open-end investment company. - 17 - Possible future changes in federal law or administrative or judicial interpretations of current or future law, however, could prevent Guinness Flight from continuing to perform investment advisory services for the Funds. If that occurred, the Board of Trustees of Guinness Funds promptly would seek to obtain the services of another qualified adviser, as necessary. The Trustees would then consider what action would be in the best interest of the Funds' shareholders. For a discussion of Guinness Flight's brokerage allocation policies and practices, see "Portfolio Transactions" in the Statement of Additional Information. In accordance with policies established by the Board of Trustees, Guinness Flight may take into account sales of shares of each Fund advised by Guinness Flight in selecting broker-dealers to effect portfolio transactions on behalf of the Funds. Fees and Expenses. Pursuant to the Advisory Agreement, Guinness Flight is paid a monthly fee from the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund at an annual rate of 1.00% of each Fund's average daily net assets, and a monthly fee from the Global Government Fund calculated at an annual rate of .75% of its average daily net assets. These fees are higher than those charged by most investment companies. However, the Board of Trustees believes that such fees are appropriate because of the complexity of managing funds that invest in global markets. Guinness Flight or Investment Company Administration Corporation may, from time to time, voluntarily agree to defer or waive fees or absorb some or all of the expenses of the Funds. To the extent that they should do so, they may seek repayment of such deferred fees and absorbed expenses after this practice is discontinued. However, no repayment will be made if it would result in the Asia Blue Chip Fund's, Asia Small Cap Fund's and China Fund's expense ratio exceeding 1.98%, or if it would result in the Global Government Fund's expense ratio exceeding .75%. Administrator. Pursuant to an Administration Agreement, Investment Company Administration Corporation ("ICAC") serves as administrator of the Funds. As the administrator, ICAC provides certain administrative services, including, among other responsibilities, coordinating relationships with independent contractors and agents, preparing for signature by officers and filing of certain documents required for compliance with applicable laws and regulations, preparing financial statements, and arranging for the maintenance of books and records. ICAC receives a monthly fee equal to, on an annual basis, the greater of $40,000 or .25% of average daily net assets on the China Fund and $20,000 or 0.25% of average daily net assets on each of the Asia Blue Chip Fund, Asia Small Cap Fund and the Global Government Fund. Distributor. The Guinness Funds have entered into a Distribution Agreement (the "Distribution Agreement") with First Fund Distributors, Inc. ("First Fund"), a registered broker-dealer, to act as the principal distributor of the shares of the Funds. The Distribution Agreement provides First Fund with the right to distribute shares of the Funds through affiliated broker-dealers and through other broker-dealers or financial institutions with whom First Fund has entered into selected dealer agreements. Distribution Plan. The Funds have adopted a Distribution Plan (the "Plan") under Rule 12b-1 under the 1940 Act. No separate payments are authorized to be made by a Fund under the Plan. Rather, the Plan recognizes that Guinness Flight or ICAC may use fee revenues, or other resources to pay expenses associated with shareholder servicing and recordkeeping functions. The Plan also provides that Guinness Flight or ICAC may make payments from these sources to third parties, including affiliates, such as banks or broker-dealers, that provide such services. See "The Funds' Management--Fees and Expenses." For additional information concerning the operation of the Plan, see "Distribution Agreements and Distribution Plans" in the Statement of Additional Information. Shareholder Servicing. The Funds may enter into Shareholder Servicing Agreements whereby the Adviser or Administrator pays a shareholder servicing agent for shareholder services and account maintenance, including responding to shareholder inquiries, direct shareholder communications, account balance, maintenance and dividend posting. How to Purchase Shares General Information. Investors may purchase shares of a Fund from the Fund's transfer agent or from other selected securities brokers or dealers. A buyer whose purchase order is received by the transfer agent before the close of trading on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will acquire shares at the net asset value set as of that day. - 18 - A buyer whose purchase order is received by the transfer agent after the close of trading on the New York Stock Exchange will acquire shares at the net asset value set as of the next trading day on the New York Stock Exchange. A broker may charge a transaction fee for the purchase. The Distributor may, from time to time, provide promotional incentives to certain brokers or dealers whose representatives have sold or are expected to sell significant amounts of the Funds' shares. The Funds reserve the right to reject any purchase order. Share of the Funds are available for purchase by any retirement plan, including 401(K) plans, profit sharing plans, 403(b) plans and individual retirement accounts. Opening an Account -- Investment Minimums. The minimum initial investment in each Fund is $2,500 or $1,000 for investments through tax-qualified retirement plans. Current shareholders of any Fund may make an initial purchase of shares of another Fund in the family for $1,000. The minimum investment in the Funds for gift accounts is $250. The Funds may further reduce or waive the minimum for certain retirement and other employee benefit plans; for the Adviser's employees, clients and their affiliates; for advisers or financial institutions offering investors a program of services; or any other person or organization deemed appropriate by the Funds. Additional Investments -- Minimum Subsequent Investment. The minimum "subsequent" investment is $250 for regular accounts as well as tax-qualified retirement plans. The amount of the minimum subsequent investment, like the minimum "initial" investment, may be reduced or waived by the Funds. See waiver discussion under "Opening an Account-Investment Minimums." Cash investments may be made either by check or by wire. Purchasing by Mail. State Street Bank and Trust Company (the "Transfer Agent") acts as transfer and shareholder service agent for the Funds. An investor may purchase shares by sending a check payable to Guinness Flight Investment Funds, together with an Account Application form, to the Transfer Agent at the following address: Guinness Flight Investment Funds P.O. Box 9288 Boston, MA 02205-8559 Overnight courier deliveries should be sent to: Boston Financial Data Services ATTN: Guinness Flight Investment Funds Two Heritage Drive 3rd Floor North Quincy, MA 02171 If the purchase is a subsequent investment, the shareholder should either include the stub from a confirmation form previously sent by the Transfer Agent or include a letter giving the shareholder's name and account number. All purchases made by check should be in U.S. dollars and made payable to "Guinness Flight Investment Funds" or in the case of a retirement account, the custodian or trustee. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemptions will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Purchasing by Wire. For an initial purchase of shares of a Fund by wire, shareholders should first telephone the Transfer Agent at (800) 915-6566 between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading to receive an account number. The following information will be requested: your name, address, tax identification number, dividend distribution election, amount being wired and wiring bank. In addition, a buyer will be required to provide the Transfer Agent a signature application within 10 business days of an initial purchase. You should then give instructions to your bank to transfer funds by wire to the Transfer Agent at the following address: State Street Bank and Trust Company ABA # 0011 000 028 Shareholder and Custody Services - 19 - DDA # 99050171 ATTN: (Fund Name) (Fund Account Number) In making a subsequent purchase order by wire, you should wire funds to the Transfer Agent in the manner described above, making sure that the wire specifies the name of the Fund, your name and the account number. However, it is not necessary to call the Transfer Agent to make subsequent purchase orders using federal funds. If you arrange for receipt by the Transfer Agent of federal funds prior to the close of trading (currently 4:00 p.m., Eastern time) of the New York Stock Exchange on a day the Exchange is open for normal trading, you may purchase shares of a Fund as of that day. Your bank may charge a fee for wiring money on your behalf. How to Redeem Shares General Information. Investors may redeem shares of a Fund through the Transfer Agent or from other selected securities brokers or dealers. A shareholder whose redemption order is received by the Transfer Agent before the close of trading on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will redeem shares at the net asset value set as of that day. A shareholder whose redemption order is received by the Transfer Agent after the close of trading on the New York Stock Exchange will redeem shares at the net asset value set as of the next trading day on the New York Stock Exchange. A broker may charge a transaction fee for the redemption. Under certain circumstances, the Funds may temporarily borrow cash pursuant to a credit agreement with Deutsche Bank AG to satisfy redemption requests. Redemptions by Mail. Shareholders may redeem shares of any Fund by writing to the Transfer Agent at the following address: Guinness Flight Investment Funds P.O. Box 9288 Boston, MA 02205-8559 Overnight courier deliveries should be sent to: Boston Financial Data Services ATTN: Guinness Flight Investment Funds Two Heritage Drive 3rd Floor North Quincy, MA 02171 Please specify the name of the Fund, the number of shares or dollar amount to be redeemed, and your name and account number. [You should also enclose any certificated shares that you wish to redeem.] The signature on a redemption request must be exactly as the names appear on a Fund's account records, and the request must be signed by the minimum number of persons designated on the account application that are required to effect a redemption. Requests by participants of qualified retirement plans must include all other signatures required by the plan and applicable federal law. Signature Guarantee. If a redemption is requested by a corporation, partnership, trust or fiduciary, written evidence of authority acceptable to the Transfer Agent must be submitted before such request will be accepted. If the proceeds of the redemption exceed $50,000, or are to be paid to a person other than the record owner, or are to be sent to an address other than the address on the Transfer Agent's records, or are to be paid to a corporation, partnership, trust or fiduciary, the signature(s) on the redemption request and on the certificates, if any, or stock powers must be guaranteed by an "eligible guarantor," which includes certain banks, brokers, dealers, credit unions, securities exchanges, clearing agencies and savings associations. A signature guarantee is not the same as notarization and an acknowledgment by a notary public is not acceptable as a substitute for a signature guarantee. - 20 - Redemptions By Telephone. Shareholders may establish telephone redemption privileges if so elected on the account application. Shares of a Fund may then be redeemed by telephoning the Transfer Agent at (800) 915-6566, between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading. Special Factors Regarding Telephone Redemptions. In order to protect itself and shareholders from liability for unauthorized or fraudulent telephone transactions, the Guinness Funds will use reasonable procedures in an attempt to verify the identity of a person making a telephone redemption request. The Guinness Funds reserve the right to refuse a telephone redemption request if it believes that the person making the request is not the record owner of the shares being redeemed, or is not authorized by the shareholder to request the redemption. Shareholders will be promptly notified of any refused request for a telephone redemption. As long as these reasonable procedures are followed, neither the Guinness Funds nor their agents will be liable for any loss, liability or cost which results from acting upon instructions of a person believed to be a shareholder with respect to the telephone redemption privilege. However, if the Guinness Funds or their agents fail to follow such reasonable procedures, then the Guinness Funds or their agents may be liable for any losses due to unauthorized or fraudulent instructions. Redemptions By Wire. Redemption proceeds are generally paid to shareholders by check. However, redemptions proceeds of $500 or more may be wired by the Transfer Agent to a shareholder's bank account. Requests for redemption by wire should include the name, location and ABA or bank routing number (if known) of the designated bank and account number. Payment will be made within three days after receipt by the Transfer Agent of the written or telephone redemption request and any share certificates, except as indicated below. Such payment may be postponed, or the right of redemption suspended at times when (a) the New York Stock Exchange is closed for other than customary weekends and holidays; (b) trading on such exchange is restricted; (c) an emergency exists, the result of which disposal of Fund securities or determination of the value of a Fund's net assets are not reasonably practicable; or (d) during any other period when the Securities and Exchange Commission, by order, so permits. The Transfer Agent will deduct a fee equal to $10.00 from the amount wired. Redemption of Small Accounts. In order to reduce expenses, the Funds may redeem shares in any account, other than retirement plan or Uniform Gift to Minors Act accounts, if at any time, due to redemptions, the total value of a shareholder's account does not equal at least $500. Shareholders will be given 30 days' prior written notice in which to purchase sufficient additional shares to avoid such a redemption. Redemption Fee. On redemptions of shares purchased less than 30 days prior to redemption, a redemption fee, equal to 1% of the value of the shares being redeemed, shall be charged to any shareholder who redeems his interest in the China Fund, Asia Blue Chip Fund, or Asia Small Cap Fund, such proceeds to be payable to the Fund. Such redemption fee will not be charged on shares purchased 30 or more days prior to redemption or acquired through the reinvestment of distributions of investment income and capital gains. Redemptions will be assumed to have been made through the liquidation of shares in a shareholder's account on a first-in, first-out basis. Any redemption fee payable to the Asia Blue Chip Fund, Asia Small Cap Fund, or China Fund, will be waived if such fee is equal to or less than .10% of the total value of the shares, including shares purchased more than 30 days prior to redemption and shares acquired through the reinvestment of distributions of investment income and capital gains, being redeemed. Additional Redemption Information. Payment for redemption of recently purchased shares will be delayed until the Transfer Agent has been advised that the purchase check has been honored, up to 12 calendar days from the time of receipt of the purchase check by the Transfer Agent. If the purchase check does not clear, the investor, and not the Funds, will be responsible for any resulting loss. Such delay may be avoided by purchasing shares by wire or by certified or official bank checks. Shareholder Services Exchange Privilege. You may exchange shares of a Fund for shares of the other Funds by mailing or delivering written instructions to the Transfer Agent at the following address: Guinness Flight Investment Funds - 21 - P.O. Box 9288 Boston, MA 02205-8559 Please specify the name of the applicable Fund, the number of shares or dollar amount to be exchanged and your name and account number. You may also exchange shares by telephoning the Transfer Agent at (800) 915-6566 between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading. In periods of severe market or economic conditions, telephone exchanges may be difficult to implement, in which case you should mail or send by overnight delivery a written exchange request to the Transfer Agent. Overnight deliveries should be sent to the Transfer Agent at the address on Page 24. All exchanges will be made on the basis of the relative net asset values of the Funds next determined after a completed request is received. Requests for telephone exchanges received before 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading will be processed that day. Otherwise, processing will occur on the next business day. You may also exchange shares of either Fund for shares of the SSgA Money Market Fund, a money market mutual fund advised by State Street Bank & Trust Co., 225 Franklin Street, Boston, MA 02110 and not affiliated with the Guinness Funds or Guinness Flight, if such shares are offered in your state of residence. Prior to making such an exchange, you should obtain and carefully read the prospectus for the SSgA Money Market Fund. The exchange privilege does not constitute an offering or recommendation on the part of the Funds or Guinness Flight of an investment in the SSgA Money Market Fund. Exchange Privilege Annual Limits. The Funds reserve the right to limit the number of exchanges a shareholder may make in any year to four (4) to avoid excessive Fund expenses. Pre-Authorized Investment Plan. You may establish a pre-authorized investment plan whereby your personal bank account is automatically debited and your Fund account is automatically credited with additional full and fractional shares. Through the pre-authorized investment plan, the minimum initial investment is $100 and the subsequent minimum monthly investments is $100 per an investment. Systematic Withdrawal Plan. You may elect to have regular monthly or quarterly payments in any fixed amount in excess of $100 made to you, your personal bank account, or a properly designated third party, as long as your Fund account has a value at the current price of at least $1,000. During the withdrawal period, you may purchase additional shares for deposit to your account if the additional purchases are equal to at least one year's scheduled withdrawals. The number of full and fractional shares equal in value to the amount of the payment made will be redeemed at net asset value as determined on the day of withdrawal. As shares of a Fund are redeemed, you may recognize a capital gain or loss to be reported for income tax purposes. Determination of Net Asset Value The net asset value per share (or share price) of the Funds is determined as of 4:15 p.m. Eastern Time on each business day. The net asset value per share is calculated by subtracting a Fund's liabilities from its assets and dividing the result by the total number of Fund shares outstanding. The determination of a Fund's net asset value per share is made in accordance with generally accepted accounting principles. Among other items, a Fund's liabilities include accrued expenses and dividends payable, and its total assets include portfolio securities valued at their market value, as well as income accrued but not yet received. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Fund's officers and in accordance with methods which are specifically authorized by its governing Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost as reflecting fair value. Dividends, Distributions and Tax Matters - 22 - Dividends and Distributions. Income dividends of the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund are declared and paid semiannually, normally in June and December. The Global Government Fund declares and pays dividends monthly. The Funds distribute all or substantially all of their net investment income and net capital gains (if any) to shareholders each year. Any net capital gains earned by a Fund normally are distributed in June and December to the extent necessary to avoid federal income and excise taxes. In determining the amount of capital gains, if any, available for distribution, net capital gains are offset against available net capital losses, if any, carried forward from previous fiscal periods. All dividends and distributions of a Fund are automatically reinvested on the ex-dividend date in full and fractional shares of such Fund, unless the shareholder has made an alternate election as to the method of payment. Dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. Shareholders may elect, by written notice to the Transfer Agent, to receive such distributions, or the dividend portion thereof, in cash, or to invest such dividends and distributions in additional shares, including, subject to certain conditions, in shares of a Fund other than the Fund making the distribution. Investors who have not previously selected such a reinvestment option on the account application form may contact the Transfer Agent at any time to obtain a form to authorize such reinvestments in a Fund other than the Fund making the distribution. Such reinvestments into a Fund are automatically credited to the account of the shareholder. Changes in the form of dividend and distribution payments may be made by the shareholder at any time by notice to the Transfer Agent and are effective as to any subsequent payment if such notice is received by the Transfer Agent prior to the record date of such payment. Any dividend and distribution election remains in effect until the Transfer Agent receives a revised written election by the shareholder. Any dividend or distribution paid by a Fund has the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes, as discussed below. Tax Matters. Each Fund intends to qualify as a regulated investment company by satisfying the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), including the requirements with respect to diversification of assets, distribution of income and sources of income. It is the Funds' policy to distribute to shareholders all of its investment income (net of expenses) and any capital gains (net of capital losses) in accordance with the timing requirements imposed by the Code, so that each Fund will satisfy the distribution requirement of Subchapter M and not be subject to Federal income taxes or the 4% excise tax. If a Fund fails to satisfy any of the Code requirements for qualification as a regulated investment company, it will be taxed at regular corporate tax rates on all its taxable income (including capital gains) without any deduction for distributions to shareholders, and distributions to shareholders will be taxable as ordinary dividends (even if derived from the Fund's net long-term capital gains) to the extent of the Fund's current and accumulated earnings and profits. Distributions by a Fund of its net investment income (including foreign currency gains and losses) and the excess, if any, of its net short-term capital gain over its net long-term capital loss are taxable to shareholders as ordinary income. Distributions by a Fund of the excess, if any, of its net long-term capital gain over its net short-term capital loss are designated as capital gain dividends and are taxable to shareholders as long-term capital gains, regardless of the length of time shareholders have held their shares. Distributions by a Fund which are taxable to shareholders as ordinary income are treated as dividends for Federal income tax purposes, but in any year only a portion thereof (which cannot exceed the aggregate amount of qualifying dividends from domestic corporations received by the Fund during the year) may qualify for the 70% dividends-received deduction for corporate shareholders. Because the investment income of the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund will consist primarily of dividends from foreign corporations and the Fund may have interest income and short-term capital gains, it is not expected that a significant portion of the ordinary income dividends paid by the China Fund may qualify for the dividends-received deduction. Because the Global Government Bond Fund's investment income will consist of interest from debt, ordinary income dividends paid by the Fund will not qualify for the dividends-received deduction. Portions of - 23 - each Fund's investment income may be subject to foreign income taxes withheld at the source. If a Fund meets certain requirements, it may elect to "pass-through" to shareholders any such foreign taxes, which may enable shareholders to claim a foreign tax credit or a deduction with respect to their share thereof. Distributions to shareholders will be treated in the same manner for Federal income tax purposes whether shareholders elect to receive them in cash or reinvest them in additional shares. In general, shareholders take distributions into account in the year in which they are made. However, shareholders are required to treat certain distributions made during January as having been paid by the Fund and received by shareholders on December 31 of the preceding year. A statement setting forth the Federal income tax status of all distributions made (or deemed made) during the year, and any foreign taxes "passed-through" to shareholders, will be sent to shareholders promptly after the end of each year. Investors should be careful to consider the tax implications of purchasing shares just prior to the record date of any ordinary income dividend or capital gain dividend. Those investors purchasing shares just prior to an ordinary income or capital gain dividend will be taxed on the entire amount of the dividend received, even though the net asset value per share on the date of such purchase reflected the amount of such dividend. A shareholder will recognize gain or loss upon the sale or redemption of shares of the Funds in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. Any loss realized upon a taxable disposition of shares within six months from the date of their purchase will be treated as a long-term capital loss to the extent of any capital gain dividends received on such shares. All or a portion of any loss realized upon a taxable disposition of shares of the Funds may be disallowed if other shares of the "redeemed" Fund are purchased within 30 days before or after such disposition. If a shareholder is a non-resident alien or foreign entity shareholder, ordinary income dividends paid to such shareholder generally will be subject to United States withholding tax at a rate of 30% (or lower rate under an applicable treaty). We urge non-United States shareholders to consult their own tax adviser concerning the applicability of the United States withholding tax. Under the back-up withholding rules of the Code, shareholders may be subject to 31% withholding of Federal income tax on ordinary income dividends, capital gain dividends and redemption payments made by the Funds. In order to avoid this back-up withholding, shareholders must provide the Fund with a correct taxpayer identification number (which for an individual is usually his Social Security number) and certify that the shareholder is a corporation or otherwise exempt from or not subject to back-up withholding. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, shareholders should also review the more detailed discussion of Federal income tax considerations relevant to the Fund that is contained in the Statement of Additional Information. In addition, shareholders should consult with their own tax adviser as to the tax consequences of investments in a Fund, including the application of state and local taxes which may differ from the Federal income tax consequences described above. About The Funds Each Fund is a separate series of shares of the Guinness Funds, which is registered under the 1940 Act, as an open-end management investment company. Guinness Funds was formed as a Maryland corporation on January 7, 1994 and converted to a Delaware business trust on _________, 1997. Each Fund has its own investment objective and policies designed to meet specific investment goals, operates as an open-end management investment company and expects to be treated as a regulated investment company for Federal income tax purposes. The Asia Blue Chip Fund, Asia Small Cap Fund, China Fund and Global Government Fund are non-diversified. The investment objective of the Asia Blue Chip Fund and Asia Small Cap Fund is fundamental. Each Fund invests in securities of different issuers and industry classifications in an attempt to spread and reduce the risks inherent in all investing. The Funds continuously offer new shares for sale to the public, and stand ready to redeem their outstanding shares for cash at their net asset value. Guinness Flight, the investment adviser for the Funds, continuously reviews and, from time to time, changes the portfolio holdings of the Funds in pursuit of each Fund's investment objective. - 24 - Shares of each Fund entitle the holders to one vote per share. The shares have no preemptive or conversion rights. When issued, shares are fully paid and nonassessable. [The shareholders have certain rights, as set forth in the By-laws, to call a meeting for any purpose.] See "Description of the Funds -- Voting Rights" in the Statement of Additional Information. - 25 - General Information Investment Adviser. Guinness Flight Investment Management Limited, 225 South Lake Avenue, Suite 777, Pasadena, California 91101, serves as Investment Adviser for the Funds. Administrator. Investment Company Administration Corporation, 4455 East Camelback Road, Suite 261E, Phoenix, Arizona 85018, serves as Administrator of the Funds. Custodian. Investors Bank and Trust Company, 89 South Street, P.O. Box 1537, Boston, Massachusetts 02205, serves as the custodian of the Funds. Generally, the Custodian holds the securities, cash and other assets of the Funds. Transfer Agent. State Street Bank and Trust Company, P.O. Box 1912, Boston, Massachusetts 02105, serves as Transfer Agent of the Funds. Generally the Transfer Agent provides recordkeeping services for the Funds and their shareholders. Legal Counsel. Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 serves as counsel to the Guinness Funds. Independent Accountants. Ernst & Young LLP, 515 South Flower Street, Los Angeles, CA 90071. Generally, the Independent Accountants will audit the financial statement and the financial highlights of the Funds, as well as provide reports to the Trustees. Distributor. First Fund Distributors, Inc., 4455 East Camelback Road, Suite 261E, Phoenix, Arizona 85018, serves as Distributor for the Funds. Other Information. This prospectus sets forth basic information that investors should know about the Funds prior to investing. A Statement of Additional Information has been filed with the Securities and Exchange Commission and is available upon request and without charge, by writing or calling the Funds at 1-800-915-6565. This prospectus omits certain information contained in the registration statement filed with the Securities and Exchange Commission. Copies of the registration statement, including items omitted from this prospectus, may be obtained from the Securities and Exchange Commission by paying the charges prescribed under its rules and regulations. [GRAPHIC] [GRAPHIC] GUINNESS FLIGHT PROSPECTUS APRIL 28, 1997 ASIA BLUE CHIP FUND ASIA SMALL CAP FUND CHINA & HONG KONG FUND GLOBAL GOVERNMENT BOND FUND - 26 - STATEMENT OF ADDITIONAL INFORMATION GUINNESS FLIGHT INVESTMENT FUNDS 225 South Lake Avenue, Suite 777 Pasadena, California 91101 GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- This Statement is not a prospectus but should be read in conjunction with the current prospectus dated April 28, 1997 (the "Prospectus"), pursuant to which the Guinness Flight China & Hong Kong Fund (the "China Fund"), Guinness Flight Asia Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small Cap Fund ("Asia Small Cap Fund"), and Guinness Flight Global Government Bond Fund (the "Global Government Fund") (collectively, the "Funds") are offered. Please retain this document for future reference. - -------------------------------------------------------------------------------- For a free copy of the Prospectus, please call the Funds at 1-800-915-6565 - -------------------------------------------------------------------------------- GENERAL INFORMATION AND HISTORY............................................ 2 INVESTMENT OBJECTIVE AND POLICIES.......................................... 2 INVESTMENT STRATEGIES AND RISKS............................................ 5 OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS.............................. 14 INVESTMENT RESTRICTIONS AND POLICIES....................................... 15 PORTFOLIO TRANSACTIONS..................................................... 16 COMPUTATION OF NET ASSET VALUE............................................. 17 PERFORMANCE INFORMATION.................................................... 18 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 19 TAX MATTERS................................................................ 19 MANAGEMENT OF THE FUNDS.................................................... 25 THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS............................. 26 DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN............................... 28 DESCRIPTION OF THE FUNDS................................................... 28 SHAREHOLDER REPORTS........................................................ 29 FINANCIAL STATEMENTS....................................................... 29 APPENDIX A.................................................................A-1 Dated: April 28, 1997 GENERAL INFORMATION AND HISTORY As described in the Funds' Prospectus, Guinness Flight Investment Funds ("Guinness Funds") is a Delaware business trust organized as an open-end, series, management investment company. Currently, Guinness Funds offers four separate series portfolios: the China Fund, the Asia Blue Chip Fund, the Asia Small Cap Fund, and the Global Government Fund, each of which has unique investment objectives and strategies. INVESTMENT OBJECTIVE AND POLICIES GENERAL INFORMATION ABOUT THE FUNDS. The China Fund seeks to provide investors with long term capital growth by generally investing in equity securities, that should benefit from the growth in the Chinese economy, traded in the markets of China and Hong Kong. The Asia Blue Chip Fund's investment objective is long-term capital appreciation through investments in equity securities of well established and sizable companies located in the Asian continent. The Asia Small Cap Fund's investment objective is long-term capital appreciation through investments in equity securities of smaller capitalization issuers located in the Asian continent. The Global Government Fund intends to provide investors with both current income and capital appreciation from a debt portfolio of government securities issued throughout the world. The objective of each Fund is a fundamental policy and may not be changed except by a majority vote of shareholders. The Fund's do not intend to employ leveraging techniques. Accordingly, a Fund will not purchase new securities if amounts borrowed exceed 5% of its total assets at the time the loan is made. When the Funds determine that adverse market conditions exist, the Funds may adopt a temporary defensive posture and invest their entire portfolio in Money Market Instruments. In addition, the Funds may invest in Money Market Instruments in anticipation of investing cash positions. "Money Market Instruments" means short-term (less than twelve months to maturity) investments in (a) obligations of the United States or foreign governments, their respective agencies or instrumentalities; (b) bank deposits and bank obligations (including certificates of deposit, time deposits and bankers' acceptances) of United States or foreign banks denominated in any currency; (c) floating rate securities and other instruments denominated in any currency issued by international development agencies; (d) finance company and corporate commercial paper and other short-term corporate debt obligations of United States and foreign corporations meeting the credit quality standards set by Guinness Funds' Board of Trustees; and (e) repurchase agreements with banks and broker-dealers with respect to such securities. While the Funds do not intend to limit the amount of their assets invested in Money Market Instruments, except to the extent believed necessary to achieve their investment objective, the Funds do not expect under normal market conditions to have a substantial portion of their assets invested in Money Market Instruments. To the extent the Funds are invested in Money Market Instruments for defensive purposes or in anticipation of investing cash positions, the Funds' investment objective may not be achieved. The following information concerning the Funds augments the disclosure provided in the prospectus under the heading "Investment Objectives, Programs and Limitations": THE CHINA FUND, ASIA BLUE CHIP FUND, AND ASIA SMALL CAP FUND (THE "EQUITY FUNDS"). Guinness Flight does not intend to invest in any security in a country where the currency is not freely convertible to United States dollars, unless it has obtained the necessary governmental licensing to convert such currency or other appropriately licensed or sanctioned contractual guarantee to protect such investment against loss of that currency's external value, or Guinness Flight has a reasonable expectation at the time the investment is made that such governmental licensing or other appropriately licensed or sanctioned guarantee would be obtained or that the currency in which the security is quoted would be freely convertible at the time of any proposed sale of the security by an Equity Fund. -2- An Equity Fund may invest indirectly in issuers through sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), Global Depository Shares ("GDSs") and other types of Depository Receipts (which, together with ADRs, EDRs, GDRs, and GDSs, are hereinafter referred to as "Depository Receipts"). Depository Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. In addition, the issuers of the stock of unsponsored Depository Receipts are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of the Depository Receipts. ADRs are Depository Receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. GDRs and other types of Depository Receipts are typically issued by foreign banks or trust companies, although they also may be issued by either a foreign or a United States corporation. Generally, Depository Receipts in registered form are designed for use in the United States securities markets and Depository Receipts in bearer form are designed for use in securities markets outside the United States. For purposes of the Equity Funds' investment policies, investments in ADRs, GDRs and other types of Depository Receipts will be deemed to be investments in the underlying securities. Depository Receipts other than those denominated in United States dollars will be subject to foreign currency exchange rate risk. Certain Depository Receipts may not be listed on an exchange and therefore may be illiquid securities. Securities in which an Equity Fund may invest include those that are neither listed on a stock exchange nor traded over-the-counter. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by the Equity Fund or less than what may be considered the fair value of such securities. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements which may be applicable if their securities were publicly traded. If such securities are required to be registered under the securities laws of one or more jurisdictions before being resold, the Equity Fund may be required to bear the expenses of registration. To the extent that such securities are illiquid by virtue of the absence of a readily available market, or legal or contractual restrictions on resale, they will be subject to such Equity Fund's investment restriction on illiquid securities, discussed below. An Equity Fund, together with any of its "affiliated persons," as defined in the Investment Company Act of 1940 (the "1940 Act"), may only purchase up to 3% of the total outstanding securities of any underlying investment company. Accordingly, when the Equity Fund or such "affiliated persons" hold shares of any of the underlying investment companies, such Fund's ability to invest fully in shares of those investment companies is restricted, and Guinness Flight must then, in some instances, select alternative investments that would not have been its first preference. There can be no assurance that appropriate investment companies will be available for investment. The Equity Funds do not intend to invest in such investment companies unless, in the judgment of Guinness Flight, the potential benefits of such investment justify the payment of any applicable premium or sales charge. GLOBAL GOVERNMENT FUND Global Government Fund assets invested in foreign government securities will be invested in debt obligations and other fixed income securities, in each case denominated in U.S. currencies, non-U.S. currencies or composite currencies including: (1) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities; (2) debt obligations of supranational entities (described below); and (3) debt obligations of the United States Government issued in non-dollar securities. -3- In making international fixed income securities investments, Guinness Flight may consider, among other things, the relative growth and inflation rates of different countries. Guinness Flight may also consider expected changes in foreign currency exchange rates, including the prospects for central bank intervention, in determining the anticipated returns of securities denominated in foreign currencies. Guinness Flight may further evaluate, among other things, foreign yield curves and regulatory and political factors, including the fiscal and monetary policies of such countries. The obligations of foreign governmental entities, including supranational issuers, have various kinds of government support. Obligations of foreign governmental entities include obligations issued or guaranteed by national, provincial, state or other governments with taxing power or by their agencies. These obligations may or may not be supported by the full faith and credit of a foreign government. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Steel and Coal Community, the Asian Development Bank and the Inter-American Development Bank. The governmental agencies, or "stockholders," usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowings. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income. The Global Government Fund may invest in United States Government Securities and in options, futures contracts and repurchase transactions with respect to such securities. The term "United States Government Securities" refers to debt securities denominated in United States dollars, issued or guaranteed by the United States Government, by various of its agencies, or by various instrumentalities established or sponsored by the United States Government. Certain of these obligations, including: (1) United States Treasury bills, notes, and bonds; (2) mortgage participation certificates guaranteed by the Government National Mortgage Association ("GNMA"); and (3) Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other United States Government Securities issued or guaranteed by Federal agencies or government sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the United States Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Federal National Mortgage Association Bonds. When purchasing United States Government Securities, Guinness Flight may take full advantage of the entire range of maturities of such securities and may adjust the average maturity of the investments held in the portfolio from time to time, depending upon its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. To the extent that the Global Government Fund invests in the mortgage market, Guinness Flight usually will evaluate, among other things, relevant economic data, environmental and security specific variables such as housing starts, coupon and age trends. To determine relative value among markets, Guinness Flight may use tools such as yield/duration curves, break-even prepayment rate analysis and holding-period-return scenario testing. The Global Government Fund may seek to increase its current income by writing covered call options with respect to some or all of the United States Government Securities held in its portfolio. In addition, the Global Government Fund may at times, through the purchase of options on United States Government Securities, and the purchase and sale of futures contracts and related options with respect to United States Government Securities, seek to reduce fluctuations in net asset value by hedging against a decline in the value of the United States Government Securities owned by the Global Government Fund or an increase in the price of such securities which the Global Government Fund plans to purchase, although it is not the general practice to do so. Significant option writing opportunities generally exist only with respect to longer term United States Government Securities. Options on United States Government Securities and futures and related options are not considered United States Government Securities; accordingly, they have a different set of risks and features. -4- INVESTMENT STRATEGIES AND RISKS OPTIONS AND FUTURES STRATEGIES Through the writing of call options and the purchase of options and the purchase and sale of stock index futures contracts, interest rate futures contracts, foreign currency futures contracts and related options on such futures contracts, Guinness Flight may at times seek to hedge against a decline in the value of securities included in a Fund's portfolio or an increase in the price of securities which it plans to purchase for a Fund or to reduce risk or volatility while seeking to enhance investment performance. Expenses and losses incurred as a result of such hedging strategies will reduce a Fund's current return. The ability of a Fund to engage in the options and futures strategies described below will depend on the availability of liquid markets in such instruments. Although the Funds will not enter into an option or futures position unless a liquid secondary market for such option or futures contract is believed by Guinness Flight to exist, there is no assurance that a Fund will be able to effect closing transactions at any particular time or at an acceptable price. Reasons for the absence of a liquid secondary market include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an Exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an Exchange; (v) the facilities of an Exchange or the Options Clearing Corporation ("OCC") may not at all times be adequate to handle current trading volume; or (vi) one or more Exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market thereon would cease to exist, although outstanding options on that Exchange that had been issued by the OCC as a result of trades on that Exchange would continue to be exercisable in accordance with their terms. Low initial margin deposits made upon the opening of a futures position and the writing of an option involve substantial leverage. As a result, relatively small movements in the price of the contract can result in substantial unrealized gains or losses. However, to the extent a Fund purchases or sells futures contracts and options on futures contracts and purchases and writes options on securities and securities indexes for hedging purposes, any losses incurred in connection therewith should, if the hedging strategy is successful, be offset, in whole or in part, by increases in the value of securities held by the Fund or decreases in the prices of securities the Fund intends to acquire. It is impossible to predict the amount of trading interest that may exist in various types of options or futures. Therefore, no assurance can be given that a Fund will be able to utilize these instruments effectively for the purposes stated below. Furthermore, a Fund's ability to engage in options and futures transactions may be limited by tax considerations. Although the Funds will only engage in options and futures transactions for limited purposes, it will involve certain risks. The Funds will not engage in options and futures transactions for leveraging purposes. Upon purchasing futures contracts of the type described above, the Funds will maintain in a segregated account with their Custodian cash or liquid high grade debt obligations with a value, marked-tomarket daily, at least equal to the dollar amount of the Funds' purchase obligation, reduced by any amount maintained as margin. Similarly, upon writing a call option, the Funds will maintain in a segregated account with their Custodian, liquid or high grade debt instruments with a value, marked-to-market daily, at least equal to the market value of the underlying contract (but not less than the strike price of the call option) reduced by any amounts maintained as margin. WRITING COVERED CALL OPTIONS ON SECURITIES A Fund may write covered call options on optionable securities (stocks, bonds, foreign exchange related futures, options and options on futures) of the types in which it is permitted to invest in seeking to attain its objective. Call options written by a Fund give the holder the right to buy the underlying securities from the Fund at a stated exercise price. As the writer of the call option, the Fund is obligated to own the underlying -5- securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). The Funds will receive a premium from writing a call option, which increases the writer's return in the event the option expires unexercised or is closed out at a profit. The amount of the premium will reflect, among other things, the relationship of the market price of the underlying security to the exercise price of the option, the term of the option and the volatility of the market price of the underlying security. By writing a call option, a Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. A Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Funds will realize a profit or loss from such transaction if the cost of such transaction is less or more, respectively, than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by a Fund. Options written by the Funds will normally have expiration dates not more than one year from the date written. The exercise price of the options may be below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the current market price of the underlying securities at the times the options are written. A Fund may engage in buy-and-write transactions in which the Fund simultaneously purchases a security and writes a call option thereon. Where a call option is written against a security subsequent to the purchase of that security, the resulting combined position is also referred to as buy-and-write. Buy-and-write transactions using in-the-money call options may be utilized when it is expected that the price of the underlying security will remain flat or decline moderately during the option period. In such a transaction, a Fund's maximum gain will be the premium received from writing the option reduced by any excess of the price paid by the Fund for the underlying security over the exercise price. Buy-and-write transactions using at-the-money call options may be utilized when it is expected that the price of the underlying security will remain flat or advance moderately during the option period. In such a transaction, a Fund's gain will be limited to the premiums received from writing the option. Buy-and-write transactions using out-of-the-money call options may be utilized when it is expected that the premiums received from writing the call option plus the appreciation in market price of the underlying security up to the exercise price will be greater than the appreciation in the price of the underlying security alone. In any of the foregoing situations, if the market price of the underlying security declines, the amount of such decline will be offset wholly or in part by the premium received and a Fund may or may not realize a loss. To the extent that a secondary market is available on the Exchanges, the covered call option writer may liquidate his position prior to the assignment of an exercise notice by entering a closing purchase transaction for an option of the same series as the option previously written. The cost of such a closing purchase, plus transaction costs, may be greater than the premium received upon writing the original option, in which event the writer will have incurred a loss in the transaction. PURCHASING PUT AND CALL OPTIONS ON SECURITIES A Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Funds will reduce any profit they might otherwise have realized in the underlying security by the premium paid for the put option and by transaction costs. A Fund may also purchase call options to hedge against an increase in prices of securities that it wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as -6- holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. By using call options in this manner, the Funds will reduce any profit they might have realized had they bought the underlying security at the time they purchased the call option by the premium paid for the call option and by transaction costs. PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES The Equity Funds may purchase and sell options on stock indices and stock index futures as a hedge against movements in the equity markets. Options on stock indices are similar to options on specific securities except that, rather than the right to take or make delivery of the specific security at a specific price, an option on a stock index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of that stock index is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to such difference between the closing price of the index and the exercise price of the option expressed in dollars multiplied by a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Unlike options on specific securities, all settlements of options on stock indices are in cash and gain or loss depends on general movements in the stocks included in the index rather than on price movements in particular stocks. Currently, index options traded include the S&P 100 Index, the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the National Over-the-Counter Index and other standard broadly based stock market indices. A stock index futures contract is an agreement in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount multiplied by the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. For example, the China Fund may invest in Hang-Seng Index Futures. No physical delivery of securities is made. If Guinness Flight expects general stock market prices to rise, it might purchase a call option on a stock index or a futures contract on that index as a hedge against an increase in prices of particular equity securities they want ultimately to buy. If in fact the stock index does rise, the price of the particular equity securities intended to be purchased may also increase, but that increase would be offset in part by the increase in the value of the Equity Fund's index option or futures contract resulting from the increase in the index. If, on the other hand, Guinness Flight expects general stock market prices to decline, it might purchase a put option or sell a futures contract on the index. If that index does in fact decline, the value of some or all of the equity securities in the Equity Fund's portfolio may also be expected to decline, but that decrease would be offset in part by the increase in the value of the China Fund's position in such put option or futures contract. PURCHASE AND SALE OF INTEREST RATE FUTURES A Fund may purchase and sell U.S. dollar interest rate futures contracts on U.S. Treasury bills, notes and bonds and non-U.S. dollar interest rate futures contracts on foreign bonds for the purpose of hedging fixed income and interest sensitive securities against the adverse effects of anticipated movements in interest rates. A Fund may purchase futures contracts in anticipation of a decline in interest rates when it is not fully invested in a particular market in which it intends to make investments to gain market exposure that may in part or entirely offset an increase in the cost of securities it intends to purchase. The Funds do not consider purchases of futures contracts to be a speculative practice under these circumstances. In a substantial majority of these transactions, the Funds will purchase securities upon termination of the futures contract. A Fund may sell U.S. dollar and non-U.S. dollar interest rate futures contracts in anticipation of an increase in the general level of interest rates. Generally, as interest rates rise, the market value of the fixed -7- income securities held by the Funds will fall, thus reducing the net asset value of the holder. This interest rate risk can be reduced without employing futures as a hedge by selling long-term fixed income securities and either reinvesting the proceeds in securities with shorter maturities or by holding assets in cash. This strategy, however, entails increased transaction costs to the Funds in the form of dealer spreads and brokerage commissions. The sale of U.S. dollar and non-U.S. dollar interest rate futures contracts provides an alternative means of hedging against rising interest rates. As rates increase, the value of a Fund's short position in the futures contracts will also tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's investments which are being hedged. While the Funds will incur commission expenses in entering and closing out futures positions (which is done by taking an opposite position from the one originally entered into, which operates to terminate the position in the futures contract), commissions on futures transactions are lower than transaction costs incurred in the purchase and sale of portfolio securities. OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES CONTRACTS A Fund may write call options and purchase call and put options on stock index and interest rate futures contracts. The Funds may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or stock indices or purchasing and selling the underlying futures. For example, a Fund may purchase put options or write call options on stock index futures or interest rate futures, rather than selling futures contracts, in anticipation of a decline in general stock market prices or rise in interest rates, respectively, or purchase call options on stock index or interest rate futures, rather than purchasing such futures, to hedge against possible increases in the price of equity securities or debt securities, respectively, which the Fund intends to purchase. PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS In order to hedge its portfolio and to protect it against possible variations in foreign exchange rates pending the settlement of securities transactions, a Fund may buy or sell foreign currencies or may deal in forward currency contracts. A Fund may also invest in currency futures contracts and related options. If a fall in exchange rates for a particular currency is anticipated, a Fund may sell a currency futures contract or a call option thereon or purchase a put option on such futures contract as a hedge. If it is anticipated that exchange rates will rise, a Fund may purchase a currency futures contract or a call option thereon or sell (write) a put option to protect against an increase in the price of securities denominated in a particular currency the Fund intends to purchase. These futures contracts and related options thereon will be used only as a hedge against anticipated currency rate changes, and all options on currency futures written by the Funds will be covered. A currency futures contract sale creates an obligation by a Fund, as seller, to deliver the amount of currency called for in the contract at a specified future time for a specified price. A currency futures contract purchase creates an obligation by a Fund, as purchaser, to take delivery of an amount of currency at a specified future time at a specified price. Although the terms of currency futures contracts specify actual delivery or receipt, in most instances the contracts are closed out before the settlement date without the making or taking of delivery of the currency. Closing out of a currency futures contract is effected by entering into an offsetting purchase or sale transaction. Unlike a currency futures contract, which requires the parties to buy and sell currency on a set date, an option on a currency futures contract entitles its holder to decide on or before a future date whether to enter into such a contract or let the option expire. The Funds will write (sell) only covered call options on currency futures. This means that the Funds will provide for their obligations upon exercise of the option by segregating sufficient cash or short-term obligations or by holding an offsetting position in the option or underlying currency future, or a combination of the foregoing. The Funds will, so long as they are obligated as the writer of a call option on currency futures, own on a contract-for-contract basis an equal long position in currency futures with the same delivery date or a call option on stock index futures with the difference, if any, between the market value of the call written and the market value of the call or long currency futures purchased maintained by the Funds in cash, Treasury bills, or other high-grade short-term obligations in a segregated account with its custodian. If at the close of business -8- on any day the market value of the call purchased by a Fund falls below 100% of the market value of the call written by the Fund, the Fund will so segregate an amount of cash, Treasury bills or other high-grade short-term obligations equal in value to the difference. Alternatively, a Fund may cover the call option through segregating with the custodian an amount of the particular foreign currency equal to the amount of foreign currency per futures contract option times the number of options written by the Fund. If other methods of providing appropriate cover are developed, the Funds reserve the right to employ them to the extent consistent with applicable regulatory and exchange requirements. In connection with transactions in stock index options, stock index futures, interest rate futures, foreign currency futures and related options on such futures, the Funds will be required to deposit as "initial margin" an amount of cash and short-term U.S. Government securities generally equal to from 5% to 10% of the contract amount. Thereafter, subsequent payments (referred to as "variation margin") are made to and from the broker to reflect changes in the value of the futures contract. OPTIONS ON FOREIGN CURRENCIES A Fund may write call options and purchase call and put options on foreign currencies to enhance investment performance and for hedging purposes in a manner similar to that in which futures contracts on foreign currencies, or forward contracts, will be utilized as described above. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, a Fund may purchase put options on the foreign currency. If the value of the currency does decline, the Funds will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted. Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Fund deriving from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a Fund could sustain losses on transactions in foreign currency options which would require it to forego a portion or all of the benefits of advantageous changes in such rates. Also, where a Fund anticipates a decline in the dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to sell the underlying currency at a loss which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, a Fund also may be required to forego all or a portion of the benefits which might otherwise have been obtained from favorable movements in exchange rates. The Funds intend to write covered only call options on foreign currencies. A call option written on a foreign currency by a Fund is "covered" if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian, which acts as the Fund's custodian, or by a designated sub-custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price or the call written or (b) is greater than the exercise price of the call written if the difference -9- is maintained by the Fund in cash, U.S. Government Securities and other high-grade liquid debt securities in a segregated account with its custodian or with a designated sub-custodian. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS A Fund may purchase or sell forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from variations in foreign exchange rates. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. A Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security ("transaction hedge"). Additionally, for example, when a Fund believes that a foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's securities denominated in such foreign currency, or when a Fund believes that the U.S. dollar may suffer a substantial decline against foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount ("position hedge"). In this situation, the Fund may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount where it believes that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of the sector are denominated ("cross-hedge"). If a Fund enters into a position hedging transaction, cash not available for investment or U.S. Government Securities or other high quality debt securities will be placed in a segregated account in an amount sufficient to cover the Fund's net liability under such hedging transactions. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Fund's commitment with respect to its position hedging transactions. As an alternative to maintaining all or part of the separate account, a Fund may purchase a call option permitting it to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price or a Fund may purchase a put option permitting it to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. Unanticipated changes in currency prices would result in lower overall performance for a Fund than if it had not entered into such contracts. Generally, the Funds will not enter into a forward foreign currency exchange contract with a term of greater than one year. At the maturity of the contract, a Fund may either sell the portfolio security and make delivery of the foreign currency, or may retain the security and terminate the obligation to deliver the foreign currency by purchasing an "offsetting" forward contract with the same currency trader obligating the Fund to purchase, on the same maturity date, the same amount of foreign currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the contract. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. If a Fund retains the portfolio security and engages in an offsetting transaction, the Funds will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If a Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between entering into a forward contract for the sale of a foreign currency and the date the Fund enters into an offsetting contract for the purchase of the foreign currency, the Fund will realize a gain to the extent the price of the currency the Fund has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency the Fund has agreed to purchase exceeds the price of the currency the Fund has agreed to sell. -10- The Funds' dealing in forward foreign currency exchange contracts will be limited to the transactions described above. Of course, a Fund is not required to enter into such transactions with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by Guinness Flight. It also should be realized that this method of protecting the value of a Fund's portfolio securities against the decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange which one can achieve at some future point in time. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain which might result should the value of such currency increase. ADDITIONAL RISKS OF FUTURES CONTRACTS AND RELATED OPTIONS, FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES The market prices of futures contracts may be affected by certain factors. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the securities and futures markets. Second, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may also cause temporary price distortions. In addition, futures contracts in which a Fund may invest may be subject to commodity exchange imposed limitations on fluctuations in futures contract prices during a single day. Such regulations are referred to as "daily price fluctuation limits" or "daily limits." During a single trading day no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in those futures cannot be taken or liquidated unless both a buyer and seller are willing to effect trades at or within the limit. Daily limits, or regulatory intervention in the commodity markets, could prevent a Fund from promptly liquidating unfavorable positions and adversely affect operations and profitability. Options on foreign currencies and forward foreign currency exchange contracts ("forward contracts") are not traded on contract markets regulated by the Commodity Futures Trading Commission ("CFTC") and are not regulated by the SEC. Rather, forward currency contracts are traded through financial institutions acting as market-makers. Foreign currency options are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In the forward currency market, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Moreover, a trader of forward contracts could lose amounts substantially in excess of its initial investments, due to the collateral requirements associated with such positions. Options on foreign currencies traded on national securities exchanges are within the jurisdiction of the SEC, as are other securities traded on such exchanges. As a result, many of the protections provided to traders on organized exchanges will be available with respect to such transactions. In particular, all foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the OCC, thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may exist, potentially permitting a Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, are subject to the risks of the availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in applicable foreign countries for this purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign -11- currency option exercises, or would result in undue burdens on the OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. In addition, futures contracts and related options and forward contracts and options on foreign currencies may be traded on foreign exchanges, to the extent permitted by the CFTC. Such transactions are subject to the risk of governmental actions affecting trading in or the prices of foreign currencies or securities. The value of such positions also could be adversely affected by (a) other complex foreign political and economic factors, (b) lesser availability than in the United States of data on which to make trading decisions, (c) delays in a Fund's ability to act upon economic events occurring in foreign markets during nonbusiness hours in the United States and the United Kingdom, (d) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (e) lesser trading volume. REGULATORY MATTERS In connection with its proposed futures and options transactions, each Fund will file with the CFTC a notice of eligibility for exemption from the definition of (and therefore from CFTC regulation as) a "commodity pool operator" under the Commodity Exchange Act. The Staff of the SEC has taken the position that the purchase and sale of futures contracts and the writing of related options may involve senior securities for the purposes of the restrictions contained in Section 18 of the 1940 Act on investment companies issuing senior securities. However, the Staff has issued letters declaring that it will not recommend enforcement action under Section 18 if an investment company: (i) sells futures contracts on an index of securities that correlate with its portfolio securities to offset expected declines in the value of its portfolio securities; (ii) writes call options on futures contracts, stock indexes or other securities, provided that such options are covered by the investment company's holding of a corresponding long futures position, by its ownership of portfolio securities which correlate with the underlying stock index, or otherwise; (iii)purchases futures contracts, provided the investment company establishes a segregated account ("cash segregated account") consisting of cash or cash equivalents in an amount equal to the total market value of such futures contracts less the initial margin deposited therefor; and (iv) writes put options on futures contracts, stock indices or other securities, provided that such options are covered by the investment company's holding of a corresponding short futures position, by establishing a cash segregated account in an amount equal to the value of its obligation under the option, or otherwise. In addition, the Funds are eligible for, and are claiming, exclusion from the definition of the term Commodity Pool Operator in connection with the operations of the Funds, in accordance with subparagraph (1) of paragraph (a) of CFTC Rule 4.5, because the Funds operate in a manner such that: (i) the Funds use commodity futures or commodity options contracts solely for bona fide hedging purposes within the meaning and intent of CFTC Rule 1.3(z)(1); provided, however, that in the alternative, with respect to each long position in a commodity future or commodity option contract which is used as part of a portfolio management strategy and which is incidental to a Fund's activities in the underlying cash market but would not come within the meaning and intent of Rule 1.3(z)(1), as a substitute for compliance with this paragraph (i), the underlying commodity value of such contract at all times does not exceed the sum of: -12- (A) Cash set aside in an identifiable manner, or short-term United States debt obligations or other United States dollar-denominated high quality short-term money market instruments so set aside, plus any funds deposited as margin on such contract; (B) Cash proceeds from existing investments due in 30 days; and (C) Accrued profits on such contract held at the futures commission merchant. (ii) the Funds do not enter into commodity futures and commodity options contracts for which the aggregate initial margin and premiums exceed five (5) percent of the fair market value of a Fund's assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount as defined in CFTC Rule 190.01(x) may be excluded in computing such five (5) percent; The Funds will conduct their purchases and sales of futures contracts and writing of related options transactions in accordance with the foregoing. REPURCHASE AGREEMENTS A Fund may enter into repurchase agreements. Under a repurchase agreement, a Fund acquires a debt instrument for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such debt instrument at a fixed price. The resale price is in excess of the purchase price in that it reflects an agreed-upon market interest rate effective for the period of time during which the Fund's money is invested. A Fund's risk is limited to the ability of the seller to pay the agreed-upon sum upon the delivery date. When a Fund enters into a repurchase agreement, it obtains collateral having a value at least equal to the amount of the purchase price. Repurchase agreements can be considered loans as defined by the 1940 Act, collateralized by the underlying securities. The return on the collateral may be more or less than that from the repurchase agreement. The securities underlying a repurchase agreement will be marked to market every business day so that the value of the collateral is at least equal to the value of the loan, including the accrued interest earned. In evaluating whether to enter into a repurchase agreement, Guinness Flight will carefully consider the creditworthiness of the seller. If the seller defaults and the value of the collateral securing the repurchase agreement declines, the Fund may incur a loss. ILLIQUID AND RESTRICTED SECURITIES The Funds have adopted the following investment policy, which may be changed by the vote of the Board of Trustees. The Funds will not invest in illiquid securities if immediately after such investment more than 15% of a Fund's net assets (taken at market value) would be invested in such securities. For this purpose, illiquid securities include (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale, (b) participation interests in loans that are not subject to puts, (c) covered call options on portfolio securities written by a Fund over-the-counter and the cover for such options and (d) repurchase agreements not terminable within seven days. Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered for sale to the public, securities that are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Mutual funds do not typically hold a significant amount of these restricted or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund might also have to register such restricted securities in order to dispose of them resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities. -13- In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. The Commission has adopted Rule 144A, which allows a broader institutional trading market for securities otherwise subject to restriction on resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the Securities Act applicable to resales of certain securities to qualified institutional buyers. Guinness Flight anticipates that the market for certain restricted securities such as institutional commercial paper will expand further as a result of this new regulation and the development of automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc. (the "NASD"). Guinness Flight will monitor the liquidity of restricted securities in the Funds' portfolios under the supervision of the Funds' Board of Trustees. In reaching liquidity decision, Guinness Flight will consider, among other things, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security and (4) the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer). OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS Investors should recognize that investing in securities of companies in emerging countries, involves certain special considerations and risk factors which are not typically associated with investing in securities of U.S. companies. The following disclosure augments the information provided in the prospectus under the heading "Other Risk Considerations." ADDITIONAL FOREIGN CURRENCY CONSIDERATIONS The Funds' assets will be invested principally in securities of entities in foreign markets and substantially all of the income received by the Funds will be in foreign currencies. If the value of the foreign currencies in which a Fund receives its income falls relative to the U.S. dollar between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund will be required to liquidate securities in order to make distributions if the Fund has insufficient cash in U.S. dollars to meet distribution requirements. The liquidation of investments, if required, may have an adverse impact on a Fund's performance. Changes in foreign currency exchange rates also will affect the value of securities in the Funds' portfolios and the unrealized appreciation or depreciation of investments. Further, a Fund may incur costs in connection with conversions between various currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Funds will conduct their foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward, futures or options contracts to purchase or sell foreign currencies. A Fund may enter into forward currency exchange contracts and currency futures contracts and options on such futures contracts, as well as purchase put or call options on currencies, in U.S. or foreign markets to protect the value of some portion or all of its portfolio holdings against currency risks by engaging in hedging transactions. There can be no guarantee that instruments suitable for hedging currency or market shifts -14- will be available at the time when a Fund wishes to use them. Moreover, investors should be aware that in most emerging countries, such as China, the markets for certain of these hedging instruments are not highly developed and that in many emerging countries no such markets currently exist. INVESTMENT RESTRICTIONS AND POLICIES Investment restrictions are fundamental policies and cannot be changed without approval of the holders of a majority (as defined in the 1940 Act) of the outstanding shares of a Fund. As used in the Prospectus and the Statement of Additional Information, the term "majority of the outstanding shares" of a Fund means, respectively, the vote of the lesser of (i) 67% or more of the shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund. The following are the Funds' investment restrictions set forth in their entirety. Investment policies are not fundamental and may be changed by the Board of Trustees without shareholder approval. INVESTMENT RESTRICTIONS Each Fund may not: 1. Issue senior securities, except that a Fund may borrow up to 33 1/3% of the value of its total assets from a bank (i) to increase its holdings of portfolio securities, (ii) to meet redemption requests, or (iii) for such short-term credits as may be necessary for the clearance or settlement of the transactions. A Fund may pledge its assets to secure such borrowings. 2. Invest 25% or more of the total value of its assets in a particular industry, except that this restriction shall not apply to U.S. Government Securities. 3. Buy or sell commodities or commodity contracts or real estate or interests in real estate (including real estate limited partnerships), except that it may purchase and sell futures contracts on stock indices, interest rate instruments and foreign currencies, securities which are secured by real estate or commodities, and securities of companies which invest or deal in real estate or commodities. 4. Make loans, except through repurchase agreements to the extent permitted under applicable law. 5. Act as an underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under applicable securities laws. INVESTMENT POLICIES Each Fund may not: 1. Purchase securities on margin, except such short-term credits as may be necessary for clearance of transactions and the maintenance of margin with respect to futures contracts. 2. Make short sales of securities or maintain a short position (except that the Fund may maintain short positions in foreign currency contracts, options and futures contracts). 3. Purchase or otherwise acquire the securities of any open-end investment company (except in connection with a merger, consolidation, acquisition of substantially all of the assets or reorganization of another investment company) if, as a result, the Fund and all of its affiliates would own more than 3% of the total outstanding stock of that company. 4. Purchase or retain securities of any issuer (other than the shares of the Fund) if to the Fund's knowledge, those officers and Trustees of the Fund and the officers and directors of Guinness Flight, -15- who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. 5. Invest directly in oil, gas or other mineral exploration or development programs or leases; provided, however, that if consistent with the objective of the Fund, the Fund may purchase securities of issuers whose principal business activities fall within such areas. In order to permit the sale of shares of a Fund in certain states, a Fund may make commitments more restrictive than the restrictions described above. Should a Fund determine that any such commitment is no longer in the best interests of the Fund and its shareholders it will revoke the commitment by terminating sales of its shares in the state(s) involved. Percentage restrictions apply at the time of acquisition and any subsequent change in percentages due to changes in market value of portfolio securities or other changes in total assets will not be considered a violation of such restrictions. PORTFOLIO TRANSACTIONS All orders for the purchase or sale of portfolio securities are placed on behalf of the Funds by Guinness Flight subject to the supervision of the Guinness Funds and the Board of Trustees and pursuant to authority contained in the Management Agreements between the Funds and Guinness Flight. In selecting such brokers or dealers, Guinness Flight will consider various relevant factors, including, but not limited to the best net price available, the size and type of the transaction, the nature and character of the markets for the security to be purchased or sold, the execution efficiency, settlement capability, financial condition of the broker-dealer firm, the broker-dealer's execution services rendered on a continuing basis and the reasonableness of any commissions. In addition to meeting the primary requirements of execution and price, brokers or dealers may be selected who provide research services, or statistical material or other services to a Fund or to Guinness Flight for the Fund's use, which in the opinion of the Board of Trustees, are reasonable and necessary to the Fund's normal operations. Those services may include economic studies, industry studies, security analysis or reports, sales literature and statistical services furnished either directly to a Fund or to Guinness Flight. Such allocation shall be in such amounts as Guinness Funds shall determine and Guinness Flight shall report regularly to Guinness Funds who will in turn report to the Board of Trustees on the allocation of brokerage for such services. The receipt of research from broker-dealers may be useful to Guinness Flight in rendering investment management services to its other clients, and conversely, such information provided by brokers or dealers who have executed orders on behalf of Guinness Flight's other clients may be useful to Guinness Flight in carrying out its obligations to the Funds. The receipt of such research may not reduce Guinness Flight's normal independent research activities. Guinness Flight is authorized, subject to best price and execution, to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of the Funds and is authorized to use the Distributor on an agency basis, to effect a substantial amount of the portfolio transactions which are executed on the New York or American Stock Exchanges, Regional Exchanges and Foreign Exchanges where relevant, or which are traded in the Over-the-Counter market. Brokers or dealers who execute portfolio transactions on behalf of a Fund may receive commissions which are in excess of the amount of commissions which other brokers or dealers would have charged for effecting such transactions; provided, Guinness Funds determines in good faith that such commissions are reasonable in relation to the value of the brokerage and/or research services provided by such executing brokers or dealers viewed in terms of a particular transaction or Guinness Fund's overall responsibilities to a Fund. -16- It may happen that the same security will be held by other clients of Guinness Flight. When the other clients are simultaneously engaged in the purchase or sale of the same security, the prices and amounts will be allocated in accordance with a formula considered by Guinness Flight to be equitable to each, taking into consideration such factors as size of account, concentration of holdings, investment objectives, tax status, cash availability, purchase cost, holding period and other pertinent factors relative to each account. In some cases this system could have a detrimental effect on the price or volume of the security as far as a Fund is concerned. In other cases, however, the ability of a Fund to participate in volume transactions will produce better executions for the Fund. For the period commencing June 30, 1994 to December 31, 1994 and the periods from January 1, 1995 to December 31, 1995 and January 1, 1996 to December 31, 1996, the China Fund paid brokerage commissions equal to $13,875 , $258,319 and $ , respectively and the Global Government Fund paid $0 , $0, and $_______, respectively. For the period commencing April 29, 1996 to December 31, 1996, the Asia Blue Chip Fund paid brokerage commissions equal to $ and the Asia Small Cap Fund paid $ . COMPUTATION OF NET ASSET VALUE The net asset value of the Funds is determined at 4:15 p.m. New York time, on each day that the New York Exchange is open for business and on such other days as there is sufficient trading in a Fund's securities to affect materially the net asset value per share of the Fund. The Funds will be closed on New Years Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Funds will invest in foreign securities, and as a result, the calculation of the Funds' net asset value may not take place contemporaneously with the determination of the prices of certain of the portfolio securities used in the calculation. Occasionally, events which affect the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange and will therefore not be reflected in the computation of a Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Board of Trustees. Portfolio securities of a Fund which are traded both on an exchange and in the over-the-counter market, will be valued according to the broadest and most representative market. All assets and liabilities initially expressed in foreign currency values will be converted into U.S. Dollar values at the mean between the bid and offered quotations of the currencies against U.S. Dollars as last quoted by any recognized dealer. When portfolio securities are traded, the valuation will be the last reported sale price on the day of valuation. (For securities traded on the New York Stock Exchange, the valuation will be the last reported sales price as of the close of the Exchange's regular trading session, currently 4:00 p.m. New York Time.) If there is no such reported sale or the valuation is based on the Over-the-Counter market, the securities will be valued at the last available bid price or at the mean between the bid and asked prices, as determined by the Board of Trustees. As of the date of this Statement of Additional Information, such securities will be valued by the latter method. Securities for which reliable quotations are not readily available and all other assets will be valued at their respective fair market value as determined in good faith by, or under procedures established by, the Board of Trustees of the Funds. Money market instruments with less than sixty days remaining to maturity when acquired by the Funds will be valued on an amortized cost basis by the Funds, excluding unrealized gains or losses thereon from the valuation. This is accomplished by valuing the security at cost and then assuming a constant amortization to maturity of any premium or discount. If a Fund acquires a money market instrument with more than sixty days remaining to its maturity, it will be valued at current market value until the 60th day prior to maturity, and will then be valued on an amortized cost basis based upon the value on such date unless the Board of Trustees determines during such 60-day period that this amortized cost value does not represent fair market value. -17- All liabilities incurred or accrued are deducted from a Fund's total assets. The resulting net assets are divided by the number of shares of the Fund outstanding at the time of the valuation and the result (adjusted to the nearest cent) is the net asset value per share. PERFORMANCE INFORMATION For purposes of quoting and comparing the performance of a Fund to that of other mutual funds and to stock or other relevant indices in advertisements or in reports to Shareholders, performance will be stated both in terms of total return and in terms of yield. The total return basis combines principal and dividend income changes for the periods shown. Principal changes are based on the difference between the beginning and closing net asset values for the period and assume reinvestment of dividends and distributions paid by the Fund. Dividends and distributions are comprised of net investment income and net realized capital gains. Under the rules of the Commission, funds advertising performance must include total return quotes calculated according to the following formula: P(1 + T)^n = ERV Where P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years (1, 5 or 10) ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods or at the end of the 1, 5 or 10 year periods (or fractional portion thereof) In calculating the ending redeemable value, all dividends and distributions by the Fund are assumed to have been reinvested at net asset value as described in the prospectus on the reinvestment dates during the period. Total return, or "T" in the formula above, is computed by finding the average annual compounded rates of return over the 1, 5 and 10 year periods (or fractional portion thereof) that would equate the initial amount invested to the ending redeemable value. A Fund may also from time to time include in such advertising a total return figure that is not calculated according to the formula set forth above in order to compare more accurately the Fund's performance with other measures of investment return. For example, in comparing a Fund's total return with data published by Lipper Analytical Services, Inc. or similar independent services or financial publications, the Fund calculates its aggregate total return for the specified periods of time by assuming the reinvestment of each dividend or other distribution at net asset value on the reinvestment date. Percentage increases are determined by subtracting the initial net asset value of the investment from the ending net asset value and by dividing the remainder by the beginning net asset value. Such alternative total return information will be given no greater prominence in such advertising than the information prescribed under the Commission's rules. In addition to the total return quotations discussed above, a Fund may advertise its yield based on a 30-day (or one month) period ended on the date of the most recent balance sheet included in the Fund's Post-Effective Amendment to its Registration Statement, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: a-b YIELD = 2[( ----- +1)^6-1] cd Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. -18- Under this formula, interest earned on debt obligations for purposes of "all above, is calculated by (1) computing the yield to maturity of each obligation held by the Fund based on the market value of the obligation (including actual accrued interest) at the close of business on the last day of each month, or, with respect to obligations purchased during the month, the purchase price (plus actual accrued interest), (2) dividing that figure by 360 and multiplying the quotient by the market value of the obligation (including actual accrued interest as referred to above) to determine the interest income on the obligation for each day of the subsequent month that the obligation is in the Fund's portfolio (assuming a month of 30 days) and (3) computing the total of the interest earned on all debt obligations and all dividends accrued on all equity securities during the 30-day or one month period. In computing dividends accrued, dividend income is recognized by accruing 1/360 of the stated dividend rate of a security each day that the security is in the Fund's portfolio. For purposes of "b" above, Rule 12b-1 expenses are included among the expenses accrued for the period. Undeclared earned income, computed in accordance with generally accepted accounting principles, may be subtracted from the maximum offering price calculation required pursuant to "d" above. Any quotation of performance stated in terms of yield will be given no greater prominence than the information prescribed under the SEC's rules. In addition, all advertisements containing performance data of any kind will include a legend disclosing that such performance data represents past performance and that the investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The annual compounded rate of total return for the one year period ended December 31, 1996 and the average annual compounded rate of total return from June 30, 1994 (inception) to December 31, 1996 for the China Fund was ___% and ___%, respectively, and the Global Government Fund was ___% and ___%, respectively. The annual corporated rate of total return for the period from April 29, 1996 (inception) to December 31, 1996 for the Asia Blue Chip Fund was ___% and the Asia Small Cap Fund was %. For the 30 day period ended on the date of the most recent balance sheet included in this registration statement, the Global Government Fund's yield was ___%. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION The Funds have elected to be governed by Rule 18f-1 of the 1940 Act, under which a Fund is obligated to redeem the shares of any shareholder solely in cash up to the lesser of 1% of the net asset value of the Fund or $250,000 during any 90-day period. Should any shareholder's redemption exceed this limitation, a Fund can, at its sole option, redeem the excess in cash or in readily marketable portfolio securities. Such securities would be selected solely by the Fund and valued as in computing net asset value. In these circumstances a shareholder selling such securities would probably incur a brokerage charge and there can be no assurance that the price realized by a shareholder upon the sale of such securities will not be less than the value used in computing net asset value for the purpose of such redemption. TAX MATTERS The following is only a summary of certain additional tax considerations generally affecting each Fund and its shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussions here and in the Prospectus are not intended as substitutes for careful tax planning. Qualification as a Regulated Investment Company Each Fund has elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, a Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year (the "Distribution Requirement"), and satisfies certain other -19- requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and can therefore satisfy the Distribution Requirement. In addition to satisfying the Distribution Requirement, a regulated investment company must: (1) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"); and (2) derive less than 30% of its gross income (exclusive of certain gains on designated hedging transactions that are offset by realized or unrealized losses on offsetting positions) from the sale or other disposition of stock, securities or foreign currencies (or options, futures or forward contracts thereon) held for less than three months (the "Short-Short Gain Test"). However, foreign currency gains, including those derived from options, futures and forwards, will not in any event be characterized as Short-Short Gain if they are directly related to the regulated investment company's investments in stock or securities (or options or futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit the sale of appreciated securities that it has held for less than three months. However, the Short-Short Gain Test will not prevent a Fund from disposing of investments at a loss, since the recognition of a loss before the expiration of the three-month holding period is disregarded for this purpose. Interest (including original issue discount) received by a Fund at maturity or upon the disposition of a security held for less than three months will not be treated as gross income derived from the sale or other disposition of such security within the meaning of the Short-Short Gain Test. However, income that is attributable to realized market appreciation will be treated as gross income from the sale or other disposition of securities for this purpose. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, except for regulated futures contracts or non-equity options subject to Code Section 1256 (unless a Fund elects otherwise), will generally be treated as ordinary income or loss. In general, for purposes of determining whether capital gain or loss recognized by a Fund on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected if (1) the asset is used to close a "short sale" (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, or (2) the asset is otherwise held by the Fund as part of a "straddle" (which term generally excludes a situation where the asset is stock and Fund grants a qualified covered call option (which, among other things, must not be deep-in-the-money) with respect thereto) or (3) the asset is stock and Fund grants an in-the-money qualified covered call option with respect thereto. However, for purposes of the Short-Short Gain Test, the holding period of the asset disposed of may be reduced only in the case of clause (1) above. In addition, Fund may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position. Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by a Fund from a closing transaction with respect to, an option written by the Fund will be treated as a short-term capital gain or loss. For purposes of the Short-Short Gain Test, the holding period of an option written by a Fund will commence on the date it is written and end on the date it lapses or the date a closing transaction is entered into. Accordingly, a Fund may be limited in its ability to write options which expire within three months and to enter into closing transactions at a gain within three months of the writing of options. -20- Transactions that may be engaged in by a Fund (such as regulated futures contracts, certain foreign currency contracts, and options on stock indexes and futures contracts) will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, even though a taxpayer's obligations (or rights) under such contracts have not terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is taken into account for the taxable year together with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. Any capital gain or loss for the taxable year with respect to Section 1256 contracts (including any capital gain or loss arising as a consequence of the year-end deemed sale of such contracts) is generally treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. A Fund, however, may elect not to have this special tax treatment apply to Section 1256 contracts that are part of a "mixed straddle" with other investments of the Fund that are not Section 1256 contracts. The IRS has held in several private rulings (and Treasury Regulations now provide) that gains arising from Section 1256 contracts will be treated for purposes of the Short-Short Gain Test as being derived from securities held for not less than three months if the gains arise as a result of a constructive sale under Code Section 1256. Each Fund may purchase securities of certain foreign investment funds or trusts which constitute passive foreign investment companies ("PFICs") for federal income tax purposes. If a Fund invests in a PFIC, it may elect to treat the PFIC as a qualifying electing fund (a "QEF") in which event the Fund will each year have ordinary income equal to its pro rata share of the PFIC's ordinary earnings for the year and long-term capital gain equal to its pro rata share of the PFIC's net capital gain for the year, regardless of whether the Fund receives distributions of any such ordinary earning or capital gain from the PFIC. If the Fund does not (because it is unable to, chooses not to or otherwise) elect to treat the PFIC as a QEF, then in general (1) any gain recognized by the Fund upon sale or other disposition of its interest in the PFIC or any excess distribution received by the Fund from the PFIC will be allocated ratably over the Fund's holding period of its interest in the PFIC, (2) the portion of such gain or excess distribution so allocated to the year in which the gain is recognized or the excess distribution is received shall be included in the Fund's gross income for such year as ordinary income (and the distribution of such portion by the Fund to shareholders will be taxable as an ordinary income dividend, but such portion will not be subject to tax at the Fund level), (3) the Fund shall be liable for tax on the portions of such gain or excess distribution so allocated to prior years in an amount equal to, for each such prior year, (i) the amount of gain or excess distribution allocated to such prior year multiplied by the highest tax rate (individual or corporate) in effect for such prior year plus (ii) interest on the amount determined under clause (i) for the period from the due date for filing a return for such prior year until the date for filing a return for the year in which the gain is recognized or the excess distribution is received at the rates and methods applicable to underpayments of tax for such period, and (4) the distribution by the Fund to shareholders of the portions of such gain or excess distribution so allocated to prior years (net of the tax payable by the Fund thereon) will again be taxable to the shareholders as an ordinary income dividend. Under recently proposed Treasury Regulations a Fund can elect to recognize as gain the excess, as of the last day of its taxable year, of the fair market value of each share of PFIC stock over the Fund's adjusted tax basis in that share ("mark to market gain"). Such mark to market gain will be included by a Fund as ordinary income, such gain will not be subject to the Short-Short Gain Test, and the Fund's holding period with respect to such PFIC stock commences on the first day of the next taxable year. If a Fund makes such election in the first taxable year it holds PFIC stock, the Fund will include ordinary income from any mark to market gain, if any, and will not incur the tax described in the previous paragraph. Treasury Regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or any part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year. In addition to satisfying the requirements described above, a Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each -21- quarter of a Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security not the issuer of the option. If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the shareholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends-received deduction in the case of corporate shareholders. Excise Tax on Regulated Investment Companies A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall: (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year; and (2) exclude foreign currency gains and losses incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year). Each Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. Fund Distributions Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they generally should not qualify for the 70% dividends-received deduction for corporate shareholders. A Fund may either retain or distribute to shareholders its net capital gain for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by a Fund prior to the date on which the shareholder acquired his shares. Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of his pro rata share of such gain, with the result that -22- each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will receive a refundable tax credit for his pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit. Investment income that may be received by a Fund from sources within foreign countries may be subject to foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle a Fund to a reduced rate of, or exemption from, taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of each Fund's assets to be invested in various countries is not known. If more than 50% of the value of a Fund's total assets at the close of its taxable year consist of the stock or securities of foreign corporations, a Fund may elect to "pass through" to the Fund's shareholders the amount of foreign taxes paid by the Fund. If a Fund so elects, each shareholder would be required to include in gross income, even though not actually received, his pro rata share of the foreign taxes paid by the Fund, but would be treated as having paid his pro rata share of such foreign taxes and would therefore be allowed to either deduct such amount in computing taxable income or use such amount (subject to various Code limitations) as a foreign tax credit against federal income tax (but not both). For purposes of the foreign tax credit limitation rules of the Code, each shareholder would treat as foreign source income his pro rata share of such foreign taxes plus the portion of dividends received from a Fund representing income derived from foreign sources. No deduction for foreign taxes could be claimed by an individual shareholder who does not itemize deductions. Each shareholder should consult his own tax adviser regarding the potential application of foreign tax credits. Distributions by a Fund that do not constitute ordinary income dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, if the net asset value at the time a shareholder purchases shares of a Fund reflects undistributed net investment income or recognized capital gain net income, or unrealized appreciation in the value of the assets of the Fund, distributions of such amounts will be taxable to the shareholder in the manner described above, although such distributions economically constitute a return of capital to the shareholder. Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by a Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. Each Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has provided either an incorrect tax identification number or no number at all, (2) who is subject to backup withholding by the IRS for failure to report the receipt of interest or dividend income properly, or (3) who has failed to certify to the Fund that it is not subject to backup withholding or that it is a corporation or other "exempt recipient." Sale or Redemption of Shares A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of a Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital -23- gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. For this purpose, the special holding period rules of Code Section 246(c)(3) and (4) generally will apply in determining the holding period of shares. Long-term capital gains of noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than the maximum rate applicable to ordinary income. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income. Foreign Shareholders Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income dividends paid to a foreign shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) on the gross income resulting from a Fund's election to treat any foreign taxes paid by it as paid by its shareholders, but may not be allowed a deduction against this gross income or a credit against this U.S. withholding tax for the foreign shareholder's pro rata share of such foreign taxes which it is treated as having paid. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of a Fund, capital gain dividends and amounts retained by the Fund that are designated as undistributed capital gains. If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends, and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. In the case of foreign noncorporate shareholders, a Fund may be required to withhold U.S. federal income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of its foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign taxes. Effect of Future Legislation; Local Tax Considerations The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and local taxation of ordinary income dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in a Fund. -24- MANAGEMENT OF THE FUNDS The Board of Trustees and executive officers of the Funds and their principal occupations for the past five years are listed below. The address of each Trustee is 225 South Lake Avenue, Suite 777, Pasadena, California, 91101. James I. Fordwood* -- Trustee. Mr. Fordwood is President of Balmacara Production Inc., an investment holding and management services company that he founded in 1987. Currently, Balmacara generally is responsible for the general accounts and banking functions for United States companies specializing in oil and gas operations. Dr. Gunter Dufey*-- Trustee. Dr. Dufey has been a member of the faculty of the Graduate School of Business Administration at the University of Michigan since 1969. His academic interests center on International Money and Capital Markets as well as on Financial Policy of Multinational Corporations. Outside of academia, he has been a member of the Board of Directors of GMAC Auto Receivables Corporation since 1992. Dr. Bret A. Herscher* -- Trustee. Dr. Herscher is President of Pacific Consultants, a technical and technology management consulting company serving the Electronic industry and venture capital community, which he co-founded in 1988. Additionally, Dr. Herscher has been a Director of Strawberry Tree Incorporated, a manufacturer of computer based Data Acquisition and Control products for factory and laboratory use, since 1989. J. Brooks Reece, Jr.* -- Trustee. Mr. Reece has been a Vice-President of Adcole Corporation, a manufacturer of precision measuring machines and sun angle sensors for space satellites, since 1993. Prior to becoming a Vice-President, he was the Manager of sales and marketing. In addition, Mr. Reece is the Vice-President and Director of Adcole Far East, Ltd., a subsidiary that manages Adcole sales and service throughout Asia. He has held this position since 1986. Robert H. Wadsworth -- President/Assistant Treasurer. 4455 East Camelback Road, Suite 261E, Phoenix, Arizona 85018. President, Robert H. Wadsworth and Associates, Inc. (consultants) and Investment Company Administration Corporation. President and Treasurer, First Fund Distributors, Inc. Eric M. Banhazl -- Treasurer. 2025 East Financial Way, Suite 101, Glendora, California 91741. Senior Vice President, Robert H. Wadsworth & Associates, Inc. (consultants) and Investment Company Administration Corporation since March 1990; Formerly Vice President, Huntington Advisors, Inc. (investment advisor). Steven J. Paggioli -- Secretary. 479 West 22nd Street, New York, New York 10011. Executive Vice President, Robert H. Wadsworth & Associates, Inc. (consultant) and Investment Company Administration Corporation. Vice President and Secretary, First Fund Distributors, Inc. Rita Dam -- Assistant Treasurer. 2025 East Financial Way, Suite 101, Glendora, California 91741. Vice President, Investment Company Administration Corporation since 1994. Member of the Financial Services Audit Group at Coopers & Lybrand, LLP from 1989-1994. - -------- * Not an "interested person," as that term is defined by the 1940 Act. -25- Robin Berger -- Assistant Secretary. 479 West 22nd Street, New York, New York, 10011. Vice President, Robert H. Wadsworth and Associates, Inc. since June 1993; Formerly Regulatory and compliance Coordinator, Equitable Capital Management, Inc. (1991-93), and Legal Product Manager, Mitchell Hutchins Asset Management (1988-91). The table below illustrates the compensation paid to each Trustee for the Guinness Funds' most recently completed fiscal year:
Aggregate Pension or Total Compensation Retirement Benefits Estimated Annual Compensation from Name of Person, from Guinness Accrued as Part of Benefits Upon Guinness Funds Position Funds Fund Expenses Retirement Paid to Trustees - -------- ----- ------------- ---------- ----------------- Dr. Gunter Dufey $20,000 $0 $0 $20,000 James I. Fordwood $20,000 $0 $0 $20,000 Dr. Bret Herscher $20,000 $0 $0 $20,000 J. Brooks Reece, Jr. $20,000 $0 $0 $20,000
Each Trustee who is not an "interested person" of the Funds receives an annual fee of $5,000 allocated equally among all the Funds, plus expenses incurred by the Trustees in connection with attendance at meetings of the Board of Trustees and their Committees. As of the date of this Statement of Additional Information, to the best of the knowledge of the Guinness Funds the Board of Trustees and officers of the Funds, as a group, owned of record less than 1% of the Funds' outstanding shares. THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS Guinness Flight furnishes investment advisory services to the Funds. Under the Investment Advisory Agreement (the "Agreement"), Guinness Flight directs the investments of the Funds in accordance with the investment objectives, policies, and limitations provided in the Funds' Prospectus or other governing instruments, the 1940 Act, and rules thereunder, and such other limitations as the Funds may impose by notice in writing to Guinness Flight. Guinness Flight also furnishes all necessary office facilities, equipment and personnel for servicing the investments of the Funds; pays the salaries and fees of all officers of Guinness Funds other than those whose salaries and fees are paid by Guinness Funds' administrator or distributor; and pays the salaries and fees of all Trustees of Guinness Funds who are "interested persons" of Guinness Funds or of Guinness Flight and of all personnel of Guinness Funds or of Guinness Flight performing services relating to research, statistical and investment activities. Guinness Flight is authorized, in its discretion and without prior consultation with the Funds, to buy, sell, lend and otherwise trade, consistent with the Fund's then current investment objective, policies and restrictions in any bonds and other securities and investment instruments on behalf of the Funds. The investment policies and all other actions of the Funds are at all times subject to the control and direction of Guinness Funds' Board of Trustees. Guinness Flight performs (or arranges for the performance of) the following management and administrative services necessary for the operation of Guinness Funds: (i) with respect to the Funds, supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable; (ii) investigating the development of and developing and implementing, if appropriate, management and shareholder services designed to enhance the value or convenience of the Funds as -26- an investment vehicle; and (iii) providing administrative services other than those provided by Guinness Funds' administrator. Guinness Flight also furnishes such reports, evaluations, information or analyses to Guinness Funds as Guinness Funds' Board of Trustees may request from time to time or as Guinness Flight may deem to be desirable. Guinness Flight makes recommendations to Guinness Funds' Board of Trustees with respect to Guinness Funds' policies, and carries out such policies as are adopted by the Trustees. Guinness Flight, subject to review by the Board of Trustees, furnishes such other services as it determines to be necessary or useful to perform its obligations under the Agreements. All other costs and expenses not expressly assumed by the Adviser under the Agreements or by the Administrator under the administration agreement between it and the Funds on behalf of the Funds shall be paid by the Funds from the assets of the Funds, including, but not limited to fees paid to the Adviser and the Administrator, interest and taxes, brokerage commissions, insurance premiums, compensation and expenses of the Trustees other than those affiliated with the adviser or the administrator, legal, accounting and audit expenses, fees and expenses of any transfer agent, distributor, registrar, dividend disbursing agent or shareholder servicing agent of the Funds, expenses, including clerical expenses, incident to the issuance, redemption or repurchase of shares of the Funds, including issuance on the payment of, or reinvestment of, dividends, fees and expenses incident to the registration under Federal or state securities laws of the Funds or its shares, expenses of preparing, setting in type, printing and mailing prospectuses, statements of additional information, reports and notices and proxy material to shareholders of the Funds, all other expenses incidental to holding meetings of the Funds' shareholders, expenses connected with the execution, recording and settlement of portfolio securities transactions, fees and expenses of the Funds' custodian for all services to the Funds, including safekeeping of funds and securities and maintaining required books and accounts, expenses of calculating net asset value of the shares of the Funds, industry membership fees allocable to the Funds, and such extraordinary expenses as may arise, including litigation affecting the Funds and the legal obligations which the Funds may have to indemnify the officers and Trustees with respect thereto. Expenses which are attributable to the Funds are charged against the income of the Funds in determining net income for dividend purposes. Guinness Flight, from time to time, may voluntarily waive all or a portion of its fees payable under the Agreement. The Agreement was approved by the Board of Trustees on March 9, 1997 and by the shareholders of the Funds on April 25, 1997 at a shareholder meeting called for that purpose. The Agreement will remain in effect for two years from the date of execution and shall continue from year to year thereafter if it is specifically approved at least annually by the Board of Trustees and the affirmative vote of a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such party by votes cast in person at a meeting called for such purpose. The Trustees or Guinness Flight may terminate the Agreement on 60 days' written notice without penalty. The Agreement terminates automatically in the event of its "assignment", as defined in the 1940 Act. As compensation for all services rendered under the Agreement, Guinness Flight will receive an annual fee, payable monthly, of 1.00% of the China Fund's, Asia Blue Chip Fund's and Asia Small Cap Fund's average daily net assets and .75% of the Global Government Bond Fund's average daily net assets. For the period commencing June 30, 1994 to December 31, 1994 and the periods from January 1, 1995 to December 31, 1995 and January 1, 1996 to December 31, 1996, the China Fund paid Guinness Flight $6,134, $197,173 and $___________, respectively, and the Global Government Fund paid Guinness Flight $2,141 , $7,425 and $_________, respectively. For the period commencing April 29, 1996 to December 31, 1996, the Asia Blue Chip Fund and Asia Small Cap Fund paid Guiness Flight ______ $ and $_________, respectively. DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN Guinness Funds has entered into separate Administration and Distribution Agreements with respect to the Funds with Investment Company Administration Corporation ("Administrator") and First Fund Distributors, Inc. ("Distributor"), respectively. Under the Distribution Agreement, the Distributor uses all -27- reasonable efforts, consistent with its other business, to secure purchases for the Funds' shares and pays the expenses of printing and distributing any prospectuses, reports and other literature used by the Distributor, advertising, and other promotional activities in connection with the offering of shares of the Funds for sale to the public. It is understood that the Administrator may reimburse the Distributor for these expenses from any source available to it, including the administration fee paid to the Administrator by the Funds. The Funds will not make separate payments as a result of the Distribution Plan to Guinness Flight, the Administrator, Distributor or any other party, it being recognized that the Funds presently pay, and will continue to pay, an investment advisory fee to the Guinness Flight and an administration fee to the Administrator. To the extent that any payments made by the Funds to Guinness Flight or the Administrator, including payment of fees under the Investment Advisory Agreements or the Administration Agreement, respectively, should be deemed to be indirect financing of any activity primarily intended to result in the sale of shares of the Funds within the context of rule 12b-1 under the 1940 Act, then such payments shall be deemed to be authorized by this Plan. The Plan and related agreements were approved with respect to the China Fund and Global Government Fund on May 6, 1994 and with respect to the Asia Blue Chip Fund and Asia Small Cap Fund on April 12, 1996 by the Board of Trustees including all of the "Qualified Trustees" (Trustees who are not "interested" persons of the Funds, as defined in the 1940 Act, and who have no direct or indirect financial interest in the Plan or any related agreement). In approving the Plan, in accordance with the requirements of Rule 12b-1 under the 1940 Act, the Board of Trustees (including the Qualified Trustees) considered various factors and determined that there is a reasonable likelihood that the Plan will benefit the Funds and their shareholders. The Plan may not be amended to increase materially the amount to be spent by the Funds under the Plan without shareholder approval, and all material amendments to the provisions of the Plan must be approved by a vote of the Board of Trustees and of the Qualified Trustees, cast in person at a meeting called for the purpose of such vote. During the continuance of the Plan, Guinness Flight will report in writing to the Board of Trustees quarterly the amounts and purposes of such payments for services rendered to shareholders pursuant to the Plan. Further, during the term of the Plan, the selection and nomination of those Trustees who are not "interested" persons of the Funds must be committed to the discretion of the Qualified Trustees. The Plan will continue in effect from year to year provided that such continuance is specifically approved annually (a) by the vote of a majority of the Funds' outstanding voting shares or by the Funds' Trustees and (b) by the vote of a majority of the Qualified Trustees. DESCRIPTION OF THE FUNDS Shareholder and Trustees Liability. The Funds are each a series of Guinness Funds, a Delaware business trust. The Delaware Trust Instrument provides that the Trustees shall not be liable for any act or omission as Trustee, but nothing protects a Trustee against liability to Guinness Funds or to its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Furthermore, a Trustee is entitled to indemnification against liability and to all reasonable expenses, under certain conditions, to be paid from the assets of Guinness Funds; provided that no indemnification shall be provided to any Trustee who has been adjudicated by a court to be liable to Guinness Funds or the shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or not to have acted in good faith in the reasonable belief that his action was in the best interest of Guinness Funds. Guinness Funds may advance money for expenses, provided that the Trustee undertakes to repay Guinness Funds if his or her conduct is later determined to preclude indemnification, and one of the following conditions are met: (i) the Trustee provides security for the undertaking; (ii) Guinness Funds is insured against losses stemming from any such advance; or (iii) there is a determination by a majority of the Guinness Funds' independent non-party Trustees, or by independent legal counsel, that there is reason to believe that the Trustee ultimately will be entitled to indemnification. -28- Voting Rights. Shares of each Fund entitle the holders to one vote per share. The shares have no preemptive or conversion rights. The dividend rights and the right of redemption are described in the Prospectus. When issued, shares are fully paid and nonassessable. The shareholders have certain rights, as set forth in the Bylaws, to call a meeting for any purpose, including the purpose of voting on removal of one or more Trustees. SHAREHOLDER REPORTS Shareholders will receive reports semi-annually showing the investments of the Funds and other information. In addition, shareholders will receive annual financial statements audited by the Funds' independent accountants. Principal Holders. As of _________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned __________ ( %) of the outstanding shares of the China Fund for the exclusive benefit of its accounts. As of ___________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned __________________ ( %) of the outstanding shares of the Global Government Fund for the exclusive benefit of its accounts. As of ___________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned ___________ ( %) of the outstanding shares of the Asia Small Cap Fund for the exclusive benefit of its accounts. As of __________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned ________________ ( %) of the outstanding shares of the Asia Blue Chip Fund for the exclusive benefit of its accounts. FINANCIAL STATEMENTS The audited statement of assets and liabilities and report thereon for the China Fund , Global Government Fund, Asia Blue Chip Fund and Asia Small Cap Fund for the year ended _________________ are incorporated by reference. The opinion of Ernst & Young LLP, independent accountants, with respect to the _________________ financial statements, is incorporated herein in its entirety in reliance upon such report of Ernst & Young LLP and on the authority of such firm as experts in auditing and accounting. Shareholders will receive a copy of the audited and unaudited financial statements at no additional charge when requesting a copy of the Statement of Additional Information. -29- APPENDIX A DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S BOND RATINGS: Investment grade debt securities are those rating categories indicated by an asterisk (*). *AAA: Bonds which are rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. *AA: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. *A: Bond which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. *BAA: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through B in its bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS: Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Issuers rated PRIME-1 or P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 or P-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structures with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. A-1 - Well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated PRIME-2 or P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S BOND RATINGS: Investment grade debt securities are those rating categories indicated by an asterisk (*). *AAA: Debt rated AAA have the highest rating assigned by S&P to a debt obligation. capacity to pay interest and repay principal is extremely strong. *AA: Debt rated AA have a very strong capacity to pay interest; and repay principal and differ from the higher rated issues only in small degree. *A: Debt rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. *BBB: Debt rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR: Bonds may lack a S&P rating because no public rating has been requested, because there is insufficient information on which to base a rating, or because S&P does not rate a particular type of obligation as a matter of policy. DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS: S&P's commercial paper ratings are current assessments of the likelihood of timely payment of debts having an original maturity of no more than 365 days. A: Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with the numbers 1, 2 and 3 to indicate the relative degree of safety. A-1: This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2: Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1". A-2 PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements. In Part A: None In Part B: None In Part C: None (b) Exhibits EX-99.B1(a) Certificate of Trust is filed herewith. EX-99.B1(b) Trust Instrument as filed herewith. EX-99.B2 By-laws are filed herewith. EX-99.B3 None. EX-99.B4 None. EX-99.B5 Form of Investment Advisory Agreement between Registrant and Guinness Flight Investment Management Limited is filed herewith. EX-99.B6 (a)(i) Distribution Agreement between Registrant and First Fund Distributors, Inc. for China Fund series was filed in Post-Effective Amendment No. 1 on January 31, 1995. (a)(ii) Distribution Agreement between Registrant and First Fund Distributors, Inc. for Global Government Bond Fund series was filed in Post- Effective Amendment No. 1 on January 31, 1995. (a)(iii) Form of Distribution Agreement between Registrant and First Fund Distributors, Inc. for Asia Blue Chip Fund series was filed in Post- Effective Amendment No. 5 on February 14, 1996. (a)(iv) Form of Distribution Agreement between Registrant and First Fund Distributors, Inc. for Asia Small Cap Fund series was filed in Post-Effective Amendment No. 5 on February 14, 1996. EX-99.B7 None. EX-99.B8 Custodian Agreement between Registrant and Investors Bank & Trust Company was filed in Post- Effective Amendment No. 1 on January 31, 1995. EX-99.B9 (a) Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company was filed in Post-Effective Amendment No. 1 on January 31, 1995. C-1 (b) Administration Agreement between Registrant and Investment Company Administration Corporation was filed in Post-Effective Amendment No.1 on January 31, 1995. (c) Form of Letter of Arrangement between Registrant and Coopers & Lybrand L.L.P. was filed in Pre-Effective Amendment No. 2 on June 20, 1994. EX-99.B10 (a) Opinion of Kramer, Levin, Naftalis & Frankel as to Legality of Securities Being Registered is to be filed by amendment. EX-99.B10 (b) Opinion of Morris, Nichols, Arsht & Tunnell is to be filed by amendment. EX-99.B11 (a) Consent of Kramer, Levin, Naftalis & Frankel, Counsel for the Registrant is filed herewith. (b) Consent of Coopers & Lybrand L.L.P., independent accountants, is filed herewith. (c) Consent of Ernst & Young LLP, Independent Auditors for the Registrant is filed herewith. EX-99.B12 None. EX-99.B13 Sole Shareholder Agreements between Registrant and GFGAM Executive Pension Scheme was filed in Post-Effective Amendment No. 1 on January 31, 1995. EX-99.B14 None. EX-99.B15 (a)(i) Rule 12b-1 Distribution Plan for China Fund series was filed in Post-Effective Amendment No. 1 on January 31, 1995. (a)(ii) Rule 12b-1 Distribution Plan for Global Government Bond Fund series was filed in Post-Effective Amendment No. 1 on January 31, 1995. (a)(iii) Form of Rule 12b-1 Distribution for Asia Blue Chip Fund series was filed in Post-Effective Amendment No. 5 on February 14, 1996. (a)(iv) Form of Rule 12b-1 Distribution for Asia Small Cap Fund series was filed in Post-Effective Amendment No. 5 on February 14, 1996. EX-99.B16 Schedule for Computation of each Performance Quotation was filed in Post-Effective Amendment No. 5 on February 14, 1996. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. C-2 ITEM 26. NUMBER OF HOLDERS OF SECURITIES Title of Class; Shares Number of Record Holders ($0.001 par value) as of March 10, 1997 China & Hong Kong Fund 13,818 Global Government Bond Fund 210 Asia Blue Chip Fund 963 Asia Small Cap Fund 9,279 ITEM 27. INDEMNIFICATION Article X, Section 10.02 of the Registrant's Delaware Trust Instrument, incorporated herein as Exhibit 2 hereto, provides for the indemnification of Registrant's Trustees and officers, as follows: "Section 10.02 Indemnification. (a) Subject to the exceptions and limitations contained in Subsection 10.02(b): (i) every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as a "Covered Person") shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Covered Person: (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or (ii) in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry). (c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel, other than Covered Persons, and other persons may be entitled by contract or otherwise under law. C-3 (d) Expenses in connection with the preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in Subsection (a) of this Section 10.02 may be paid by the Trust or Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or Series if it is ultimately determined that he is not entitled to indemnification under this Section 10.02; provided, however, that either (i) such Covered Person shall have provided appropriate security for such undertaking, (ii) the Trust is insured against losses arising out of any such advance payments or (iii) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such Covered Person will be found entitled to indemnification under this Section 10.02." Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers, and controlling persons or Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Investment Company Act of 1940, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Guinness Flight Investment Management Limited provides management services to the Registrant and its series. To the best of the Registrant's knowledge, the directors and officers have not held at any time during the past two fiscal years or been engaged for his own account or in the capacity of director, officer, employee, partner or trustee in any other business, profession, vocation or employment of a substantial nature. ITEM 29. PRINCIPAL UNDERWRITERS (a) First Fund Distributors, Inc., the Registrant's principal underwriter, also acts as the principal underwriter for the following investment companies: (1) Jurika & Voyles Fund Group; (2) RNC Mutual Fund Group, Inc.; (3) PIC Investment Trust; (4) Hotchkis & Wiley Funds; (5) Masters' Select Equity Fund (6) O'Shoughnessy Funds (7) Professionally Managed Portfolios; - Avondale Total Return Fund - Perkins Opportunity Fund - Octerners Fund - Pro Conscience Women's Equity Mutual Fund - Academy Value Fund - Trent Equity Fund - Leonetti Balanced Fund - Lighthouse Growth Fund - U.S. Global Leaders Growth Fund - Boston Managed Growth Fund - Horris Baetas & Sullivan & Smith Growth Fund - Insightful Investor Growth Fund - Penza Growth Fund - Titan Investment Trust (8) Rainier Investment Management Mutual Funds. C-4 (b) The following information is furnished with respect to the officers and directors of First Fund Distributors, Inc., Registrant's principal underwriter: Name and Principal Position and Offices with Position and Offices Business Address Principal Underwriter ith Registrant - ------------------ ------------------------- -------------------- Robert H. Wadsworth President/Treasurer President/Asst. 4455 East Camelback Road Treasurer Suite 261E Phoenix, AZ 85014 Steven J. Paggioli Vice President/Secretary Secretary 479 West 22nd Street New York, NY 10011 Eric M. Banhazl Vice President Treasurer 2025 East Financial Way Suite 101 Glendora, CA 91741 (c) not applicable ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The accounts, books or other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by Investment Company Administration Corporation, 2025 East Financial Way, Suite 101, Glendora, CA 91741, except for those maintained by the Funds' Custodian. ITEM 31. MANAGEMENT SERVICES Not applicable. ITEM 32. UNDERTAKINGS (1) Registrant undertakes to furnish each person to whom a prospectus is delivered, a copy of the Fund's latest annual report to shareholders which will include the information required by Item 5A, upon request and without charge. (2) Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a trustee or trustees if requested to do so by the holders of at least 10% of the Registrant's outstanding voting securities, and to assist in communications with other shareholders as required by Section 16(c) of the 1940 Act. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly caused this Post- Effective Amendment to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York on this 14th day of March, 1997. GUINNESS FLIGHT INVESTMENT FUNDS By: /s/ Robert H. Wadsworth ------------------------- Robert H. Wadsworth President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Eric M. Banhazl Treasurer ------------------------ March 14, 1997 Eric M. Banhazl /s/ Dr. Gunter Dufey Trustee ------------------------ March 14, 1997 Dr. Gunter Dufey /s/ J. I. Fordwood Trustee ------------------------ March 14, 1997 J. I. Fordwood /s/ Bret A. Herscher Trustee ------------------------ March 14, 1997 Bret A. Herscher /s/ J. Brooks Reece, Jr. Trustee ------------------------ March 14, 1997 J. Brooks Reece, Jr. *By:----------------------- Attorney-in-Fact C-6 EXHIBIT INDEX EX-99.B1(a) Certificate of Trust f EX-99.B1(b) Trust Instrument EX-99.B2 By-Laws EX-99.B5 Form of Investment Advisory Agreement EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel, Counsel for the Registrant EX-99.B11(b) Consent of Coopers & Lybrand L.L.P. EX-99.B11(c) Consent of Ernst & Young LLP, Independent Auditors for the Registrant EX-99.B1(A) 2 CERTIFICATE OF TRUST CERTIFICATE OF TRUST OF GUINNESS FLIGHT INVESTMENT FUNDS This Certificate of Trust is being executed as of March 6, 1997 for the purpose of organizing a business trust pursuant to the Delaware Business Trust Act, 12 Del. C. ss.ss. 3801 et seq. The undersigned hereby certifies as follows: 1. Name. The name of the business trust is Guinness Flight Investment Funds ("Trust"). 2. Registered Investment Company. The Trust is or will become a registered investment company under the Investment Company Act of 1940, as amended. 3. Registered Office and Registered Agent. The registered office of the Trust in the State of Delaware is located at 1201 North Market Street, P.O. Box 1347, Wilmington, Delaware 19899-1347. The name of the registered agent of the Trust for service of process at such location is Delaware Corporation Organizers, Inc. 4. Notice of Limitation of Liabilities of Series. Notice is hereby given that the Trust is or may hereafter be constituted a series trust. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to any particular series shall be enforceable against the assets of such series only, and not against the assets of the Trust generally. IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has duly executed this Certificate of Trust as of the day and year first above written. Trustee /s/Joanne Doldo - --------------- Joanne Doldo - 2 - EX-99.B1(B) 3 TRUST INSTRUMENT GUINNESS FLIGHT INVESTMENT FUNDS TRUST INSTRUMENT DATED MARCH 6, 1997 GUINNESS FLIGHT INVESTMENT FUNDS TABLE OF CONTENTS Page ---- ARTICLE I - NAME AND DEFINITION......................................... 1 Section 1.01 Name............................................. 1 Section 1.02 Definitions...................................... 1 ARTICLE II - BENEFICIAL INTEREST........................................ 2 Section 2.01 Shares of Beneficial Interest.................... 2 Section 2.02 Issuance of Shares............................... 2 Section 2.03 Register of Shares and Share Certificates........ 3 Section 2.04 Transfer of Shares............................... 3 Section 2.05 Treasury Shares.................................. 3 Section 2.06 Establishment of Series.......................... 3 Section 2.07 Investment in the Trust.......................... 4 Section 2.08 Assets and Liabilities of Series................. 4 Section 2.09 No Preemptive Rights............................. 5 Section 2.10 No Personal Liability of Shareholder............. 5 Section 2.11 Assent to Trust Instrument....................... 5 ARTICLE III - THE TRUSTEES.............................................. 6 Section 3.01 Management of the Trust.......................... 6 Section 3.02 Initial Trustee.................................. 6 Section 3.03 Term of Office................................... 6 Section 3.04 Vacancies and Appointments....................... 7 Section 3.05 Temporary Absence................................ 7 Section 3.06 Number of Trustees............................... 7 Section 3.07 Effect of Ending of a Trustee's Service.......... 7 Section 3.08 Ownership of Assets of the Trust................. 7 ARTICLE IV - POWERS OF THE TRUSTEES..................................... 8 Section 4.01 Powers........................................... 8 Section 4.02 Issuance and Repurchase of Shares................ 11 Section 4.03 Trustees and Officers as Shareholders............ 11 Section 4.04 Action by the Trustees........................... 11 Section 4.05 Chairman of the Trustees......................... 11 Section 4.06 Principal Transactions........................... 11 ARTICLE V - EXPENSES OF THE TRUST....................................... 12 ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND TRANSFER AGENT............................... 12 Section 6.01 Investment Adviser............................... 12 Section 6.02 Principal Underwriter............................ 13 i Section 6.03 Administration................................... 13 Section 6.04 Transfer Agent................................... 13 Section 6.05 Parties to Contract.............................. 13 Section 6.06 Provisions and Amendments........................ 14 ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS................... 14 Section 7.01 Voting Powers..................................... 14 Section 7.02 Meetings.......................................... 15 Section 7.03 Quorum and Required Vote.......................... 15 ARTICLE VIII - CUSTODIAN................................................. 16 Section 8.01 Appointment and Duties............................ 16 Section 8.02 Central Certificate System........................ 16 ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS............................... 17 Section 9.01 Distributions..................................... 17 Section 9.02 Redemptions....................................... 17 Section 9.03 Determination of Net Asset Value and Valuation of Portfolio Assets.................................. 17 Section 9.04 Suspension of the Right of Redemption............. 18 Section 9.05 Redemption of Shares in Order to Qualify as Regulated Investment Company...... 18 Section 9.06 Redemption of Small Accounts...................... 19 ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION.................. 19 Section 10.01 Limitation of Liability.......................... 19 Section 10.02 Indemnification.................................. 19 Section 10.03 Shareholders..................................... 20 ARTICLE XI - MISCELLANEOUS............................................... 21 Section 11.01 Trust Not A Partnership.......................... 21 Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or Surety..................................... 21 Section 11.03 Establishment of Record Dates.................... 21 Section 11.04 Termination of Trust............................. 22 Section 11.05 Reorganization................................... 23 Section 11.06 Filing of Copies, References, Headings........... 23 Section 11.07 Applicable Law................................... 24 Section 11.08 Amendments....................................... 24 Section 11.09 Fiscal Year...................................... 24 Section 11.10 Name Reservation................................. 24 Section 11.11 Provisions in Conflict With Law.................. 25 ii GUINNESS FLIGHT INVESTMENT FUNDS March 6, 1997 TRUST INSTRUMENT, made by Joanne Doldo (the "Trustee"). WHEREAS, the Trustee desires to establish a business trust for the investment and reinvestment of funds contributed thereto; NOW THEREFORE, the Trustee declares that all money and property contributed to the trust hereunder shall be held and managed in trust under this Trust Instrument as herein set forth below. ARTICLE I NAME AND DEFINITION SECTION 1.01 NAME. The name of the trust created hereby is "Guinness Flight Investment Funds." SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise required by the context or specifically provided: (a) The "1940 Act" means the Investment Company Act of 1940, as amended from time to time. Whenever reference is made hereunder to the 1940 Act, such references shall be interpreted as including any applicable order or orders of the Commission or any rules or regulations adopted by the Commission thereunder or interpretive releases of the Commission staff; (b) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees, as amended from time to time; (c) "Commission" has the meaning given it in the 1940 Act. In addition, "Affiliated Person," "Interested Person" and "Principal Underwriter" shall have the respective meanings given them in the 1940 Act; (d) "Delaware Act" means the Delaware Business Trust Act, to Chapter 38 of Title 12 of the Delaware Code, as amended from time to time; (e) "Net Asset Value" means the net asset value of each Series of the Trust determined in the manner provided in Article IX, Section 9.03 hereof; (f) "Outstanding Shares" means those Shares shown from time to time in the books of the Trust or its transfer agent as then issued and outstanding, but shall not include Shares which have been redeemed or repurchased by the Trust and which are at the time held in the treasury of the Trust; 1 (g) "Series" means a series of Shares of the Trust established in accordance with the provisions of Article II, Section 2.06 hereof; (h) "Shareholder" means a record owner of Outstanding Shares of the Trust; (i) "Shares" means the equal proportionate transferable units of beneficial interest into which the beneficial interest of each Series of the Trust or class thereof shall be divided and may include fractions of Shares as well as whole Shares; (j) The "Trust" means Guinness Flight Investment Funds, a Delaware business trust, and reference to the Trust when applicable to one or more Series of the Trust, shall refer to any such Series; (k) The "Trustees" means the person or persons who has or have signed this Trust Instrument so long as he or they shall continue in office in accordance with the terms hereof and all other persons who may from time to time be duly qualified and serving as Trustees in accordance with the provisions of Article III hereof, and reference herein to a Trustee or to the Trustees shall refer to the individual Trustees in their respective capacity as Trustees hereunder; (l) "Trust Property" means any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Trust or any Series, or the Trustees on behalf of the Trust or any Series. ARTICLE II BENEFICIAL INTEREST SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in the Trust shall be divided into such Shares of one or more separate and distinct Series or classes of a Series as set forth in Section 2.06 or as the Trustees shall otherwise from time to time create and establish as provided in Section 2.06. The number of Shares of each Series and class thereof authorized hereunder is unlimited. Except as otherwise determined by the Trustees, each Share shall have no par value. All Shares issued hereunder, including without limitation Shares issued in connection with a dividend paid in Shares or a split or reverse split of Shares, shall be fully paid and nonassessable. SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may, from time to time, without a vote of the Shareholders, issue Shares, in addition to the then issued and outstanding Shares and Shares held in the treasury, to such party or parties and for such amount and type of consideration, subject to applicable law, including cash or securities, at such time or times and on such terms as the Trustees may deem appropriate, and may in such manner acquire other assets (including the acquisition of assets subject to, and in connection with, the assumption of liabilities) and businesses. In connection with any issuance of Shares, the Trustees may issue fractional Shares and Shares held in the treasury. The Trustees may from time to time divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interests in the Trust. Contributions to the Trust may be 2 accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1000th of a Share or integral multiples thereof. The Trustees or any person the Trustees may authorize for the purpose may, in their discretion, reject any application for the issuance of shares. SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register shall be kept at the principal office of the Trust or an office of the Trust's transfer agent which shall contain the names and addresses of the Shareholders of each Series, the number of Shares of that Series (or any class or classes thereof) held by them respectively and a record of all transfers thereof. No share certificates shall be issued by the Trust except as the Trustees may otherwise authorize, and the persons indicated as shareholders in such register shall be entitled to receive dividends or other distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or other distribution, nor to have notice given to him as herein or in the Bylaws provided, until he has given his address to the transfer agent or such officer or other agent of the Trustees as shall keep the said register for entry thereon. SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the Trustees, Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery to the Trustees or the Trust's transfer agent of a duly executed instrument of transfer and such evidence of the genuineness of such execution and authorization and of such other matters as may be required by the Trustees. Upon such delivery the transfer shall be recorded on the register of the Trust. Until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor the Trust, nor any transfer agent or registrar nor any officer, employee or agent of the Trust shall be affected by any notice of the proposed transfer. SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall, until reissued pursuant to Section 2.02 hereof, not confer any voting rights on the Trustees, nor shall such Shares be entitled to any dividends or other distributions declared with respect to the Shares. SECTION 2.06 ESTABLISHMENT OF SERIES AND CLASSES. The Trust created hereby shall consist initially of four Series which are specified by name on Schedule A attached hereto, and such Series shall initially consist of such classes of Shares as are designated on Schedule A. Such initial Series (or class thereof, as applicable) shall have the investment objectives, purposes and policies, and such relative rights, powers, duties and other attributes, as are specified in the Registration Statement and related prospectus and statement of additional information approved by the Trustees in connection with the registration and offer of Shares of such Series (or class thereof). Distinct records shall be maintained by the Trust for each Series and the assets and liabilities associated with the Series shall be held and accounted for separately from the assets and liabilities of the Trust or any other Series. The Trustees shall have full power and authority, in their sole discretion and without obtaining any prior authorization or vote of the Shareholders of any Series, to establish and designate and to change in any manner any Series or any classes of initial or additional Series and to fix such preferences, voting powers, rights and privileges of such Series or classes thereof as the Trustees may from time to time determine, to divide or combine the Shares or any Series or classes thereof into a greater or lesser number, to classify or reclassify any issued Shares or any Series or classes thereof into one or more Series or classes 3 of Shares, and to take such other action with respect to the Shares as the Trustees may deem desirable. The establishment and designation of any Series (other than those established pursuant to the first sentence of this Section 2.06) shall be effective upon the adoption of a resolution by a majority of the Trustees setting forth such establishment and designation and the relative rights and preferences of the Shares of such Series. A Series may issue any number of Shares, but need not issue Shares. At any time that there are no Shares outstanding of any particular Series previously established and designated, the Trustees may by a majority vote abolish that Series and the establishment and designation thereof. All references to Shares in this Trust Instrument shall be deemed to be Shares of any or all Series, or classes thereof as the context may require. All provisions herein relating to the Trust shall apply equally to each Series of the Trust, and each class thereof, except as the context otherwise requires. Each Share of a Series of the Trust shall represent an equal beneficial interest in the net assets of such Series. Each holder of Shares of a Series shall be entitled to receive his proportionate share of all distributions made with respect to such Series, based upon the number of full and fractional Shares of the Series held. Upon redemption of his Shares, such Shareholder shall be paid solely out of the funds and property of such Series of the Trust. SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept investments in any Series from such persons and on such terms as they may from time to time authorize. At the Trustees' discretion, such investments, subject to applicable law, may be in the form of cash or securities in which the affected Series is authorized to invest, valued as provided in Article IX Section 9.03 hereof. Investments in a Series shall be credited to each Shareholder's account in the form of full and fractional Shares at the net asset value per Share next determined after the investment is received or accepted as may be determined by the Trustees; provided, however, that the Trustees may, in their sole discretion, (a) fix minimum amounts for initial and subsequent investments or (b) impose a sales charge upon investments in such manner and at such time determined by the Trustees. SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall be held and accounted for separately from the other assets of the Trust and of every other Series and may be referred to herein as "assets belonging to" that Series. The assets belonging to a particular Series shall belong to that Series for all purposes, and to no other Series, and shall be subject only to the rights of creditors of that Series. In addition, any assets, income, earnings, profits or funds, or payments and proceeds with respect thereto, which are not readily identifiable as belonging to any particular Series shall be allocated by the Trustees between and among one or more of the Series in such manner as the Trustees, in their sole discretion, deem fair and equitable. Each such allocation shall be conclusive and binding upon the Shareholders of all Series for all purposes, and such assets, income, earnings, profits or funds, or payments and proceeds with respect thereto shall be assets belonging to that Series. 4 The assets belonging to a particular Series shall be so recorded upon the books of the Trust, and shall be held by the Trustees in trust for the benefit of the holders of Shares of that Series. The assets belonging to each particular Series shall be charged with the liabilities of that Series and all expenses, costs, charges and reserves attributable to that Series. Any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Series shall be allocated and charged by the Trustees between or among any one or more of the Series in such manner as the Trustees in their sole discretion deem fair and equitable. Each such allocation shall be conclusive and binding upon the Shareholders of all Series for all purposes. Without limitation of the foregoing provisions of this Section 2.08, but subject to the right of the Trustees in their discretion to allocate general liabilities, expenses, costs, changes or reserves as herein provided, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Series shall be enforceable against the assets of such Series only, and not against the assets of the Trust generally. Notice of this contractual limitation on inter-Series liabilities may, in the Trustee's sole discretion, be set forth in the certificate of trust of the Trust (whether originally or by amendment) as filed or to be filed in the Office of the Secretary of State of the State of Delaware pursuant to the Delaware Act, and upon the giving of such notice in the certificate of trust, the statutory provisions of Section 3804 of the Delaware Act relating to limitations on inter-Series liabilities (and the statutory effect under Section 3804 of setting forth such notice in the certificate of trust) shall become applicable to the Trust and each Series. Any person extending credit to, contracting with or having any claim against any Series may look only to the assets of that Series to satisfy or enforce any debt, with respect to that Series. No Shareholder or former Shareholder of any Series shall have a claim on or any right to any assets allocated or belonging to any other Series. SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust or the Trustees, whether of the same or other Series. SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. No Shareholder shall be personally liable for the debts, liabilities, obligation and expenses incurred by, contracted for, or otherwise existing with respect to, the Trust or by or on behalf of any Series. The Trustees shall have no power to bind any Shareholder personally or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay by way of subscription for any Shares or otherwise. Every note, bond, contract or other understanding issued by or on behalf of the Trust or the Trustees relating to the Trust or to a Series shall include a recitation limiting the obligation represented thereby to the Trust or to one or more Series and its or their assets (but the omission of such a recitation shall not operate to bind any Shareholder or Trustee of the Trust). SECTION 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue of having purchased a Share shall become a Shareholder and shall be held to have expressly assented and agreed to be bound by the terms hereof. 5 ARTICLE III THE TRUSTEES SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive and absolute control over the Trust Property and over the business of the Trust to the same extent as if the Trustees were the sole owners of the Trust Property and business in their own right, but with such powers of delegation as may be permitted by this Trust Instrument. The Trustees shall have power to conduct the business of the Trust and carry on its operations in any and all of its branches and maintain offices both within and without the State of Delaware, in any and all states of the United States of America, in the District of Columbia, in any and all commonwealths, territories, dependencies, colonies, or possessions of the United States of America, and in any foreign jurisdiction and to do all such other things and execute all such instruments as they deem necessary, proper or desirable in order to promote the interests of the Trust although such things are not herein specifically mentioned. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Trust Instrument, the presumption shall be in favor of a grant of power to the Trustees. The enumeration of any specific power in this Trust Instrument shall not be construed as limiting the aforesaid power. The powers of the Trustees may be exercised without order of or resort to any court. Except for the Trustees named herein or appointed to fill vacancies pursuant to Section 3.04 of this Article III and except as otherwise provided in Section 3.02 of this Article III, the Trustees shall be elected by the Shareholders owning of record a plurality of the Shares voting at a meeting of Shareholders. Any Shareholder meeting held for such purpose shall be held on a date fixed by the Trustees. In the event that less than a majority of the Trustees holding office have been elected by Shareholders, the Trustees then in office will call a Shareholders' meeting for the election of Trustees in accordance with the provisions of the 1940 Act. SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the persons named herein. The initial Trustees shall appoint additional or substitute Trustees at an organizational meeting of Trustees. Thereafter, Trustees shall be appointed or elected as provided in Sections 3.01 and 3.04 of this Article III. SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the lifetime of this Trust, and until its termination as herein provided; except (a) that any Trustee may resign his trust by written instrument signed by him and delivered to the other Trustees, which shall take effect upon such delivery or upon such later date as is specified therein; (b) that any Trustee may be removed at any time by written instrument, signed by at least two-thirds of the number of Trustees prior to such removal specifying the date when such removal shall become effective; (c) that any Trustee who requests in writing to be retired or who has died, become physically or mentally incapacitated by reason of illness or otherwise, or is otherwise unable to serve, may be retired by written instrument signed by a majority of the other Trustees, specifying the date of his retirement; and (d) that a Trustee may be removed at any meeting of the Shareholders of 6 the Trust by a vote of Shareholders owning at least two-thirds of the Outstanding Shares of the Trust. SECTION 3.04 VACANCIES AND APPOINTMENTS. In case of a Trustee's declination to serve, death, resignation, retirement, removal, physical or mental incapacity by reason of illness, disease or otherwise, or if a Trustee is otherwise unable to serve, or if there is an increase in the number of Trustees, a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is filled, the other Trustees shall have all the powers hereunder and the certificate of the other Trustees of such vacancy shall be conclusive. In the case of a vacancy, the remaining Trustees shall fill such vacancy by appointing such other person as they in their discretion see fit, to the extent consistent with the limitations provided under the 1940 Act. Such appointment shall be evidenced by a written instrument signed by a majority of the Trustees in office or by resolution of the Trustees, duly adopted, which shall be recorded in the minutes of a meeting of the Trustees, whereupon the appointment shall take effect. An appointment of a Trustee may be made by the Trustees then in office in anticipation of a vacancy to occur by reason of retirement, resignation or increase in number of Trustees effective at a later date, provided that said appointment shall become effective only at or after the effective date of said retirement, resignation or increase in number of Trustees. As soon as any person appointed as a Trustee pursuant to this Section 3.04 shall have accepted this Trust, the trust estate shall vest in the new Trustee or Trustees, together with the continuing Trustees, without any further act or conveyance, and such person shall be deemed a Trustee. SECTION 3.05 TEMPORARY ABSENCE. Any Trustee may, by power of attorney, delegate his power for a period not exceeding six months at any time to any other Trustee or Trustees, provided that in no case shall fewer than two Trustees personally exercise the other powers hereunder except as herein otherwise expressly provided. SECTION 3.06 NUMBER OF TRUSTEES. From and after the date of appointment of Trustees by the initial Trustees named herein, the number of Trustees shall be at least three (3), and thereafter shall be such number as shall be fixed from time to time by a majority of the Trustees, provided, however, that the number of Trustees shall in no event be more than twelve (12). SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination to serve, death, resignation, retirement, removal, incapacity, or inability of the Trustees, or any one of them, shall not operate to terminate the Trust or to revoke any existing agency created pursuant to the terms of this Trust Instrument. SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust and of each Series shall be held separate and apart from any assets now or hereafter held in any capacity other than as Trustee hereunder by the Trustees or any successor Trustees. Legal title in all of the assets of the Trust and the right to conduct any business shall at all times be considered as vested in the Trustees on behalf of the Trust, except that the Trustees may cause legal title to any Trust Property to be held by, or in the name of, the Trust or in the name of any person as nominee. No Shareholder shall be deemed to have a severable ownership in any individual asset of the Trust or of any Series or any right of partition or possession thereof but each Shareholder 7 shall have, except as otherwise provided for herein, a proportionate undivided beneficial interest in the Trust or Series based upon the number of Shares owned. The Shares shall be personal property giving only the rights specifically set forth in this Trust Instrument. ARTICLE IV POWERS OF THE TRUSTEES SECTION 4.01 POWERS. The Trustees in all instances shall act as principals, and are and shall be free from the control of the Shareholders. The Trustees shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments that they may consider necessary or appropriate in connection with the management of the Trust. The Trustees shall not in any way be bound or limited by present or future laws or customs in regard to trust investments, but shall have full authority and power to make any and all investments which they, in their sole discretion, shall deem proper to accomplish the purpose of this Trust without recourse to any court or other authority. Subject to any applicable limitation in this Trust Instrument or the Bylaws of the Trust, the Trustees shall have the power and authority: (a) To invest and reinvest cash and other property (including investment, notwithstanding any other provision hereof, of all of the assets of any Series in a single open-end investment company, including investment by means of transfer of such assets in exchange for an interest or interests in such investment company), and to hold cash or other property of the Trust uninvested, without in any event being bound or limited by any present or future law or custom in regard to investments by trustees, and to sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust: (b) To operate as and carry on the business of an investment company, and exercise all the powers necessary and appropriate to the conduct of such operations; (c) To borrow money and in this connection issue notes or other evidence of indebtedness; to secure borrowings by mortgaging, pledging or otherwise subjecting as security the Trust Property; to endorse, guarantee, or undertake the performance of an obligation or engagement of any other Person and to lend Trust Property; (d) To provide for the distribution of interests of the Trust either through a principal underwriter in the manner hereinafter provided for or by the Trust itself, or both, or otherwise pursuant to a plan of distribution of any kind; (e) To adopt Bylaws not inconsistent with this Trust Instrument providing for the conduct of the business of the Trust and to amend and repeal them to the extent that they do not reserve that right to the Shareholders; such Bylaws shall be deemed incorporated and included in this Trust Instrument; (f) To elect and remove such officers and appoint and terminate such agents as they consider appropriate; 8 (g) To employ one or more banks, trust companies or companies that are members of a national securities exchange or such other entities as the Commission may permit as custodians of any assets of the Trust subject to any conditions set forth in this Trust Instrument or in the Bylaws; (h) To retain one or more transfer agents and shareholder servicing agents, or both; (i) To set record dates in the manner provided herein or in the Bylaws; (j) To delegate such authority as they consider desirable (with power of subdelegation) to any officers or employees of the Trust and to any investment adviser, manager, custodian, underwriter or other agent or independent contractor; (k) To sell or exchange any or all of the assets of the Trust, subject to the provisions of Article XI, subsection 11.04(b) hereof; (l) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property, and to execute and deliver powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (m) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities; (n) To hold any security or property in a form not indicating any trust, whether in bearer, book entry, unregistered or other negotiable form; or either in the name of the Trust or in the name of a custodian or a nominee or nominees, subject in either case to proper safeguards according to the usual practice of Delaware business trusts or investment companies; (o) To establish separate and distinct Series with separately defined investment objectives and policies and distinct investment purposes in accordance with the provisions of Article II hereof and to establish classes of such Series having relative rights, powers and duties as they may provide consistent with applicable law; (p) Subject to the provisions of Section 3804 of the Delaware Act, to allocate assets, liabilities and expenses of the Trust to a particular Series or to apportion the same between or among two or more Series, provided that any liabilities or expenses incurred by a particular Series shall be payable solely out of the assets belonging to that Series as provided for in Article II hereof; (q) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or concern, any security of which is held in the Trust; to consent to any contract, lease, mortgage, purchase, or sale of property by such corporation or concern, and to pay calls or subscriptions with respect to any security held in the Trust; 9 (r) To compromise, arbitrate, or otherwise adjust claims in favor of or against the Trust or any matter in controversy including, but not limited to, claims for taxes; (s) To make distributions of income and of capital gains to Shareholders in the manner provided herein; (t) To establish, from time to time, a minimum investment for Shareholders in the Trust or in one or more Series or class, and to require the redemption of the Shares of any Shareholders whose investment is less than such minimum upon giving notice to such Shareholder; (u) To establish one or more committees, to delegate any of the powers of the Trustees to said committees and to adopt a committee charter providing for such responsibilities, membership (including Trustees, officers or other agents of the Trust therein) and any other characteristics of said committees as the Trustees may deem proper. Notwithstanding the provisions of this Article IV, and in addition to such provisions or any other provision of this Trust Instrument or of the Bylaws, the Trustees may by resolution appoint a committee consisting of less than the whole number of Trustees then in office, which committee may be empowered to act for and bind the Trustees and the Trust, as if the acts of such committee were the acts of all the Trustees then in office, with respect to the institution, prosecution, dismissal, settlement, review or investigation of any action, suit or proceeding which shall be pending or threatened to be brought before any court, administrative agency or other adjudicatory body; (v) To interpret the investment policies, practices or limitations of any Series; (w) To establish a registered office and have a registered agent in the state of Delaware; and (x) In general to carry on any other business in connection with or incidental to any of the foregoing powers, to do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or purposes, objects or powers. The foregoing clauses shall be construed as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Trustees. Any action by one or more of the Trustees in their capacity as such hereunder shall be deemed an action on behalf of the Trust or the applicable Series, and not an action in an individual capacity. The Trustees shall not be limited to investing in obligations maturing before the possible termination of the Trust. No one dealing with the Trustees shall be under any obligation to make any inquiry concerning the authority of the Trustees, or to see the application of any payments made or property transferred to the Trustees or upon their order. 10 SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of and otherwise deal in Shares and, subject to the provisions set forth in Article II and Article IX, to apply to any such repurchase, redemption, retirement, cancellation or acquisition of Shares any funds or property of the Trust, or the particular Series of the Trust, with respect to which such Shares are issued. SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer or other agent of the Trust may acquire, own and dispose of Shares to the same extent as if he were not a Trustee, officer or agent; and the Trustees may issue and sell or cause to be issued and sold Shares to and buy such Shares from any such person or any firm or company in which he is interested, subject only to the general limitations herein contained as to the sale and purchase of such Shares; and all subject to any restrictions which may be contained in the Bylaws. SECTION 4.04 ACTION BY THE TRUSTEES. In any action taken by the Trustees hereunder, unless otherwise specified, the Trustees shall act by majority vote at a meeting duly called or by unanimous written consent without a meeting or by telephone meeting provided a quorum of Trustees participate in any such telephone meeting, unless the 1940 Act requires that a particular action be taken only at a meeting at which the Trustees are present in person. At any meeting of the Trustees, a majority of the Trustees shall constitute a quorum. Meetings of the Trustees may be called orally or in writing by the Chairman of the Board of Trustees or by any two other Trustees. Notice of the time, date and place of all meetings of the Trustees shall be given by the person calling the meeting to each Trustee by telephone, facsimile or other electronic mechanism sent to his home or business address at least twenty-four hours in advance of the meeting or by written notice mailed to his home or business address at least seventy-two hours in advance of the meeting. Notice need not be given to any Trustee who attends the meeting without objecting to the lack of notice or who executes a written waiver of notice with respect to the meeting. Any meeting conducted by telephone shall be deemed to take place at the principal office of the Trust, as determined by the Bylaws or by the Trustees. Subject to the requirements of the 1940 Act, the Trustees by majority vote may delegate to any one or more of their number their authority to approve particular matters or take particular actions on behalf of the Trust. Written consents or waivers of the Trustees may be executed in one or more counterparts. Execution of a written consent or waiver and delivery thereof to the Trust may be accomplished by facsimile or other similar electronic mechanism. SECTION 4.05 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one of their number to be Chairman of the Board of Trustees. The Chairman shall preside at all meetings of the Trustees, shall be responsible for the execution of policies established by the Trustees and the administration of the Trust, and may be (but is not required to be) the chief executive, financial and/or accounting officer of the Trust. SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by applicable law, the Trustees may, on behalf of the Trust, buy any securities from or sell any securities to, or lend any assets of the Trust to, any Trustee or officer of the Trust or any firm of which any such Trustee or officer is a member acting as principal, or have any such dealings with any investment adviser, administrator, distributor or transfer agent for the Trust or with any Interested Person of 11 such person; and the Trust may employ any such person, or firm or company in which such person is an Interested Person, as broker, legal counsel, registrar, investment adviser, administrator, distributor, transfer agent, dividend disbursing agent, custodian or in any other capacity upon customary terms. ARTICLE V EXPENSES OF THE TRUST Subject to the provisions of Article II, Section 2.08 hereof, the Trustees are authorized to pay or cause to be paid from the Trust estate or the assets belonging to the appropriate Series, expenses and disbursements, including, without limitation, interest charges, taxes, brokerage fees and commissions; expenses of issue, repurchase and redemption of Shares; certain insurance premiums; applicable fees, interest charges and expenses of third parties, including the Trust's investment advisers, managers, administrators, distributors, custodian, transfer agent and fund accountant; fees of pricing, interest, dividend, credit and other reporting services; costs of membership in trade associations; telecommunications expenses; funds transmission expenses; auditing, legal and compliance expenses; costs of forming the Trust and maintaining its existence; costs of preparing and printing the Trust's prospectuses, statements of additional information and shareholder reports and delivering them to existing Shareholders; expenses of meetings of Shareholders and proxy solicitations therefor; costs of maintaining books and accounts; costs of reproduction, stationery and supplies; fees and expenses of the Trust's trustees; compensation of the Trust's officers and employees and costs of other personnel performing services for the Trust; costs of Trustee meetings; Commission registration fees and related expenses; state or foreign securities laws registration fees and related expenses and for such non-recurring items as may arise, including litigation to which the Trust (or a Trustee acting as such) is a party, and for all losses and liabilities by them incurred in administering the Trust, and for the payment of such expenses, disbursements, losses and liabilities the Trustees shall have a lien on the assets belonging to the appropriate Series, or in the case of an expense allocable to more than one Series, on the assets of each such Series, prior to any rights or interests of the Shareholders thereto. This section shall not preclude the Trust from directly paying any of the aforementioned fees and expenses. ARTICLE VI INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND TRANSFER AGENT SECTION 6.01 INVESTMENT ADVISER. (a) The Trustees may in their discretion, from time to time, enter into an investment advisory contract or contracts with respect to the Trust or any Series whereby the other party or parties to such contract or contracts shall undertake to furnish the Trustees with such investment advisory, statistical and research facilities and services and such other facilities and services, if any, all upon such terms and conditions (including any Shareholder vote) that may be required under the 1940 Act, as may be prescribed in the Bylaws, or as the Trustees may in their discretion determine (such terms and conditions not to be inconsistent with the provisions of this Trust Instrument or of the Bylaws). Notwithstanding any other provision 12 of this Trust Instrument, the Trustees may authorize any investment adviser (subject to such general or specific instructions as the Trustees may from time to time adopt) to effect purchases, sales or exchanges of portfolio securities, other investment instruments of the Trust, or other Trust Property on behalf of the Trustees, or may authorize any officer, agent, or Trustee to effect such purchases, sales or exchanges pursuant to recommendations of the investment adviser (and all without further action by the Trustees). Any such purchases, sales and exchanges shall be deemed to have been authorized by all of the Trustees. (b) The Trustees may authorize the investment adviser to employ, from time to time, one or more sub-advisers to perform such of the acts and services of the investment adviser, and upon such terms and conditions, as may be agreed upon between the investment adviser and sub-adviser (such terms and conditions not to be inconsistent with the provisions of this Trust Instrument or of the Bylaws). Any reference in this Trust Instrument to the investment adviser shall be deemed to include such sub-advisers, unless the context otherwise requires; provided that no Shareholder approval shall be required with respect to any sub-adviser unless required under the 1940 Act or other law, contract or order applicable to the Trust. SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their discretion from time to time enter into an exclusive or non-exclusive underwriting contract or contracts providing for the sale of Shares, whereby the Trust may either agree to sell Shares to the other party to the contract or appoint such other party its sales agent for such Shares. In either case, the contract shall be on such terms and conditions as may be prescribed in the Bylaws and as the Trustees may in their discretion determine (such terms and conditions not to be inconsistent with the provisions of this Trust Instrument or of the Bylaws); and such contract may also provide for the repurchase or sale of Shares by such other party as principal or as agent of the Trust. SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from time to time enter into one or more management or administrative contracts whereby the other party or parties shall undertake to furnish the Trustees with management or administrative services. The contract or contracts shall be on such terms and conditions as may be prescribed in the Bylaws and as the Trustees may in their discretion determine (such terms and conditions not to be inconsistent with the provisions of this Trust Instrument or of the Bylaws). SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from time to time enter into one or more transfer agency and shareholder service contracts whereby the other party or parties shall undertake to furnish the Trustees with transfer agency and shareholder services. The contract or contracts shall be on such terms and conditions as may be prescribed in the Bylaws and as the Trustees may in their discretion determine (such terms and conditions not to be inconsistent with the provisions of this Trust Instrument or of the Bylaws). SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any contract of the character described in Article VIII hereof may be entered into with any corporation, firm, partnership, trust or association, although one or more of the Trustees or officers of the Trust may be an officer, director, trustee, shareholder, or member of such other party to the contract, and no such contract shall be invalidated or rendered void or voidable by reason of the existence of any relationship, nor shall 13 any person holding such relationship be disqualified from voting on or executing the same in his capacity as Shareholder and/or Trustee, nor shall any person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Trust under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, provided that the contract when entered into was not inconsistent with the provisions of this Article VI or Article VIII hereof or of the Bylaws. The same person (including a corporation, firm, partnership, trust, or association) may be the other party to contracts entered into pursuant to Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article VIII hereof and any individual may be financially interested or otherwise affiliated with persons who are parties to any or all of the contracts mentioned in this Section 6.05. SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and subject to the requirements of Section 15 of the 1940 Act, if applicable, or other applicable Act of Congress hereafter enacted with respect to its continuance in effect, its termination, and the method of authorization and approval of such contract or renewal thereof, and no amendment to any contract entered into pursuant to Section 6.01 of this Article VI shall be effective unless assented to in a manner consistent with the requirements of said Section 15, as modified by any applicable rule, regulation or order of the Commission. ARTICLE VII SHAREHOLDERS' VOTING POWERS AND MEETINGS SECTION 7.01 VOTING POWERS. (a) The Shareholders shall have power to vote only (a) for the election of Trustees to the extent provided in Article III, Section 3.01 hereof, (b) for the removal of Trustees to the extent provided in Article III, Section 3.03(d) hereof, (c) with respect to any investment advisory contract to the extent provided in Article VI, Section 6.01 hereof, (d) with respect to an amendment of this Trust Instrument, to the extent provided in Article XI, Section 11.08, and (e) with respect to such additional matters relating to the Trust as may be required by law, by this Trust Instrument, or any registration of the Trust with the Commission or any State, or as the Trustees may consider desirable. (b) Notwithstanding paragraph (a) of this Section 7.01 or any other provision of this Trust Instrument (including the Bylaws) which would by its terms provide for or require a vote of Shareholders, the Trustees may take action without a Shareholder vote if (i) the Trustees shall have obtained an opinion of counsel that a vote or approval of such action by Shareholders is not required under (A) the 1940 Act or any other applicable laws, or (B) any registrations, undertakings or agreements of the Trust known to such counsel, and the Trustees determine in good faith that the taking of such action without a Shareholder vote would be consistent with the best interests of the Shareholders. (c) On any matter submitted to a vote of the Shareholders, all Shares shall be voted separately by individual Series, and whenever the Trustees determine that the matter affects only certain Series, may be submitted for a vote by only such Series, except (i) when required by the 1940 Act, Shares shall be voted in the aggregate and not by individual Series; and (ii) when the 14 Trustees have determined that the matter affects the interests of more than one Series and that voting by shareholders of all Series would be consistent with the 1940 Act, then the Shareholders of all such Series shall be entitled to vote thereon (either by individual Series or by Shares voted in the aggregate, as the Trustees in their discretion may determine). The Trustees may also determine that a matter affects only the interests of one or more classes of a Series, in which case (or if required under the 1940 Act) such matter shall be voted on by such class or classes. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote, and each fractional Share shall be entitled to a proportionate fractional vote. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy or in any manner provided for in the Bylaws. A proxy may be given in writing. The Bylaws may provide that proxies may also, or may instead, be given by any electronic or telecommunications device or in any other manner. Notwithstanding anything else herein or in the Bylaws, in the event a proposal by anyone other than the officers or Trustees of the Trust is submitted to a vote of the Shareholders, or in the event of any proxy contest or proxy solicitation or proposal in opposition to any proposal by the officers or Trustees of the Trust, Shares may be voted only in person or by written proxy. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required or permitted by law, this Trust Instrument or any of the Bylaws of the Trust to be taken by Shareholders. SECTION 7.02 MEETINGS. Meetings of Shareholders may be held within or without the State of Delaware. Special meetings of the Shareholders of any Series for the purpose of voting upon the removal of a Trustee or Trustees may be called by the Trustees and shall be called by the Trustees upon the written request of Shareholders owning at least one tenth of the Outstanding Shares of the Trust entitled to vote. Whenever ten or more Shareholders meeting the qualifications set forth in Section 16(c) of the 1940 Act, as the same may be amended from time to time, seek the opportunity of furnishing materials to the other Shareholders with a view to obtaining signatures on such a request for a meeting, the Trustees shall comply with the provisions of said Section 16(c) with respect to providing such Shareholders access to the list of the Shareholders of record of the Trust or the mailing of such materials to such Shareholders of record, subject to any rights provided to the Trust or any Trustees provided by said Section 16(c). Notice shall be sent, by First Class Mail or such other means determined by the Trustees, at least 10 days prior to any such meeting. Notwithstanding anything to the contrary in this Section 7.02, the Trustees shall not be required to call a special meeting of the Shareholders of any Series or to provide Shareholders seeking the opportunity of furnishing the materials to other Shareholders with a view to obtaining signatures on a request for a meeting except to the extent required under the 1940 Act. SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares outstanding and entitled to vote in person or by proxy as of the record date for a Shareholders' meeting shall be a quorum for the transaction of business at such Shareholders' meeting, except that where any provision of law or of this Trust Instrument permits or requires that holders of any Series shall vote as a Series (or that holders of a class shall vote as a class), then one-third of the aggregate number of Shares of that Series (or that class) entitled to vote shall be necessary to constitute a quorum for the transaction of business by that Series (or that class). Any meeting of Shareholders may be adjourned from time to time by a majority of the votes properly cast upon the question of adjourning a meeting to another date and time, whether or not a quorum is present. Any 15 adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when a larger vote is required by law or by any provision of this Trust Instrument or the Bylaws, a majority of the Shares voted in person or by proxy at a meeting at which a quorum is present shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of this Trust Instrument permits or requires that the holders of any Series shall vote as a Series (or that the holders of any class shall vote as a class), then a majority of the Shares voted in person or by proxy at a meeting of that Series (or class), at which a quorum is present shall decide that matter insofar as that Series (or class) is concerned. Shareholders may act by unanimous written consent, to the extent not inconsistent with the 1940 Act, and any such actions taken by a Series (or class) may be consented to unanimously in writing by Shareholders of that Series (or class). ARTICLE VIII CUSTODIAN SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall employ a bank, a company that is a member of a national securities exchange, or a trust company, that in each case shall have capital, surplus and undivided profits of at least twenty million dollars ($20,000,000) and that is a member of the Depository Trust Company (or such other person or entity as may be permitted to act as custodian of the Trust's assets under the 1940 Act) as custodian with authority as its agent, but subject to such restrictions, limitations and other requirements, if any, as may be contained in the Bylaws of the Trust: (a) to hold the securities owned by the Trust and deliver the same upon written order or oral order confirmed in writing; (b) to receive and receipt for any moneys due to the Trust and deposit the same in its own banking department or elsewhere as the Trustees may direct; and (c) to disburse such funds upon orders or vouchers. The Trustees may also authorize the custodian to employ one or more sub-custodians from time to time to perform such of the acts and services of the custodian, and upon such terms and conditions, as may be agreed upon between the custodian and such sub-custodian and approved by the Trustees, provided that in every case such sub-custodian shall be a bank, a company that is a member of a national securities exchange, or a trust company organized under the laws of the United States or one of the states thereof and having capital, surplus and undivided profits of at least twenty million dollars ($20,000,000) and that is a member of the Depository Trust Company or such other person or entity as may be permitted by the Commission or is otherwise able to act as custodian of the Trust's assets in accordance with the 1940 Act. SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to the 1940 Act and such other rules, regulations and orders as the Commission may adopt, the Trustees may direct the custodian to deposit all or any part of the securities owned by the Trust in a system for the central handling of securities established by a national securities exchange or a national securities association registered with the Commission under the Securities Exchange Act of 1934, as amended, or such other person as may be permitted by the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits 16 shall be subject to withdrawal only upon the order of the Trust or its custodians, sub-custodians or other agents. ARTICLE IX DISTRIBUTIONS AND REDEMPTIONS SECTION 9.01 DISTRIBUTIONS. (a) The Trustees may from time to time declare and pay dividends or other distributions with respect to any Series and/or class of a Series. The amount of such dividends or distributions and the payment of them and whether they are in cash or any other Trust Property shall be wholly in the discretion of the Trustees. (b) Dividends and other distributions may be paid or made to the Shareholders of record at the time of declaring a dividend or other distribution or among the Shareholders of record at such other date or time or dates or times as the Trustees shall determine, which dividends or distributions, at the election of the Trustees, may be paid pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Trustees may determine. The Trustees may adopt and offer to Shareholders such dividend reinvestment plans, cash dividend payout plans or related plans as the Trustees shall deem appropriate. (c) Anything in this Trust Instrument to the contrary notwithstanding, the Trustees may at any time declare and distribute a share dividend to the Shareholders of a particular Series, or class thereof, as of the record date of that Series fixed as provided in Subsection 9.01(b) hereof. SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a particular Series desires to dispose of his Shares or any portion thereof he may deposit at the office of the transfer agent or other authorized agent of that Series a written request or such other form of request as the Trustees may from time to time authorize, requesting that the Series purchase the Shares in accordance with this Section 9.02; and, subject to Section 9.04 hereof, the Shareholder so requesting shall be entitled to require the Series to purchase, and the Series or the principal underwriter of the Series shall purchase his said Shares, but only at the Net Asset Value thereof (as described in Section 9.03 of this Article IX). The Series shall make payment for any such Shares to be redeemed, as aforesaid, in cash or property from the assets of that Series and, subject to Section 9.04 hereof, payment for such Shares shall be made by the Series or the principal underwriter of the Series to the Shareholder of record within seven (7) days after the date upon which the request is effective. Upon redemption and unless otherwise determined by the Trustees shares shall become Treasury shares and may be re-issued from time to time. SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that amount by which the assets of that Series exceed its liabilities, all as determined by or under the direction of the Trustees. The Trustees may delegate any of their powers and duties under this Section 9.03 with respect to valuation of assets and liabilities. Such value shall be determined separately for each Series and shall be determined on such days and at such times as the Trustees may determine. Such determination 17 shall be made with respect to securities for which market quotations are readily available, at the market value of such securities; and with respect to other securities and assets, at the fair value as determined in good faith by the Trustees; provided, however, that the Trustees, without Shareholder approval, may alter the method of valuing portfolio securities insofar as permitted under the 1940 Act. The resulting amount, which shall represent the total Net Asset Value of the particular Series, shall be divided by the total number of shares of that Series outstanding at the time and the quotient so obtained shall be the Net Asset Value per Share of that Series. At any time the Trustees may cause the Net Asset Value per Share last determined to be determined again in similar manner and may fix the time when such redetermined value shall become effective. The Trustees shall not be required to adopt, but may at any time adopt, discontinue or amend a practice of seeking to maintain the Net Asset Value per Share of the Series at a constant amount. If, for any reason, the net income of any Series, determined at any time, is a negative amount, the Trustees shall have the power with respect to that Series (a) to offset each Shareholder's pro rata share of such negative amount from the accrued dividend account of such Shareholder, (b) to reduce the number of Outstanding Shares of such Series by reducing the number of Shares in the account of each Shareholder by a pro rata portion of that number of full and fractional Shares which represents the amount of such excess negative net income, (c) to cause to be recorded on the books of such Series an asset account in the amount of such negative net income (provided that the same shall thereupon become the property of such Series with respect to such Series and shall not be paid to any Shareholder), which account may be reduced by the amount of dividends declared thereafter upon the Outstanding Shares of such Series on the day such negative net income is experienced, until such asset account is reduced to zero; (d) to combine the methods described in clauses (a) and (b) and (c) of this sentence; or (e) to take any other action they deem appropriate, in order to cause (or in order to assist in causing) the Net Asset Value per Share of such Series to remain at a constant amount per Outstanding Share immediately after each such determination and declaration. The Trustees shall also have the power not to declare a dividend out of net income for the purpose of causing the Net Asset Value per Share to be increased. In the event that any Series is divided into classes, the provisions of this Section 9.03, to the extent applicable as determined in the discretion of the Trustees and consistent with the 1940 Act and other applicable law, may be equally applied to each such class. SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may declare a suspension of the right of redemption or postpone the date of payment if permitted under the 1940 Act. Such suspension shall take effect at such time as the Trustees shall specify but not later than the close of business on the business day next following the declaration of suspension, and thereafter there shall be no right of redemption or payment until the Trustees shall declare the suspension at an end. In the case of a suspension of the right of redemption, a Shareholder may either withdraw his request for redemption or receive payment based on the Net Asset Value per Share next determined after the termination of the suspension. SECTION 9.05 REDEMPTION OF SHARES IN ORDER TO QUALIFY AS REGULATED INVESTMENT COMPANY. If the Trustees shall, at any time and in good faith, be of the opinion that direct or indirect ownership of Shares of any Series has or may become concentrated in any Person to an 18 extent which would disqualify any Series as a regulated investment company under the Internal Revenue Code, then the Trustees shall have the power (but not the obligation) by lot or other means deemed equitable by them (a) to call for redemption by any such person of a number, or principal amount, of Shares sufficient to maintain or bring the direct or indirect ownership of Shares into conformity with the requirements for such qualification and (b) to refuse to transfer or issue Shares to any person whose acquisition of Shares in question would result in such disqualification. The redemption shall be effected at the redemption price and in the manner provided in this Article IX. The holders of Shares shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares as the Trustees deem necessary to comply with the requirements of any taxing authority or this Section 9.05. SECTION 9.06 REDEMPTION OF SMALL ACCOUNTS. Subject to the requirements of the 1940 Act, the Trustees may cause the Trust to redeem, at the price and in the manner provided in this Article IX, Shares of any Series or class of a Series held by any Shareholder (i) if such Shareholder is no longer qualified to hold such Shares in accordance with such qualifications as may be established by the Trustees, (ii) if the net asset value of such Shares is below $500 or such other amount as determined by the Trustees or (iii) if otherwise deemed by the Trustees to be in the best interest of the Trust or that particular Series (or class) as a whole. ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION SECTION 10.01 LIMITATION OF LIABILITY. Neither a Trustee nor an officer of the Trust, when acting in such capacity, shall be personally liable to any person other than the Trust or the Shareholders for any act, omission or obligation of the Trust, any Trustee or any officer of the Trust. Neither a Trustee nor an officer of the Trust shall be liable for any act or omission or any conduct whatsoever in his capacity as Trustee or as an officer of the Trust, provided that nothing contained herein or in the Delaware Act shall protect any Trustee or any officer of the Trust against any liability to the Trust or to Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee or officer of the Trust hereunder. SECTION 10.02 INDEMNIFICATION. (a) Subject to the exceptions and limitations contained in Subsection 10.02(b): (i) every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as a "Covered Person") shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; 19 (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Covered Person: (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or (ii) in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry). (c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel, other than Covered Persons, and other persons may be entitled by contract or otherwise under law. (d) Expenses in connection with the preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in Subsection (a) of this Section 10.02 may be paid by the Trust or Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or Series if it is ultimately determined that he is not entitled to indemnification under this Section 10.02; provided, however, that either (i) such Covered Person shall have provided appropriate security for such undertaking, (ii) the Trust is insured against losses arising out of any such advance payments or (iii) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such Covered Person will be found entitled to indemnification under this Section 10.02. SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall be held to be personally liable solely by reason of his being or having been a Shareholder of such Series and 20 not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives, or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense arising from such liability. The Trust, on behalf of the affected Series, shall, upon request by the Shareholder, assume the defense of any claim made against the Shareholder for any act or obligation of the Series and satisfy any judgment thereon from the assets of the Series. ARTICLE XI MISCELLANEOUS SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a trust and not a partnership is created hereby. No Trustee hereunder shall have any power to bind personally either the Trust officers or any Shareholder. All persons extending credit to, contracting with or having any claim against the Trust or the Trustees shall look only to the assets of the appropriate Series or (if the Trustees shall have yet to have established Series) of the Trust for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of their agents, whether past, present or future, shall be personally liable therefor. Nothing in this Trust Instrument shall protect a Trustee against any liability to the Trust or a Shareholder to which the Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee hereunder. SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY. The exercise by the Trustees or the officers of the Trust of their powers and discretion hereunder in good faith and with reasonable care under the circumstances then prevailing shall be binding upon everyone interested. Subject to the provisions of Article X hereof and to Section 11.01 of this Article XI, the Trustees and the officers of the Trust shall not be liable for errors of judgment or mistakes of fact or law. The Trustees and the officers of the Trust may take advice of counsel or other experts with respect to the meaning and operation of this Trust Instrument, and subject to the provisions of Article X hereof and Section 11.01 of this Article XI, shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees and the officers of the Trust shall not be required to give any bond as such, nor any surety if a bond is obtained. SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the Share transfer books of the Trust for a period not exceeding sixty (60) days preceding the date of any meeting of Shareholders, or the date for the payment of any dividends or other distributions, or the date for the allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect; or in lieu of closing the stock transfer books as aforesaid, the Trustees may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of Shareholders, or the date for payment of any dividend or other distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect, as a record date for the determination of the Shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or other distribution, 21 or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of Shares, and in such case such Shareholders and only such Shareholders as shall be Shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend or other distribution, or to receive such allotment or rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any Shares on the books of the Trust after any such record date fixed as aforesaid. SECTION 11.04 TERMINATION OF TRUST. (a) This Trust shall continue without limitation of time but subject to the provisions of Subsection 11.04(b). (b) The Trustees may, subject to any necessary Shareholder, Trustee, and regulatory approvals: (i) sell and convey all or substantially all of the assets of the Trust or any affected Series to another trust, partnership, association or corporation, or to a separate series of shares thereof, organized under the laws of any state which trust, partnership, association or corporation is an open-end management investment company as defined in the 1940 Act, or is a series thereof, for adequate consideration which may include the assumption of all outstanding obligations, taxes and other liabilities, accrued or contingent, of the Trust or any affected Series, and which may include shares of beneficial interest, stock or other ownership interests of such trust, partnership, association or corporation or of a series thereof; (ii) enter into a plan of liquidation in order to terminate and liquidate any Series (or class) of the Trust, or the Trust; or (iii) at any time sell and convert into money all of the assets of the Trust or any affected Series. Upon making reasonable provision, in the determination of the Trustees, for the payment of all liabilities by assumption or otherwise, the Trustees shall distribute the remaining proceeds or assets (as the case may be) of each Series (or class) ratably among the holders of Shares of the affected Series, based upon the ratio that each Shareholder's Shares bears to the number of Shares of such Series (or class) then outstanding. (c) Upon completion of the distribution of the remaining proceeds or the remaining assets as provided in Subsection 11.04(b), the Trust or any affected Series shall terminate and the Trustees and the Trust shall be discharged of any and all further liabilities and duties hereunder and the right, title and interest of all parties with respect to the Trust or Series shall be cancelled and discharged. Upon termination of the Trust, following completion of winding up of its business, the Trustees shall cause a certificate of cancellation of the Trust's certificate of trust to be filed in 22 accordance with the Delaware Act, which certificate of cancellation may be signed by any one Trustee. SECTION 11.05 REORGANIZATION. (a) Notwithstanding anything else herein, the Trustees, in order to change the form or jurisdiction of organization of the Trust, may (i) cause the Trust to merge or consolidate with or into one or more trusts, partnerships (general or limited), associations or corporations so long as the surviving or resulting entity is an open-end management investment company under the 1940 Act, or is a series thereof, that will succeed to or assume the Trust's registration under that Act and which is formed, organized or existing under the laws of a state, commonwealth, possession or colony of the United States or (ii) cause the Trust to incorporate under the laws of Delaware. (b) The Trustees may, subject to a vote of a majority of the Trustees and any shareholder vote required under the 1940 Act, if any, cause the Trust to merge or consolidate with or into one or more Trusts, partnerships (general or limited), associations, limited liability companies or corporations formed, organized or existing under the laws of a state, commonwealth, possession or colony of the United States. (c) Any agreement of merger or consolidation or certificate of merger or consolidation may be signed by a majority of Trustees and facsimile signatures conveyed by electronic or telecommunication means shall be valid. (d) Pursuant to and in accordance with the provisions of Section 3815(f) of the Delaware Act, and notwithstanding anything to the contrary contained in this Trust Instrument, an agreement of merger or consolidation approved by the Trustees in accordance with paragraph (a) or (b) of this Section 11.05 may effect any amendment to the Trust Instrument or effect the adoption of a new trust instrument of the Trust if it is the surviving or resulting trust in the merger or consolidation. SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy of this Trust Instrument and of each amendment hereof or Trust Instrument supplemental hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer or Trustee of the Trust as to whether or not any such amendments or supplements have been made and as to any matters in connection with the Trust hereunder, and with the same effect as if it were the original, may rely on a copy certified by an officer or Trustee of the Trust to be a copy of this Trust Instrument or of any such amendment or supplemental Trust Instrument. In this Trust Instrument or in any such amendment or supplemental Trust Instrument, references to this Trust Instrument, and all expressions such as "herein," "hereof" and "hereunder," shall be deemed to refer to this Trust Instrument as amended or affected by any such supplemental Trust Instrument. All expressions such as "his," "he" and "him," shall be deemed to include the feminine and neuter, as well as masculine, genders. Headings are placed herein for convenience of reference only and in case of any conflict, the text of this Trust Instrument, rather than the headings, shall control. This Trust Instrument may be executed in any number of counterparts each of which shall be deemed an original. 23 SECTION 11.07 APPLICABLE LAW. The trust set forth in this instrument is made in the State of Delaware, and the Trust and this Trust Instrument, and the rights and obligations of the Trustees and Shareholders hereunder, are to be governed by and construed and administered according to the Delaware Act and the laws of said State; provided, however, that there shall not be applicable to the Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or common) of the State of Delaware (other than the Delaware Act) pertaining to trusts which relate to or regulate (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding of trust assets, or (vii) the establishment of fiduciary or other standards of responsibilities or limitations on the acts or powers of trustees, which are inconsistent with the limitations or liabilities or authorities and powers of the Trustees set forth or referenced in this Trust Instrument. The Trust shall be of the type commonly called a "business trust," and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust under Delaware law. The Trust specifically reserves the right to exercise any of the powers or privileges afforded to trusts or actions that may be engaged in by trusts under the Delaware Act, and the absence of a specific reference herein to any such power, privilege or action shall not imply that the Trust may not exercise such power or privilege or take such actions. SECTION 11.08 AMENDMENTS. Except as specifically provided herein, the Trustees may, without shareholder vote, amend or otherwise supplement this Trust Instrument by making an amendment, a Trust Instrument supplemental hereto or an amended and restated trust instrument. Shareholders shall have the right to vote (a) on any amendment which would affect their rights to vote granted in Section 7.01 of Article VII hereof, (b) on any amendment to this Section 11.08, (c) on any amendment as may be required by law or by the Trust's registration statement filed with the Commission and (d) on any amendment submitted to them by the Trustees. Any amendment required or permitted to be submitted to Shareholders which, as the Trustees determine, shall affect the Shareholders of one or more Series shall be authorized by vote of the Shareholders of each Series affected and no vote of shareholders of a Series not affected shall be required. Notwithstanding any other provision of this Trust Instrument, any amendment to Article X hereof shall not limit the rights to indemnification or insurance provided therein with respect to action or omission of Covered Persons prior to such amendment. SECTION 11.09 FISCAL YEAR. The fiscal year of the Trust shall end on a specified date as set forth in the Bylaws, provided, however, that the Trustees may change the fiscal year of the Trust. SECTION 11.10 NAME RESERVATION. The Trustees on behalf of the Trust acknowledge that Guinness Flight Investment Management Limited has licensed to the Trust the non-exclusive right to use the name "Guinness Flight" as part of the name of the Trust, and has reserved the right to 24 grant the non-exclusive use of the name "Guinness Flight" or any derivative thereof to any other party. In addition, Guinness Flight Investment Management Limited reserves the right to grant the non-exclusive use of the name "Guinness Flight" to, and to withdraw such right from, any other business or other enterprise. Guinness Flight Investment Management Limited reserves the right to withdraw from the Trust the right to use said name "Guinness Flight" and will withdraw such right if the Trust ceases to employ, for any reason, Guinness Flight Investment Management Limited, an affiliate or any successor as adviser of the Trust. SECTION 11.11 PROVISIONS IN CONFLICT WITH LAW. The provisions of this Trust Instrument are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Trust Instrument; provided, however, that such determination shall not affect any of the remaining provisions of this Trust Instrument or render invalid or improper any action taken or omitted prior to such determination. If any provision of this Trust Instrument shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any matter affect such provision in any other jurisdiction or any other provision of this Trust Instrument in any jurisdiction. IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the Trust, has executed this instrument as of date first written above. /s/ Joanne Doldo ----------------------- Joanne Doldo, as Trustee and not individually 25 SCHEDULE A Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund 26 EX-99.B2 4 BY-LAWS GUINNESS FLIGHT INVESTMENT FUNDS BYLAWS MARCH 6, 1997 TABLE OF CONTENTS ARTICLE I PRINCIPAL OFFICE.......................................................... 1 ARTICLE II OFFICERS AND THEIR ELECTION............................................... 1 Section 2.01 Officers............................................ 1 Section 2.02 Election of Officers................................ 1 Section 2.03 Resignations........................................ 1 ARTICLE III POWERS AND DUTIES OF OFFICERS AND TRUSTEES................................ 1 Section 3.01 Management of the Trust............................. 1 Section 3.02 Executive And Other Committees...................... 2 Section 3.03 Compensation........................................ 2 Section 3.04 Chairman Of The Trustees............................ 2 Section 3.05 President........................................... 2 Section 3.06 Treasurer........................................... 2 Section 3.07 Secretary........................................... 3 Section 3.08 Vice President...................................... 3 Section 3.09 Assistant Treasurer................................. 3 Section 3.10 Assistant Secretary................................. 3 Section 3.11 Subordinate Officers................................ 3 Section 3.12 Surety Bonds........................................ 3 Section 3.13 Removal............................................. 4 Section 3.14 Remuneration........................................ 4 ARTICLE IV SHAREHOLDERS' MEETINGS.................................................... 4 Section 4.01 Special Meetings.................................... 4 Section 4.02 Notices............................................. 4 Section 4.03 Voting-Proxies...................................... 5 Section 4.04 Place of Meeting.................................... 5 Section 4.05 Action Without a Meeting............................ 5 ARTICLE V TRUSTEES' MEETINGS........................................................ 6 Section 5.01 Special Meetings.................................... 6 Section 5.02 Regular Meetings.................................... 6 Section 5.03 Quorum.............................................. 6 Section 5.04 Notice.............................................. 6 Section 5.05 Place of Meeting.................................... 6 Section 5.06 Special Action...................................... 6 Section 5.07 Action by Consent................................... 6 Section 5.08 Participation in Meetings By Conference Telephone............................................... 6 ARTICLE VI FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT....................... 7 Section 6.01 Fiscal Year......................................... 7 Section 6.02 Registered Office and Registered Agent.............. 7 - i - ARTICLE VII INSPECTION OF BOOKS....................................................... 7 ARTICLE VIII INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES............................ 7 ARTICLE IX SEAL...................................................................... 8 ARTICLE X AMENDMENTS................................................................ 8 - ii - GUINNESS FLIGHT INVESTMENT FUNDS BYLAWS These Bylaws of Guinness Flight Investment Funds (the "Trust"), a Delaware business trust, are subject to the Trust Instrument of the Trust, dated March 6, 1997, as from time to time amended, supplemented or restated (the "Trust Instrument"). Capitalized terms used herein which are defined in the Trust Instrument are used as therein defined. ARTICLE I PRINCIPAL OFFICE The principal office of the Trust shall be located in Pasadena, California or such other location as the Trustees may, from time to time, determine. The Trust may establish and maintain such other offices and places of business as the Trustees may, from time to time, determine. ARTICLE II OFFICERS AND THEIR ELECTION SECTION 2.01 OFFICERS. The officers of the Trust shall be a President, a Treasurer, a Secretary, and such other officers as the Trustees may from time to time elect. The Trustees may delegate to any officer or committee the power to appoint any subordinate officers or agents. It shall not be necessary for any Trustee or other officer to be a holder of Shares in the Trust. SECTION 2.02 ELECTION OF OFFICERS. The Treasurer and Secretary shall be chosen by the Trustees. The President shall be chosen by and from the Trustees. Two or more offices may be held by a single person except the offices of President and Secretary. Subject to the provisions of Section 3.13 hereof the President, the Treasurer and the Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office at the pleasure of the Trustees. SECTION 2.03 RESIGNATIONS. Any officer of the Trust may resign, notwithstanding Section 2.02 hereof, by filing a written resignation with the President, the Trustees or the Secretary, which resignation shall take effect on being so filed or at such time as may be therein specified. ARTICLE III POWERS AND DUTIES OF OFFICERS AND TRUSTEES SECTION 3.01 MANAGEMENT OF THE TRUST. The business and affairs of the Trust shall be managed by, or under the direction - 1 - of the Trustees, and they shall have all powers necessary and desirable to carry out their responsibilities, so far as such powers are not inconsistent with the laws of the State of Delaware, the Trust Instrument or with these Bylaws. SECTION 3.02 EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect from their own number an executive committee, which shall have any or all of the powers of the Board of Trustees while the Board of Trustees is not in session. The Trustees may also elect from their own number other committees from time to time. The number composing such committees and the powers conferred upon the same are to be determined by vote of a majority of the Trustees. All members of such committees shall hold such offices at the pleasure of the Trustees. The Trustees may abolish any such committee at any time. Any committee to which the Trustees delegate any of their powers or duties shall keep records of its meetings and shall report its actions to the Trustees. The Trustees shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect. SECTION 3.03 COMPENSATION. Each Trustee and each committee member may receive such compensation for his services and reimbursement for his expenses as may be fixed from time to time by resolution of the Trustees. SECTION 3.04 CHAIRMAN OF THE TRUSTEES. The Trustees may appoint from among their number a Chairman who shall serve as such at the pleasure of the Trustees. When present, he shall preside at all meetings of the Shareholders and the Trustees, and he may, subject to the approval of the Trustees, appoint a Trustee to preside at such meetings in his absence. He shall perform such other duties as the Trustees may from time to time designate. SECTION 3.05 PRESIDENT. The President shall be the chief executive officer of the Trust and, subject to the direction of the Trustees, shall have general administration of the business and policies of the Trust. Except as the Trustees may otherwise order, the President shall have the power to grant, issue, execute or sign such powers of attorney, process, agreements or other documents as may be deemed advisable or necessary in the furtherance of the interests of the Trust or any Series thereof. He shall also have the power to employ attorneys, accountants and other advisors and agents and counsel for the Trust. The President shall perform such duties additional to all of the foregoing as the Trustees may from time to time designate. SECTION 3.06 TREASURER. The Treasurer shall be the principal financial and accounting officer of the Trust. He shall deliver all funds and securities of the Trust which may come into his hands to such company as the Trustees shall employ as Custodian in accordance with the Trust Instrument and - 2 - applicable provisions of law. He shall make annual reports regarding the business and condition of the Trust, which reports shall be preserved in Trust records, and he shall furnish such other reports regarding the business and condition of the Trust as the Trustees may from time to time require. The Treasurer shall perform such additional duties as the Trustees may from time to time designate. SECTION 3.07 SECRETARY. The Secretary shall record in books kept for the purpose all votes and proceedings of the Trustees and the Shareholders at their respective meetings. He shall have the custody of the seal of the Trust. The Secretary shall perform such additional duties as the Trustees may from time to time designate. SECTION 3.08 VICE PRESIDENT. Any Vice President of the Trust shall perform such duties as the Trustees or the President may from time to time designate. At the request or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, then the senior of the Vice Presidents) present and able to act may perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. SECTION 3.09 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust shall perform such duties as the Trustees or the Treasurer may from time to time designate, and, in the absence of the Treasurer, the senior Assistant Treasurer, present and able to act, may perform all the duties of the Treasurer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. SECTION 3.10 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust shall perform such duties as the Trustees or the Secretary may from time to time designate, and, in the absence of the Secretary, the senior Assistant Secretary, present and able to act, may perform all the duties of the Secretary and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. SECTION 3.11 SUBORDINATE OFFICERS. The Trustees from time to time may appoint such officers or agents as they may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Trustees may determine. The Trustees from time to time may delegate to one or more officers or committees of Trustees the power to appoint any such subordinate officers or agents and to prescribe their respective terms of office, authorities and duties. SECTION 3.12 SURETY BONDS. The Trustees may require any officer or agent of the Trust to execute a bond (including without limitation, any bond required by the 1940 Act and the - 3 - rules and regulations of the Commission) to the Trust in such sum and with such surety or sureties as the Trustees may determine, conditioned upon the faithful performance of his duties to the Trust including responsibility for negligence and for the accounting of any of the Trust's property, funds or securities that may come into his hands. SECTION 3.13 REMOVAL. Any officer may be removed from office, with or without cause, whenever in the judgment of the Trustees the best interest of the Trust will be served thereby, by the vote of a majority of the Trustees given at any regular meeting or any special meeting of the Trustees. In addition, any officer or agent appointed in accordance with the provisions of Section 3.10 hereof may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Trustees. SECTION 3.14 REMUNERATION. The salaries or other compensation, if any, of the officers of the Trust shall be fixed from time to time by resolution of the Trustees. ARTICLE IV SHAREHOLDERS' MEETINGS SECTION 4.01 SPECIAL MEETINGS. A special meeting of the shareholders shall be called by the Secretary whenever (a) ordered by the Trustees or (b) requested in writing by the holder or holders of at least 10% of the Outstanding Shares entitled to vote for the purpose of voting upon the question of removal of Trustees. If the meeting is a meeting of the Shareholders of one or more Series or classes of Shares, but not a meeting of all Shareholders of the Trust, then only special meetings of the Shareholders of such one or more Series or classes shall be called and only the shareholders of such one or more Series or classes shall be entitled to notice of and to vote at such meeting. SECTION 4.02 NOTICES. Except as provided in Section 4.01, notices of any meeting of the Shareholders shall be given by the Secretary by delivering or mailing, postage prepaid, to each Shareholder entitled to vote at said meeting, written or printed notification of such meeting at least ten (10) days before the meeting, to such address as may be registered with the Trust by the Shareholder. Notice of any Shareholder meeting need not be given to any Shareholder if a written waiver of notice, executed before or after such meeting, is filed with the records of such meeting, or to any Shareholder who shall attend such meeting in person or by proxy. Notice of adjournment of a Shareholder's meeting to another time or place need not be given, if such time and place are announced at the meeting or reasonable notice is given to persons present at the meeting and the adjourned meeting is held within a reasonable time after the date set for the original meeting. - 4 - SECTION 4.03 VOTING-PROXIES. Subject to the provisions of the Trust Instrument, shareholders entitled to vote may vote either in person or by proxy, provided that either (a) an instrument authorizing such proxy to act is executed by the Shareholder in writing and dated not more than eleven (11) months before the meeting, unless the instrument specifically provides for a longer period or (b) the Trustees adopt by resolution an electronic, telephonic, computerized or other alternative to execution of a written instrument authorizing the proxy to act, which authorization is received not more than eleven (11) months before the meeting. Proxies shall be delivered to the Secretary of the Trust or other person responsible for recording the proceedings before being voted. A proxy with respect to shares held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of such proxy the Trust receives a specific written notice from any one of them. Unless otherwise specifically limited by their terms, proxies shall entitle the holder thereof to vote at any adjournment of a meeting. A proxy purporting to be exercised by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. At all meetings of the Shareholders, unless the voting is conducted by inspectors, all questions relating to the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by the Chairman of the meeting. Except as otherwise provided herein or in the Trust Instrument, as these Bylaws or such Trust Instrument may be amended or supplemented from time to time, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Shareholders were shareholders of a Delaware corporation. SECTION 4.04 PLACE OF MEETING. All special meetings of the Shareholders shall be held at the principal place of business of the Trust or at such other place in the United States as the Trustees may designate. SECTION 4.05 ACTION WITHOUT A MEETING. Any action to be taken by Shareholders may be taken without a meeting if all Shareholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of meetings of Shareholders of the Trust. Such consent shall be treated for all purposes as a vote at a meeting of the Shareholders held at the principal place of business of the Trust. - 5 - ARTICLE V TRUSTEES' MEETINGS SECTION 5.01 SPECIAL MEETINGS. Special meetings of the Trustees may be called orally or in writing by the Chairman of the Board of Trustees or any two other Trustees. SECTION 5.02 REGULAR MEETINGS. Regular meetings of the Trustees may be held at such places and at such times as the Trustees may from time to time determine; each Trustee present at such determination shall be deemed a party calling the meeting and no call or notice will be required to such Trustee provided that any Trustee who is absent when such determination is made shall be given notice of the determination by the Chairman or any two other Trustees, as provided for in Section 4.04 of the Trust Instrument. SECTION 5.03 QUORUM. A majority of the Trustees shall constitute a quorum for the transaction of business at any meeting and an action of a majority of the Trustees in attendance constituting a quorum shall constitute action of the Trustees. SECTION 5.04 NOTICE. Except as otherwise provided, notice of any special meeting of the Trustees shall be given by the party calling the meeting to each of the Trustees, as provided for in Section 4.04 of the Trust Instrument. A written notice may be mailed, postage prepaid, addressed to him at his address as registered on the books of the Trust or, if not so registered, at his last known address. SECTION 5.05 PLACE OF MEETING. All special meetings of the Trustees shall be held at the principal place of business of the Trust or such other place as the Trustees may designate. Any meeting may adjourn to any place. SECTION 5.06 SPECIAL ACTION. When all the Trustees shall be present at any meeting however called or wherever held, or shall assent to the holding of the meeting without notice, or shall sign a written assent thereto filed with the records of such meeting, the acts of such meeting shall be valid as if such meeting had been regularly held. SECTION 5.07 ACTION BY CONSENT. Any action by the Trustees may be taken without a meeting if a written consent thereto is signed by all the Trustees and filed with the records of the Trustees' meeting. Such consent shall be treated, for all purposes, as a vote at a meeting of the Trustees held at the principal place of business of the Trustees. SECTION 5.08 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Except when presence in person is required at a meeting under the 1940 Act or other applicable laws, Trustees may participate in a meeting of Trustees by conference telephone or similar communications equipment by means of which all persons - 6 - participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Any meeting conducted by telephone shall be deemed to take place at and from the principal office of the Trust. ARTICLE VI FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT SECTION 6.01 FISCAL YEAR. The fiscal year of the Trust and of each Series of the Trust shall end on December 31 of each year; provided that the last fiscal year of the Trust and each Series shall end on the date on which the Trust or each such Series is terminated, as applicable; and further provided that the Trustees by resolution and without a Shareholder vote may at any time change the fiscal year of the Trust and of any or all Series (and the Trust and each Series may have different fiscal years as determined by the Trustees). SECTION 6.02 REGISTERED OFFICE AND REGISTERED AGENT. The initial registered office of the Trust in the State of Delaware shall be located at 1201 North Market Street, P.O. Box 1347, Wilmington, Delaware 19899-1347. The registered agent of the Trust at such location shall be Delaware Corporation Organizers, Inc.; provided that the Trustees by resolution and without a Shareholder vote may at any time change the Trust's registered office or its registered agent, or both. ARTICLE VII INSPECTION OF BOOKS The Trustees shall from time to time determine whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the Trust or any of them shall be open to the inspection of the Shareholders; and no Shareholder shall have any right to inspect any account or book or document of the Trust except as conferred by law or otherwise by the Trustees or by resolution of the Shareholders. ARTICLE VIII INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES The Trust may purchase and maintain insurance on behalf of any Covered Person (as defined in Section 10.02 of the Trust Instrument) or employee of the Trust, including any Covered Person or employee of the Trust who is or was serving at the request of the Trust as a Trustee, officer or employee of a corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and claimed by him in any such capacity or arising out of his status as such, whether or not the Trustees would have the power to indemnify him against such liability. - 7 - The Trust may not acquire or obtain a contract for insurance that protects or purports to protect any Trustee or officer of the Trust against any liability to the Trust or its Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. ARTICLE IX SEAL The seal of the Trust shall be circular in form bearing the inscription: "GUINNESS FLIGHT INVESTMENT FUNDS, MARCH 6, 1997 THE STATE OF DELAWARE" ARTICLE X AMENDMENTS These Bylaws may be amended from time to time by action of the Trustees, without requirement for the vote or approval of shareholders. - 8 - EX-99.B5 5 FORM OF INVESTMENT ADVISORY AGREEMENT FORM OF INVESTMENT ADVISORY AGREEMENT BETWEEN GUINNESS FLIGHT INVESTMENT FUNDS AND GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED INVESTMENT ADVISORY AGREEMENT, dated as of ________, 1997, by and between GUINNESS FLIGHT INVESTMENT FUNDS, a Delaware business trust which may issue one or more series of shares of beneficial interest (the "Trust"), and GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED (the "Adviser"). W I T N E S S E T H ------------------- WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940 (collectively with the rules and regulations promulgated thereunder, the "Act"); and WHEREAS, the Adviser is an investment adviser under the Investment Advisers Act of 1940, as amended, and engages in the business of acting as an investment adviser; and WHEREAS, the Adviser is a member of the Investment Management Regulatory Organization Limited ("IMRO") of the United Kingdom and is thereby regulated by IMRO in the conduct of its investment business for United Kingdom investors and engages in the business of acting as an investment adviser; and WHEREAS, the Trust wishes to engage the Adviser to provide certain investment advisory services to the series of the Trust listed on Schedule A (each, a "Fund" and collectively, the "Funds"), and the Adviser is willing to provide such investment advisory services for the Funds on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows: 1. Appointment. The Adviser agrees, all as more fully set forth herein, to act as investment adviser to the Funds with respect to the investment of their assets and to supervise and arrange the purchase of securities for and the sale of securities held in the portfolios of the Funds. 2. Duties and Obligations of the Adviser With Respect to the Invest- ment of Assets of the Funds. (a) Subject to the succeeding provisions of this section and subject to the direction and control of the Board of Trustees of the Trust, the Adviser shall: (i) supervise continuously the investment program of each Fund and the composition of its portfolio; (ii) determine what securities be purchased or sold by each Fund; and (iii) arrange for the purchase and the sale of securities held in the portfolio of each Fund; and (b) Any investment program furnished by the Adviser under this section shall at all times conform to, and be in accordance with, any requirements imposed by: (i) the provisions of the Act and of any rules or regulations in force thereunder; (ii) any other applicable provisions of state and Federal law; (iii) the provisions of the Trust's Trust Instrument and By-Laws, as amended from time to time; (iv) any policies and determinations of the Board of Trustees of the Trust; and (v) the fundamental policies of each Fund, as reflected in its Registration Statement under the Act, as amended from time to time. (c) The Adviser shall give each Fund the benefit of its best judgment and effort in rendering services hereunder, and in connection therewith the Adviser shall not be liable to any Fund or its security holders for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for such -2- Fund, except for wilful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this subsection (c), the term "Adviser" shall include board members, officers and employees of the Adviser as well as the entity referred to as the "Adviser" itself. (d) Nothing in this Agreement shall prevent the Adviser or any affiliated person (as defined in the Act) of the Adviser from acting as investment adviser or manager for any other person, firm or corporation (including other investment companies) and shall not in any way limit or restrict the Adviser or any such affiliated person from buying, selling or trading any securities for its or their own accounts or for the accounts of others for whom it or they may be acting; provided, however, that the Adviser expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Funds under this Agreement. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Funds' principal underwriter or distributor, as principals in making purchases or sales of securities or other property for the account of the Funds, except as permitted by the Act, and will comply with all other provisions of the Trust's Trust Instrument and By-Laws and the then-current prospectus and statement of additional information applicable to each Fund relative to the Adviser and its board members and officers. (e) The Funds will supply the Adviser with certified copies of the following documents: (i) the Trust's Trust Instrument and By-Laws; (ii) resolutions of the Trust's Board of Trustees and shareholders authorizing the appointment of the Adviser and approving this Agreement; (iii) the Funds' Registration Statement, as filed with the Securities and Exchange Commission; and (iv) the Funds' most recent prospectus and statement of additional information. The Funds will furnish the Adviser from time to time with copies of all amendments or supplements to the foregoing, if any, and all documents, notices and reports filed with the Securities and Exchange Commission. (f) The Funds will supply, or cause its custodian bank to supply, to the Adviser such financial information as is necessary or desirable for the functions of the Adviser hereunder. 3. Broker-Dealer Relationships. The Adviser is responsible for decisions to buy and sell securities for each Fund, broker-dealer selection and negotiation of its brokerage commission rates. The Adviser's primary consideration in effecting a security transaction will be execution at the most favorable price. Each Fund understands that many of its portfolio transactions will be transacted with primary market makers acting as principal on a net basis, with no brokerage commissions being paid by the Fund. Such principal transactions may, however, result in a profit to the market makers. In certain instances, the Adviser may make purchases of underwritten issues at prices which include underwriting fees. In selecting a broker or dealer to execute each particular transaction, the Adviser will take the following into consideration: the best price available; the reliability, integrity and financial condition of the broker or dealer; the size of and difficulty in executing the -3- order; and the value of the expected contribution of the broker or dealer to the investment performance of a Fund on a continuing basis. Accordingly, the price to a Fund in any transaction may be less favorable than that available from another broker or dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine, the Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Fund to pay a broker or dealer that provides brokerage and research services to the Adviser an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund. The Adviser is further authorized to allocate the orders placed by it on behalf of a Fund to an affiliated broker-dealer, if any, or to such brokers and dealers who also provide research or statistical material, or other services to the Fund (which material or services may also assist the Adviser in rendering services to other clients). Such allocation shall be in such amounts and proportions as the Adviser shall determine and the Adviser will report on said allocations regularly to the Board of Trustees indicating the brokers to whom such allocations have been made and the basis therefor. 4. Allocation of Expenses. The Adviser agrees that it will furnish each Fund, at its expense, all office space and facilities, equipment and clerical personnel necessary for carrying out its duties under this Agreement. The Adviser agrees that it will supply to any administrator (the "Administrator") of the Funds all necessary financial information in connection with the Administrator's duties under any agreement between the Administrator and the Trust on behalf of the Funds. All costs and expenses associated with any administrative functions delegated by the Adviser to the Administrator that are not pursuant to any agreement between the Administrator and a Fund or the Adviser and a Fund will be paid by the Adviser. All other costs and expenses not expressly assumed by the Adviser under this Agreement or by the Administrator under the administration agreement between it and the Trust on behalf of a Fund shall be paid by the Fund from the assets of the Fund, including, but not limited to (i) fees paid to the Adviser and the Administrator; (ii) interest and taxes; (iii) brokerage commissions; (iv) insurance premiums; (v) compensation and expenses of the directors other than those affiliated with the adviser or the administrator; (vi) legal, accounting and audit expenses; (vii) fees and expenses of any transfer agent, distributor, registrar, dividend disbursing agent or shareholder servicing agent of the Fund; (viii) expenses, including clerical expenses, incident to the issuance, redemption or repurchase of shares of the Fund, including issuance on the payment of, or reinvestment of, dividends; (ix) fees and expenses incident to the registration under Federal or state securities laws of the Fund or its shares; (x) expenses of preparing, setting in type, printing and mailing prospectuses, statements of additional information, reports and notices and proxy material to shareholders of the Fund; (xi) all other expenses incidental to holding meetings of the Fund's shareholders; (xii) expenses connected with -4- the execution, recording and settlement of portfolio securities transactions; (xiii) fees and expenses of the Fund's custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; (xiv) expenses of calculating net asset value of the shares of the Fund; (xv) industry membership fees allocable to the Fund; and (xvi) such extraordinary expenses as may arise, including litigation affecting the Fund and the legal obligations which the Fund may have to indemnify the officers and directors with respect thereto. 5. Compensation of the Adviser. For the services to be rendered, each Fund shall pay to the Adviser from the assets of the Fund an investment advisory fee paid monthly at an annual rate set forth opposite each Fund's name on Schedule A which shall be a percentage of the Fund's average daily net assets for the Fund's then-current fiscal year. Except as hereinafter set forth, compensation under this Agreement shall be calculated and accrued daily and the amounts of the daily accruals shall be paid monthly. If the Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Subject to the provisions of subsection (b) hereof, payment of the Adviser's compensation for the preceding month shall be made as promptly as possible after completion of the computations contemplated by subsection (b) hereof. 6. Duration Amendment and Termination. (a) This Agreement shall go into effect as to each Fund on the date set forth above (the "Effective Date") and shall, unless terminated as hereinafter provided, continue in effect for two years from the Effective Date and shall continue from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Board of Trustees, including the vote of a majority of the trustees who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party cast in person at a meeting called for the purpose of voting on such approval, or by the vote of the holders of a "majority" (as so defined) of the outstanding voting securities of a Fund and by such a vote of the trustees. (b) This Agreement may be amended only if such amendment is approved by the vote of the holders of a "majority" (as defined in the Act) of the outstanding voting securities of a Fund. (c) This Agreement may be terminated as to a Fund by the Adviser at any time without penalty upon giving such Fund sixty (60) days' written notice (which notice may be waived by the Fund) and may be terminated by a Fund at any time without penalty upon giving the Adviser sixty (60) days' written notice (which notice may be waived by the Adviser), provided that such termination by such Fund shall be approved by the vote of a majority of all the trustees in office at the time or by the vote of the holders of a "majority" (as defined in the Act) of the -5- voting securities of the Fund at the time outstanding and entitled to vote. This Agreement shall automatically terminate in the event of its "assignment" (as defined in the Act). 7. Board of Trustees' Meeting. Each Fund agrees that notice of each meeting of the Board of Trustees will be sent to the Adviser and that each Fund will make appropriate arrangements for the attendance (as persons present by invitation) of such person or persons as the Adviser may designate. 8. Use of the Name "Guinness Flight". Each Fund acknowledges that it is adopting its name through permission of the Adviser, and agrees that the Adviser reserves to itself and any successor to its business the right to withdraw the right to use the name "Guinness Flight" from a Fund if the Adviser no longer advises the Fund. The Adviser also reserves the right to grant the nonexclusive right to use the name "Guinness Flight" or any similar name to any other corporation or entity, including, but not limited to, any investment company. In the event this Agreement is terminated, each Fund shall immediately delete "Guinness Flight" from its name and may not use the name "Guinness Flight" in any manner thereafter. 9. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. 10. Questions of Interpretation. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act, as amended, shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Act. In addition, where the effect of a requirement of the Act, reflected in any provision of this Agreement is revised by rule, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order. -6- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names on their names on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. GUINNESS FLIGHT INVESTMENT FUNDS By___________________________________ Title: GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED By____________________________________ Title: -7- Schedule A Name of Fund Fee* - ------------ ---- 1. Guinness Flight Asia Blue Chip Fund 1.00% 2. Guinness Flight Asia Small Cap Fund 1.00% 3. Guinness Flight China & Hong Kong Fund 1.00% 4. Guinness Flight Global Government Bond Fund .75% - -------------- * As a percentage of average daily net assets. Note, however, that the Adviser shall have the right, but not the obligation, to voluntarily waive any portion of the advisory fee from time to time. Any such voluntary waiver will be irrevocable and determined in advance of rendering investment advisory services by the Adviser, and shall be in writing and signed by the parties hereto. EX-99.B11(A) 6 CONSENT OF KRAMER, LEVIN Kramer, Levin, Naftalis & Frankel 919 THIRD AVENUE NEW YORK, N.Y. 10022 - 3852 (212) 715 - 9100 Arthur H. Aufses III Monica C. Lord Sherwin Kamin Thomas D. Balliett Richard Marlin Arthur B. Kramer Jay G. Baris Thomas E. Molner Maurice N. Nessen Philip Bentley Thomas H. Moreland Founding Partners Saul E. Burian Ellen R. Nadler Counsel Barry Michael Cass Gary P. Naftalis _____ Thomas E. Constance Michael J. Nassau Michael J. Dell Michael S. Nelson Martin Balsam Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman Charlotte M. Fischman Michael S. Oberman Jules Buchwald David S. Frankel Paul S. Pearlman Rudolph de Winter Marvin E. Frankel Susan J. Penry-Williams Meyer Eisenberg Alan R. Friedman Bruce Rabb Arthur D. Emil Carl Frischling Allan E. Reznick Maxwell M. Rabb Mark J. Headley Scott S. Rosenblum James Schreiber Robert M. Heller Michele D. Ross Counsel Philip S. Kaufman Max J. Schwartz _____ Peter S. Kolevzon Mark B. Segall Kenneth P. Kopelman Judith Singer M. Frances Buchinsky Michael Paul Korotkin Howard A. Sobel Abbe L. Dienstag Shari K. Krouner Jeffrey S. Trachtman Ronald S. Greenberg Kevin B. Leblang Jonathan M. Wagner Debora K. Grobman David P. Levin Harold P. Weinberger Christian S. Herzeca Ezra G. Levin E. Lisk Wyckoff, Jr. Jane lee Larry M. Loeb Pinchas Mendelson Lynn R. Saidenberg Special Counsel ----- FAX (212) 715-8000 --- WRITER'S DIRECT NUMBER (212)715-9100 ------------- March 14, 1997 Guinness Flight Investment Funds, Inc. 201 South Lake Avenue Suite 510 Pasadena, California 91101 Re: Guinness Flight Investment Funds Registration Statement on Form N-1A (ICA No. 811-8360; File No. 33-75340) ------------------------------------- Gentlemen: We hereby consent to the reference of our firm as Counsel in this Registration Statement on Form N-1A. Very truly yours, /s/ Kramer, Levin, Naftalis & Frankel ------------------------------------- EX-99.B11(B) 7 CONSENT OF ACCOUNTANT CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of Guinness Flight Investment Funds: We consent to the incorporation by reference in Post-Effective Amendment No. 7 to the Registration Statement of Guinness Flight Investment Funds on Form N-1A (File No. 33-75340) of our report dated February 8, 1995, on our audit of the financial highlights for the period June 30, 1994 (commencement of operations) through December 31, 1994, for the Guinness Flight China and Hong Kong Fund and Guinness Flight Global Government Bond Fund. /s/COOPERS & LYBRAND L.L.P. Los Angeles, California March 17, 1997 EX-99.B11(C) 8 CONSENT OF AUDITORS CONSENT OF INDEPENDENT AUDITORS ------------------------------- We consent to the reference to our firm under the captions "Financial Highlights" and "Independent Accountants" and "Financial Statements" in Post-Effective Amendment No. 7 to the Registration Statement and related Statement of Additional Information of Guinness FlightInvestment Funds. /s/ERNST & YOUNG LLP Los Angeles, California March 13, 1997 -----END PRIVACY-ENHANCED MESSAGE-----