-----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, FjPwJYOoNUTvnqonBJL7Fnu0J4WyxS2O9J5sj2TGCwDV5JVWoLH/PD6KRLfbkMye oA+v6OFcPTZ8Pmz88GKwvQ== 0000922423-97-000401.txt : 19970428 0000922423-97-000401.hdr.sgml : 19970428 ACCESSION NUMBER: 0000922423-97-000401 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19970425 EFFECTIVENESS DATE: 19970425 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-75340 FILM NUMBER: 97587190 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08360 FILM NUMBER: 97587147 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 485BPOS 1 POST-EFFECTIVE AMENDMENT NO. 8 Reg. ICA No. 811-8360 File No. 33-75340 AS FILED VIA EDGAR WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X| Pre-Effective Amendment No. |_| Post-Effective Amendment No. 8 |X| and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X| Amendment No. 8 GUINNESS FLIGHT INVESTMENT FUNDS (Exact Name of Registrant as Specified in Charter) 225 South Lake Avenue, Suite 777 Pasadena, California 91101 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, including Area Code: (818) 795-0039 Susan Penry-Williams, Esq. Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 (Name and Address of Agent for Service) Copy to: Mr. James Atkinson Guinness Flight Investment Funds 225 South Lake Avenue, Suite 777 Pasadena, California 91101 It is proposed that this filing will become effective: [_] Immediately upon filing pursuant to [X] on April 28, 1997 pursuant paragraph (b) to paragraph (b) [_] 60 days after filing pursuant to [_] on ( ) pursuant to paragraph (a)(1) paragraph (a)(1) [_] 75 days after filing pursuant to [_] on ( ) pursuant to paragraph (a)(2) paragraph (a)(2), of rule 485. If appropriate, check the following box: [_] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Registrant has registered an indefinite number of Shares under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940 and its Rule 24f-2 Notice for its December 31, 1996 fiscal year end was filed on February 28, 1997. 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 * (c) Not Applicable * (d) Not Applicable * (e) Cover Page; General * Information (f) Dividends, Distributions and * Tax Matters - Dividends and Distributions (g) Dividends, Distributions and Tax Matters - Dividends Tax Matters - Tax Matters and Distributions (a) How to Purchase Shares * (b) How to Purchase Shares; * Determination of Net Asset Value (c) Not Applicable * (d) How to Purchase Shares - * Opening an Account, Additional Investments (e) Not Applicable * (f) The Funds' Management - Distribution Plan 8(a) How to Redeem Shares * (b) How to Redeem Shares * (c) How to Redeem Shares - * Redemption of Small Accounts (d) Not Applicable * 9 Not Applicable * -2- Item Number Form N-1A, Statement of Additional Part B Prospectus Caption Information Caption GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND Item Number Form N-1A, Statement of Additional Part B Prospectus Caption Information Caption ------ ------------------ ------------------- 10 * Front Cover Page 11 * Front Cover Page 12 * Not Applicable 13 Investment Objective, Programs Investment Objective and Policies; and Limitations Investment Strategies and Risks; Investment Restrictions and Policies 14 * Management of the Funds 15(a) * Not Applicable (b) * Shareholder Reports (c) * Management of the Funds 16(a) The Funds' Management - The Investment Adviser and Investment Adviser Advisory Agreements (b) The Funds' Management The Investment Adviser and Advisory Agreements (c) * Distribution Agreement and Distribution and Service Plans (d) The Funds' Management - Distribution Agreement and Administrator Distribution and Service Plans (e) * Not Applicable (f) The Funds' Management - Distribution Agreement and Distribution Plan Distribution and Service Plans (g) * Not Applicable -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 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- PROSPECTUS Please read this prospectus before investing. It is designed to provide you with information and to help you decide if the goals of the Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong Kong Fund, or the Guinness Flight Global Government Bond Fund match your own. It should be retained for future reference. A Statement of Additional Information, dated April 28, 1997, has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Statement of Additional Information is available without charge upon request by calling the Funds at 1-800-915-6565. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS PAGE 1 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 Flight Funds") is a Delaware business trust organized as an open-end, series, management investment company. Currently, the Guinness Flight Funds offer four separate series portfolios: Guinness Flight Asia Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small Cap Fund ("Asia Small Cap Fund"), Guinness Flight China & Hong Kong Fund (the "China Fund"), and Guinness Flight Global Government Bond Fund (the "Global Government Fund")(collectively, the "Funds"), each of which pursues unique investment strategies. Risk Considerations. An investor should be aware that there are risks associated with certain investment techniques and strategies employed by the Funds, including those relating to investments in foreign securities. Such risks include among others currency fluctuations, expropriation, confiscation, diplomatic developments, and social instability. Each Fund's net asset value per share can be expected to fluctuate. Accordingly, investors should consider an investment in a Fund as a supplement to an overall investment program and should invest only if they are willing to undertake the risks involved. See "Investment Strategies, Policies and Risks" and "Other Risk Considerations." The Investment Adviser. Guinness Flight Investment Management Limited ("Guinness Flight") serves as the Funds' investment adviser pursuant to an investment advisory agreement (the "Advisory Agreement"). Under the terms of the Advisory Agreement, Guinness Flight supervises all aspects of the Funds' operations and provides investment advisory - 3 - 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% .78% .00% ---- ---- ---- ---- Total Fund Operating Expenses (after expense reimbursement) 1.98% 1.98% 1.78% .75% ++ ++ Guinness Flight has undertaken to cap Total Fund Operating Expenses at .75% for the Global Government Fund by reimbursing the Fund for all "Other Expenses." The Global Government Fund will notify its shareholders in writing at least 30 days prior to any adjustments to the cap on its Total Fund Operating Expenses.
- 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:
Asia Asia Blue Small Global Chip Cap China Gov't ---- --- ----- ----- One Year $20 $20 $20 $8 Three Year $62 $62 $62 $24 Five Year $107 $107 $107 $42 Ten Year $231 $231 $231 $93
Explanation of Table: The purpose of the table is to assist you in understanding the various costs and expenses that an investor in a Fund would bear directly or indirectly. A. Shareholder Transaction Expenses represent charges paid when you purchase, redeem or exchange shares of a Fund. See "How to Purchase Shares," "How to Redeem Shares" and "Redemption Fee." B. Annual Fund Operating Expenses are based on a Fund's operating expenses for the current fiscal year. The Funds incur "other expenses" for maintaining shareholder records, furnishing shareholder statements and reports, and other services. Guinness Flight or the Administrator may, from time to time, voluntarily agree to defer or waive fees or absorb some or all of the expenses of the Funds. To the extent that they should do so, either may seek repayment of such deferred fees or absorbed expenses after this practice is discontinued. However, no repayment will be made if the expense ratio of the Asia Blue Chip Fund, Asia Small Cap Fund, China Fund or the Global Government Fund would exceed 1.98%, 1.98%, 1.98% and .75%, respectively. For the current year, the China Fund repaid Guinness Flight for amounts it had absorbed during prior fiscal periods. Including such repayment, "other expenses" were .98% and "total fund operating expenses" were 1.98%. For the prior fiscal year, Guinness Flight absorbed some of the expenses of each of the funds except the China Fund . If Guinness Flight had not absorbed such expenses, "other expenses" for the Asia Blue Chip, Asia Small Cap and Global Government Fund would have been 8.14%, 2.09% and 7.46%, respectively and "total fund operating expenses" would have been 9.14%, 3.09% and 8.21%%, respectively. See "The Funds' Management." C. Example of Expenses. The hypothetical example illustrates the expenses associated with a $1,000 investment in a Fund over periods of one, three, five and ten years based on the estimated expenses in the above table and an assumed annual rate of return of 5%. The 5% return and expenses should not be considered indications of actual or expected Fund performance or expenses, both of which may vary. - 5 - Financial Highlights The tables below set forth certain financial information with respect to a share outstanding for each of the Funds for the periods indicated. The following information for the China Fund and the Global Government Fund for the fiscal period from June 30, 1994 (commencement of operations) to December 31, 1994 has been audited by Coopers & Lybrand L.L.P., and the information for the fiscal years ended December 31, 1995 and 1996 for each of the Funds has been audited by Ernst & Young LLP, independent accountants to the Funds. The unqualified report of Ernst & Young LLP, covering the fiscal period ending December 31, 1996 is incorporated by reference into the Statement of Additional Information, which may be obtained by calling the telephone number on the cover page of this prospectus. The financial highlights should be read in conjunction with each Fund's audited financial statements for the periods indicated. Guinness Flight Asia Blue Chip Fund Financial Highlights for a capital share outstanding throughout the period
April 29, 1996* through December 31, 1996 Net asset value, beginning of period $12.50 Income from investment operations: Net investment income 0.00 Net realized and unrealized gain on investments and foreign currency 0.48 ---- Total from investment operations 0.48 ----- Net asset value, end of period $12.98 ======= Total return 3.84%+ Ratios/supplemental data: Net assets, end of period (thousands) $3,687 Ratio of expenses to average net assets:** Before expense reimbursement 9.14% After expense reimbursement 1.98% Ratio of net investment income (loss) to average net assets:** Before expense reimbursement (7.10)% After expense reimbursement 0.06% Portfolio turnover rate 10.97% Average Commission Rate Paid++ $0.0190 * Commencement of operations. ** Annualized. + Not Annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
- 6 - Guinness Flight Asia Small Cap Fund Financial Highlights for a capital share outstanding throughout the period
April 29, 1996* through December 31, 1996 Net asset value, beginning of period $12.50 Income from investment operations: Net investment income 0.02 Net realized and unrealized gain on investments 1.61 Total from investment operations 1.63 Less distributions: Dividends from net investment income (0.02) Distribution from taxable net capital gains (0.01) (0.03) Net asset value, end of period $14.10 Total return 13.08%+ Ratios/supplemental data: Net assets, end of period (thousands) $50,868 Ratio of expenses to average net assets:** Before expense reimbursement 3.09% After expense reimbursement 1.98% Ratio of net investment income to average net assets:** Before expense reimbursement (0.76)% After expense reimbursement 0.36% Portfolio turnover rate 21.91% Average Commission Rate Paid++ $0.0029 * Commencement of operations. ** Annualized. + Not Annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
- 7 - Guinness Flight China & Hong Kong Fund Financial Highlights for a capital share outstanding throughout the period
For the Year Ended June 30, 1994* December 31, through -------------------------- 1996 1995 December 31, 1994 Net asset value, beginning of period $13.64 $11.47 $12.50 Income from investment operations: Net investment income .19 .14 .04 Net realized and unrealized gain (loss) on investments 4.43 2.20 (.96) ----- ---- ----- Total from investment operations 4.62 2.34 (.92) ----- ---- ----- Less distributions: Dividends from net investment income (.19) (.14) (.04) Distributions from net capital gains (.36) (.03) (.07) ----- ----- ----- Total distributions (.55) (.17) (.11) ----- ----- ----- Net asset value, end of period $17.71 $13.64 $11.47 ======= ====== ====== Total return 34.38% 20.45% (7.74)%++ Ratios/supplemental data: Net assets, end of period (thousands) 311,521 $55,740 $2,287 Ratio of expenses to average net assets: Before expense reimbursement (recoupment) 1.78% 3.02%** 19.92%+ After expense reimbursement (recoupment) 1.96% 1.98% 2.00% + Ratio of net investment income to average net assets: Before expense reimbursement (recoupment) 1.57% 0.49% (17.15)%+ After expense reimbursement (recoupment) 1.39% 1.52% 0.78% + Portfolio turnover rate 30.04% 10.89% 27.25% Average commission rate paid# $0.0070 -- -- BANK LOANS Amount outstanding at end of period $(000) -- -- -- Average amount of loans outstanding during the period (monthly average) (000) $1,413 -- -- Average number of shares outstanding during the period (monthly average) (000) 11,419 -- -- Average amount of debt per share during the period $0.12 -- --
* Commencement of operations. ** Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the "ratio of expenses to average net assets before expense reimbursement" would have been 3.04%. # For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. + Annualized. ++ Not annualized. - 8 - Guinness Flight Global Government Bond Fund Financial Highlights for a capital share outstanding throughout the period
For the Year Ended June 30, 1994* December 31, through ------------------------- 1996 1995 December 31, 1994 Net asset value, beginning of period $12.77 $12.00 $12.50 Income from investment operations: Net investment income .63 .69 .29 Net realized and unrealized gain (loss) on investments .13 1.01 (.58) --- ---- ----- Total from investment operations .76 1.70 (.29) --- ---- ----- Less distributions: Dividends from net investment income (.69) (.65) (.21) Distributions from net capital gains (.12) (.28) -0- ----- ----- --- Total distributions (.81) (.93) (.21) ----- ----- ----- Net asset value, end of period $12.72 $12.77 $12.00 ======= ====== ====== Total return 6.21% 14.49% (2.33)%++ Ratios/supplemental data: Net assets, end of period (thousands) $6,564 $1,153 $751 Ratio of expenses to average net assets: Before expense reimbursement 8.21% 21.52% ** 40.78%+ After expense reimbursement 1.31% 1.73% 1.75%+ Ratio of net investment income to average net assets: Before expense reimbursement (1.76)% (14.26)% (34.18)% + After expense reimbursement 5.14% 5.53% 4.86% + Portfolio turnover rate 296.51% 202.54% 46.15%
+ Annualized. ++ Not annualized. * Commencement of operations. ** Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the "ratio of expenses to average net assets before expense reimbursement" would have been 21.68%. - 9 - 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 Flight Funds' Board of Trustees. The liquidity of Rule 144A securities will be monitored by Guinness Flight, and if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, a Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities. Portfolio Turnover. Any particular security will be sold, and the proceeds reinvested, whenever such action is deemed prudent from the viewpoint of a Fund's investment objective, regardless of the holding period of that security. A higher rate of portfolio turnover may result in higher transaction costs, including brokerage commissions. To the extent that higher portfolio turnover results in a higher rate of net realized capital gains to a Fund, the portion of the Fund's distributions constituting taxable capital gains may increase. See "Dividends, Distributions and Tax Matters." Guinness Flight anticipates that the annual portfolio turnover rate will not exceed 100% for the Asia Blue Chip Fund, the Asia Small Cap Fund, and the China Fund, and 200% for the Global Government Fund. For further discussion with regard to the Funds' investment strategies, policies and risks, see "Investment Strategies and Risks" in the Funds' Statement of Additional Information. Other Risk Considerations The Asia Blue Chip Fund, Asia Small Cap Fund and China Fund -- Risk Considerations. The Chinese economy previously operated as a Socialist economic system, relying heavily upon government planning from 1949, the year in which the Communists seized power, to 1978, the year Deng Xiaoping instituted his first economic reforms. Economic reforms in China are transforming its economy into a market system that has stimulated significant economic growth. As a result of such reform, living standards of the 800 million rural workers has improved. Farm reform led to the doubling of China's farmers' incomes over the 1980's. The next stage of reform gave rise to small scale entrepreneurs and stimulated light and medium industry. In addition, a cheap and abundant supply of labor has attracted foreign investment in - 13 - China. Special Economic Zones (SEZ), five originally and over thirty today, were set up, providing tax advantages to foreign investors. Further, two stock exchanges have recently opened in China - the Shenzhen and the Shanghai. Class "A" and Class "B" shares are traded on both exchanges. While only resident Chinese can purchase Class "A" shares, foreign investors (such as the China Fund) can purchase Class "B" shares. Over the period 1978 to 1995, China's gross domestic product grew at approximately 10% per annum. By 1995, China had become one of the world's major trading nations. The World Bank forecasts that China will have the world's largest economy by 2003. In 1984 China and Britain signed the Joint Declaration which allowed for the termination of British rule in Hong Kong in July 1997, but which would maintain the existing capitalist economic and social system of Hong Kong for 50 years beyond that date. Article 5 of the Sino-British Declaration 26.9.84 provides: The current social and economic systems in Hong Kong will remain unchanged and so will the lifestyle. Rights and freedoms, including those of the person, of speech, of the press, of assembly, of association, of travel, of movement, of correspondence, of choice, of occupation, of academic research and of religious belief, will be ensured by law in the Hong Kong Special Administrative Region. Private property, ownership of enterprises, legitimate right of inheritance and foreign investment will be protected by law. Obviously there is a risk after June 30, 1997 when Hong Kong returns to China under the "one country two systems" proposal. However, Hong Kong and China are interdependent; 70% of foreign investment in China is from Hong Kong and China has large shareholdings in Hong Kong companies. Guinness Flight believes that China is unlikely to damage the Hong Kong economy and destroy the value of their investments. Today, Hong Kong's stock market, is one of the largest in the world and is highly liquid and extensively regulated. Notwithstanding the beliefs of Guinness Flight, investors should realize that there are significant risks to investing in Hong Kong and China, both before and after June 30, 1997, including: (1) that the transition to a successor to Deng Xiaoping may result in an open feud amongst China's leaders leading to political instability; (2) that hard line Marxist Leninists might regain the political initiative; (3) that social tensions caused by widely differing levels of economic prosperity within Chinese society might create unrest, as they did in the tragic events of 1989, culminating in the Tiananmen Square incident; and (4) that the threat of armed conflict exists over the unresolved situation concerning Taiwan. Nonetheless, Guinness Flight believes that the process of reform has now gone too far to be easily reversed and that China will not deliberately damage the Hong Kong economy in which it has become a substantial investor and on which so much of its industry depends. The Global Government Fund -- Risk Considerations. The obligations of foreign government entities, including supranational issuers, have various kinds of government support. Although obligations of foreign governmental entities include obligations issued or guaranteed by national provincial, state or other government with taxing power, or by their agencies, these obligations may or may not be supported by the full faith and credit of a foreign government. General Economic and Political Risks. The economies of foreign countries may differ unfavorably from the United States economy in such respects as growth of domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments positions. Further, such economies generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by economic conditions in countries in which they trade, as well as trade barriers, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by such countries. - 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 Flight Funds' Board of Trustees. The Board of Trustees approves all significant agreements between the Guinness Flight Funds, on behalf of a Fund, and persons or companies furnishing services to a Fund. The day-to-day operations of each Fund are delegated to the officers of the Guinness Flight Funds and to Guinness Flight, subject always to the investment objective and policies of each Fund and to the general supervision of the Guinness Flight Funds' Board of Trustees. Information concerning the Board of Trustees may be found in the Statement of Additional Information. Investment Adviser. Guinness Flight is headquartered in London, England, at Lighterman's Court, 5 Gainsford Street, Tower Bridge SE1 2NE, has a U.S. office at 225 South Lake Avenue, Suite 777, Pasadena, California 91101 and an office at Upper Ground Floor, Far East Center, 16 Harcourt Road, Admiralty, Hong Kong. Guinness Flight serves as the investment adviser to each of the Funds pursuant to an Advisory Agreement dated as of April 28, 1997. Under the terms of the Advisory Agreement, Guinness Flight supervises all aspects of the Funds' operations and provides investment advisory services to the Funds. Guinness Flight was organized in 1985 and is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. The Funds are managed by a team of portfolio managers. The following are biographies of key personnel who are responsible for ultimate investment decisions. Michael Daley -- Mr. Daley joined Guinness Flight as a Director of the Fixed Income Team in 1994. Prior to joining Guinness Flight, he was a founding member in 1986 of Morgan Stanley Asset Management's London operation where he served as Director, Vice President and Head of Fixed Income. In 1991, he established his own firm, Strategic Value Management Limited. Mr. Daley serves as Co-Manager of the Global Government Fund. Richard Farrell -- Mr. Farrell joined Guinness Mahon, a predecessor entity of Guinness Flight, in 1978. He specializes in Far Eastern markets and currently is the investment adviser to the Guinness Flight Global - 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 income policies as Investment Director. Until its dissolution, he was a member of H.M. Treasury Tax Consultative Committee. In 1997, he became Deputy Chairman of Guinness Flight Hambro Asset Management Limited. Timothy Guinness -- Mr. Guinness originally joined Guinness Mahon in 1977 in the Corporate Finance Department, and later transferred to the Investment Department, becoming Senior Investment Director in 1982. He served as Fund Manager of both the Guinness Flight Global Equity Fund and United Kingdom Equity Fund. These funds are currently available only to overseas investors. In 1987, he became Joint Managing Director and leads the Global Equity Team as Investment Director. In 1997, he became Chief Executive of Guinness Flight Hambro Asset Management Limited. Lynda Johnstone -- Ms. Johnstone joined Guinness Mahon in 1986 in the Investment Department as a member of the Equity Team. Currently, she is responsible for running the Guinness Flight Global Strategy Fund's, Hong Kong Fund and ASEAN Fund. These funds are currently available only to overseas investors. Ms. Johnstone is primarily responsible for the day-to-day management of the China Fund. Nerissa Lee -- Ms. Lee joined Guinness Flight in 1995 in Guinness Flight's Hong Kong office and specializes in Far Eastern markets. She has a degree in economics from Hong Kong University and 20 years of experience in Asian markets. She started in the research department of the Hong Kong Stock Exchange and has been managing funds for 8 years. Currently, Ms. Lee manages the Guinness Flight Global Strategy Fund's Asian Smaller Companies Fund and the Guinness Flight Select Fund's China Fund. These funds are offered only to offshore investors. Ms. Lee serves as the Manager of the Asia Small Cap Fund. Philip Saunders -- Mr. Saunders joined Guinness Mahon in 1980. He gained experience in all principal operating areas before joining the investment department on a permanent basis as a member of the Currency and Fixed Interest team. He assumed responsibility for the day to day management of the Guinness Flight managed currency, international and global bond funds and portfolios in 1984 and assumed responsibility as Fixed Income Investment Director in 1987. These funds are currently available only to overseas investors. John Stopford -- Mr. Stopford joined Guinness Flight in 1993. Currently, he is a member of the Fixed Income Team, specializing in "core" European bond markets. Prior to joining Guinness Flight, he was responsible for European fixed income fund management at Mitsui Trust Asset Management (U.K.) Ltd. Mr. Stopford serves as the Co-Manager of the Global Government Fund. Guinness Flight's legal counsel believes that Guinness Flight may provide services described in its Investment Advisory Agreement to the Funds without violating the federal banking law commonly known as the Glass-Steagall Act. The Act generally bars banks or investment advisers deemed to be controlled by banks from publicly underwriting or distributing certain securities. Because of stock ownership by a subsidiary of a foreign bank in Guinness Flight's parent, Guinness Flight Hambro Asset Management Limited, such restrictions may be deemed to apply. The U.S. Supreme Court in its 1981 decision in Board of Governors of the Federal Reserve System v. Investment Company Institute determined that, consistent with the requirements of the Act, a bank may serve as an investment adviser to a registered, closed-end investment company. Other decisions of banking regulators have supported the position that a bank may act as investment adviser to a registered, open-ended investment company. Based on the advice of its counsel, Guinness Flight believes that the Court's decision, and these other decisions of banking regulators, permit it to serve as investment adviser to a registered, open-end investment company. - 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 Flight Funds promptly would seek to obtain the services of another qualified adviser, as necessary. The Trustees would then consider what action would be in the best interest of the Funds' shareholders. For a discussion of Guinness Flight's brokerage allocation policies and practices, see "Portfolio Transactions" in the Statement of Additional Information. In accordance with policies established by the Board of Trustees, Guinness Flight may take into account sales of shares of each Fund advised by Guinness Flight in selecting broker-dealers to effect portfolio transactions on behalf of the Funds. Fees and Expenses. Pursuant to the Advisory Agreement, Guinness Flight is paid a monthly fee from the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund at an annual rate of 1.00% of each Fund's average daily net assets, and a monthly fee from the Global Government Fund calculated at an annual rate of .75% of its average daily net assets. These fees are higher than those charged by most investment companies. However, the Board of Trustees believes that such fees are appropriate because of the complexity of managing funds that invest in global markets. Guinness Flight or Investment Company Administration Corporation may, from time to time, voluntarily agree to defer or waive fees or absorb some or all of the expenses of the Funds. To the extent that they should do so, they may seek repayment of such deferred fees and absorbed expenses after this practice is discontinued. However, no repayment will be made if it would result in the Asia Blue Chip Fund's, Asia Small Cap Fund's and China Fund's expense ratio exceeding 1.98%, or if it would result in the Global Government Fund's expense ratio exceeding .75%. Administrator. Pursuant to an Administration Agreement, Investment Company Administration Corporation ("ICAC") serves as administrator of the Funds. As the administrator, ICAC provides certain administrative services, including, among other responsibilities, coordinating relationships with independent contractors and agents, preparing for signature by officers and filing of certain documents required for compliance with applicable laws and regulations, preparing financial statements, and arranging for the maintenance of books and records. ICAC receives a monthly fee equal to, on an annual basis, the greater of $40,000 or .25% of average daily net assets on the China Fund and $20,000 or 0.25% of average daily net assets on each of the Asia Blue Chip Fund, Asia Small Cap Fund and the Global Government Fund. Distributor. The Guinness Flight Funds have entered into a Distribution Agreement (the "Distribution Agreement") with First Fund Distributors, Inc. ("First Fund"), a registered broker-dealer, to act as the principal distributor of the shares of the Funds. The Distribution Agreement provides First Fund with the right to distribute shares of the Funds through affiliated broker-dealers and through other broker-dealers or financial institutions with whom First Fund has entered into selected dealer agreements. Distribution Plan. The Funds have adopted a Distribution Plan (the "Plan") under Rule 12b-1 under the 1940 Act. No separate payments are authorized to be made by a Fund under the Plan. Rather, the Plan recognizes that Guinness Flight or ICAC may use fee revenues, or other resources to pay expenses associated with shareholder servicing and recordkeeping functions. The Plan also provides that Guinness Flight or ICAC may make payments from these sources to third parties, including affiliates, such as banks or broker-dealers, that provide such services. See "The Funds' Management--Fees and Expenses." For additional information concerning the operation of the Plan, see "Distribution Agreements and Distribution Plans" in the Statement of Additional Information. Shareholder Servicing. The Funds may enter into Shareholder Servicing Agreements whereby the Adviser or Administrator pays a shareholder servicing agent for shareholder services and account maintenance, including responding to shareholder inquiries, direct shareholder communications, account balance, maintenance and dividend posting. How to Purchase Shares General Information. Investors may purchase shares of a Fund from the Fund's transfer agent or from other selected securities brokers or dealers. A buyer whose purchase order is received by the transfer agent before the close of trading on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will acquire shares at the net asset value set as of that day. - 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: - 19 - State Street Bank and Trust Company ABA # 0011 000 028 Shareholder and Custody Services DDA # 99050171 ATTN: (Fund Name) (Fund Account Number) In making a subsequent purchase order by wire, you should wire funds to the Transfer Agent in the manner described above, making sure that the wire specifies the name of the Fund, your name and the account number. However, it is not necessary to call the Transfer Agent to make subsequent purchase orders using federal funds. If you arrange for receipt by the Transfer Agent of federal funds prior to the close of trading (currently 4:00 p.m., Eastern time) of the New York Stock Exchange on a day the Exchange is open for normal trading, you may purchase shares of a Fund as of that day. Your bank may charge a fee for wiring money on your behalf. How to Redeem Shares General Information. Investors may redeem shares of a Fund through the Transfer Agent or from other selected securities brokers or dealers. A shareholder whose redemption order is received by the Transfer Agent before the close of trading on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will redeem shares at the net asset value set as of that day. A shareholder whose redemption order is received by the Transfer Agent after the close of trading on the New York Stock Exchange will redeem shares at the net asset value set as of the next trading day on the New York Stock Exchange. A broker may charge a transaction fee for the redemption. Under certain circumstances, the Funds may temporarily borrow cash pursuant to a credit agreement with Deutsche Bank AG to satisfy redemption requests. Redemptions by Mail. Shareholders may redeem shares of any Fund by writing to the Transfer Agent at the following address: Guinness Flight Investment Funds P.O. Box 9288 Boston, MA 02205-8559 Overnight courier deliveries should be sent to: Boston Financial Data Services ATTN: Guinness Flight Investment Funds Two Heritage Drive 3rd Floor North Quincy, MA 02171 Please specify the name of the Fund, the number of shares or dollar amount to be redeemed, and your name and account number. The signature on a redemption request must be exactly as the names appear on a Fund's account records, and the request must be signed by the minimum number of persons designated on the account application that are required to effect a redemption. Requests by participants of qualified retirement plans must include all other signatures required by the plan and applicable federal law. Signature Guarantee. If a redemption is requested by a corporation, partnership, trust or fiduciary, written evidence of authority acceptable to the Transfer Agent must be submitted before such request will be accepted. If the proceeds of the redemption exceed $50,000, or are to be paid to a person other than the record owner, or are to be sent to an address other than the address on the Transfer Agent's records, or are to be paid to a corporation, partnership, trust or fiduciary, the signature(s) on the redemption request and on the certificates, if any, or stock powers must be guaranteed by an "eligible guarantor," which includes certain banks, brokers, dealers, credit unions, securities exchanges, clearing agencies and savings - 20 - associations. A signature guarantee is not the same as notarization and an acknowledgment by a notary public is not acceptable as a substitute for a signature guarantee. Redemptions By Telephone. Shareholders may establish telephone redemption privileges if so elected on the account application. Shares of a Fund may then be redeemed by telephoning the Transfer Agent at (800) 915-6566, between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading. Special Factors Regarding Telephone Redemptions. In order to protect itself and shareholders from liability for unauthorized or fraudulent telephone transactions, the Guinness Flight Funds will use reasonable procedures in an attempt to verify the identity of a person making a telephone redemption request. The Guinness Flight Funds reserve the right to refuse a telephone redemption request if it believes that the person making the request is not the record owner of the shares being redeemed, or is not authorized by the shareholder to request the redemption. Shareholders will be promptly notified of any refused request for a telephone redemption. As long as these reasonable procedures are followed, neither the Guinness Flight Funds nor its agents will be liable for any loss, liability or cost which results from acting upon instructions of a person believed to be a shareholder with respect to the telephone redemption privilege. However, if the Guinness Flight Funds or its agents fail to follow such reasonable procedures, then the Guinness Flight Funds or its agents may be liable for any losses due to unauthorized or fraudulent instructions. Redemptions By Wire. Redemption proceeds are generally paid to shareholders by check. However, redemptions proceeds of $500 or more may be wired by the Transfer Agent to a shareholder's bank account. Requests for redemption by wire should include the name, location and ABA or bank routing number (if known) of the designated bank and account number. Payment will be made within three days after receipt by the Transfer Agent of the written or telephone redemption request and any share certificates, except as indicated below. Such payment may be postponed, or the right of redemption suspended at times when (a) the New York Stock Exchange is closed for other than customary weekends and holidays; (b) trading on such exchange is restricted; (c) an emergency exists, the result of which disposal of Fund securities or determination of the value of a Fund's net assets are not reasonably practicable; or (d) during any other period when the Securities and Exchange Commission, by order, so permits. The Transfer Agent will deduct a fee equal to $10.00 from the amount wired. Redemption of Small Accounts. In order to reduce expenses, the Funds may redeem shares in any account, other than retirement plan or Uniform Gift to Minors Act accounts, if at any time, due to redemptions, the total value of a shareholder's account does not equal at least $500. Shareholders will be given 30 days' prior written notice in which to purchase sufficient additional shares to avoid such a redemption. Redemption Fee. On redemptions of shares purchased less than 30 days prior to redemption, a redemption fee, equal to 1% of the value of the shares being redeemed, shall be charged to any shareholder who redeems his interest in the China Fund, Asia Blue Chip Fund, or Asia Small Cap Fund, such proceeds to be payable to the Fund. Such redemption fee will not be charged on shares purchased 30 or more days prior to redemption or acquired through the reinvestment of distributions of investment income and capital gains. Redemptions will be assumed to have been made through the liquidation of shares in a shareholder's account on a first-in, first-out basis. Any redemption fee payable to the Asia Blue Chip Fund, Asia Small Cap Fund, or China Fund, will be waived if such fee is equal to or less than .10% of the total value of the shares, including shares purchased more than 30 days prior to redemption and shares acquired through the reinvestment of distributions of investment income and capital gains, being redeemed. Additional Redemption Information. Payment for redemption of recently purchased shares will be delayed until the Transfer Agent has been advised that the purchase check has been honored, up to 12 calendar days from the time of receipt of the purchase check by the Transfer Agent. If the purchase check does not clear, the investor, and not the Funds, will be responsible for any resulting loss. Such delay may be avoided by purchasing shares by wire or by certified or official bank checks. - 21 - Shareholder Services Exchange Privilege. You may exchange shares of a Fund for shares of the other Funds by mailing or delivering written instructions to the Transfer Agent at the following address: Guinness Flight Investment Funds P.O. Box 9288 Boston, MA 02205-8559 Please specify the name of the applicable Fund, the number of shares or dollar amount to be exchanged and your name and account number. You may also exchange shares by telephoning the Transfer Agent at (800) 915-6566 between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading. In periods of severe market or economic conditions, telephone exchanges may be difficult to implement, in which case you should mail or send by overnight delivery a written exchange request to the Transfer Agent. Overnight deliveries should be sent to the Transfer Agent at the address on Page 21. All exchanges will be made on the basis of the relative net asset values of the Funds next determined after a completed request is received. Requests for telephone exchanges received before 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal trading will be processed that day. Otherwise, processing will occur on the next business day. You may also exchange shares of either Fund for shares of the SSgA Money Market Fund, a money market mutual fund advised by State Street Bank & Trust Co., 225 Franklin Street, Boston, MA 02110 and not affiliated with the Guinness Flight Funds or Guinness Flight, if such shares are offered in your state of residence. Prior to making such an exchange, you should obtain and carefully read the prospectus for the SSgA Money Market Fund. The exchange privilege does not constitute an offering or recommendation on the part of the Funds or Guinness Flight of an investment in the SSgA Money Market Fund. Exchange Privilege Annual Limits. The Funds reserve the right to limit the number of exchanges a shareholder may make in any year to four (4) to avoid excessive Fund expenses. Pre-Authorized Investment Plan. You may establish a pre-authorized investment plan whereby your personal bank account is automatically debited and your Fund account is automatically credited with additional full and fractional shares. Through the pre-authorized investment plan, the minimum initial investment is $100 and the subsequent minimum monthly investments is $100 per an investment. Systematic Withdrawal Plan. You may elect to have regular monthly or quarterly payments in any fixed amount in excess of $100 made to you, your personal bank account, or a properly designated third party, as long as your Fund account has a value at the current price of at least $1,000. During the withdrawal period, you may purchase additional shares for deposit to your account if the additional purchases are equal to at least one year's scheduled withdrawals. The number of full and fractional shares equal in value to the amount of the payment made will be redeemed at net asset value as determined on the day of withdrawal. As shares of a Fund are redeemed, you may recognize a capital gain or loss to be reported for income tax purposes. Determination of Net Asset Value The net asset value per share (or share price) of the Funds is determined as of 4:15 p.m. Eastern Time on each business day. The net asset value per share is calculated by subtracting a Fund's liabilities from its assets and dividing the result by the total number of Fund shares outstanding. The determination of a Fund's net asset value per share is made in accordance with generally accepted accounting principles. Among other items, a Fund's liabilities include accrued expenses and dividends payable, and its total assets include portfolio securities valued at their market value, as well as income accrued but not yet received. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Fund's officers and in accordance with methods which are specifically authorized by its - 22 - governing Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost as reflecting fair value. Dividends, Distributions and Tax Matters Dividends and Distributions. Income dividends of the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund are declared and paid semiannually, normally in June and December. The Global Government Fund declares and pays dividends monthly. The Funds distribute all or substantially all of their net investment income and net capital gains (if any) to shareholders each year. Any net capital gains earned by a Fund normally are distributed in June and December to the extent necessary to avoid federal income and excise taxes. In determining the amount of capital gains, if any, available for distribution, net capital gains are offset against available net capital losses, if any, carried forward from previous fiscal periods. All dividends and distributions of a Fund are automatically reinvested on the ex-dividend date in full and fractional shares of such Fund, unless the shareholder has made an alternate election as to the method of payment. Dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. Shareholders may elect, by written notice to the Transfer Agent, to receive such distributions, or the dividend portion thereof, in cash, or to invest such dividends and distributions in additional shares, including, subject to certain conditions, in shares of a Fund other than the Fund making the distribution. Investors who have not previously selected such a reinvestment option on the account application form may contact the Transfer Agent at any time to obtain a form to authorize such reinvestments in a Fund other than the Fund making the distribution. Such reinvestments into a Fund are automatically credited to the account of the shareholder. Changes in the form of dividend and distribution payments may be made by the shareholder at any time by notice to the Transfer Agent and are effective as to any subsequent payment if such notice is received by the Transfer Agent prior to the record date of such payment. Any dividend and distribution election remains in effect until the Transfer Agent receives a revised written election by the shareholder. Any dividend or distribution paid by a Fund has the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes, as discussed below. Tax Matters. Each Fund intends to qualify as a regulated investment company by satisfying the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), including the requirements with respect to diversification of assets, distribution of income and sources of income. It is the Funds' policy to distribute to shareholders all of its investment income (net of expenses) and any capital gains (net of capital losses) in accordance with the timing requirements imposed by the Code, so that each Fund will satisfy the distribution requirement of Subchapter M and not be subject to Federal income taxes or the 4% excise tax. If a Fund fails to satisfy any of the Code requirements for qualification as a regulated investment company, it will be taxed at regular corporate tax rates on all its taxable income (including capital gains) without any deduction for distributions to shareholders, and distributions to shareholders will be taxable as ordinary dividends (even if derived from the Fund's net long-term capital gains) to the extent of the Fund's current and accumulated earnings and profits. Distributions by a Fund of its net investment income (including foreign currency gains and losses) and the excess, if any, of its net short-term capital gain over its net long-term capital loss are taxable to shareholders as ordinary income. Distributions by a Fund of the excess, if any, of its net long-term capital gain over its net short-term capital loss are designated as capital gain dividends and are taxable to shareholders as long-term capital gains, regardless of the length of time shareholders have held their shares. Distributions by a Fund which are taxable to shareholders as ordinary income are treated as dividends for Federal income tax purposes, but in any year only a portion thereof (which cannot exceed the aggregate amount of qualifying dividends from - 23 - domestic corporations received by the Fund during the year) may qualify for the 70% dividends-received deduction for corporate shareholders. Because the investment income of the Asia Blue Chip Fund, Asia Small Cap Fund and China Fund will consist primarily of dividends from foreign corporations and the Fund may have interest income and short-term capital gains, it is not expected that a significant portion of the ordinary income dividends paid by the China Fund may qualify for the dividends-received deduction. Because the Global Government Bond Fund's investment income will consist of interest from debt, ordinary income dividends paid by the Fund will not qualify for the dividends-received deduction. Portions of each Fund's investment income may be subject to foreign income taxes withheld at the source. If a Fund meets certain requirements, it may elect to "pass-through" to shareholders any such foreign taxes, which may enable shareholders to claim a foreign tax credit or a deduction with respect to their share thereof. Distributions to shareholders will be treated in the same manner for Federal income tax purposes whether shareholders elect to receive them in cash or reinvest them in additional shares. In general, shareholders take distributions into account in the year in which they are made. However, shareholders are required to treat certain distributions made during January as having been paid by the Fund and received by shareholders on December 31 of the preceding year. A statement setting forth the Federal income tax status of all distributions made (or deemed made) during the year, and any foreign taxes "passed-through" to shareholders, will be sent to shareholders promptly after the end of each year. Investors should be careful to consider the tax implications of purchasing shares just prior to the record date of any ordinary income dividend or capital gain dividend. Those investors purchasing shares just prior to an ordinary income or capital gain dividend will be taxed on the entire amount of the dividend received, even though the net asset value per share on the date of such purchase reflected the amount of such dividend. A shareholder will recognize gain or loss upon the sale or redemption of shares of the Funds in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. Any loss realized upon a taxable disposition of shares within six months from the date of their purchase will be treated as a long-term capital loss to the extent of any capital gain dividends received on such shares. All or a portion of any loss realized upon a taxable disposition of shares of the Funds may be disallowed if other shares of the "redeemed" Fund are purchased within 30 days before or after such disposition. If a shareholder is a non-resident alien or foreign entity shareholder, ordinary income dividends paid to such shareholder generally will be subject to United States withholding tax at a rate of 30% (or lower rate under an applicable treaty). We urge non-United States shareholders to consult their own tax adviser concerning the applicability of the United States withholding tax. Under the back-up withholding rules of the Code, shareholders may be subject to 31% withholding of Federal income tax on ordinary income dividends, capital gain dividends and redemption payments made by the Funds. In order to avoid this back-up withholding, shareholders must provide the Fund with a correct taxpayer identification number (which for an individual is usually his Social Security number) and certify that the shareholder is a corporation or otherwise exempt from or not subject to back-up withholding. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, shareholders should also review the more detailed discussion of Federal income tax considerations relevant to the Fund that is contained in the Statement of Additional Information. In addition, shareholders should consult with their own tax adviser as to the tax consequences of investments in a Fund, including the application of state and local taxes which may differ from the Federal income tax consequences described above. About The Funds Each Fund is a separate series of shares of the Guinness Flight Funds, which is registered under the 1940 Act, as an open-end management investment company. Guinness Flight Funds was formed as a Maryland corporation on January 7, 1994 and converted to a Delaware business trust on April 28, 1997. Each Fund has its own investment objective and policies designed to meet specific investment goals, operates as an open-end management investment company and expects to be treated as a regulated investment company for Federal income tax purposes. The Asia Blue Chip Fund, Asia Small Cap - 24 - Fund, China Fund and Global Government Fund are non-diversified. The investment objective of the Asia Blue Chip Fund and Asia Small Cap Fund is fundamental. Each Fund invests in securities of different issuers and industry classifications in an attempt to spread and reduce the risks inherent in all investing. The Funds continuously offer new shares for sale to the public, and stand ready to redeem their outstanding shares for cash at their net asset value. Guinness Flight, the investment adviser for the Funds, continuously reviews and, from time to time, changes the portfolio holdings of the Funds in pursuit of each Fund's investment objective. Shares of each Fund entitle the holders to one vote per share. The shares have no preemptive or conversion rights. When issued, shares are fully paid and nonassessable. The shareholders have certain rights, as set forth in the By-laws, to call a meeting for any purpose. See "Description of the Funds -- Voting Rights" in the Statement of Additional Information. - 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 Flight Funds. Independent Accountants. Ernst & Young LLP, 515 South Flower Street, Los Angeles, CA 90071. Generally, the Independent Accountants will audit the financial statement and the financial highlights of the Funds, as well as provide reports to the Trustees. Distributor. First Fund Distributors, Inc., 4455 East Camelback Road, Suite 261E, Phoenix, Arizona 85018, serves as Distributor for the Funds. Other Information. This prospectus sets forth basic information that investors should know about the Funds prior to investing. A Statement of Additional Information has been filed with the Securities and Exchange Commission and is available upon request and without charge, by writing or calling the Funds at 1-800-915-6565. This prospectus omits certain information contained in the registration statement filed with the Securities and Exchange Commission. Copies of the registration statement, including items omitted from this prospectus, may be obtained from the Securities and Exchange Commission by paying the charges prescribed under its rules and regulations. [GRAPHIC] [GRAPHIC] GUINNESS FLIGHT PROSPECTUS APRIL 28 , 1997 ASIA BLUE CHIP FUND ASIA SMALL CAP FUND CHINA & HONG KONG FUND GLOBAL GOVERNMENT BOND FUND - 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 Flight Funds") is a Delaware business trust organized as an open-end, series, management investment company. Currently, Guinness Flight Funds offers four separate series portfolios: the China Fund, the Asia Blue Chip Fund, the Asia Small Cap Fund, and the Global Government Fund, each of which has unique investment objectives and strategies. INVESTMENT OBJECTIVE AND POLICIES GENERAL INFORMATION ABOUT THE FUNDS. The China Fund seeks to provide investors with long term capital growth by generally investing in equity securities, that should benefit from the growth in the Chinese economy, traded in the markets of China and Hong Kong. The Asia Blue Chip Fund's investment objective is long-term capital appreciation through investments in equity securities of well established and sizable companies located in the Asian continent. The Asia Small Cap Fund's investment objective is long-term capital appreciation through investments in equity securities of smaller capitalization issuers located in the Asian continent. The Global Government Fund intends to provide investors with both current income and capital appreciation from a debt portfolio of government securities issued throughout the world. The objective of each Fund is a fundamental policy and may not be changed except by a majority vote of shareholders. The Fund's do not intend to employ leveraging techniques. Accordingly, a Fund will not purchase new securities if amounts borrowed exceed 5% of its total assets at the time the loan is made. When the Funds determine that adverse market conditions exist, the Funds may adopt a temporary defensive posture and invest their entire portfolio in Money Market Instruments. In addition, the Funds may invest in Money Market Instruments in anticipation of investing cash positions. "Money Market Instruments" means short-term (less than twelve months to maturity) investments in (a) obligations of the United States or foreign governments, their respective agencies or instrumentalities; (b) bank deposits and bank obligations (including certificates of deposit, time deposits and bankers' acceptances) of United States or foreign banks denominated in any currency; (c) floating rate securities and other instruments denominated in any currency issued by international development agencies; (d) finance company and corporate commercial paper and other short-term corporate debt obligations of United States and foreign corporations meeting the credit quality standards set by Guinness Flight Funds' Board of Trustees; and (e) repurchase agreements with banks and broker-dealers with respect to such securities. While the Funds do not intend to limit the amount of their assets invested in Money Market Instruments, except to the extent believed necessary to achieve their investment objective, the Funds do not expect under normal market conditions to have a substantial portion of their assets invested in Money Market Instruments. To the extent the Funds are invested in Money Market Instruments for defensive purposes or in anticipation of investing cash positions, the Funds' investment objective may not be achieved. The following information concerning the Funds augments the disclosure provided in the prospectus under the heading "Investment Objectives, Programs and Limitations": THE CHINA FUND, ASIA BLUE CHIP FUND, AND ASIA SMALL CAP FUND (THE "EQUITY FUNDS"). Guinness Flight does not intend to invest in any security in a country where the currency is not freely convertible to United States dollars, unless it has obtained the necessary governmental licensing to convert such currency or other appropriately licensed or sanctioned contractual guarantee to protect such investment against loss of that currency's external value, or Guinness Flight has a reasonable expectation at the time the investment is made that such governmental licensing or other appropriately licensed or sanctioned guarantee would be obtained or that the currency in which the security is quoted would be freely convertible at the time of any proposed sale of the security by an Equity Fund. -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-to- market daily, at least equal to the dollar amount of the Funds' purchase obligation, reduced by any amount maintained as margin. Similarly, upon writing a call option, the Funds will maintain in a segregated account with their Custodian, liquid or high grade debt instruments with a value, marked-to-market daily, at least equal to the market value of the underlying contract (but not less than the strike price of the call option) reduced by any amounts maintained as margin. WRITING COVERED CALL OPTIONS ON SECURITIES A Fund may write covered call options on optionable securities (stocks, bonds, foreign exchange related futures, options and options on futures) of the types in which it is permitted to invest in seeking to attain its objective. Call options written by a Fund give the holder the right to buy the underlying securities from the Fund at a stated exercise price. As the writer of the call option, the Fund is obligated to own the underlying -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 Flight Funds and the Board of Trustees and pursuant to authority contained in the Management Agreements between the Funds and Guinness Flight. In selecting such brokers or dealers, Guinness Flight will consider various relevant factors, including, but not limited to the best net price available, the size and type of the transaction, the nature and character of the markets for the security to be purchased or sold, the execution efficiency, settlement capability, financial condition of the broker-dealer firm, the broker-dealer's execution services rendered on a continuing basis and the reasonableness of any commissions. In addition to meeting the primary requirements of execution and price, brokers or dealers may be selected who provide research services, or statistical material or other services to a Fund or to Guinness Flight for the Fund's use, which in the opinion of the Board of Trustees, are reasonable and necessary to the Fund's normal operations. Those services may include economic studies, industry studies, security analysis or reports, sales literature and statistical services furnished either directly to a Fund or to Guinness Flight. Such allocation shall be in such amounts as Guinness Flight Funds shall determine and Guinness Flight shall report regularly to Guinness Flight Funds who will in turn report to the Board of Trustees on the allocation of brokerage for such services. The receipt of research from broker-dealers may be useful to Guinness Flight in rendering investment management services to its other clients, and conversely, such information provided by brokers or dealers who have executed orders on behalf of Guinness Flight's other clients may be useful to Guinness Flight in carrying out its obligations to the Funds. The receipt of such research may not reduce Guinness Flight's normal independent research activities. Guinness Flight is authorized, subject to best price and execution, to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of the Funds and is authorized to use the Distributor on an agency basis, to effect a substantial amount of the portfolio transactions which are executed on the New York or American Stock Exchanges, Regional Exchanges and Foreign Exchanges where relevant, or which are traded in the Over-the-Counter market. Brokers or dealers who execute portfolio transactions on behalf of a Fund may receive commissions which are in excess of the amount of commissions which other brokers or dealers would have charged for effecting such transactions; provided, Guinness Flight Funds determines in good faith that such commissions are reasonable in relation to the value of the brokerage and/or research services provided by such executing brokers or dealers viewed in terms of a particular transaction or Guinness Fund's overall responsibilities to a Fund. -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 June 30, 1994 (commencement of operations) to December 31, 1994 and the fiscal years ended December 31, 1995 and 1996, the China Fund paid brokerage commissions equal to $13,875, $258,319 and $736,492, respectively and the Global Government Fund paid $0, $0, and $ -0-, respectively. For the period April 29, 1996 (commencement of operations) to December 31, 1996, the Asia Blue Chip Fund paid brokerage commissions equal to $23,303 and the Asia Small Cap Fund paid $204,067 . COMPUTATION OF NET ASSET VALUE The net asset value of the Funds is determined at 4:15 p.m. New York time, on each day that the New York Exchange is open for business and on such other days as there is sufficient trading in a Fund's securities to affect materially the net asset value per share of the Fund. The Funds will be closed on New Years Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Funds will invest in foreign securities, and as a result, the calculation of the Funds' net asset value may not take place contemporaneously with the determination of the prices of certain of the portfolio securities used in the calculation. Occasionally, events which affect the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange and will therefore not be reflected in the computation of a Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Board of Trustees. Portfolio securities of a Fund which are traded both on an exchange and in the over-the-counter market, will be valued according to the broadest and most representative market. All assets and liabilities initially expressed in foreign currency values will be converted into U.S. Dollar values at the mean between the bid and offered quotations of the currencies against U.S. Dollars as last quoted by any recognized dealer. When portfolio securities are traded, the valuation will be the last reported sale price on the day of valuation. (For securities traded on the New York Stock Exchange, the valuation will be the last reported sales price as of the close of the Exchange's regular trading session, currently 4:00 p.m. New York Time.) If there is no such reported sale or the valuation is based on the Over-the-Counter market, the securities will be valued at the last available bid price or at the mean between the bid and asked prices, as determined by the Board of Trustees. As of the date of this Statement of Additional Information, such securities will be valued by the latter method. Securities for which reliable quotations are not readily available and all other assets will be valued at their respective fair market value as determined in good faith by, or under procedures established by, the Board of Trustees of the Funds. Money market instruments with less than sixty days remaining to maturity when acquired by the Funds will be valued on an amortized cost basis by the Funds, excluding unrealized gains or losses thereon from the valuation. This is accomplished by valuing the security at cost and then assuming a constant amortization to maturity of any premium or discount. If a Fund acquires a money market instrument with more than sixty days remaining to its maturity, it will be valued at current market value until the 60th day prior to maturity, and will then be valued on an amortized cost basis based upon the value on such date unless the Board of Trustees determines during such 60-day period that this amortized cost value does not represent fair market value. -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 34.38% and 17.35%, respectively, and for the Global Government Fund was 6.21% and 7.10%, respectively. The annual compounded rate of total return for the period from April 29, 1996 (inception) to December 31, 1996 for the Asia Blue Chip Fund was 3.84% and the Asia Small Cap Fund was 13.08%. For the 30 day period ended December 31, 1996, the Global Government Fund's yield was 5.42%. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION The Funds have elected to be governed by Rule 18f-1 of the 1940 Act, under which a Fund is obligated to redeem the shares of any shareholder solely in cash up to the lesser of 1% of the net asset value of the Fund or $250,000 during any 90-day period. Should any shareholder's redemption exceed this limitation, a Fund can, at its sole option, redeem the excess in cash or in readily marketable portfolio securities. Such securities would be selected solely by the Fund and valued as in computing net asset value. In these circumstances a shareholder selling such securities would probably incur a brokerage charge and there can be no assurance that the price realized by a shareholder upon the sale of such securities will not be less than the value used in computing net asset value for the purpose of such redemption. TAX MATTERS The following is only a summary of certain additional tax considerations generally affecting each Fund and its shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussions here and in the Prospectus are not intended as substitutes for careful tax planning. Qualification as a Regulated Investment Company Each Fund has elected to be taxed as a regulated investment company for federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, a Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year (the "Distribution Requirement"), and satisfies certain other -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 will therefore satisfy the Distribution Requirement. In addition to satisfying the Distribution Requirement, a regulated investment company must: (1) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"); and (2) derive less than 30% of its gross income (exclusive of certain gains on designated hedging transactions that are offset by realized or unrealized losses on offsetting positions) from the sale or other disposition of stock, securities or foreign currencies (or options, futures or forward contracts thereon) held for less than three months (the "Short-Short Gain Test"). However, foreign currency gains, including those derived from options, futures and forwards, will not in any event be characterized as Short-Short Gain if they are directly related to the regulated investment company's investments in stock or securities (or options or futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit the sale of appreciated securities that it has held for less than three months. However, the Short-Short Gain Test will not prevent a Fund from disposing of investments at a loss, since the recognition of a loss before the expiration of the three-month holding period is disregarded for this purpose. Interest (including original issue discount) received by a Fund at maturity or upon the disposition of a security held for less than three months will not be treated as gross income derived from the sale or other disposition of such security within the meaning of the Short-Short Gain Test. However, income that is attributable to realized market appreciation will be treated as gross income from such sale or other disposition of securities for this purpose. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, except for regulated futures contracts or non-equity options subject to Code Section 1256 (unless a Fund elects otherwise), will generally be treated as ordinary income or loss. In general, for purposes of determining whether capital gain or loss recognized by a Fund on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected if (as applicable, depending on the type of the Fund) (1) the asset is used to close a "short sale" (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, or (2) the asset is otherwise held by the Fund as part of a "straddle" (which term generally excludes a situation where the asset is stock and the Fund grants a qualified covered call option (which, among other things, must not be deep-in-the-money) with respect thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified covered call option with respect thereto. However, for purposes of the Short-Short Gain Test, the holding period of the asset disposed of may be reduced only in the case of clause (1) above. In addition, a Fund may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position. Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by a Fund from a closing transaction with respect to, an option written by the Fund will be treated as a short-term capital gain or loss. For purposes of the Short-Short Gain Test, the holding period of an option written by a Fund will commence on the date it is written and end on the date it lapses or the date a closing transaction is entered into. Accordingly, a Fund may be limited in its ability to write options which expire within three months and to enter into closing transactions at a gain within three months of the writing of options. -20- Certain transactions that may be engaged in by a Fund (such as regulated futures contracts, certain foreign currency contracts, and options on stock indexes and futures contracts) will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, even though a taxpayer's obligations (or rights) under such contracts have not terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is taken into account for the taxable year together with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. Any capital gain or loss for the taxable year with respect to Section 1256 contracts (including any capital gain or loss arising as a consequence of the year-end deemed sale of such contracts) is generally treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. A Fund, however, may elect not to have this special tax treatment apply to Section 1256 contracts that are part of a "mixed straddle" with other investments of the Fund that are not Section 1256 contracts. Under Treasury Regulations deemed gains arising from Section 1256 contracts will be treated for purposes of the Short-Short Gain Test as being derived from securities held for not less than three months. Each Fund may purchase securities of certain foreign investment funds or trusts which constitute passive foreign investment companies ("PFICs") for federal income tax purposes. If a Fund invests in a PFIC, it may elect to treat the PFIC as a qualified electing fund (a "QEF"), in which event the Fund will each year have ordinary income equal to its pro rata share of the PFIC's ordinary earnings for the year and long-term capital gain equal to its pro rata share of the PFIC's net capital gain for the year, regardless of whether the Fund receives distributions of any such ordinary earning or capital gain from the PFIC. If the Fund does not elect to treat the PFIC as a QEF, then, in general, (1) any gain recognized by the Fund upon sale or other disposition of its interest in the PFIC or any excess distribution received by the Fund from the PFIC will be allocated ratably over the Fund's holding period of its interest in the PFIC, (2) the portion of such gain or excess distribution so allocated to the year in which the gain is recognized or the excess distribution is received shall be included in the Fund's gross income for such year as ordinary income (and the distribution of such portion by the Fund to shareholders will be taxable as an ordinary income dividend, but such portion will not be subject to tax at the Fund level), (3) the Fund shall be liable for tax on the portions of such gain or excess distribution so allocated to prior years in an amount equal to, for each such prior year, (i) the amount of gain or excess distribution allocated to such prior year multiplied by the highest tax rate (individual or corporate) in effect for such prior year and (ii) interest on the amount determined under clause (i) for the period from the due date for filing a return for such prior year until the date for filing a return for the year in which the gain is recognized or the excess distribution is received at the rates and methods applicable to underpayments of tax for such period, and (4) the distribution by the Fund to shareholders of the portions of such gain or excess distribution so allocated to prior years (net of the tax payable by the Fund thereon) will again be taxable to the shareholders as an ordinary income dividend. Under proposed Treasury Regulations, a Fund holding PFIC stock can elect to recognize as gain the excess, as of the last day of its taxable year, of the fair market value of each share of PFIC stock over the Fund's adjusted tax basis in that share ("mark to market gain"). Such mark to market gain will contribute ordinary income, and will not be subject to the Short-Short Gain Test, and the Fund's holding period with respect to such PFIC stock will commence on the first day of the next taxable year. If a Fund makes such election in the first taxable year it holds PFIC stock, it will not incur the tax described in the preceding paragraph. Treasury Regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or any part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year. In addition to satisfying the requirements described above, a Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each -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 each of which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security not the issuer of the option. If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the shareholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends-received deduction in the case of corporate shareholders. Excise Tax on Regulated Investment Companies A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall: (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year; and (2) exclude foreign currency gains and losses incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year). Each Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. Fund Distributions Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they generally should not qualify for the 70% dividends-received deduction for corporate shareholders. A Fund may either retain or distribute to shareholders its net capital gain for each taxable year. Each Fund currently intends to distribute any such amounts. Net capital gain that is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by a Fund prior to the date on which the shareholder acquired his shares. Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of his pro rata share of such gain, with the result that -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 may entitle a Fund to a reduced rate of, or exemption from, taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of each Fund's assets to be invested in various countries is not known. If more than 50% of the value of a Fund's total assets at the close of its taxable year consist of the stock or securities of foreign corporations, a Fund may elect to "pass through" to the Fund's shareholders the amount of foreign taxes paid by the Fund. If a Fund so elects, each shareholder would be required to include in gross income, even though not actually received, his pro rata share of the foreign taxes paid by the Fund, but would be treated as having paid his pro rata share of such foreign taxes and would therefore be allowed to either deduct such amount in computing taxable income or use such amount (subject to various Code limitations) as a foreign tax credit against federal income tax (but not both). For purposes of the foreign tax credit limitation rules of the Code, each shareholder would treat as foreign source income his pro rata share of such foreign taxes plus the portion of dividends received from a Fund representing income derived from foreign sources. No deduction for foreign taxes could be claimed by an individual shareholder who does not itemize deductions. Each shareholder should consult his own tax adviser regarding the potential application of foreign tax credits. Distributions by a Fund that do not constitute ordinary income dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. Distributions by a Fund will be treated in the manner described above regardless of whether they are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, if the net asset value at the time a shareholder purchases shares of a Fund reflects undistributed net investment income or recognized capital gain net income, or unrealized appreciation in the value of the assets of the Fund, distributions of such amounts will be taxable to the shareholder in the manner described above, although such distributions economically constitute a return of capital to the shareholder. Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by a Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. Each Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has provided either an incorrect tax identification number or no number at all, (2) who is subject to backup withholding for failure to report the receipt of interest or dividend income properly, or (3) who has failed to certify to the Fund that it is not subject to backup withholding or that it is an "exempt recipient" (such as a corporation). Sale or Redemption of Shares A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of a Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital -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 their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign taxes. Effect of Future Legislation; Local Tax Considerations The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and local taxation of ordinary income dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in a Fund. -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 Flight Funds' most recently completed fiscal year:
Total Compen- Aggregate Pension or sation from Compensation Retirement Benefits Estimated Annual Guinness Flight Name of Person, from Guinness Accrued as Part of Benefits Upon Funds Paid to Position Flight Funds Fund Expenses Retirement Trustees Dr. Gunter Dufey $5,000 $0 $0 $5,000 James I. Fordwood $5,000 $0 $0 $5,000 Dr. Bret Herscher $5,000 $0 $0 $5,000 J. Brooks Reece, Jr. $5,000 $0 $0 $5,000
Each Trustee who is not an "interested person" of the Funds receives an annual fee of $7,500 (with the exception of the Chairman, who receives $8,500) allocated equally among all the Funds, plus expenses incurred by the Trustees in connection with attendance at meetings of the Board of Trustees and their Committees. As of the date of this Statement of Additional Information, to the best of the knowledge of the Guinness Flight Funds the Board of Trustees and officers of the Funds, as a group, owned of record less than 1% of the Funds' outstanding shares. THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS Guinness Flight furnishes investment advisory services to the Funds. Under the Investment Advisory Agreement (the "Agreement"), Guinness Flight directs the investments of the Funds in accordance with the investment objectives, policies, and limitations provided in the Funds' Prospectus or other governing instruments, the 1940 Act, and rules thereunder, and such other limitations as the Funds may impose by notice in writing to Guinness Flight. Guinness Flight also furnishes all necessary office facilities, equipment and personnel for servicing the investments of the Funds; pays the salaries and fees of all officers of Guinness Flight Funds other than those whose salaries and fees are paid by Guinness Flight Funds' administrator or distributor; and pays the salaries and fees of all Trustees of Guinness Flight Funds who are "interested persons" of Guinness Flight Funds or of Guinness Flight and of all personnel of Guinness Flight Funds or of Guinness Flight performing services relating to research, statistical and investment activities. Guinness Flight is authorized, in its discretion and without prior consultation with the Funds, to buy, sell, lend and otherwise trade, consistent with the Fund's then current investment objective, policies and restrictions in any bonds and other securities and investment instruments on behalf of the Funds. The investment policies and all other actions of the Funds are at all times subject to the control and direction of Guinness Flight Funds' Board of Trustees. Guinness Flight performs (or arranges for the performance of) the following management and administrative services necessary for the operation of Guinness Flight Funds: (i) with respect to the Funds, supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable; (ii) investigating the development of and developing and implementing, if appropriate, management and shareholder services designed to enhance the value or convenience of the Funds as -26- an investment vehicle; and (iii) providing administrative services other than those provided by Guinness Flight Funds' administrator. Guinness Flight also furnishes such reports, evaluations, information or analyses to Guinness Flight Funds as Guinness Flight Funds' Board of Trustees may request from time to time or as Guinness Flight may deem to be desirable. Guinness Flight makes recommendations to Guinness Flight Funds' Board of Trustees with respect to Guinness Flight Funds' policies, and carries out such policies as are adopted by the Trustees. Guinness Flight, subject to review by the Board of Trustees, furnishes such other services as it determines to be necessary or useful to perform its obligations under the Agreements. All other costs and expenses not expressly assumed by the Adviser under the Agreements or by the Administrator under the administration agreement between it and the Funds on behalf of the Funds shall be paid by the Funds from the assets of the Funds, including, but not limited to fees paid to the Adviser and the Administrator, interest and taxes, brokerage commissions, insurance premiums, compensation and expenses of the Trustees other than those affiliated with the adviser or the administrator, legal, accounting and audit expenses, fees and expenses of any transfer agent, distributor, registrar, dividend disbursing agent or shareholder servicing agent of the Funds, expenses, including clerical expenses, incident to the issuance, redemption or repurchase of shares of the Funds, including issuance on the payment of, or reinvestment of, dividends, fees and expenses incident to the registration under Federal or state securities laws of the Funds or its shares, expenses of preparing, setting in type, printing and mailing prospectuses, statements of additional information, reports and notices and proxy material to shareholders of the Funds, all other expenses incidental to holding meetings of the Funds' shareholders, expenses connected with the execution, recording and settlement of portfolio securities transactions, fees and expenses of the Funds' custodian for all services to the Funds, including safekeeping of funds and securities and maintaining required books and accounts, expenses of calculating net asset value of the shares of the Funds, industry membership fees allocable to the Funds, and such extraordinary expenses as may arise, including litigation affecting the Funds and the legal obligations which the Funds may have to indemnify the officers and Trustees with respect thereto. Expenses which are attributable to the Funds are charged against the income of the Funds in determining net income for dividend purposes. Guinness Flight, from time to time, may voluntarily waive all or a portion of its fees payable under the Agreement. The Agreement was approved by the Board of Trustees on March 9, 1997 and by the shareholders of the Funds on April 25, 1997 at a shareholder meeting called for that purpose. The Agreement will remain in effect for two years from the date of execution and shall continue from year to year thereafter if it is specifically approved at least annually by the Board of Trustees and the affirmative vote of a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such party by votes cast in person at a meeting called for such purpose. The Trustees or Guinness Flight may terminate the Agreement on 60 days' written notice without penalty. The Agreement terminates automatically in the event of its "assignment", as defined in the 1940 Act. As compensation for all services rendered under the Agreement, Guinness Flight will receive an annual fee, payable monthly, of 1.00% of the China Fund's, Asia Blue Chip Fund's and Asia Small Cap Fund's average daily net assets and .75% of the Global Government Bond Fund's average daily net assets. For the period commencing June 30, 1994 to December 31, 1994 and the periods from January 1, 1995 to December 31, 1995 and January 1, 1996 to December 31, 1996, the China Fund paid Guinness Flight $6,134, $197,173 and $1,772,174, respectively, and the Global Government Fund paid Guinness Flight $2,141, $7,425 and $19,110 respectively. For the period commencing April 29, 1996 to December 31, 1996, the Asia Blue Chip Fund and Asia Small Cap Fund paid Guinness Flight $12,860 and $62,680, respectively. DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN Guinness Flight Funds has entered into separate Administration and Distribution Agreements with respect to the Funds with Investment Company Administration Corporation ("Administrator") and First Fund Distributors, Inc. ("Distributor"), respectively. Under the Distribution Agreement, the Distributor uses all -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 Flight Funds, a Delaware business trust. The Delaware Trust Instrument provides that the Trustees shall not be liable for any act or omission as Trustee, but nothing protects a Trustee against liability to Guinness Flight Funds or to its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Furthermore, a Trustee is entitled to indemnification against liability and to all reasonable expenses, under certain conditions, to be paid from the assets of Guinness Flight Funds; provided that no indemnification shall be provided to any Trustee who has been adjudicated by a court to be liable to Guinness Flight Funds or the shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or not to have acted in good faith in the reasonable belief that his action was in the best interest of Guinness Flight Funds. Guinness Flight Funds may advance money for expenses, provided that the Trustee undertakes to repay Guinness Flight Funds if his or her conduct is later determined to preclude indemnification, and one of the following conditions are met: (i) the Trustee provides security for the undertaking; (ii) Guinness Flight Funds is insured against losses stemming from any such advance; or (iii) there is a determination by a majority of the Guinness Flight Funds' independent non-party Trustees, or by independent legal counsel, that there is reason to believe that the Trustee ultimately will be entitled to indemnification. -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 April 4, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned, for the exclusive benefit of its accounts: 5,589,546.145 (38.59 %) of the outstanding shares of the China Fund; 152,154.556 (26.77 %) of the outstanding shares of the Global Government Fund; 9,427,911.746 (41.73 %) of the outstanding shares of the Asia Small Cap Fund; and 103,794.628 (23.67 %) of the outstanding shares of the Asia Blue Chip Fund. FINANCIAL STATEMENTS The audited statement of assets and liabilities and report thereon for the China Fund, Global Government Fund, Asia Blue Chip Fund and Asia Small Cap Fund for the year ended December 31, 1996 are incorporated by reference. The opinion of Ernst & Young LLP, independent accountants, with respect to the audited financial statements, is incorporated herein in its entirety in reliance upon such report of Ernst & Young LLP and on the authority of such firm as experts in auditing and accounting. Shareholders will receive a copy of the audited and unaudited financial statements at no additional charge when requesting a copy of the Statement of Additional Information. -29- 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: Financial Highlights In Part B: The audited statement of assets and liabilities and report thereon for the year ended December 31, 1996 are incorporated by reference. In Part C: Annual Report for the fiscal year ended December 31, 1996. (b) Exhibits EX-99.B1(a) Certificate of Trust. (2) EX-99.B1(b) Trust Instrument. (2) EX-99.B2 By-laws. (2) EX-99.B3 None. EX-99.B4 None. EX-99.B5 Investment Advisory Agreement between Registrant and Guinness Flight Investment Management Limited. (3) EX-99.B6 General Distribution Agreement between Registrant and First Fund Distributors, Inc. (3) EX-99.B7 None. EX-99.B8 Amended Custodian Agreement between Registrant and Investors Bank & Trust Company. (3) EX-99.B9 (a) Amended Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company. (3) (b) Amended Administration Agreement between Registrant and Investment Company Administration Corporation. (3) EX-99.B10 (a) Opinion of Kramer, Levin, Naftalis & Frankel as to legality of securities being registered. (3) (b) Opinion of Morris, Nichols, Arsht & Tunnell . (3) EX-99.B11 (a) Consent of Kramer, Levin, Naftalis & Frankel, Counsel for the Registrant. (3) (b) Consent of Ernst & Young LLP, Independent Auditors for the Registrant. (3) C-1 EX-99.B12 Annual Report for the fiscal year ended December 31, 1996. (3) EX-99.B13 Investment Letters. (3) EX-99.B14 None. EX-99.B15 Rule 12b-1 Distribution Plan. (3) EX-99.B16 Schedule for Computation of each Performance Quotation. (1) EX-27 Financial Data Schedules. (3) (1) Filed as an Exhibit to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A filed electronically on February 14, 1996, accession number 0000922423-96-000062 and incorporated herein by reference. (2) Filed as an Exhibit to Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form N-1A filed electronically on March 20, 1997, accession number 0000922423-96-000220 and incorporated herein by reference. (3) Filed herewith. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. C-2 ITEM 26. NUMBER OF HOLDERS OF SECURITIES Title of Class; Shares Number of Record Holders as of April 2, 1997 -------------------- China & Hong Kong Fund 13,801 Global Government Bond Fund 216 Asia Blue Chip Fund 986 Asia Small Cap Fund 9,848 ITEM 27. INDEMNIFICATION Article X, Section 10.02 of the Registrant's Delaware Trust Instrument, incorporated herein by reference to Exhibit 1(b) to Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form N-1A filed electronically on March 20, 1997, provides for the indemnification of Registrant's Trustees and officers, as follows: "SECTION 10.02 INDEMNIFICATION. (a) Subject to the exceptions and limitations contained in Subsection 10.02(b): (i) every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as a "Covered Person") shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Covered Person: (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or (ii) in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry). (c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel, other than Covered Persons, and other persons may be entitled by contract or otherwise under law. 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 - Pro Conscience Women's Equity Mutual Fund - Academy Value Fund - Trent Equity Fund - Leonetti Balanced Fund - Lighthouse Growth Fund - U.S. Global Leaders Growth Fund - Boston Managed Growth Fund - Harris Bretall & Sullivan & Smith Growth Fund - Insightful Investor Growth Fund - Pzena Growth Fund - Titan Investment Trust (8) Rainier Investment Management Mutual Funds; (9) Kayne Anderson Mutual Funds 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 with Registrant - ---------------- --------------------- -------------------- Robert H. Wadsworth President/Treasurer President/Asst. 4455 East Camelback Road Treasurer Suite 261E Phoenix, AZ 85014 Steven J. Paggioli Vice President/Secretary Secretary 479 West 22nd Street New York, NY 10011 Eric M. Banhazl Vice President Treasurer 2025 East Financial Way Suite 101 Glendora, CA 91741 (c) not applicable ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The accounts, books or other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by Investment Company Administration Corporation, 2025 East Financial Way, Suite 101, Glendora, CA 91741, except for those maintained by the Funds' Custodian. ITEM 31. MANAGEMENT SERVICES Not applicable. ITEM 32. UNDERTAKINGS (1) Registrant undertakes to furnish each person to whom a prospectus is delivered, a copy of the Fund's latest annual report to shareholders which will include the information required by Item 5A, upon request and without charge. (2) Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a trustee or trustees if requested to do so by the holders of at least 10% of the Registrant's outstanding voting securities, and to assist in communications with other shareholders as required by Section 16(c) of the 1940 Act. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post- Effective Amendment to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York on this 23rd day of April, 1997. GUINNESS FLIGHT INVESTMENT FUNDS By: /s/ Robert H. Wadsworth Robert H. Wadsworth President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Eric M. Banhazl Treasurer April 23, 1997 - ------------------------------- ----------------------- Eric M. Banhazl /s/ Dr. Gunter Dufey Director April 23, 1997 - ------------------------------- ----------------------- Dr. Gunter Dufey /s/ J. I. Fordwood Director April 23, 1997 - ------------------------------- ----------------------- J. I. Fordwood /s/ Bret A. Herscher Director April 23, 1997 - ------------------------------- ----------------------- Bret A. Herscher /s/ J. Brooks Reece, Jr. Director April 23, 1997 - ------------------------------- ----------------------- J. Brooks Reece, Jr. *By: -------------------------- Attorney-in-Fact C-6 EXHIBIT INDEX EX-99.B5 Investment Advisory Agreement between Registrant and Guinness Flight Investment Management Limited EX-99.B6 Distribution Agreement between Registrant and First Fund Distributors, Inc. EX-99.B8 Amended Custodian Agreement between Registrant and Investors Bank & Trust Company EX-99.B9(a) Amended Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company EX-99.B9(b) Amended Administration Agreement between Registrant and Investment Company Administration Corporation. EX-99.B10(a) Opinion of Kramer, Levin, Naftalis & Frankel as to legality of securities being registered EX-99.B10(b) Opinion of Morris, Nichols, Arsht & Tunnell EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel, Counsel for the Registrant. EX-99.B11(b) Consent of Ernst & Young LLP, Independent Auditors for the Registrant EX-99.12 Annual Report for the fiscal year ended December 31, 1996 EX-99.B13 Investment Letters EX-99.B15 Rule 12b-1 Distribution Plan EX-27 Financial Data Schedules EX-99.B5 2 INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT BETWEEN GUINNESS FLIGHT INVESTMENT FUNDS AND GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED INVESTMENT ADVISORY AGREEMENT, dated as of April 28, 1997, by and between GUINNESS FLIGHT INVESTMENT FUNDS, a Delaware business trust which may issue one or more series of shares of beneficial interest (the "Trust"), and GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED (the "Adviser"). W I T N E S S E T H ------------------- WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940 (collectively with the rules and regulations promulgated thereunder, the "Act"); and WHEREAS, the Adviser is an investment adviser under the Investment Advisers Act of 1940, as amended, and engages in the business of acting as an investment adviser; and WHEREAS, the Adviser is a member of the Investment Management Regulatory Organization Limited ("IMRO") of the United Kingdom and is thereby regulated by IMRO in the conduct of its investment business for United Kingdom investors and engages in the business of acting as an investment adviser; and WHEREAS, the Trust wishes to engage the Adviser to provide certain investment advisory services to the series of the Trust listed on Schedule A (each, a "Fund" and collectively, the "Funds"), and the Adviser is willing to provide such investment advisory services for the Funds on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows: 1. Appointment. The Adviser agrees, all as more fully set forth herein, to act as investment adviser to the Funds with respect to the investment of their assets and to supervise and arrange the purchase of securities for and the sale of securities held in the portfolios of the Funds. 2. Duties and Obligations of the Adviser With Respect to the Investment of Assets of the Funds. (a) Subject to the succeeding provisions of this section and subject to the direction and control of the Board of Trustees of the Trust, the Adviser shall: (i) supervise continuously the investment program of each Fund and the composition of its portfolio; (ii) determine what securities be purchased or sold by each Fund; and (iii) arrange for the purchase and the sale of securities held in the portfolio of each Fund; and (b) Any investment program furnished by the Adviser under this section shall at all times conform to, and be in accordance with, any requirements imposed by: (i) the provisions of the Act and of any rules or regulations in force thereunder; (ii) any other applicable provisions of state and Federal law; (iii) the provisions of the Trust's Trust Instrument and By-Laws, as amended from time to time; (iv) any policies and determinations of the Board of Trustees of the Trust; and (v) the fundamental policies of each Fund, as reflected in its Registration Statement under the Act, as amended from time to time. (c) The Adviser shall give each Fund the benefit of its best judgment and effort in rendering services hereunder, and in connection therewith the Adviser shall not be liable to any Fund or its security holders for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for such Fund, except for wilful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this subsection (c), the term "Adviser" shall include board members, officers and employees of the Adviser as well as the entity referred to as the "Adviser" itself. (d) Nothing in this Agreement shall prevent the Adviser or any affiliated person (as defined in the Act) of the Adviser from acting as investment adviser or manager for any other person, firm or corporation (including other investment companies) and shall not in any way limit or restrict the Adviser or any such affiliated person from buying, selling or trading any securities for its or their own accounts or for the accounts of others for whom it or they may be acting; provided, however, that the Adviser expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Funds under this Agreement. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Funds' principal underwriter or distributor, as principals in making purchases or sales of securities or other property for the account of the Funds, except as permitted by the Act, and will comply with all other provisions of the Trust's Trust Instrument and By-Laws and the then-current prospectus and statement of additional information applicable to each Fund relative to the Adviser and its board members and officers. -2- (e) The Funds will supply the Adviser with certified copies of the following documents: (i) the Trust's Trust Instrument and By-Laws; (ii) resolutions of the Trust's Board of Trustees and shareholders authorizing the appointment of the Adviser and approving this Agreement; (iii) the Funds' Registration Statement, as filed with the Securities and Exchange Commission; and (iv) the Funds' most recent prospectus and statement of additional information. The Funds will furnish the Adviser from time to time with copies of all amendments or supplements to the foregoing, if any, and all documents, notices and reports filed with the Securities and Exchange Commission. (f) The Funds will supply, or cause their custodian bank to supply, to the Adviser such financial information as is necessary or desirable for the functions of the Adviser hereunder. 3. Broker-Dealer Relationships. The Adviser is responsible for decisions to buy and sell securities for each Fund, broker-dealer selection and negotiation of its brokerage commission rates. The Adviser's primary consideration in effecting a security transaction will be execution at the most favorable price. Each Fund understands that many of its portfolio transactions will be transacted with primary market makers acting as principal on a net basis, with no brokerage commissions being paid by the Fund. Such principal transactions may, however, result in a profit to the market makers. In certain instances, the Adviser may make purchases of underwritten issues at prices which include underwriting fees. In selecting a broker or dealer to execute each particular transaction, the Adviser will take the following into consideration: the best price available; the reliability, integrity and financial condition of the broker or dealer; the size of and difficulty in executing the order; and the value of the expected contribution of the broker or dealer to the investment performance of a Fund on a continuing basis. Accordingly, the price to a Fund in any transaction may be less favorable than that available from another broker or dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine, the Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Fund to pay a broker or dealer that provides brokerage and research services to the Adviser an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund. The Adviser is further authorized to allocate the orders placed by it on behalf of a Fund to an affiliated broker-dealer, if any, or to such brokers and dealers who also provide research or statistical material, or other services to the Fund (which material or services may also assist the Adviser in rendering services to other clients). Such allocation shall be in such amounts and proportions as the Adviser shall determine and the Adviser will report on said allocations regularly to the Board of Trustees indicating the brokers to whom such allocations have been made and the basis therefor. 4. Allocation of Expenses. The Adviser agrees that it will furnish each Fund, at its expense, all office space and facilities, equipment and clerical personnel necessary for carrying out its duties under this Agreement. The Adviser agrees that it will supply to any administrator (the "Administrator") of the Funds all necessary financial information in connection with the Administrator's duties under any agreement between the Administrator and the Trust on behalf of the Funds. All costs and expenses associated with any administrative functions delegated by the Adviser to the Administrator that are not pursuant to any agreement between the Administrator and a Fund or the Adviser and a Fund will be paid by the Adviser. All other costs and expenses not expressly assumed by the Adviser under this Agreement or by the Administrator under the administration agreement between it and the Trust on behalf of a Fund shall be paid by the Fund from the assets of the Fund, including, but not limited to (i) fees paid to the Adviser and the Administrator; (ii) interest and taxes; (iii) brokerage commissions; (iv) insurance premiums; (v) compensation and expenses of the directors other than those affiliated with the adviser or the administrator; (vi) legal, accounting and audit expenses; (vii) fees and expenses of any transfer agent, distributor, registrar, dividend disbursing agent or shareholder servicing -3- agent of the Fund; (viii) expenses, including clerical expenses, incident to the issuance, redemption or repurchase of shares of the Fund, including issuance on the payment of, or reinvestment of, dividends; (ix) fees and expenses incident to the registration under Federal or state securities laws of the Fund or its shares; (x) expenses of preparing, setting in type, printing and mailing prospectuses, statements of additional information, reports and notices and proxy material to shareholders of the Fund; (xi) all other expenses incidental to holding meetings of the Fund's shareholders; (xii) expenses connected with the execution, recording and settlement of portfolio securities transactions; (xiii) fees and expenses of the Fund's custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; (xiv) expenses of calculating net asset value of the shares of the Fund; (xv) industry membership fees allocable to the Fund; and (xvi) such extraordinary expenses as may arise, including litigation affecting the Fund and the legal obligations which the Fund may have to indemnify the officers and trustees with respect thereto. 5. Compensation of the Adviser. For the services to be rendered, each Fund shall pay to the Adviser from the assets of the Fund an investment advisory fee paid monthly at an annual rate set forth opposite each Fund's name on Schedule A which shall be a percentage of the Fund's average daily net assets for the Fund's then-current fiscal year. Except as hereinafter set forth, compensation under this Agreement shall be calculated and accrued daily and the amounts of the daily accruals shall be paid monthly. If the Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Subject to the provisions of subsection (b) hereof, payment of the Adviser's compensation for the preceding month shall be made as promptly as possible after completion of the computations contemplated by subsection (b) hereof. 6. Duration Amendment and Termination. (a) This Agreement shall go into effect as to each Fund on the date set forth above (the "Effective Date") and shall, unless terminated as hereinafter provided, continue in effect for two years from the Effective Date and shall continue from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Board of Trustees, including the vote of a majority of the trustees who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party cast in person at a meeting called for the purpose of voting on such approval, or by the vote of the holders of a "majority" (as so defined) of the outstanding voting securities of a Fund and by such a vote of the trustees. (b) This Agreement may be amended only if such amendment is approved by the vote of the holders of a "majority" (as defined in the Act) of the outstanding voting securities of a Fund. (c) This Agreement may be terminated as to a Fund by the Adviser at any time without penalty upon giving such Fund sixty (60) days' written notice (which notice may be waived by the Fund) and may be terminated by a Fund at any time without penalty upon giving the Adviser sixty (60) days' written notice (which notice may be waived by the Adviser), provided that such termination by such Fund shall be approved by the vote of a majority of all the trustees in office at the time or by the vote of the holders of a "majority" (as defined in the Act) of the voting securities of the Fund at the time outstanding and entitled to vote. This Agreement shall automatically terminate in the event of its "assignment" (as defined in the Act). 7. Board of Trustees' Meeting. Each Fund agrees that notice of each meeting of the Board of Trustees will be sent to the Adviser and that each Fund will make appropriate arrangements for the attendance (as persons present by invitation) of such person or persons as the Adviser may designate. -4- 8. Use of the Name "Guinness Flight". Each Fund acknowledges that it is adopting its name through permission of the Adviser, and agrees that the Adviser reserves to itself and any successor to its business the right to withdraw the right to use the name "Guinness Flight" from a Fund if the Adviser no longer advises the Fund. The Adviser also reserves the right to grant the nonexclusive right to use the name "Guinness Flight" or any similar name to any other corporation or entity, including, but not limited to, any investment company. In the event this Agreement is terminated, each Fund shall immediately delete "Guinness Flight" from its name and may not use the name "Guinness Flight" in any manner thereafter. 9. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. 10. Questions of Interpretation. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act, as amended, shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Act. In addition, where the effect of a requirement of the Act, reflected in any provision of this Agreement is revised by rule, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order. -5- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. GUINNESS FLIGHT INVESTMENT FUNDS By_______________________________ Title: GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED By________________________________ Title: -6- Schedule A Name of Fund Fee* 1. Guinness Flight Asia Blue Chip Fund 1.00% 2. Guinness Flight Asia Small Cap Fund 1.00% 3. Guinness Flight China & Hong Kong Fund 1.00% 4. Guinness Flight Global Government Bond Fund .75% - -------------- * As a percentage of average daily net assets. Note, however, that the Adviser shall have the right, but not the obligation, to voluntarily waive any portion of the advisory fee from time to time. -7- EX-99.B6 3 GENERAL DISTRIBUTION AGREEMENT GENERAL DISTRIBUTION AGREEMENT AGREEMENT made April 28, 1997 by and between the Guinness Flight Investment Funds, a Delaware business trust which may issue one or more series of shares (the "Guinness Funds"), and First Fund Distributors, Inc., a Delaware corporation having its principal place of business at 479 West 22nd Street, New York, New York (the "Distributor"). WHEREAS, the Guinness Funds wishes to employ the services of the Distributor in connection with the promotion and distribution of shares of the funds listed on Schedule A (each, a "Fund" and collectively, the "Funds"); NOW, THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties agree as follows: 1. Documents. The Guinness Funds has furnished the Distributor with copies of its Certificate of Trust, Trust Instrument, By Laws, Investment Advisory Agreement, Custodian Agreement, current Prospectus and Statement of Additional Information, and all forms relating to any plan, program or service offered by the Guinness Funds. The Guinness Funds shall furnish promptly to the Distributor a copy of any amendment or supplement to any of the above mentioned documents. The Guinness Funds shall furnish promptly to the Distributor any additional documents necessary or advisable to perform its functions hereunder. 2. Sale of Shares. The Guinness Funds grants to the Distributor the right to sell shares as agent on behalf of the Guinness Funds (the "Shares"), during the term of this Agreement, subject to the registration requirements of the Securities Act of 1933, as amended ("1933 Act"), and of the laws governing the sale of securities in the various states ("Blue Sky Laws"), under the terms and conditions set forth in this agreement. The Distributor (i) shall have the right to sell, as agent on behalf of the Guinness Funds, shares authorized for issue and registered under the 1933 Act, and (ii) may sell shares under offers of exchange, if available, between and among other funds or portfolios advised by Guinness Flight Investment Management Limited ("Guinness Flight"). 3. Sale of Shares by the Guinness Funds. The rights granted to the Distributor shall be nonexclusive in that the Guinness Funds reserves the right to sell the Shares to investors on applications received and accepted by the Guinness Funds. Further, the Guinness Funds reserves the right to issue Shares in connection with the merger, consolidation or other combination by the Guinness Funds through purchase or otherwise, with any other entity. 4. Public Offering Price. Except as otherwise noted in the Guinness Funds' current Prospectus and/or Statement of Additional Information, all Shares sold to investors by the Distributor or the Guinness Funds will be sold at the public offering price. The public offering price for all accepted subscriptions will be the net asset value per share, as determined in the manner described in the Guinness Funds' current Prospectus and/or Statement of Additional Information, plus a sales charge (if any) described in the Guinness Funds' current Prospectus and/or Statement of Additional Information. The Guinness Funds shall in all cases receive the net asset value per share on all sales. If a sales charge is in effect, the Distributor shall have the right, subject to such rules or regulations of the Securities and Exchange Commission as may then be in effect pursuant to Section 22 of the Investment Company Act of 1940, to pay a portion of the sales charge to dealers who have sold shares of the Guinness Funds. If a fee in connection with shareholder redemptions is in effect, the Guinness Funds shall collect the fee on behalf of the Distributor and, unless otherwise agreed upon by the Guinness Funds and the Distributor, the Distributor shall be entitled to receive all of such fees. 5. Suspension of Sales. If and whenever the determination of net asset value is suspended and until such suspension is terminated, no further orders for Shares shall be processed by the Distributor except such unconditional orders as may have been placed with the Distributor before it had knowledge of the suspension. In addition, the Guinness Funds reserves the right to suspend sales and the Distributor's authority to process orders for Shares on behalf of the Guinness Funds if, in the judgment of the Guinness Funds, it is in the best interests of the Guinness Funds to do so. Suspension will continue for such period as may be determined by the Guinness Funds. 6. Solicitation of Sales. In consideration of these rights granted to the Distributor, the Distributor agrees to use all reasonable efforts, consistent with its other business, to secure purchasers for Shares of the Guinness Funds. This shall not prevent the Distributor from entering into like arrangements (including arrangements involving the payment of underwriting commissions) with other issuers. While the Distributor is registered as a broker or dealer under the Blue Sky Laws of certain United States jurisdictions, it shall not be required to maintain its registration in any jurisdiction in which it is now registered. If a sales charge is in effect, the Distributor shall have the right to enter into sales agreements with dealers of its choice for the sale of shares of the Guinness Funds to the public at the public offering price only and fix in such agreements the portion of the sales charge which may be retained by dealers, provided that the Guinness Funds shall approve the form of the dealer agreement and the dealer discounts set forth therein and shall evidence such approval by filing said form of dealer agreement and amendments thereto as an exhibit to its currently effective Registration Statement under the 1933 Act. 7. Authorized Representations. The Distributor is not authorized by the Guinness Funds to give any information or to make any representations other than those contained in the appropriate registration statements or Prospectuses and Statements of Additional Information filed with the Securities and Exchange Commission under the 1933 Act (as these registration statements, Prospectuses and Statements of Additional Information may be amended from time to time), or contained in shareholder reports or other material that may be prepared by or on behalf of the Guinness Funds for the Distributor's use. Consistent with the foregoing, the Distributor may prepare and distribute sales literature or - 2 - other material as it may deem appropriate, provided such sales literature complies with applicable law and regulation. 8. Registration of Shares. The Guinness Funds agrees that it will take all action necessary to register Shares under the 1933 Act (subject to the necessary approval of its shareholders) so that there will be available for sale the number of Shares the Distributor may reasonably be expected to sell. The Guinness Funds shall make available to the Distributor such number of copies of its currently effective Prospectus and Statement of Additional Information as the Distributor may reasonably request at the Distributor's expense. The Guinness Funds, at its expense, shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of shares of the Guinness Funds. 9. Distribution Expenses. The Distributor shall bear all expenses in connection with the performance of its services hereunder, including, but not limited to, (a) printing and distributing any Prospectuses and Statements of Additional Information or reports prepared for its use in connection with the offering of shares for sale to the public other than to existing shareholders of the Guinness Funds determined at the time of mailing any such Prospectuses and Statements of Additional Information or reports, (b) any other literature used by the Distributor in connection with such offering, and (c) advertising and promotional activities in connection with such Offering. 10. Guinness Funds Expenses. The Guinness Funds shall pay all fees and expenses (a) in connection with the preparation, setting in type and filing of any registration statement, Prospectus and Statement of Additional Information under the 1933 Act and amendments for the issue of its shares, (b) in connection with the registration and qualification of shares for sale in the various states in which the Board of Trustees of the Guinness Funds shall determine it advisable to qualify such shares for sale (including registering the Guinness Funds as a broker or dealer or any officer of the Guinness Funds as agent or salesman in any state), (c) of preparing, setting in type, printing and mailing any report or other communication to shareholders of the Guinness Funds in their capacity as such, and (d) of preparing, setting in type, printing and mailing Prospectuses, Statements of Additional Information and any supplements thereto sent to existing shareholders. The Distributor shall bear all expenses in connection with the performance of its services hereunder and shall have no obligation to pay or to reimburse the Guinness Funds for any other expenses incurred by or on behalf of the Funds, including any expenses which may be in excess of expense limitations imposed by any state. 11. Use of the Distributor's Name. The Guinness Funds shall not use the name of the Distributor, or any of its affiliates, in any Prospectus or Statement of Additional Information, sales literature, and other material relating to the Guinness Funds in any manner without the prior written consent of the Distributor (which shall not be unreasonably withheld); provided, however, that the Distributor hereby approves all lawful uses of the names of the Distributor and its affiliates in the Prospectus and Statement of Additional Information of the Guinness Funds and in all other materials which merely refer in accurate - 3 - terms to their appointments hereunder or which are required by the Securities and Exchange Commission or any state securities authority. 12. Use of the Guinness Funds' Name. Neither the Distributor nor any of its affiliates shall use the name of the Guinness Funds in any Prospectuses or Statements of Additional Information, sales literature, or other material relating to the Guinness Funds on any forms for other than internal use in any manner without the prior consent of the Guinness Funds (which shall not be unreasonably withheld); provided, however, that the Guinness Funds hereby approves all uses of its name in the Prospectus and Statement of Additional Information of the Guinness Funds and in sales literature and all other materials which are required by the Distributor in the discharge of its duties hereunder which merely refer in accurate terms to the appointment of the Distributor hereunder, or which are required by the Securities and Exchange Commission or any state securities authority. 13. Insurance. The Distributor agrees to maintain fidelity bond and liability insurance coverages which are, in scope and amount, consistent with coverages customary for distribution activities. The Distributor shall notify the Guinness Funds upon receipt of any notice of material, adverse change in the terms or provisions of its insurance coverage. Such notification shall include the date of change and the reason or reasons therefor. The Distributor shall notify the Guinness Funds of any material claim against it, whether or not covered by insurance, and shall notify the Guinness Funds, from time to time as may be appropriate, of the total outstanding claims made by it under its insurance coverage. 14. Indemnification. The Guinness Funds agrees to indemnify and hold harmless the Distributor and each of its directors and officers and each person, if any, who controls the Distributor within the meaning of Section 15 of the 1933 Act against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages, or expense and reasonable counsel fees incurred in connection therewith) arising by reason of any person acquiring any shares, based upon the ground that the registration statement, Prospectus, Statement of Additional Information, shareholder reports or other information filed or made public by the Guinness Funds (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to make the statements not misleading under the 1933 Act, or any other statute or the common law. However, the Guinness Funds does not agree to indemnify the Distributor or hold it harmless to the extent that the statement or omission was made in reliance upon, and in conformity with, information furnished to the Guinness Funds by or on behalf of the Distributor. In no case (i) is the indemnity of the Guinness Funds in favor of the Distributor or any person indemnified to be deemed to protect the Distributor or any person against any liability to the Guinness Funds or its security holders to which the Distributor or such person would otherwise be subjected by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Guinness Funds to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any person indemnified unless the Distributor or person, as the case may be, shall have - 4 - notified the Guinness Funds in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Distributor or any such person (or after the Distributor or such person shall have received notice of service on any designated agent). However, failure to notify the Guinness Funds of any claim shall not relieve the Guinness Funds from any liability which it may have to the Distributor or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Guinness Funds shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any claims, but if the Guinness Funds elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to the Distributor or person or persons, defendant or defendants in the suit. In the event the Guinness Funds elects to assume the defense of any suit and retain counsel, the Distributor, officers or directors or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Guinness Funds does not elect to assume the defense of any suit, it will reimburse the Distributor, officers or directors or controlling person or persons, defendant or defendants in the suit for the reasonable fees and expenses of any counsel retained by them. The Guinness Funds agrees to notify the Distributor promptly of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of any of the shares. The Distributor also covenants and agrees that it will indemnify and hold harmless the Guinness Funds and each of its Board members and officers and each person, if any, who controls the Guinness Funds within the meaning of Section 15 of the 1933 Act, against any loss, liability, damages, claim or expense (including the reasonable cost of investigating or defending any alleged loss, liability, damages, claim or expense and reasonable counsel fees incurred in connection therewith) arising by reason of any person acquiring any Shares, based upon the 1933 Act or any other statute or common law, alleging any wrongful act of the Distributor or any of its employees or alleging that the registration statement, Prospectus, Statement of Additional Information, shareholder reports or other information filed or made public by the Guinness Funds (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to make the statements not misleading, insofar as the statement or omission was made in reliance upon, and in conformity with information furnished to the Guinness Funds by or on behalf of the Distributor. In no case (i) is the indemnity of the Distributor in favor of the Guinness Funds or any person indemnified to be deemed to protect the Guinness Funds or any person against any liability to which the Guinness Funds or such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Guinness Funds or any person indemnified unless the Guinness Funds or person, as the case may be, shall have notified the Distributor in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Guinness Funds or any such person (or after the Guinness Funds or such person shall have received notice of service on any - 5 - designated agent). However, failure to notify the Distributor of any claim shall not relieve the Distributor from any liability which it may have to the Guinness Funds or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. In the case of any notice to the Distributor, it shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claim, but if the Distributor elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to the Guinness Funds, to its officers and Board and to any controlling person or persons, defendant or defendants in the suit. In the event the Distributor elects to assume the defense of any suit and retain counsel, the Guinness Funds or controlling persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Distributor does not elect to assume the defense of any suit, it will reimburse the Guinness Funds, officers and Board or controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees to notify the Guinness Funds promptly of the commencement of any litigation or proceedings against it in connection with the issue and sale of any of the shares. 15. Liability of the Distributor. The Distributor shall not be liable for any damages or loss suffered by the Guinness Funds in connection with the matters to which this Agreement relates, except for damages or loss resulting from willful misfeasance, reckless disregard, bad faith or gross negligence on the Distributor's part in the performance of its duties under this Agreement. Any person, even though also an officer, partner, employee or agent of the Distributor, or any of its affiliates, who may be or become an officer of the Guinness Funds, shall be deemed, when rendering services to or acting on any business of the Guinness Funds in any such capacity (other than services or business in connection with the Distributor's duties under this Agreement), to be rendering such services to or acting solely for the Guinness Funds and not as an officer, partner, employee or agent or one under the control or direction of the Distributor or any of its affiliates, even if paid by the Distributor or an affiliate thereof. 16. Acts of God, Etc. The Distributor shall not be liable for delays or errors occurring by reason of circumstances not reasonably foreseeable and beyond its control, including, but not limited to, acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot or failure of communication or power supply. In addition, in the event of equipment breakdowns which are (i) beyond the reasonable control of the Distributor and (ii) not primarily attributable to the failure of the Distributor to reasonably maintain or provide for the maintenance of such equipment, the Distributor shall, at no additional expense to the Guinness Funds, take reasonable steps in good faith to minimize service interruptions but shall have no liability with respect thereto. 17. Supplemental Information. The Distributor and the Guinness Funds shall regularly consult with each other regarding the Distributor's performance of its obligations under this Agreement. In connection therewith, the Guinness Funds shall submit to the Distributor at a reasonable time in advance of filing with the Securities and Exchange Commission copies of any amended or supplemented registration statements (including - 6 - exhibits) under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and, at a reasonable time in advance of their proposed use, copies of any amended or supplemented forms relating to any plan, program or service offered by the Guinness Funds. Any change in such material which would require any change in the Distributor's obligations under the foregoing provisions shall be subject to the Distributor's approval, which shall not be unreasonably withheld. 18. Term. This Agreement shall become effective on April 28, 1997 or such later date as may be agreed upon by the parties hereto, and shall continue through April 27, 1999, and thereafter shall continue automatically for successive annual periods, provided such continuance is specifically approved at least annually (i) by the Guiness Funds' Board of Trustees or (ii) by a vote of a majority of the outstanding Shares of the Guinness Funds (as defined in the Investment Company Act of 1940), provided that in either event the continuance is also approved by the majority of the Guinness Funds' Trustees who are not parties to the Agreement or "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable without penalty on not less than sixty days' notice by the Guinness Funds' Board of Trustees, by vote of a majority of the outstanding Shares of the Guinness Funds (as defined by the 1940 Act) or by the Distributor. Any termination shall not affect the rights and obligations of the parties under Sections 9, 14, 15, and 16, hereof. Upon termination of this Agreement in whole, at the Guinness Funds' expense and direction, the Distributor shall transfer to such successor as the Guinness Funds shall specify all relevant books, records and other data established or maintained by the Distributor under this Agreement. 19. Notice. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by (i) telex, (ii) telecopier, or (iii) registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Guinness Funds, at Guinness Flight Investment Funds, Attention James Atkinson, 225 South Lake Avenue, Suite 777, Pasadena, CA 91101, Telecopy No. (818) 795-0593; and if to the Distributor, First Fund Distributors, Attention Robert Wadsworth, 4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018, Telecopy No. (602) 952-8520, or such other telecopy number or address as may be furnished by one party to the other. 20. Confidential Information. The Distributor will treat confidentially and as proprietary information of the Guinness Funds all records and other information relative to the Guinness Funds and to prior or present shareholders or to those persons or entities who respond to the Distributor's inquiries concerning investment in the Guinness Funds, and will not use such records and information for any purposes other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Guinness Funds, which approval shall not be unreasonably withheld and may not be withheld if the Distributor might, in its sole judgment exercised in good faith, be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Guinness Funds. - 7 - 21. Limitation of Liability. The Distributor is expressly put on notice of the limitation of shareholder liability as set forth in the Trust Instrument of the Guinness Funds and agrees that the obligations assumed by the Guinness Funds under this contract shall be limited in all cases to the Guinness Funds and its assets. The Distributor shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Guinness Funds. Nor shall the Distributor seek satisfaction of any such obligation from the Trustees or any individual Trustee of the Guinness Funds. The Distributor understands that the rights and obligations of each series of shares of the Guinness Funds under the Guinness Funds' Trust Instrument are separate and distinct from those of any and all other series. 22. Miscellaneous. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts to the extent federal law does not govern. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. Except as otherwise provided herein or under the Investment Company Act of 1940, this Agreement may not be changed, waived, discharged or amended except by written instrument which shall make specific reference to this Agreement and which shall be signed by the party against which enforcement of such change, waiver, discharge or amendment is sought. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. - 8 - IN WITNESS WHEREOF, the Guinness Funds has executed this instrument in its name and behalf, and its seal affixed, by one of its officers duly authorized, and the Distributor has executed this instrument in its name and behalf, and its corporate seal affixed, by one of its officers duly authorized, as of the day and year first above written. Guinness Flight Investment Funds, Inc. with respect to its series of funds listed on Schedule A Attest: - --------------------- By: ---------------------------- President FIRST FUND DISTRIBUTORS, INC. Attest: - --------------------- By: ---------------------------- Vice President and Secretary - 9 - SCHEDULE A GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND EX-99.B8 4 CUSTODIAN AGREEMENT ASSIGNMENT AND ASSUMPTION WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation (the "Company") and Investors Bank & Trust Company, a Massachusetts trust company (the "Bank") have entered into a Custodian Agreement, dated the 1st day of July 1994 (the "Agreement"); and WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion and Termination, the Company is converting to a Delaware business trust ("Guinness Flight Investment Funds" or the "Trust"); and WHEREAS, the Company desires to obtain, and the undersigned desires to grant, the undersigned's consent to the assignment of the Agreement. NOW THEREFORE, the Bank, in consideration of and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound by the terms of this Assignment and Assumption, hereby agrees as follows: The Bank acknowledges that the Agreement by and between the Company and the Bank is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time or both, could become a default under the Agreement. The Bank hereby consents to the assignment of all rights and obligations under the Agreement to the Trust by the Company, to become effective on April 28, 1997. The Trust acknowledges that the Agreement is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time, or both, could become a default under the Agreement. The Trust hereby agrees to assume all of the rights, duties and obligations of the Company under the Agreement effective April 28, 1997. Dated: April 28, 1997 INVESTORS BANK & TRUST COMPANY By:______________________________ Name:____________________________ Title:___________________________ GUINNESS FLIGHT INVESTMENT FUNDS By:______________________________ Name:____________________________ Title: AMENDMENT NO. 1 to CUSTODIAN AGREEMENT (the "Agreement") between GUINNESS FLIGHT INVESTMENT FUNDS, INC. and INVESTORS BANK & TRUST COMPANY dated April 29, 1996 Pursuant to Section 17 (Amendments) of the Agreement, the first sentence of the second paragraph of the Agreement is amended to read: The Fund, an open-end management investment company consisting of the separate portfolios listed on Appendix A which is attached hereto, desires to place and maintain all of its portfolio securities and cash in the custody of the Bank. Guinness Flight Investment Funds, Inc. By:/s/ Steven J. Paggiali ----------------------------------- Steven J. Paggiali Dated: April 29, 1997 -------------------------------- Investors Bank & Trust Company By:/s/ Henry M. Joyce ----------------------------------- Henry M. Joyce Dated: April 29, 1997 -------------------------------- APPENDIX A Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund (4/94) CUSTODIAN AGREEMENT Between GUINNESS FLIGHT INVESTMENT FUNDS, INC. and INVESTORS BANK & TRUST COMPANY TABLE OF CONTENTS Page 1. Bank Appointed Custodian............................................... 1 2. Definitions............................................................ 1 2.1 Authorized Person............................................. 1 2.2 Security...................................................... 1 2.3 Portfolio Security............................................ 1 2.4 Officers' Certificate......................................... 2 2.5 Book-Entry System............................................. 2 2.6 Depository.................................................... 2 2.7 Proper Instructions........................................... 2 3. Separate Accounts...................................................... 2 4. Certification as to Authorized Persons................................. 2 5. Custody of Cash........................................................ 3 5.1 Purchase of Securities........................................ 3 5.2 Redemptions................................................... 3 5.3 Distributions and Expenses of Fund............................ 3 5.4 Payment in Respect of Securities.............................. 3 5.5 Repayment of Loans............................................ 4 5.6 Repayment of Cash............................................. 4 5.7 Foreign Exchange Transactions................................. 4 5.8 Other Authorized Payments..................................... 4 5.9 Termination................................................... 4 6. Securities............................................................. 4 6.1 Segregation and Registration.................................. 4 6.2 Voting and Proxies............................................ 5 6.3 Book-Entry System............................................. 5 6.4 Use of a Depository........................................... 6 6.5 Use of Book-Entry System for Commercial Paper................. 7 6.6 Use of Immobilization Programs................................ 8 6.7 Eurodollar CDs................................................ 8 6.8 Options and Futures Transactions.............................. 8 6.9 Segregated Account............................................ 9 6.10 Interest Bearing Call or Time Deposits........................ 11 6.11 Transfer of Securities........................................ 11 7. Redemptions............................................................ 13 - i - Page 8. Merger, Dissolution, etc. of Fund....................................... 13 9. Actions of Bank Without Prior Authorization............................. 13 10. Collection and Defaults................................................. 14 11. Maintenance of Records and Accounting Services.......................... 14 12. Fund Evaluation......................................................... 14 13. Concerning the Bank..................................................... 15 13.1 Performance of Duties and Standard of Care........................ 15 13.2 Agents and Subcustodians with Respect to Property of the Fund Held in the United States......................................... 16 13.3 Duties of the Bank with Respect to Property of the Fund Held Outside of the United States............................................. 16 13.4 Insurance......................................................... 19 13.5 Fees and Expenses of Bank......................................... 19 13.6 Advances by Bank.................................................. 20 14. Termination............................................................. 20 15. Confidentiality......................................................... 21 16. Notices................................................................. 21 17. Amendments.............................................................. 22 18. Parties................................................................. 22 19. Governing Law........................................................... 22 20. Counterparts............................................................ 22 - ii - CUSTODIAN AGREEMENT AGREEMENT made as of this [1st] day of [July], 1994, between GUINNESS FLIGHT INVESTMENT FUNDS, INC., a Maryland corporation (the "Fund") and INVESTORS BANK & TRUST COMPANY (the "Bank") The Fund, an open-end management investment company consisting of two portfolios, Guinness Flight Hong Kong Fund and Guinness Flight Global Government Bond Fund, desires to place and maintain all of its portfolio securities and cash in the custody of the Bank. The Bank has at least the minimum qualifications required by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio securities and cash of the Fund, and has indicated its willingness to so act, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows: 1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian of its portfolio securities and cash delivered to the Bank as hereinafter described and the Bank agrees to act as such upon the terms and conditions hereinafter set forth. 2. Definitions. Whenever used herein, the terms listed below will have the following meaning: 2.1 Authorized Person. Authorized Person will mean any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of the Fund by appropriate resolution of its Board of Directors (the "Board"), and set forth in a certificate as required by Section 4 hereof. 2.2 Security. The term security as used herein will have the same meaning as when such term is used in the Securities Act of 1933, as amended, including, without limitation, any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to, or option contract to purchase or sell any of the foregoing, and futures, forward contracts and options thereon. 2.3 Portfolio Security. Portfolio Security will mean any security owned by the Fund. 2.4 Officers' Certificate. Officers' Certificate will mean, unless otherwise indicated, any request, direction, instruction, or certification in writing signed by any two Authorized Persons of the Fund. 2.5 Book-Entry System. Book-Entry System shall mean the Federal Reserve- Treasury Department Book Entry System for United States government, instrumentality and agency securities operated by the Federal Reserve Bank, its successor or successors and its nominee or nominees. 2.6 Depository. Depository shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any United States or foreign person authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Board. 2.7 Proper Instructions. Proper Instructions shall mean (i) instructions regarding the purchase or sale of Portfolio Securities, and payments and deliveries in connection therewith, given by an Authorized Person as shall have been designated in an Officers' Certificate, such instructions to be given in such form and manner as the Bank and the Fund shall agree upon from time to time, and (ii) instructions (which may be continuing instructions) regarding other matters signed or initiated by such one or more persons from time to time designated in an Officers' Certificate as having been authorized by the Board. Oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be promptly confirmed in writing. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the sole obligation of the Bank with respect to any follow-up or confirmatory instruction shall be to make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to the Fund. The Fund shall be responsible, at the Fund's expense, for taking any action, including any reprocessing, necessary to correct any such discrepancy or error, and to the extent such action requires the Bank to act the Fund shall give the Bank specific Proper Instructions as to the action required. Upon receipt of an Officers' Certificate as to the authorization by the Board accompanied by a detailed description of procedures approved by the Fund, Proper Instructions may include communication effected directly between electro-mechanical or electronic devices provided that the Board and the Bank are satisfied that such procedures afford adequate safeguards for the Fund's assets. 3. Separate Accounts. If the Fund has more than one series or portfolio, the Bank will segregate the assets of each series or portfolio to which this Agreement relates into a separate account for each such series or portfolio containing the assets of such series or portfolio (and all investment earnings thereon). 4. Certification as to Authorized Persons. The Secretary or Assistant Secretary of the Fund will at all times maintain on file with the Bank his or her certification to the Bank, in - 2 - such form as may be acceptable to the Bank, of (i) the names and signatures of the Authorized Persons and (ii) the names of the Board, it being understood that upon the occurrence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who is no longer an Authorized Person as designated therein), the Secretary or Assistant Secretary of the Fund, will sign a new or amended certification setting forth the change and the new, additional or omitted names or signatures. The Bank will be entitled to rely and act upon any Officers' Certificate given to it by the Fund which as been signed by Authorized Persons named in the most recent certification. 5. Custody of Cash. As custodian for the Fund, the Bank will open and maintain a separate account or accounts in the name of the Fund or in the name of the Bank, as Custodian of the Fund, and will deposit to the account of the Fund all of the cash of the Fund, except for cash held by a subcustodian appointed pursuant to Section 13.2 hereof, including borrowed funds, delivered to the Bank, subject only to draft or order by the Bank acting pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which may be continuing instructions) or in the case of payments for redemptions and repurchases of outstanding shares of common stock of the Fund, notification from the Fund's transfer agent as provided in Section 7, requesting such payment, designating the payee or the account or accounts to which the Bank will release funds for deposit, and stating that it is for a purpose permitted under the terms of this Section 5, specifying the applicable subsection, the Bank will make payments of cash held for the accounts of the Fund, insofar as funds are available for that purpose, only as permitted in subsections 5.1-5.9 below. 5.1 Purchase of Securities. Upon the purchase of securities for the Fund, against a contemporaneous receipt of such securities by the Bank registered in the name of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the account of the Bank pursuant to the provisions of Section 6 below, each such payment to be made at the purchase price shown on a broker's confirmation (or transaction report in the case of Book Entry Paper) of purchase of the securities received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made. 5.2 Redemptions. In such amount as may be necessary for the repurchase or redemption of common shares of the Fund offered for repurchase or redemption in accordance with Section 7 of this Agreement. 5.3 Distributions and Expenses of Fund. For the payment on the account of the Fund of dividends or other distributions to shareholders as may from time to time be declared by the Board, interest, taxes, management or supervisory fees, distribution fees, fees of the Bank for its services hereunder and reimbursement of the expenses and liability of the Bank, as provided hereunder, fees of any transfer agent, fees for legal, accounting, and auditing services, or other operating expenses of the Fund. 5.4 Payment in Respect of Securities. For payments in connection with the conversion, exchange or surrender of Portfolio Securities or securities subscribed to by the Fund held by or to be delivered to the Bank. - 3 - 5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in the case of final payment, only upon redelivery to the Bank of any Portfolio Securities pledged or hypothecated therefor and upon surrender of documents evidencing the loan. 5.6 Repayment of Cash. To repay the cash delivered to the Fund for the purpose of collateralizing the obligation to return to the Fund certificates borrowed from the Fund representing Portfolio Securities, but only upon redelivery to the Bank of such borrowed certificates. 5.7 Foreign Exchange Transactions. For payments in connection with foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery which may be entered into by the Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper Instructions to specify the currency broker or banking institution (which may be the Bank, or any other subcustodian or agent hereunder, acting as principal) with which the contract or option is made, and the Bank shall have no duty with respect to the selection of such currency brokers or banking institutions with which the Fund deals or for their failure to comply with the terms of any contract or option. 5.8 Other Authorized Payments. For other authorized transactions of the Fund, or other obligations of the Fund incurred for proper Fund purposes; provided that before making any such payment the Bank will also receive a certified copy of a resolution of the Board signed by an Authorized Person (other than the Person certifying such resolution) and certified by its Secretary or Assistant Secretary, naming the person or persons to whom such payment is to be made, and either describing the transaction for which payment is to be made and declaring it to be an authorized transaction of the Fund, or specifying the amount of the obligation for which payment is to be made, setting forth the purpose for which such obligation was incurred and declaring such purpose to be a proper corporate purpose. 5.9 Termination. Upon termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement. 6. Securities. 6.1 Segregation and Registration. Except as otherwise provided herein, and except for securities to be delivered to any subcustodian appointed pursuant to Section 13.2 hereof, the Bank as custodian, will receive and hold pursuant to the provisions hereof, in a separate account or accounts and physically segregated at all times from those of other persons, any and all Portfolio Securities which may now or hereafter be delivered to it by or for the account of the Fund. All such Portfolio Securities will be held or disposed of by the Bank for, and subject at all times to, the instructions of the Fund pursuant to the terms of this Agreement. Subject to the specific provisions herein relating to Portfolio Securities that are not physically held by the Bank, the Bank will register all Portfolio Securities (unless otherwise directed by Proper Instructions or an Officers' Certificate), in the name of a registered nominee of the Bank as defined in the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, and will execute and deliver all such certificates in connection therewith as may be required by such laws or regulations or under the laws of any state. The Bank will use its best - 4 - efforts to the end that the specific Portfolio Securities held by it thereunder will be at all times identifiable. The Fund will from time to time furnish to the Bank appropriate instruments to enable it to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any Portfolio Securities which may from time to time be registered in the name of the Fund. 6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will vote any of the Portfolio Securities held hereunder, except in accordance with Proper Instructions or an Officers' Certificate. The Bank will execute and deliver, or cause to be executed and delivered, to the Fund all notices, proxies and proxy soliciting materials with respect to such Securities, such proxies to be executed by the registered holder of such Securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted. 6.3 Book-Entry System. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving deposits of Fund assets in the Book-Entry System, and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may keep Portfolio Securities in the Book-Entry System provided that such Portfolio Securities are represented in an account ("Account") of the Bank (or its agent) in such System which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers; (b) The records of the Bank (and any such agent) with respect to the Fund's participation in the Book-Entry System through the Bank (or any such agent) will identify by book entry Portfolio Securities which are included with other securities deposited in the Account and shall at all times during the regular business hours of the Bank (or such agent) be open for inspection by duly authorized officers, employees or agents of the Fund. Where securities are transferred to the Fund's account, the Bank shall also, by book entry or otherwise, identify as belonging to the Fund a quantity of securities in fungible bulk of securities (i) registered in the name of the Bank or its nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve Bank; (c) The Bank (or its agent) shall pay for securities purchased for the account of the Fund or shall pay cash collateral against the return of Portfolio Securities loaned by the Fund upon (i) receipt of advice from the Book-Entry System that such Securities have been transferred to the Account, and (ii) the making of an entry on the records of the Bank (or its agent) to reflect such payment and transfer for the account of the Fund. The Bank (or its agent) shall transfer securities sold or loaned for the account of the Fund upon - 5 - (i) receipt of advice from the Book-Entry System that payment for securities sold or payment of the initial cash collateral against the delivery of securities loaned by the Fund has been transferred to the Account; and (ii) the making of an entry on the records of the Bank (or its agent) to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Book-Entry System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Bank and shall be provided to the Fund at its request. The Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers to or from the account of the Fund; (d) The Bank will promptly provide the Fund with any report obtained by the Bank or its agent on the Book-Entry System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Book-Entry System; (e) The Bank shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Book-Entry System by reason of any gross negligence, willful misfeasance or bad faith of the Bank or any of its agents or of any of its or their employees or from any reckless disregard by the Bank or any such agent of its duty to use its best efforts to enforce such rights as it may have against the Book-Entry System; at the election of the Fund, it shall be entitled to be subrogated for the Bank in any claim against the Book-Entry System or any other person which the Bank or its agent may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any loss or damage. 6.4 Use of a Depository. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving deposits in DTC or other such Depository and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may use a Depository to hold, receive, exchange, release, lend, deliver and otherwise deal with Portfolio Securities including stock dividends, rights and other items of like nature, and to receive and remit to the Bank on behalf of the Fund all income and other payments thereon and to take all steps necessary and proper in connection with the collection thereof; (b) Registration of Portfolio Securities may be made in the name of any nominee or nominees used by such Depository; (c) Payment for securities purchased and sold may be made through the clearing medium employed by such Depository for transactions of participants acting through it. Upon any purchase of Portfolio Securities, payment will be made only upon delivery of the securities to or for the account of the Fund and the Fund shall pay cash collateral against the return of Portfolio Securities loaned by the Fund only upon delivery of the Securities to or for the account of the Fund; and upon any sale of Portfolio Securities, delivery of the Securities will be made only against payment thereof or, in the event Portfolio Securities are loaned, delivery - 6 - of Securities will be made only against receipt of the initial cash collateral to or for the account of the Fund; and (d) The Bank shall be liable to the Fund for any loss or damage to the Fund resulting from use of a Depository by reason of any gross negligence, willful misfeasance or bad faith of the Bank or its employees or from any reckless disregard by the Bank of its duty to use its best efforts to enforce such rights as it may have against a Depository. In this connection, the Bank shall use its best efforts to ensure that: (i) The Depository obtains replacement of any certificated Portfolio Security deposited with it in the event such Security is lost, destroyed, wrongfully taken or otherwise not available to be returned to the Bank upon its request; (ii) Any proxy materials received by a Depository with respect to Portfolio Securities deposited with such Depository are forwarded immediately to the Bank for prompt transmittal to the Fund; (iii) Such Depository immediately forwards to the Bank confirmation of any purchase or sale of Portfolio Securities and of the appropriate book entry made by such Depository to the Fund's account; (iv) Such Depository prepares and delivers to the Bank such records with respect to the performance of the Bank's obligations and duties hereunder as may be necessary for the Fund to comply with the recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and (v) Such Depository delivers to the Bank and the Fund all internal accounting control reports, whether or not audited by an independent public accountant, as well as such other reports as the Fund may reasonably request in order to verify the Portfolio Securities held by such Depository. 6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving participation in a system maintained by the Bank for the holding of commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year following such approval the Board has received and approved the arrangements, upon receipt of Proper Instructions and upon receipt of confirmation from an Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund, commercial paper issued by issuers with whom the Bank has entered into a book-Entry agreement (the "Issuers"). In maintaining its Book-Entry Paper System, the Bank agrees that: (a) the Bank will maintain all Book-Entry Paper held by the Fund in an account of the Bank that includes only assets held by it for customers; (b) the records of the Bank with respect to the Fund's purchase of Book-Entry Paper through the Bank will identify, by book-entry, Commercial Paper belonging - 7 - to the Fund which is included in the Book-Entry Paper System and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund; (c) The Bank shall pay for Book-Entry Paper purchased for the account of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such sale of Book- Entry Paper has been effected, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund; (d) The Bank shall cancel such Book-Entry Paper obligation upon the maturity thereof upon contemporaneous (i) receipt of advice that payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the making of an entry on the records of the Bank to reflect such payment for the account of the Fund; (e) the Bank shall transmit to the Fund a transaction journal confirming each transaction in Book-Entry Paper for the account of the Fund on the next business day following the transaction; and (f) the Bank will send to the Fund such reports on its system of internal accounting control with respect to the Book-Entry Paper System as the Fund may reasonably request from time to time. 6.6 Use of Immobilization Programs. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving the maintenance of Portfolio Securities in an immobilization program operated by a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii) for each year following such approval the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval, the Bank shall enter into such immobilization program with such bank acting as a subcustodian hereunder. 6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs may be physically held by the European branch of the U.S. banking institution that is the issuer of such Eurodollar CD (a "European Branch"), provided that such Securities are identified on the books of the Bank as belonging to the Fund and that the books of the Bank identify the European Branch holding such Securities. Notwithstanding any other provision of this Agreement to the contrary, except as stated in the first sentence of this subsection 6.7, the Bank shall be under no other duty with respect to such Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or its shareholders with respect to the actions, inactions, whether negligent or otherwise of such European Branch in connection with such Eurodollar CDs, except for any loss or damage to the Fund resulting from the Bank's own gross negligence, willful misfeasance or bad faith in the performance of its duties hereunder. 6.8 Options and Futures Transactions. (a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-the-Counter. - 8 - 1. The Bank shall take action as to put options ("puts") and call options ("calls") purchased or sold (written) by the Fund regarding escrow or other arrangements (i) in accordance with the provisions of any agreement entered into upon receipt of Proper Instructions between the Bank, any broker-dealer registered under the Exchange Act and a member of the National Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the Fund relating to the compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations. 2. Unless another agreement requires it to do so, the Bank shall be under no duty or obligation to see that the Fund has deposited or is maintaining adequate margin, if required, with any broker in connection with any option, nor shall the Bank be under duty or obligation to present such option to the broker for exercise unless it receives Proper Instructions from the Fund. The Bank shall have no responsibility for the legality of any put or call purchased or sold on behalf of the Fund, the propriety of any such purchase or sale, or the adequacy of any collateral delivered to a broker in connection with an option or deposited to or withdrawn from a Segregated Account (as defined in subsection 6.9 below). The Bank specifically, but not by way of limitation, shall not be under any duty or obligation to: (i) periodically check or notify the Fund that the amount of such collateral held by a broker or held in a Segregated Account is sufficient to protect such broker of the Fund against any loss; (ii) effect the return of any collateral delivered to a broker; or (iii) advise the Fund that any option it holds, has or is about to expire. Such duties or obligations shall be the sole responsibility of the Fund. (b) Puts, Calls and Futures Traded on Commodities Exchanges 1. The Bank shall take action as to puts, calls and futures contracts ("Futures") purchased or sold by the Fund in accordance with the provisions of any agreement among the Fund, the Bank and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund. 2. The responsibilities and liabilities of the Bank as to futures, puts and calls traded on commodities exchanges, any Futures Commission Merchant account and the Segregated Account shall be limited as set forth in subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred to Futures Commission Merchants rather than brokers, and Futures and puts and calls thereon instead of options. 6.9 Segregated Account. The Bank shall upon receipt of Proper Instructions establish and maintain a Segregated Account or Accounts for and on behalf of the Fund, into which Account or Accounts may be transferred upon receipt of Proper Instructions cash and/or Portfolio Securities; (a) in accordance with the provisions of any agreement among the Fund, the Bank and a broker-dealer registered under the Exchange Act and a member of the NASD or any Futures Commission Merchant registered under the Commodity Exchange Act, - 9 - relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange or the Commodity Futures Trading Commission or any registered Contract Market, or of any similar organizations regarding escrow or other arrangements in connection with transactions by the Fund; (b) for the purpose of segregating cash or securities in connection with options purchased or written by the Fund or commodity futures purchased or written by the Fund; (c) for the deposit of liquid assets, such as cash, U.S. Government securities or other high grade debt obligations, having a market value (marked to market on a daily basis) at all times equal to not less than the aggregate purchase price due on the settlement dates of all the Fund's then outstanding forward commitment or "when-issued" agreements relating to the purchase of Portfolio Securities and all the Fund's then outstanding commitments under reverse repurchase agreements entered into with broker-dealer firms; (d) for the deposit of any Portfolio Securities which the Fund has agreed to sell on a forward commitment basis, all in accordance with Investment Company Act Release No. 10666; (e) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of Segregated Accounts by registered investment companies; (f) for other proper corporate purposes, but only, in the case of this clause (f), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board, or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such Segregated Account and declaring such purposes to be proper corporate purposes. (g) Assets may be withdrawn from the Segregated Account pursuant to Proper Instructions only (i) in accordance with the provisions of any agreements referenced in (a) or (b) above; (ii) for sale or delivery to meet the Fund's obligations under outstanding firm commitment or when-issued agreements for the purchase of Portfolio Securities and under reverse repurchase agreements; (iii) for exchange for other liquid assets of equal or greater value deposited in the Segregated Account; (iv) to the extent that the Fund's outstanding forward commitment or when-issued agreements for the purchase of portfolio securities or - 10 - reverse repurchase agreements are sold to other parties or the Fund's obligations thereunder are met from assets of the Fund other than those in the Segregated Account; or (v) for delivery upon settlement of a forward commitment agreement for the sale of Portfolio Securities. 6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt of Proper Instructions relating to the purchase by the Fund of interest-bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in such amounts and to such bank or banks as shall be indicated in such Proper Instructions. The Bank shall include in its records with respect to the assets of the Fund appropriate notation as to the amount of each such deposit, the banking institution with which such deposit is made (the "Deposit Bank"), and shall retain such forms of advice or receipt evidencing the deposit, if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed Portfolio Securities of the Fund and the responsibility of the Bank therefore shall be the same as and no greater than the Bank's responsibility in respect of other Portfolio Securities of the Fund. 6.11 Transfer of Securities. The Bank will transfer, exchange, deliver or release Portfolio Securities held by it hereunder, insofar as such Securities are available for such purpose, provided that before making any transfer, exchange, delivery or release under this Section the Bank will receive Proper Instructions requesting such transfer, exchange or delivery stating that it is for a purpose permitted under the terms of this Section 6.11, specifying the applicable subsection, or describing the purpose of the transaction with sufficient particularity to permit the Bank to ascertain the applicable subsection, only (a) upon sales of Portfolio Securities for the account of the Fund, against contemporaneous receipt by the Bank of payment therefor in full, each such payment to be in the amount of the sale price shown in a broker's confirmation of sale of the Portfolio Securities received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made; (b) in exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan of merger, consolidation, reorganization, share split-up, change in par value, recapitalization or readjustment or otherwise, upon exercise of subscription, purchase or sale or other similar rights represented by such Portfolio Securities, or for the purpose of tendering shares in the event of a tender offer therefor, provided however that in the event of an offer of exchange, tender offer, or other exercise of rights requiring the physical tender or delivery of Portfolio Securities, the Bank shall have no liability for failure to so tender in a timely manner unless such Proper Instructions are received by the Bank at least two business days prior to the date required for tender, and unless the Bank (or its agent or subcustodian hereunder) has actual possession of such Security at least two business days prior to the date of tender; (c) upon conversion of Portfolio Securities pursuant to their terms into other securities; - 11 - (d) for the purpose of redeeming in kind shares of the Fund upon authorization from the Fund; (e) in the case of option contracts owned by the Fund, for presentation to the endorsing broker; (f) when such Portfolio Securities are called, redeemed or retired or otherwise become payable; (g) for the purpose of effectuating the pledge of Portfolio Securities held by the Bank in order to collateralize loans made to the Fund by any bank, including the Bank; provided, however, that such Portfolio Securities will be released only upon payment to the Bank for the account of the Fund of the moneys borrowed, except that in cases where additional collateral is required to secure a borrowing already made, and such fact is made to appear in the Proper Instructions, further Portfolio Securities may be released for that purpose without any such payment. In the event that any such pledged Portfolio Securities are held by the Bank, they will be so held for the account of the lender, and after notice to the Fund from the lender in accordance with the normal procedures of the lender, that an event of deficiency or default on the loan has occurred, the Bank may deliver such pledged Portfolio Securities to or for the account of the lender; (h) for the purpose of releasing certificates representing Portfolio Securities, against contemporaneous receipt by the Bank of the fair market value of such security, as set forth in the Proper Instructions received by the Bank before such payment is made; (i) for the purpose of delivering securities lent by the Fund to a bank or broker dealer, but only against receipt in accordance with street delivery custom except as otherwise provided herein, of adequate collateral as agreed upon from time to time by the Fund and the Bank, and upon receipt of payment in connection with any repurchase agreement relating to such securities entered into by the Fund; (j) for other authorized transactions of the Fund or for other proper corporate purposes; provided that before making such transfer, the Bank will also receive a certified copy of resolutions of the Board, signed by an authorized officer of the Fund (other than the officer certifying such resolution) and certified by its Secretary or Assistant Secretary, specifying the Portfolio Securities to be delivered, setting forth the transaction in or purpose for which such delivery is to be made, declaring such transaction to be an authorized transaction of the Fund or such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made; and (k) upon termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement. As to any deliveries made by the Bank pursuant to subsections (a), (b), (c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor shall be delivered to the Bank. - 12 - 7. Redemptions. In the case of payment of assets of the Fund held by the Bank in connection with redemptions and repurchases by the Fund of outstanding common shares, the Bank will rely on notification by the Fund's transfer agent of receipt of a request for redemption and certificates, if issue, in proper form for redemption before such payment is made. Payment shall be made in accordance with the Articles and By-laws of the Fund, from assets available for said purpose. 8. Merger, Dissolution, etc. of Fund. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Fund into or the consolidation of the Fund with another investment company, the sale by the Fund of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of the Fund and distribution of its assets, the Bank will deliver the Portfolio Securities held by it under this Agreement and disburse cash only upon the order of the Fund set forth in an Officers' Certificate, accompanied by a certified copy of a resolution of the Board authorizing any of the foregoing transactions. Upon completion of such delivery and disbursement and the payment of the fees, disbursements and expenses of the Bank, this Agreement will terminate. 9. Actions of Bank Without Prior Authorization. Notwithstanding anything herein to the contrary, unless and until the Bank receives an Officers' Certificate to the contrary, it will without prior authorization or instruction of the Fund or the transfer agent: 9.1 Endorse for collection and collect on behalf of and in the name of the Fund all checks, drafts, or other negotiable or transferable instruments or other orders for the payment of money received by it for the account of the Fund and hold for the account of the Fund all income, dividends, interest and other payments or distribution of cash with respect to the Portfolio Securities held thereunder; 9.2 Present for payment all coupons and other income items held by it for the account of the Fund which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund; 9.3 Receive and hold for the account of the Fund all securities received as a distribution on Portfolio Securities as a result of a stock dividend, share split-up, reorganization, recapitalization, merger, consolidation, readjustment, distribution of rights and similar securities issued with respect to any Portfolio Securities held by it hereunder; 9.4 Execute as agent on behalf of the Fund all necessary ownership and other certificates and affidavits required by the Internal Revenue Code or the regulations of the Treasury Department issued thereunder, or by the laws of any state, now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so and as may be required to obtain payment in respect thereof. The Bank will execute and deliver such certificates in connection with Portfolio Securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any State; - 13 - 9.5 Present for payment all Portfolio Securities which are called, redeemed, retired or otherwise become payable, and hold cash received by it upon payment for the account of the Fund; and 9.6 Exchange interim receipts or temporary securities for definitive securities. 10. Collection and Defaults. The Bank will use all reasonable efforts to collect any funds which may to its knowledge become collectible arising from Portfolio Securities, including dividends, interest and other income, and to transmit to the Fund notice actually received by it of any call for redemption, offer of exchange, right of subscription, reorganization or other proceedings affecting such Securities. If Portfolio Securities upon which such income is payable are in default or payment is refused after due demand or presentation, the Bank will notify the Fund in writing of any default or refusal to pay within two business days from the date on which it receives knowledge of such default or refusal. In addition, the Bank will send the Fund a written report once each month showing any income on any Portfolio Security held by it which is more than ten days overdue on the date of such report and which has not previously been reported. 11. Maintenance of Records and Accounting Services. The Bank will maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the 1940 Act and will furnish the Fund daily with a statement of condition of the Fund. The Bank will furnish to the Fund at the end of every month, and at the close of each quarter of the Fund's fiscal year, a list of the Portfolio Securities and the aggregate amount of cash held by it for the Fund. The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, procedures for safeguarding securities and internal accounting controls will be open to inspection and audit at reasonable times by officers of or auditors employed by the Fund and will be preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the 1940 Act. The Bank shall keep the books of account and render statements or copies from time to time as reasonably requested by the Treasurer or any executive officer of the Fund. The Bank shall assist generally in the preparation of reports to shareholders and others, audits of accounts, and other ministerial matters of like nature. 12. Fund Evaluation. The Bank shall compute and, unless otherwise directed by the Board, determine as of the close of business on the New York Stock Exchange on each day on which said Exchange is open for unrestricted trading and as of such other hours, if any, as may be authorized by the Board the net asset value and the public offering price of a share of capital stock of the Fund, such determination to be made in accordance with the provisions of the Articles and By-laws of the Fund and Prospectus and Statement of Additional Information relating to the Fund, as they may from time to time be amended, and any applicable resolutions of the Board at the time in force and applicable; and promptly to notify the Fund, the proper exchange and the NASD or such other persons as the Fund may request of the results of such - 14 - computation and determination. In computing the net asset value hereunder, the Bank may rely in good faith upon information furnished to it by any Authorized Person in respect of (i) the manner of accrual of the liabilities of the Fund and in respect of liabilities of the Fund not appearing on its books of account kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such reserves have been authorized, (iii) the source of the quotations to be used in computing the net asset value, (iv) the value to be assigned to any security for which no price quotations are available, and (v) the method of computation of the public offering price on the basis of the net asset value of the shares, and the Bank shall not be responsible for any loss occasioned by such reliance or for any good faith reliance on any quotations received from a source pursuant to (iii) above. 13. Concerning the Bank. 13.1 Performance of Duties and Standard of Care. In performing its duties hereunder and any other duties listed on any Schedule hereto, if any, the Bank will be entitled to receive and act upon the advice of independent counsel of its own selection, which may be counsel for the Fund, and will be without liability for any action taken or thing done or omitted to be done in accordance with this Agreement in good faith in conformity with such advice. In the performance of its duties hereunder, the Bank will be protected and not be liable, and will be indemnified and held harmless for any action taken or omitted to be taken by it in good faith reliance upon the terms of this Agreement, any Officers' Certificate, Proper Instructions, resolution of the Board, telegram, notice, request, certificate or other instrument reasonably believed by the Bank to be genuine and for any other loss to the Fund except in the case of its gross negligence, willful misfeasance or bad faith in the performance of its duties or reckless disregard of its obligations and duties hereunder. The Bank will be under no duty or obligation to inquire into and will not be liable for: (a) the validity of the issue of any Portfolio Securities purchased by or for the Fund, the legality of the purchases thereof or the propriety of the price incurred therefor; (b) the legality of any sale of any Portfolio Securities by or for the Fund or the propriety of the amount for which the same are sold; (c) the legality of an issue or sale of any common shares of the Fund or the sufficiency of the amount to be received therefor; (d) the legality of the repurchase of any common shares of the Fund or the propriety of the amount to be paid therefor; (e) the legality of the declaration of any dividend by the Fund or the legality of the distribution of any Portfolio Securities as payment in kind of such dividend; and - 15 - (f) any property or moneys of the Fund unless and until received by it, and any such property or moneys delivered or paid by it pursuant to the terms hereof. Moreover, the Bank will not be under any duty or obligation to ascertain whether any Portfolio Securities at any time delivered to or held by it for the account of the Fund are such as may properly be held by the Fund under the provisions of its Articles, By-laws, any federal or state statutes or any rule or regulation of any governmental agency. Notwithstanding anything in this Agreement to the contrary, in no event shall the Bank be liable hereunder or to any third party: (a) for any losses or damages of any kind resulting from acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currently restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation, or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events except as results from the Bank's own gross negligence; or (b) for special, punitive or consequential damages arising from the provision of services hereunder, even if the Bank has been advised of the possibility of such damages. 13.2 Agents and Subcustodians with Respect to Property of the Fund Held in the United States. The Bank may employ agents in the performance of its duties hereunder and shall be responsible for the acts and omissions of such agents as if performed by the Bank hereunder. Upon receipt of Proper Instructions, the Bank may employ subcustodians, provided that any such subcustodian meets at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect to property of the Fund held in the United States. The Bank shall have no liability to the Fund or any other person by reason of any act or omission of any subcustodian and the Fund shall indemnify the Bank and hold it harmless from and against any and all actions, suits and claims, arising directly or indirectly out of the performance of any subcustodian. Upon request of the Bank, the Fund shall assume the entire defense of any action, suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees and expenses of any subcustodian. 13.3 Duties of the Bank with Respect to Property of the Fund Held Outside of the United States. (a) Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and instructs the Bank to employ as sub-custodians for the Fund's Portfolio Securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on the Schedule attached hereto (each, a "Selected Foreign Sub- Custodian"). Upon receipt of Proper Instructions, together with a certified resolution of the Fund's Board of Trustees, the Bank and the Fund may agree to designate additional foreign - 16 - banking institutions and foreign securities depositories to act as Selected Foreign Sub-Custodians hereunder. Upon the receipt of Proper Instructions, the Fund may instruct the Bank to cease the employment of any one or more such Selected Foreign Sub-Custodians for maintaining custody of the Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon as alternate custodial arrangements have been implemented. (b) Foreign Securities Depositories. Except as may otherwise be agreed upon in writing by the Bank and the Fund, assets of the Fund shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as Selected Foreign Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements shall include entry into agreements containing the provisions set forth in subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise be agreed upon in writing by the Bank and the Fund, the Fund authorizes the deposit in Euro-clear, the securities clearance and depository facilities operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of Foreign Portfolio Securities eligible for deposit therein and to utilize such securities depository in connection with settlements of purchases and sales of securities and deliveries and returns of securities, until notified to the contrary pursuant to subparagraph (a) hereunder. (c) Segregation of Securities. The Bank shall identify on its books as belonging to the Fund the Foreign Portfolio Securities held by each Selected Foreign Sub- Custodian. Each agreement pursuant to which the Bank employs a foreign banking institution shall require that such institution establish a custody account for the Bank and hold in that account, Foreign Portfolio Securities and other assets of the Fund, and, in the event that such institution deposits Foreign Portfolio Securities in a foreign securities depository, that it shall identify on its books as belonging to the Bank the securities so deposited. (d) Agreements with Foreign Banking Institutions. Each of the agreements pursuant to which a foreign banking institution holds assets of the Fund (each, a "Foreign Sub- Custodian Agreement") shall be substantially in the form previously made available to the Fund and shall provide that: (a) the Fund's assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign banking institution or its creditors or agent, except a claim of payment for their safe custody or administration (including, without limitation, any fees or taxes payable upon transfers or reregistration of securities); (b) beneficial ownership of the Fund's assets will be freely transferable without the payment of money or value other than for custody or administration (including, without limitation, any fees or taxes payable upon transfers or reregistration of securities); (c) adequate records will be maintained identifying the assets as belonging to the Fund; (d) officers of or auditors employed by, or other representatives of the Bank, including to the extent permitted under applicable law, the independent public accountants for the Fund, will be given access to the books and records of the foreign banking institution relating to its actions under its agreement with the Bank; and (e) assets of the Fund held by the Selected Foreign Sub-Custodian will be subject only to the instructions of the Bank or its agents. (e) Access of Independent Accountants of the Fund. Upon request of the Fund, the Bank will use its best efforts to arrange for the independent accountants of the Fund - 17 - to be afforded access to the books and records of any foreign banking institution employed as a Selected Foreign Sub-Custodian insofar as such books and records relate to the performance of such foreign banking institution under its Foreign Sub-Custodian Agreement. (f) Reports by Bank. The Bank will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of the Fund held by Selected Foreign Sub-Custodians, including but not limited to an identification of entities having possession of the Foreign Portfolio Securities and other assets of the Fund. (g) Transactions in Foreign Custody Account. Transactions with respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall be effected pursuant to Proper Instructions from the Fund to the Bank and shall be effected in accordance with the applicable Foreign Sub-Custodian Agreement. If at any time any Foreign Portfolio Securities shall be registered in the name of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold any such nominee harmless from any liability by reason of the registration of such securities in the name of such nominee. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Portfolio Securities received for the account of the Fund and delivery of Foreign Portfolio Securities maintained for the account of the Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. In connection with any action to be taken with respect to the Foreign Portfolio Securities held hereunder, including, without limitation, the exercise of any voting rights, subscription rights, redemption rights, exchange rights, conversion rights or tender rights, or any other action in connection with any other right, interest or privilege with respect to such Securities (collectively, the "Rights"), the Bank shall promptly transmit to the Fund such information in connection therewith as is made available to the Bank by the Foreign Sub- Custodian, and shall promptly forward to the applicable Foreign Sub-Custodian any instructions, forms or certifications with respect to such Rights, and any instructions relating to the actions to be taken in connection therewith, as the Bank shall receive from the Fund pursuant to Proper Instructions. Notwithstanding the foregoing, the Bank shall have no further duty or obligation with respect to such Rights, including, without limitation, the determination of whether the Fund is entitled to participate in such Rights under applicable U.S. and foreign laws, or the determination of whether any action proposed to be taken with respect to such Rights by the Fund or by the applicable Foreign Sub-Custodian will comply with all applicable terms and conditions of any such Rights or any applicable laws or regulations, or market practices within the market in which such action is to be taken or omitted. (h) Liability of Selected Foreign Sub-Custodians. Each Foreign Sub-Custodian Agreement with a foreign banking institution shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Bank and each - 18 - Fund from and against certain losses, damages, costs, expenses, liabilities or claims arising out of or in connection with the institution's performance of such obligations, all as set forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges that the Bank, as a participant in Euro-clear, is subject to the Terms and Conditions Governing the Euro-Clear System, a copy of which has been made available to the Fund. The Fund acknowledges that pursuant to such Terms and Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or assert any and all rights or claims in respect of actions or omissions of, or the bankruptcy or insolvency of, any other depository, clearance system or custodian utilized by Euro-clear in connection with the Fund's securities and other assets. (i) Liability of Bank. The Bank shall have no more or less responsibility or liability on account of the acts of omissions of any Selected Foreign Sub-Custodian employed hereunder than any such Selected Foreign Sub-Custodian has to the Bank and, without limiting the foregoing, the Bank shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, political risk (including, but not limited to, exchange control restrictions, confiscation, insurrection, civil strife or armed hostilities) other losses due to Acts of God, nuclear incident or any loss where the Selected Foreign Sub-Custodian has otherwise exercised reasonable care. (j) Monitoring Responsibilities. The Bank shall furnish annually to the Fund, information concerning the Selected Foreign Sub-Custodians employed hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians to ensure compliance with the requirements of Rule 17f-5 of the Act. In addition, the Bank will promptly inform the Fund in the event that the Bank is notified by a Selected Foreign Sub-Custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles) or any other capital adequacy test applicable to it by exemptive order, or if the Bank has actual knowledge of any material loss of the assets of the Fund held by a Foreign Sub-Custodian. (k) Tax Law. The Bank shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Bank as custodian of the Fund by the tax laws of any jurisdiction, and it shall be the responsibility of the Fund to notify the Bank of the obligations imposed on the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. 13.4 Insurance. The Bank shall use the same care with respect to the safekeeping of Portfolio Securities and cash of the Fund held by it as it uses in respect of its own similar property but it need not maintain any special insurance for the benefit of the Fund. 13.5 Fees and Expenses of Bank. The Fund will pay or reimburse the Bank from time to time for any transfer taxes payable upon transfer of Portfolio Securities made - 19 - hereunder, and for all necessary proper disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as provided above. For the services rendered by the Bank hereunder, the Fund will pay to the Bank such compensation or fees at such rate and at such times as shall be agreed upon in writing by the parties from time to time. The Bank will also be entitled to reimbursement by the Fund for all reasonable expenses incurred in conjunction with termination of this Agreement by the Fund. 13.6 Advances by Bank. The Bank may, in its sole discretion, advance funds on behalf of the Fund to make any payment permitted by this Agreement upon receipt of any proper authorization required by this Agreement for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such overdraft or related indebtedness, a loan made by the Bank to the Fund payable on demand and bearing interest at the current rate charged by the Bank for such loans unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest to the extent of any overdraft or indebtedness, in and to any property at any time held by it for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon against any balance of account standing to the credit of the Fund on the Bank's books. 14. Termination. 14.1 This Agreement may be terminated at any time without penalty upon sixty days written notice delivered by either party to the other by means of registered mail, and upon the expiration of such sixty days this Agreement will terminate; provided, however, that the effective date of such termination may be postponed to a date not more than ninety days from the date of delivery of such notice (i) by the Bank in order to prepare for the transfer by the Bank of all of the assets of the Fund held hereunder, and (ii) by the Fund in order to give the Fund an opportunity to make suitable arrangements for a successor custodian. At any time after the termination of this Agreement, the Fund will, at its request, have access to the records of the Bank relating to the performance of its duties as custodian. 14.2 In the event of the termination of this Agreement, the Bank will immediately upon receipt or transmittal, as the case may be, of notice of termination, commence and prosecute diligently to completion the transfer of all cash and the delivery of all Portfolio Securities duly endorsed and all records maintained under Section 11 to the successor custodian when appointed by the Fund. The obligation of the Bank to deliver and transfer over the assets of the Fund held by it directly to such successor custodian will commence as soon as such successor is appointed and will continue until completed as aforesaid. If the Fund does not select a successor custodian within ninety (90) days from the date of delivery of notice of termination the Bank may, subject to the provisions of subsection (14.3), deliver the Portfolio Securities and cash of the Fund held by the Bank to a bank or trust company of its own selection - 20 - which meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and undivided profits aggregating not less than $2,000,000, to be held as the property of the Fund under terms similar to those on which they were held by the Bank, whereupon such bank or trust company so selected by the Bank will become the successor custodian of such assets of the Fund with the same effect as though selected by the Board. 14.3 Prior to the expiration of ninety (90) days after notice of termination has been given, the Fund may furnish the Bank with an order of the Fund advising that a successor custodian cannot be found willing and able to act upon reasonable and customary terms and that there has been submitted to the shareholders of the Fund the question of whether the Fund will be liquidated or will function without a custodian for the assets of the Fund held by the Bank. In that event the Bank will deliver the Portfolio Securities and cash of the Fund held by it, subject as aforesaid, in accordance with one of such alternatives which may be approved by the requisite vote of shareholders, upon receipt by the Bank of a copy of the minutes of the meeting of shareholders at which action was taken, certified by the Fund's Secretary and an opinion of counsel tot he Fund in form and content satisfactory to the Bank. 15. Confidentiality. Both parties hereto agree that any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed to any other person without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, without bond or other security, to an injunction or injunctions to prevent breaches of this provision. 16. Notices. Any notice or other instrument in writing authorized or required by this Agreement to be given to either party hereto will be sufficiently given if addressed to such party and mailed or delivered to it at its office at the address set forth below, namely: (a) In the case of notices sent to the Fund to Guinness Flight Investment Funds, Inc. 201 South Lake Avenue, Suite 510 Pasadena, California 91101 Attention: Mr. Robert H. Wadsworth (b) In the case of notices sent to the Bank to Investors Bank & Trust Company 89 South Street Boston, Massachusetts 02111 Attention: Mr. Henry N. Joyce or at such other place as such party may from time to time designate in writing. - 21 - 17. Amendments. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties, and in the case of the Fund, such alteration or amendment will be authorized and approved by its Board. 18. Parties. This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by the Fund without the written consent of the Bank or by the Bank without the written consent of the Fund, authorized and approved by its Board; and provided further that termination proceedings pursuant to Section 14 hereof will not be deemed to be an assignment within the meaning of this provision. 19. Governing Law. This Agreement and all performance hereunder will be governed by the laws of the Commonwealth of Massachusetts. 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first written above. Guinness Flight Investment Funds, Inc. By: --------------------------- Name: Title: ATTEST: - ----------------------------- Investors Bank & Trust Company By: --------------------------- Name: Title: ATTEST: - ----------------------------- - 22 - DATE: ----------------------- - 23 - Guinness Flight Investment Funds, Inc. Fee Schedule For Two U.S. Based International Funds July 1, 1994 =============================================================================== FUND ACCOUNTING, CALCULATION OF N.A.V. & CUSTODY =============================================================================== A. FUND ACCOUNTING & CALCULATION OF N.A.V. o There will be a per fund fee for Fund Accounting and Calculation of NAV as follows: First year $40,000 per fund Second year and beyond $50,000 per fund The first year reduction will stay in effect for the designated time frame or when total assets in the two funds combined reach $50 million, whichever comes first. B. DOMESTIC & FOREIGN CUSTODY o The following incremental basis point fees are based on all assets for which we are Custodian. The following asset based fees and transaction fees vary by country, based upon the attached International Custody Bands. These amounts are calculated monthly as of the 20th of the month. Local duties, script fees, registration and exchange fees are out-of-pocket. o Investors Bank will require the fund to hold all assets that are eligible with Euroclear and to submit all assets that are Euroclear petitionable to an eligibility review. Country Annual Fee Transactions ------- ---------- ------------ Band I (US) 3 Basis Points See item (C) Band II 8 Basis Points 20 Band III 15 Basis Points 60 Band IV 20 Basis Points 60 Band V 24 Basis Points 100 Band VI 31 Basis Points 110 Band VII 42 Basis Points 120 Band VIII 45 Basis Points 120 C. DOMESTIC TRANSACTION COSTS o DTC/Fed Book Entry $12 o Physical Securities 35 o Options and Futures 18 o GNMA Securities 40 o Principal Paydown 5 o Foreign Currency 18 o Outgoing Wires 8 o Incoming Wires 6 =============================================================================== OUT-OF-POCKET, BALANCE CREDITS & SECURITIES LENDING =============================================================================== A. OUT-OF-POCKET o These charges consist of: - Pricing & Verification Services - Legal Costs - Printing, Delivery & Postage - Third Party Review - Telephone - Forms and Supplies B. DOMESTIC BALANCE CREDIT o We allow balance credit against fees (excluding out-of-pocket charges) for fund balances arising out of the custody relationship. The credit is based on collected balances reduced by balances required to support the activity charges of the accounts. The monthly earnings allowance is equal to 75% of the 90-day T-bill rate. C. SECURITIES LENDING o Investors Bank assumes that it will act as lending agent for the funds. Typically the income generated is split with the fund on a 55%-45% basis with 55% going to the fund. GUINNESS FLIGHT INVESTMENT FUNDS, INC. FEE SCHEDULE February 15, 1996 =============================================================================== FUND ACCOUNTING, CALCULATION OF N.A.V. & CUSTODY =============================================================================== A. FUND ACCOUNTING & CALCULATION OF N.A.V. o There will be a per fund fee for Fund Accounting and Calculation of NAV as follows: First year of $25 million assets $30,000 per fund Second year or $50 million in assets $40,000 per fund Third year and beyond $50,000 per fund This fee will apply to any new funds sponsored by Guinness Flight. B. DOMESTIC & FOREIGN CUSTODY o The following incremental basis point fees are based on all assets for which we are Custodian. The following asset based fees and transaction fees vary by country, based upon the attached International Custodial Bands. These amounts are calculated monthly as of the 20th of the month. Local duties, script fees, registration and exchange fees are out-of-pocket. o Investors Bank will require the fund to hold all international assets at the subcustodian of our choice. Country Annual Fee Transactions ------- ---------- ------------ BandI (US) 3 Basis Points See Item (C) BandII 8 Basis Points 20*** BandIII 15 Basis Points**** 60 BandIV 20 Basis Points 60 BandV 24 Basis Points***** 100 BandVI 31 Basis Points 110 BandVII 42 Basis Points 120****** BandVIII 45 Basis Points 120 BandIX 50 Basis Points 200 BandX 53 Basis Points 100 - -------- *** Transactions in Australia, Austria, Italy, New Zealand, Switzerland and UK are charged at $60. **** The annual fee for Hong Kong is 12 basis points. ***** Asset based charges in Argentina are based on face value not market value. ****** Transactions in India are 50 basis points of trade value. C. DOMESTIC TRANSACTIONS COSTS o DTC/Fed Book Entry $12 o Physical Securities 35 o Options ad and Futures 18 o GNMA Securities 40 o Principal Paydown 5 o Foreign Currency 18** o Outgoing Wires 8 o Incoming Wires 6 ** There are no transactions charges for F/X contracts executed by Investors Bank =============================================================================== MISCELLANEOUS =============================================================================== A. OUT-OF-POCKET o These charges consist of: - Pricing & Verification Services - Legal Costs - Printing, Delivery & Postage - Third Party Review - Telecommunications - Forms and Supplies - Extraordinary Travel Expenses - Customized Development B. DOMESTIC BALANCE CREDIT o We allow balance credit against fees (excluding out-of-pocket charges) for fund balances arising out of the custody relationship. The credit is based on collected balances reduced by balances required to support the activity charges of the accounts. The monthly earnings allowances is equal to 75% of the 90-day T-bill rate. C. SYSTEMS o The details of any systems work will be determined after a thorough business analysis. System's work will be billed on a time and material basis. D. PAYMENT o The above fees will be charged against the fund's custodian account five business days after the invoice if mailed. E. SECURITIES LENDING & FOREIGN EXCHANGE o The assumption was made that Investors Bank would perform securities lending and foreign exchange services for the portfolios. Securities Lending revenue is split with the fund and Investors Bank on a 60/40% basis: 60% going to the fund.* - -------- * This fee schedule is valid for 60 days from date of issue and assumes the execution of our standard contractual agreements for a minimum of three years. - 2 - EX-99.B9(A) 5 ASSIGNMENT AND ASSUMPTION ASSIGNMENT AND ASSUMPTION WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation (the "Company") and State Street Bank and Trust Company, a Massachusetts trust company (the "Bank") have entered into a Transfer Agency and Service Agreement, dated the 1st day of July, 1994, (the "Agreement"); and WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion and Termination, the Company is converting to a Delaware business trust ("Guinness Flight Investment Funds" or the "Trust"); and WHEREAS, the Company desires to obtain, and the undersigned desires to grant, the undersigned's consent to the assignment of the Agreement. NOW THEREFORE, the Bank, in consideration of and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound by the terms of this Assignment and Assumption, hereby agrees as follows: The Bank acknowledges that (i) the Agreement by and between the Company and the Bank is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time or both, could become a default under the Agreement. The Bank hereby consents to the assignment of all rights and obligations under the Agreement to the Trust by the Company, to become effective on April 28, 1997; and (ii) that Guinness Flight Asia Small Cap Fund and Guinness Flight Asia Blue Chip Fund are both parties to the Agreement as of April 29, 1996. The Trust acknowledges that the Agreement is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time, or both, could become a default under the Agreement. The Trust hereby agrees to assume all of the rights, duties and obligations of the Company under the Agreement effective April 28, 1997. Dated: April 28, 1997 STATE STREET BANK TRUST AND COMPANY By:____________________________________ Name:__________________________________ Title:__________________________________ GUINNESS FLIGHT INVESTMENT FUNDS By:____________________________________ Name:__________________________________ Title: TRANSFER AGENCY AND SERVICE AGREEMENT between GUINNESS FLIGHT INVESTMENT FUNDS, INC. and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS Page Article 1 Terms of Appointment; Duties of the Bank........................2 Article 2 Fees and Expenses...............................................6 Article 3 Representations and Warranties of the Bank......................7 Article 4 Representations and Warranties of the Fund......................8 Article 5 Data Access and Proprietary Information.........................8 Article 6 Indemnification................................................11 Article 7 Standard of Care...............................................13 Article 8 Covenants of the Fund and the Bank.............................13 Article 9 Termination of Agreement.......................................15 Article 10 Additional Funds...............................................15 Article 11 Assignment.....................................................16 Article 12 Amendment......................................................16 Article 13 Massachusetts Law to Apply.....................................16 Article 14 Force Majeure..................................................17 Article 15 Consequential Damages..........................................17 Article 16 Merger of Agreement............................................17 Article 17 Counterparts...................................................17 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the 1st day of July, 1994, by and between GUINNESS FLIGHT INVESTMENT FUNDS, INC., a Maryland corporation, having its principal office and place of business at 201 South Lake Avenue, Suite 510, Pasadena, California 91101 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in two series, Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government Bond Fund (each such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Article 10, being herein referred to, as a "Portfolio", and collectively as the "Portfolios"); WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its transfer agent, dividend disbursing agent, custodian of certain retirement plans and agent in connection with certain other activities and the Bank desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 Terms of Appointment; Duties of the Bank 1.1 Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the authorized and issued shares of capital stock of the Fund representing interests in each of the respective Portfolios ("Shares"), dividend disbursing agent, custodian of certain retirement plans and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of each of the respective Portfolios of the Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund on behalf of the applicable Portfolio, including without limitation any periodic investment plan or periodic withdrawal program. 1.2 The Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund on behalf of each of the Portfolios, as applicable and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Articles of Incorporation of the Fund (the "Custodian"); -2- (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation thereof to the Custodian; (iv) In respect to the transactions in items (i), (ii) and (iii) above, the Bank shall execute transactions directly with broker-dealers authorized by the Fund who shall thereby be deemed to be acting on behalf of the Fund; (v) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (vi) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vii) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio; (viii) Issue replacement certificates for those certificates alleged to have been lost, -3- stolen or destroyed upon receipt by the Bank of indemnification satisfactory to the Bank and protecting the Bank and the Fund, and the Bank at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof and without such indemnity; (ix) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and (x) Record the issuance of Shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Bank shall also provide the Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a -4- transfer agent, dividend disbursing agent, custodian of certain retirement plans and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable the Fund to monitor the total number of Shares sold in each State. (c) In addition, the Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by -5- the Fund and the reporting of such transactions to the Fund as provided above. (d) Procedures as to who shall provide certain of these services in Article 1 may be established from time to time by agreement between the Fund on behalf of each Portfolio and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf. (e) The Bank shall provide additional services on behalf of the Fund (i.e., escheatment services) which may be agreed upon in writing between the Fund and the Bank. Article 2 Fees and Expenses 2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees on behalf of each of the Portfolios to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.2 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on behalf of each of the Portfolios to reimburse the Bank for out-of-pocket expenses, including but not limited to confirmation production, postage, forms, telephone, microfilm, microfiche, tabulating proxies, records storage or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses -6- incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund on behalf of the applicable Portfolio. 2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and reimbursable expenses within five days following the receipt of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all Shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. Article 3 Representations and Warranties of the Bank The Bank represents and warrants to the Fund that: 3.1 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.2 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.3 It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement. 3.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.5 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. -7- Article 4 Representations and Warranties of the Fund The Fund represents and warrants to the Bank that: 4.1 It is a corporation duly organized and existing and in good standing under the laws of Maryland. 4.2 It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement. 4.3 All corporate proceedings required by said Articles of Incorporation and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.4 It is an open-end and non-diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.5 A registration statement under the Securities Act of 1933, as amended on behalf of each of the Portfolios is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. Article 5 Data Access and Proprietary Information 5.1 The Fund acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Fund by the Bank as part of the Fund's ability to access certain Fund-related data ("Customer Data") maintained by the Bank on data bases under the control and ownership of the Bank or other third party ("Data Access Services") constitute copyrighted, -8- trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to the Bank or other third party. In no event shall Proprietary Information be deemed Customer Data. The Fund agrees to treat all Proprietary Information as proprietary to the Bank and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Fund agrees for itself and its employees and agents: (a) to access Customer Data solely from locations as may be designated in writing by the Bank and solely in accordance with the Bank's applicable user documentation; (b) to refrain from copying or duplicating in any way the Proprietary Information; (c) to refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform in a timely manner of such fact and dispose of such information in accordance with the Bank's instructions; (d) to refrain from causing or allowing third-party data acquired hereunder from being retransmitted to any other computer facility or other location, except with the prior written consent of the Bank; (e) that the Fund shall have access only to those authorized transactions agreed upon by the parties; (f) to honor all reasonable written requests made by the Bank to protect at the Bank's expense the rights of the Bank -9- in Proprietary Information at common law, under federal copyright law and under other federal or state law. Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this Article 5. The obligations of this Article shall survive any earlier termination of this Agreement. 5.2 If the Fund notifies the Bank that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Bank shall endeavor in a timely manner to correct such failure. Organizations from which the Bank may obtain certain data included in the Data Access Services are solely responsible for the contents of such data and the Fund agrees to make no claim against the Bank arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 5.3 If the transactions available to the Fund include the ability to originate electronic instructions to the Bank in order to (i) effect the transfer or movement of cash or Shares or (ii) transmit Shareholder information or other information (such transactions constituting a "COEFI"), then in such event the Bank shall be entitled to rely on the validity and authenticity of -10- such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Bank from time to time. Article 6 Indemnification 6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the applicable Portfolio indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's lack of good faith, negligence or willful misconduct which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records, documents or services which (i) are received by the Bank or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Fund or any other person or firm on behalf of the Fund including but not limited to any previous transfer agent or registrar. (d) The reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or requests of the Fund on behalf of the applicable Portfolio. -11- (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. 6.2 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the applicable Portfolio for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper -12- countersignature of any former transfer agent or former registrar, or of a co-transfer agent or co-registrar. 6.3 In order that the indemnification provisions contained in this Article 6 shall apply, upon the assertion of a claim for which the Fund may be required to indemnify the Bank, the Bank shall promptly notify the Fund of such assertion, and shall keep the Fund advised with respect to all developments concerning such claim. The Fund shall have the option to participate with the Bank in the defense of such claim or to defend against said claim in its own name or in the name of the Bank. The Bank shall in no case confess any claim or make any compromise in any case in which the Fund may be required to indemnify the Bank except with the Fund's prior written consent. Article 7 Standard of Care 7.1 The Bank shall at all times act in good faith and agrees to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless said errors are caused by its negligence, bad faith, or willful misconduct of that of its employees. Article 8 Covenants of the Fund and the Bank 8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the Bank the following: -13- (a) A certified copy of the resolution of the Directors of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Articles of Incorporation and By-Laws of the Fund and all amendments thereto. 8.2 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 8.3 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 8.4 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. -14- 8.5 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. Article 9 Termination of Agreement 9.1 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 9.2 Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination. Article 10 Additional Funds 10.1 In the event that the Fund establishes one or more series of Shares in addition to Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government Bond Fund with respect to which it desires to have the Bank render services as transfer agent under the terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. -15- Article 11 Assignment 11.1 Except as provided in Section 11.3 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 11.2 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 11.3 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate; provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. Article 12 Amendment 12.1 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Directors of the Fund. -16- Article 13 Massachusetts Law to Apply 13.1 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. Article 14 Force Majeure 14.1 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Article 15 Consequential Damages 15.1 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. Article 16 Merger of Agreement 16.1 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. Article 17 Counterparts 17.1 This Agreement may be executed by the parties hereto on any number of counterparts, and all of said -17- counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. GUINNESS FLIGHT INVESTMENT FUNDS, INC. BY: ----------------------------------- ATTEST: - ------------------------------ STATE STREET BANK AND TRUST COMPANY BY: ----------------------------------- Executive Vice President ATTEST: - ------------------------------ -18- STATE STREET BANK & TRUST COMPANY FUND SERVICE RESPONSIBILITIES* Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 1. Receives orders for the purchase X of Shares. 2. Issue Shares and hold Shares in X Shareholders accounts. 3. Receive redemption requests. X 4. Effect transactions 1-3 above X directly with broker-dealers. 5. Pay over monies to redeeming X Shareholders. 6. Effect transfers of Shares. X 7. Prepare and transmit dividends X and distributions. 8. Issue Replacement Certificates. X 9. Reporting of abandoned property. X 10. Maintain records of account. X 11. Maintain and keep a current and X accurate control book for each issue of securities. 12. Mail proxies. X 13. Mail Shareholder reports. X 14. Mail prospectuses to current X Shareholders. -19- Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 15. Withhold taxes on U.S. resident X and non-resident alien accounts. 16. Prepare and file U.S. Treasury X Department forms. 17. Prepare and mail account and X confirmation statements for Shareholders. 18. Provide Shareholder account X information. 19. Blue sky reporting. X * Such services are more fully described in Article 1.02(a), (b) and (c) of the Agreement. GUINNESS FLIGHT INVESTMENT FUNDS, INC. BY: ----------------------------------- ATTEST: - ---------------------- STATE STREET BANK AND TRUST COMPANY BY: ----------------------------------- Executive Vice President ATTEST: - ---------------------- -20- Fee Information for Services as Plan, Transfer and Dividend Disbursing Agent GUINNESS FLIGHT Annual Account Service Fees Daily Dividend Fund $ 14.00 Non-Daily Dividend Fund $ 12.00 Closed Account Fee $ 1.50 Minimum First year minimum $30,000 per fund Second year minimum $36,000 per fund Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A charge is made for an account in the month that an account opens or closes. Account service fees are the higher of: open account charges plus closed account charges or the fund minimum. Activity Based Fees ** New Account Set-up $ 3.00/each Manual Transactions $ 1.50/each Telephone Calls $ 1.50/each Correspondence $ 1.50/each Banking Services Checkwriting Setup $ 5.00 Checkwriting (per draft) $ 1.00 ACH $ .35 Other Fees Investor Processing $ 1.80/Investor 12b-1 Commissions $ 1.20/account IRA Custodial Fees Acceptance & Setup $ 5.00/account Annual Maintenance $10.00/account Out-of-Pocket Expenses Billed as incurred Out-of-Pocket expenses include but are not limited to: confirmation statements, postage, forms, audio response, telephone, records retention, transcripts, microfilm, microfiche, and expenses incurred at the specific direction of the fund. ** Activity based fee will be waived the first quarter of operations. GUINNESS FLIGHT STATE STREET BANK AND TRUST CO. By By ----------------------------- --------------------------------- Title Title -------------------------- --------------------------------- Date Date -------------------------- ------------------------------ -21- EX-99.B9(B) 6 ASSIGNMENT AND ASSUMPTION ASSIGNMENT AND ASSUMPTION WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation (the "Company") and Investment Company Administration Corporation, a New Jersey Corporation (the "Administrator") have entered into a Administration Agreement, dated the 1st day of July, 1994 (the "Agreement"); and WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion and Termination, the Company is converting to a Delaware business trust ("Guinness Flight Investment Funds" or the "Trust"); and WHEREAS, the Company desires to obtain, and the undersigned desires to grant, the undersigned's consent to the assignment of the Agreement. NOW THEREFORE, the Administrator, in consideration of and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound by the terms of this Assignment and Assumption, hereby agrees as follows: The Administrator acknowledges that (i) the Agreement by and between the Company and the Administrator is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time or both, could become a default under the Agreement. The Administrator hereby consents to the assignment of all rights and obligations under the Agreement to the Trust by the Company, to become effective on April 28, 1997; and (ii) that Guinness Flight Asia Small Cap Fund and Guinness Flight Asia Blue Chip Fund are both parties to the Agreement as of April 29, 1996. The Trust acknowledges that the Agreement is in full force and effect, and that it is not aware of any default or event which, after notice or the passage of time, or both, could become a default under the Agreement. The Trust hereby agrees to assume all of the rights, duties and obligations of the Company under the Agreement effective April 28, 1997. Dated: April 28, 1997 INVESTMENT COMPANY ADMINISTRATION CORPORATION By:____________________________________ Name:__________________________________ Title:__________________________________ GUINNESS FLIGHT INVESTMENT FUNDS By:____________________________________ Name:__________________________________ Title: ADMINISTRATION AGREEMENT THIS AGREEMENT is made as of the 1st day of July, 1994 by and between Guinness Flight China & Hong Kong and Global Government Bond Funds (the "Funds"), two separate series of the Guinness Flight Investment Funds, Inc., a Maryland Corporation (the "Company"), and INVESTMENT COMPANY ADMINISTRATION CORPORATION, a New Jersey Corporation (the "Administrator"); WITNESSETH: WHEREAS, the Funds are non-diversified series of an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Company wishes to retain the Administrator to provide certain administrative services in connection with the management of the Funds' operations and the Administrator is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Company hereby appoints the Administrator to provide certain administrative services, hereinafter enumerated, in connection with the management of the Funds' operations for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to comply with all relevant provisions of the 1940 Act, applicable rules and regulations thereunder, and other applicable law. 2. Services on a Continuing Basis. Subject to the overall supervision of the Board of Directors of the Company and Guinness Flight Investment Management Limited (the "Manager"), the Administrator will perform the following services on a regular basis which would be daily, weekly or as otherwise appropriate: A) perform the services in Exhibit 1 attached; and B) such additional services as may be agreed upon by the Funds and the Administrator. 3. Responsibility of the Administrator. The Administrator shall be under no duty to take any action on behalf of the Funds except as set forth herein or as may be agreed to by the Administrator in writing. In the performance of its duties hereunder, the Administrator shall be obligated to exercise reasonable care and diligence and to act in good faith and to use its best efforts. Without limiting the generality of the foregoing or any other provision of this Agreement, the Administrator shall not be liable for delays or errors or loss of data occurring by reason of circumstances beyond the Administrator's control. 4. Reliance Upon Instructions. The Company agrees that the Administrator shall be entitled to rely upon any instructions, oral or written, actually received by the Administrator from the Board of Directors of the Company and shall incur no liability to the Company or the Company's Manager in acting upon such oral or written instructions, provided such instructions reasonably appear to have been received from a person duly authorized by the Board of Directors of the Company to give oral or written instructions on behalf of the Funds. 5. Confidentiality. The Administrator agrees on behalf of itself and its employees to treat confidentially all records and other information relative to the Funds and all prior, present or potential shareholders of the Funds, except after prior notification to, and approval of release of information in writing by, the Funds, which approval shall not be unreasonably withheld where the Administrator may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Funds. 6. Equipment Failures. In the event of equipment failure or the occurrence of events beyond the Administrator's control which render the performance of the Administrator's functions under this Agreement impossible, the Administrator shall take reasonable steps to minimize service interruptions and is authorized to engage the services of third parties (at the Administrator's expense) to prevent or remedy such service interruptions. 7. Compensation. As compensation for services rendered by the Administrator during the term of this Agreement, each Fund (the Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government Bond Fund) will pay to the Administrator a minimum annual fee of $40,000 or .25%, whichever is greater, payable monthly by the fifth day of the next month. 8. Indemnification. The Funds agree to indemnify and hold harmless the Administrator from all taxes, filing fees, charges, expenses, assessments, claims and liabilities (including without limitation, liabilities arising under Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act, and any state and foreign securities laws, all as amended from time to time) and expenses, including (without limitation) reasonable attorneys' fees and disbursements, arising directly or indirectly from any action or thing which the Administrator takes or does or omits to take or do at the request of or in reliance upon the advice of the Board of Directors of the Company, provided, that the Administrator will not be indemnified against any liability to the Funds or to shareholders of the Funds (or any expenses incident to such liability) arising out of the Administrator's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement. The Administrator agrees to indemnify and hold harmless the Funds, the Company, and each of its Directors from all claims and liabilities (including, without limitation, liabilities arising under the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act, and any state and foreign securities laws, all as amended from time to time) and expenses, including (without limitation) reasonable attorneys' fees and disbursements, arising directly or indirectly from any action or thing which the Administrator takes or does or omits to take or do which is in violation of this Agreement or not in accordance with instructions properly given to the Administrator, or arising out of the Administrator's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement. No fund or other series of the Company shall be liable for any claim against, or expense of, any other fund or series of the Company. - 2 - 9. Duration and Termination. This Agreement shall continue until termination by the Funds (through the Board of Directors of the Company) or the Administrator on 30 days' written notice to the other. All notices and other communications hereunder shall be in writing. This Agreement cannot be assigned without the prior written consent of the other party hereto. 10. Amendments. This Agreement or any part hereof may be changed or waived only by instrument in writing signed by the party against which enforcement of such change or waiver is sought. 11. Miscellaneous. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the services to be performed hereunder, and supersedes all prior agreements and understandings, relating to the subject matter hereof. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect, This Agreement shall be deemed to be a contract made in California and governed by California law. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. - 3 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below on the day and year first written above. GUINNESS FLIGHT INVESTMENT FUNDS, INC. By: /s/ ------------------------------------------ Title: President --------------------------------------- INVESTMENT COMPANY ADMINISTRATION CORPORATION By: /s/Steven J. Paggioli ------------------------------------------ Title: Vice President ------------------------------------------ - 4 - EXHIBIT 1 INVESTMENT COMPANY ADMINISTRATION CORPORATION ("ICAC") ADMINISTRATIVE SERVICES ICAC typically performs the following services on a regular basis which would be daily, weekly or as otherwise appropriate: 1) prepare and coordinate reports and other materials to be supplied to the Board of Directors of the Fund; 2) prepare and/or supervise the preparation and filing of all securities filings (i.e., N- SARs, 24f-2 notices, etc.), periodic financial reports, prospectuses, statements of additional information, marketing materials, tax returns, shareholder reports and other regulatory reports and filings required of the Fund; 3) supervise and monitor the preparation of all required filings necessary to maintain the Fund's qualification and/or registration to sell shares in all states where the Fund currently does, or intends to do business; 4) coordinate the preparation, printing and mailing of all materials (e.g., Annual Reports) required to be sent to shareholders; 5) coordinate the preparation and payment of Fund-related expenses; 6) monitor and oversee the activities of the Fund's servicing agents (i.e., transfer agent, custodian, fund accountants, etc.); 7) review and adjust as necessary the Fund's daily expense accruals; 8) monitor daily, monthly and periodic compliance with respect to SEC (40' Act), IRS and prospectus guidelines and restrictions; 9) send periodic information (i.e., performance figures) to service organizations that track investment company information; and 10) perform such additional services as may be agreed upon by the Fund and ICAC. - 5 - ADDENDUM TO ADMINISTRATION AGREEMENT Effective May 1, 1996, the Administration Agreements between Investment Company Administration Corporation and Guinness Flight Investments Funds, Inc. (the "Trust") dated July 1, 1994 is hereby amended as follows: 1. PARAGRAPH 7 OF THE AGREEMENT 7. Compensation. As compensation for services rendered by the Administrator during the term of this agreement, each series of the Trust agrees to pay the Administrator: The Greater of: (1) Minimum annual fees of $40,000 for China & Hong Kong Fund and $60,000 for Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund and Guinness Flight Global Government Fund, allocated based on the daily average net assets of each respective fund. OR (2) 0.25% of the daily average net assets for China & Hong Kong Fund. For the Asia Blue Chip Fund, Asia Small Cap Fund and Global Government Bond Fund: 0.25% (annual rate) of the combined daily average net assets. IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their officers designated below: INVESTMENT COMPANY ADMINISTRATION CORPORATION By: Date: ------------------------------------ ------------------ Title: Senior Vice President --------------------------------- GUINNESS FLIGHT INVESTMENT FUNDS, INC. By: Date: ------------------------------------ ------------------ Title: President ------------------------------------ GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED By: Date: ------------------------------------ ------------------ Title: Director ------------------------------------ - 6 - EX-99.B10.(A) 7 OPINION 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 ------------- April 25, 1997 Guinness Flight Investment Funds, Inc. 225 South Lake Avenue, Suite 777 Pasadena, California 91101 Guinness Flight Investment Funds 225 South Lake Avenue, Suite 777 Pasadena, California 91101 Re: Conversion of Guinness Flight Investment Funds, Inc. to a Delaware business trust Gentlemen: We have acted as counsel to Guinness Flight Investment Funds, Inc., a Maryland corporation (the "Company"), and its series: Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government Bond Fund (the "Current Funds"), and Guinness Flight Investment Funds, a Delaware business trust (the "Trust") in connection with an Agreement and Plan of Conversion and Termination (the "Plan") adopted by the Board of Directors of the Company on March 9, 1997, and to be presented to Shareholders of Guinness Flight Investment Funds, Inc. on April 25, 1997. Pursuant to the Plan, all of the assets of the Current Funds will be transferred to corresponding shell series of the Trust (the "Successor Funds") in exchange for (i) the assumption by each Successor Fund of all the corresponding Current Fund's liabilities and (ii) the issuance of that number of shares of the Successor Fund (the "Successor Fund Shares") equal to the number of outstanding shares of the corresponding Current Fund (the "Current Fund Shares") and such Successor Fund Shares shall be distributed by each Current KRAMER LEVIN, NAFTALIS & FRANKEL Guinness Flight Investment Funds, Inc. Guinness Flight Investment Funds April 25, 1997 Page 2 Fund pro rata to its shareholders upon its termination. Capitalized terms used herein without definition which are defined in the Plan have the same respective meanings herein as therein. In rendering this opinion, we have relied as to factual matters on representations provided by the officers of the Trust and have not independently established or verified the accuracy of such factual matters. As counsel for the Trust, we have reviewed its Certificate of Trust, Trust Instrument, By-laws, resolutions of the Board of Trustees and registration statements (including the prospectus and statement of additional information contained therein). We also have made such inquiries of public officials and officers of the Trust and have examined originals, certified copies or copies otherwise identified to our satisfaction of such other documents, records and other instruments as we have deemed necessary or appropriate for the purposes of our opinions. With respect to all documents we reviewed or examined, we have assumed the genuineness of all signatures on original documents and the conformity to the original documents of all copies. We are members of the Bar of the State of New York and do not hold ourselves out as experts on, or express any opinion as to, the law of any state or jurisdiction other than the laws of the State of New York and applicable federal laws of the United States which are in effect on the date hereof. As to matters involving Delaware law, we have relied solely upon an opinion of Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the Trust, a copy of which is attached as Exhibit A, and our opinion is subject to the qualifications and limitations set forth therein, which are incorporated herein by reference as though fully set forth herein. Based upon, and subject to, the foregoing, we are of the opinion that: (1) the Trust is a duly organized and validly existing business trust in good standing under the State of Delaware, (2) the Trust is an open-end investment company of the management type registered under the 1940 Act, (3) the Trust has adopted the Registration Statement of the Company, for purposes of the Securities Act of 1933, as amended and the Investment Company Act of 1940, as amended, KRAMER LEVIN, NAFTALIS & FRANKEL Guinness Flight Investment Funds, Inc. Guinness Flight Investment Funds April 25, 1997 Page 3 (4) Successor Fund Shares to be issued to the Company in the Conversion will have been duly authorized and when issued and delivered in accordance with the Plan will be legally and validly issued and will be fully paid and non-assessable by the Trust. This opinion letter is solely for your benefit and is not to be quoted in whole or in part, summarized or otherwise referred to, nor is it to be filed with or supplied to any governmental agency or other person without the written consent of this firm. This opinion letter is rendered as of the date hereof. We specifically disclaim any responsibility to update or supplement this opinion letter to reflect any events or state of facts which may hereafter come to our attention, or any changes in statutes or regulations or any court decisions which may hereafter occur. Very truly yours, /s/ Kramer, Levin, Naftalis & Frankel ------------------------------------- EX-99.B10(B) 8 OPINION OF SPECIAL DELAWARE COUNSEL [MORRIS, NICHOLS, ARSHT & TUNNELL LETTERHEAD] April 25, 1997 Guinness Flight Investment Funds, Inc. 225 South Lake Avenue Suite 777 Pasadena, CA 91101 Guinness Flight Investment Funds 225 South Lake Avenue Suite 777 Pasadena, CA 91101 Re: Guinness Flight Investment Funds -------------------------------- Ladies and Gentlemen: We have acted as special Delaware counsel to Guinness Flight Investment Funds, a Delaware business trust (the "Trust"), in connection with certain matters relating to the organization of the Trust and the issuance of Shares of beneficial interest in the Trust. Capitalized terms used herein and not otherwise herein defined are used as defined in the Trust Instrument of the Trust dated March 6, 1997 (the "Governing Instrument"). In rendering this opinion, we have examined copies of the following documents, each in the form provided to us: the Certificate of Trust of the Trust as filed in the Office of the Secretary of State of the State of Delaware (the "Recording Office") on March 6, 1997 (the "Certificate"); the Governing Instrument; the Bylaws of the Trust; certain resolutions of the Trustees of the Trust; Post-Effective Amendment No. 7 to the Registration Statement On Form N-1A (the "Registration Statement") of Guinness Flight Investment Funds by which the Trust adopted the Registration Statement of Guinness Flight Investment Funds, Inc., a Maryland corporation, as filed with the Securities and Exchange Commission on March 20, 1997; and a certification of good standing of the Trust obtained as of a recent date from the Recording office. In such examinations, we have assumed the genuineness of all signatures, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, and the legal capacity of natural persons to complete the execution of documents. We have further assumed for the purpose of this opinion: (i) the due authorization, execution and delivery by, or on behalf of, each of the parties thereto of the above-referenced instruments, certificates and other documents, and of all documents contemplated by the Governing Instrument [and Guinness Flight Investment Funds, Inc. Guinness Flight Investment Funds April 25, 1997 Page 2 applicable resolutions [of the Trustees] to be executed by investors desiring to become Shareholders]; (ii) the payment of consideration for Shares, and the application of such consideration, as provided in the Governing Instrument, and compliance with the other terms, conditions and restrictions set forth in the Governing Instrument and all applicable resolutions of the Trustees in connection with the issuance of Shares (including, without limitation, the taking of all appropriate action by the Trustees to designate Series of Shares and the rights and preferences attributable thereto as contemplated by the Governing Instrument), (iii) that appropriate notation of the names and addresses of, the number of Shares held by, and the consideration paid by, Shareholders will be maintained in the appropriate registers and other books and records of the Trust in connection with the issuance or transfer of Shares; (iv) that no event has occurred subsequent to the filing of the Certificate that would cause a termination or dissolution of the Trust under Sections 11.04 or 11.05 of the Governing Instrument; (v) that the activities of the Trust have been and will be conducted in accordance with the terms of the Governing Instrument and the Delaware Act; and (vi) that each of the documents examined by us is in full force and effect and has not been modified, supplemented or otherwise amended except as herein referenced. No opinion in expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. Further, we express no opinion on the sufficiency or accuracy of the Registration Statement or any other registration or offering material relating to the Trust or the Shares. As to any facts material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained. Based on and subject to the foregoing, and limited in all respects to matters of Delaware law, it is our opinion that: 1. The Trust is a duly organized and validly existing business trust in good standing under the laws of the State of Delaware. 2. The Shares, when issued to Shareholders in accordance with the terms, conditions, requirements and procedures set forth in the Governing Instrument, will constitute legally issued, fully paid and non-assessable Shares of beneficial interest in the Trust. 3. Under the Delaware Act and the terms of the Governing Instrument, each Shareholder of the Trust, in such capacity, will be entitled to the same limitation of personal liability as that extended to stockholders of private corporations Guinness Flight Investment Funds, Inc. Guinness Flight Investment Funds April 25, 1997 Page 3 for profit organized under the general corporation law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any Shareholder who is, was or may become a named Trustee of the Trust. We hereby consent to the filing of a copy of this opinion with the Securities and Exchange Commission as an exhibit to a post-effective amendment to the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as provided in this paragraph, the opinion set forth above is expressed solely for the benefit of the addressee hereof in connection with the matters contemplated hereby and may not be relied upon by, or filed with, any other person or entity or for any other purpose without our prior written consent. Sincerely, MORRIS, NICHOLS, ARSHT & TUNNELL EX-99.B11(A) 9 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 ------------- April 23, 1997 Guinness Flight Investment Funds 225 South Lake Avenue Suite 777 Pasadena, California 91101 Re: Guinness Flight Investment Funds Registration Statement on Form N-1A (ICA No. 811-8360; File No. 33-75340 ------------------------------------ Gentlemen: We hereby consent to the reference of our firm as Counsel in this Registration Statement on Form N-1A. Very truly yours, /s/ Kramer, Levin, Naftalis & Frankel ------------------------------------- EX-99.B11(B) 10 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights", "Independent Accountants" and "Financial Statements" and the use of our report dated February 3, 1997, in Post-Effective Amendment No. 8 to the Registration Statement and related Statement of Additional Information of Guinness Flight Investment Funds. /s/ERNST & YOUNG LLP -------------------- Los Angeles, California April 18, 1997 EX-99.B12 11 ANNUAL REPORT 12/31/96 ANNUAL REPORT 12/31/96 NO LOAD INVESTING GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund February 24, 1997 Dear Guinness Flight Fund Shareholder: Guinness Flight called 1996 "The Year of the Investor." Looking back on the year, we can say more precisely that it was a year of growth for our investors and for the Guinness Flight Investment Funds. Fund performance was up for the year; the number of funds in the family was doubled to four; and total assets under management grew more than six-fold, increasing from $56 million on December 31, 1995 to $369 million at year-end 1996. With such growth, we wanted to take this opportunity to welcome new shareholders to the Guinness Flight Fund Family. Looking ahead, we are excited about the prospects for 1997 and the success that we can again share with our shareholders. We continue to work hard to deliver superior service to our shareholders. In 1996, improvements were made to our overall methods of shareholder communication. You can count on seeing more changes and improvements in 1997, including a Guinness Flight Shareholder Guide and a World Wide Web site exclusively for Guinness Flight shareholders. Clearly though, investment management is what decides your investment decisions. Be certain that your assets are being managed by dedicated and experienced portfolio managers. We are proud to report that all four Guinness Flight Funds posted satisfactory results in 1996. Guinness Flight China & Hong Kong Fund The China & Hong Kong Fund produced a total return of 34.38% for the 12-month period ending December 31, 1996. This return represents a 0.9% outperformance over the 33.48% (US$) posted by the Hang Seng Index for the same period. This outperformance can be attributed to being fully weighted in the property sector and underweighted in utilities, particularly during the latter part of the year. The Hang Seng Index climbed steadily since our mid-year report, regularly hitting new highs and reaching a peak during the year of 13,531. Guinness Flight Asia Blue Chip Fund The Asia Blue Chip Fund produced a total return of 3.84% since inception on April 29, 1996 through December 31, 1996. The funds' total return can be compared to the -3.6% return of the Morgan Stanley AC Asia Free Ex-Japan Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund Index for the same eight-month period. The last eight-month period has been a difficult time for Asian Blue Chip securities, with Hong Kong being the exception. However the expectations for the potential of Asian Blue Chips in 1997 is favorable. We are predicting better value in emerging markets like Thailand, India and Korea, all of which fell precipitously last year. Guinness Flight Asia Small Cap Fund For the first eight months since inception, the Fund produced a 13.08% return, outperforming by far the benchmark HSBC James Capel Southeast Asia Smaller Companies Index's total return of -2.8% (US$). The Fund's strong performance was achieved mainly through being overweight in Hong Kong and underweight in Malaysia, Singapore and Thailand. The possibility of higher U.S. interest rates coupled with poor export demand led to the underweight positions in most Asian markets excluding Hong Kong. Guinness Flight Global Government Bond Fund For the 12-month period, the Fund's return was 6.21% versus the 3.62% (US$) return for the Salomon Brothers World Government Bond Index. The Fund benefited from overweight positions in the U.S. dollar and German mark. In the latter part of 1996, Canadian bond positions were reduced while a high currency position in this market was maintained. In Australia, the gradually declining economy renewed calls for an interest rate reduction, supporting the bond market but depressing its currency. Reflection and Outlook In 1996, as in 1995, Hong Kong remained "the jewel in the crown" of Asia. This market's recent success has been driven by the recovery of the Chinese economy, the strong property market and improving sentiment towards the territory's transition back to Chinese rule on July 1, 1997. In 1996, major events affecting the Hong Kong and Chinese economies included the April General Election and the May interest rate cut in China. Undoubtedly the possible effects of Hong Kong's transition to new leadership on July 1, 1997 will dominate economic trends in the coming year. While there is potential for volatility, we believe the transition will be seen as a positive event for the market, with all the negative aspects already being out of the way. The last thing the Chinese leadership would want the world to say is that Hong Kong was a -2- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund smashing success under the British but went into decline as soon as the Chinese took over. As optimism surrounding the transition continues to rise, there will be a rippling effect causing a pick-up in consumer spending, which has been very weak in the last two years. As for other Asian markets, smart stock selection will be the key to investing in the region in 1997. The situation in Singapore is looking increasingly positive, particularly after recent strong earnings, due in large part to better prospects in the electronics industry. The economic slowdown is expected to continue in Malaysia, while we expect to see a generally recovering economic and political outlook in Thailand after the deterioration over the last 12 months. We expect to see outperformance in Indonesia, given its robust economic fundamentals and undemanding market multiples. The Philippines will continue to be clouded by interest rate worries, especially given the property market's substantial representation in the stock market. A few bargains may be picked up in Korea. In the global currency and bond markets, the outlook for 1997 remains mixed. The U.S. economy appears to have picked up momentum from the relatively sluggish pace of the third quarter but is, as yet, not threatening to accelerate away. U.S. inflation remains subdued, although wage inflation and high energy costs could creep into the headline figures. Elsewhere in the world, some economies are not on such a strong footing. Fiscal tightening in Europe and now Japan is likely to depress activity in 1997, offsetting the significant easing of monetary policy that has occurred so far. We continue to expect selective currencies such as the British pound sterling, the Norwegian kroner and the U.S. dollar to outperform the hard European currencies, and to a lesser extent, the Japanese yen. Summary While there are still moderate concerns about the effects of the July 1 transition on the markets, we remain optimistic and even bullish about the economic future in Asia and especially in China. In Hong Kong, earnings are forecast to grow by nearly 15% in 1997 at 13,000 with the market trading on a Price/Earnings ratio of 13.8 times 1997 earnings. Risks to the market include a correction on Wall Street, a flaring up of inflation in China or some unpredictable political crisis. -3- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund As we have cautioned in the past, these markets are volatile; however, we are confident investors who are in it for the long term will be well-rewarded. We appreciate your confidence in our management team and look forward to a long and profitable relationship. /s/ Timothy Guinness /s/ Howard Flight - ---------------------- -------------------- Timothy Guinness Howard Flight -4- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT ASIA BLUE CHIP FUND AND THE MORGAN STANLEY AC ASIA FREE EX-JAPAN INDEX 04/29/96 06/30/96 09/30/96 12/31/96 -------- -------- -------- -------- Guinness Flight Asia Blue Chip Fund $10,000 $9,904 $9,980 $10,384 Morgan Stanley AC Asia Free Ex-Japan 10,000 9,706 9,372 9,564 Total Return Since Inception 3.84% __________________ COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT ASIA SMALL CAP FUND AND THE HSBC JAMES CAPEL SOUTHEAST ASIA SMALLER COMPANIES INDEX (HSBC JAMES CAPEL SASC INDEX) 04/29/96 06/30/96 09/30/96 12/31/96 -------- -------- -------- -------- Guinness Flight Asia Small Cap Fund $10,000 $10,461 $10,397 $11,308 HSBC James Capel Southeast Asia Smaller Companies Index 10,000 9,530 9,467 9,720 Total Return Since Inception 13.08% -5- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT CHINA & HONG KONG FUND AND THE HANG SENG INDEX
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Guinness Flight China & Hong Kong Fund $10,000 $10,616 $9,226 $9,274 $10,040 $10,680 $11,112 $12,066 $12,254 $13,054 $14,933 Hang Seng Index 10,000 10,871 9,352 9,805 10,512 11,014 11,501 12,510 12,582 13,589 15,358
Average Annual Total Return One Year Since Inception -------- --------------- 34.38% 17.35% ________________ COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND AND THE SALOMON BROTHERS' WORLD GOVERNMENT BOND INDEX
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Guinness Flight Global Government Bond Fund $10,000 $ 9,754 $ 9,767 $10,093 $10,638 $10,809 $11,183 $11,083 $11,197 $11,378 $11,877 Salomon Bros. World Gov't Bond Index 10,000 10,117 10,166 11,278 11,879 11,755 12,102 11,875 11,923 12,248 12,540
Average Annual Total Return One Year Since Inception -------- --------------- 6.21% 7.10% -6- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund Index to Financial Statements Guinness Flight Asia Blue Chip Fund Portfolio of Investments............................ 9 Statement of Assets and Liabilities................. 13 Statement of Operations............................. 14 Statement of Changes in Net Assets.................. 15 Financial Highlights................................ 16 Guinness Flight Asia Small Cap Fund Portfolio of Investments............................ 17 Statement of Assets and Liabilities................. 23 Statement of Operations............................. 24 Statement of Changes in Net Assets.................. 25 Financial Highlights................................ 26 Guinness Flight China & Hong Kong Fund Portfolio of Investments............................ 27 Statement of Assets and Liabilities................. 32 Statement of Operations............................. 33 Statements of Changes in Net Assets................. 34 Financial Highlights................................ 35 Guinness Flight Global Government Bond Fund Portfolio of Investments............................ 36 Statement of Assets and Liabilities................. 39 Statement of Operations............................. 40 Statements of Changes in Net Assets................. 41 Financial Highlights................................ 42 Notes to Financial Statements.............................. 43 Report of Independent Auditors............................. 48
-7- GUINNESS FLIGHT ASIA BLUE CHIP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996 - --------------------------------------------------------------------------------
Shares COMMON STOCKS: 92.03% Value - ------------------------------------------------------------------------ CHINA: 2.44% 4,000 Huaneng Power International Inc. ADR*........... $ 90,000 ---------- HONG KONG: 41.63% 60,000 Amoy Properties Ltd............................. 86,496 100,000 CDL Hotel International......................... 57,211 7,000 Cheung Kong..................................... 62,221 36,000 First Pacific Co................................ 46,777 7,200 HSBC Holdings Plc............................... 154,063 8,000 Hang Seng Bank.................................. 97,227 35,000 Hong Kong & China Gas........................... 67,651 20,000 Hong Kong Electric*............................. 66,455 32,500 Hong Kong & Shanghai Hotels*.................... 61,349 2,500 Hong Kong & Shanghai Hotels Wts.*............... 937 35,000 Hong Kong Land Holdings Ltd..................... 97,300 30,000 Hong Kong Telecom............................... 48,290 12,000 Hutchison Whampoa............................... 94,253 100,000 National Mutual Ltd.*........................... 95,029 20,000 New World Development........................... 135,109 30,000 Shangri-La Asia Ltd............................. 44,411 6,000 Sun Hung Kai Properties Ltd..................... 73,502 12,000 Swire Pacific Ltd. A............................ 114,422 20,000 Television Broadcasts Ltd....................... 79,902 200,000 Tingyi (Cayman Island) Holding Co.*............. 52,363 ---------- Total Hong Kong................................. 1,534,968 ---------- INDIA: 4.53% 5,000 State Bank of India GDR*........................ 87,500 3,600 Crompton Greaves Ltd. GDR*...................... 14,310 6,000 Tata Engineering & Locomotive Ltd. GDR*......... 65,100 ---------- Total India..................................... 166,910 ---------- INDONESIA: 7.22% 82,806 Bank International Indonesia (Alien Mkt)........ 81,509 25,000 Bank Intl Indonesia (For Reg)*.................. 24,608 30,000 Pt Indofood Sukses Makmur-F*.................... 59,695 30,000 Pt Indocement Tunggal Prakarsa*................. 45,724 2,000 Pt Indonesia Satellite.......................... 54,750 ---------- Total Indonesia................................. 266,286 ----------
-8- GUINNESS FLIGHT ASIA BLUE CHIP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------ KOREA (SOUTH): 3.18% 1,000 Dong-Ah Construction EDR*....................... $ 10,750 1,500 Pohong Iron & Steel Ltd. ADR.................... 30,375 3,000 Korea Electric Power Corp. ADR.................. 61,500 800 Samsung Electronics GDS*........................ 14,760 ---------- Total South Korea............................... 117,385 ---------- MALAYSIA: 14.87% 20,000 DCB Holdings Berhad*............................ 68,507 6,000 Edaran Otomobil Nasional Berhad................. 59,993 50,000 IOI Corporation Berhad.......................... 76,823 15,000 Kuala Lumpur Kepong Berhad...................... 38,015 45,000 Kumpulan Guthrie Berhad*........................ 79,832 10,000 Malayan Banking Berhad.......................... 110,878 8,000 Petronas Gas Berhad............................. 33,263 4,000 Telekom Malaysia Berhad......................... 35,639 5,000 United Engineers Berhad......................... 45,143 ---------- Total Malaysia.................................. 548,093 ---------- PHILIPPINES: 4.80% 30,000 Ayala Corp. Class B............................. 32,510 200,000 Metro Pacific Corp.*............................ 49,430 2,750 Metropolitan Bank & Trust Co.................... 67,966 80,000 Petron Corp.*................................... 27,072 ---------- Total Philippines............................... 176,978 ---------- SINGAPORE: 7.15% 7,000 City Developments Ltd. ......................... 63,059 8,100 Overseas Chinese Banking Corp. (For. Reg)....... 100,765 6,000 Singapore Airlines Ltd (For. Reg)............... 54,479 8,000 Singapore Telecom Ltd. ......................... 18,875 10,000 Wont Nant Holdings*............................. 26,300 ---------- Total Singapore................................. 263,478 ---------- TAIWAN: 2.69% 3,000 China Steel Corp. GDS........................... 59,775 2,200 President Enterprise GDS*....................... 39,325 ---------- Total Taiwan.................................... 99,100 ----------
-9- GUINNESS FLIGHT ASIA BLUE CHIP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------ THAILAND: 3.52% 2,000 Land & House Plc Alien Market*.................. $ 14,589 1,600 Siam Cement Co Ltd. (For. Reg).................. 50,181 5,000 Siam Makro Public Co Ltd.*...................... 21,065 10,000 Siam Makro Public Co. (For. Reg)*............... 44,080 ---------- Total Thailand.................................. 129,915 ---------- Total Common Stocks: (Identified cost $3,227,448) 92.03%.............................. $3,393,113 ---------- - ------------------------------------------------------------------------ Par Value CORPORATE BONDS: 3.01% Value - ------------------------------------------------------------------------ $50,000 Formosa Chemical & Fiber 1.75% due 07/19/01..... $ 56,125 20,000 Nan Ya Plastics Convertible Bond 1.75% due 07/19/01........................................ 22,800 30,000 Ssangyong Oil Refining 3.75% due 12/31/08....... 32,213 ---------- Total Corporate Bonds: 3.01% (Identified cost $109,650)...................... 111,138 ---------- Total Investments in Securities (cost $3,337,098+): 95.04%...................... $3,504,251 ---------- Other Assets Less Liabilities: 4.96%............ 182,914 ---------- NET ASSETS: 100.00%............................. $3,687,165 ==========
* Security is non-income producing + Cost for federal income tax purposes is the same: Net unrealized appreciation consists of: Gross unrealized appreciation.......................... $ 372,011 Gross unrealized depreciation.......................... (204,858) --------- 167,153 =========
See accompanying notes to financial statements. -10- GUINNESS FLIGHT ASIA BLUE CHIP FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED) - --------------------------------------------------------------------------------
% OF INDUSTRY NET ASSETS - -------------------------------------------------------------------------- Automobile.................................................. 1.63% Banking..................................................... 19.65 Chemical.................................................... 1.52 Construction................................................ 5.06 Diversified operations...................................... 10.61 Electric utilities.......................................... 5.91 Electronics................................................. 0.39 Finance..................................................... 2.58 Food and beverage........................................... 6.59 Gas......................................................... 2.74 Hotels...................................................... 4.45 Industrial.................................................. 0.62 Iron and steel.............................................. 2.44 Media....................................................... 2.17 Oil/Petroleum refining...................................... 1.61 Real-Estate................................................. 14.44 Technology.................................................. 1.22 Telecommunications.......................................... 4.27 Transportation.............................................. 3.24 Wholesalers................................................. 3.90 ------ TOTAL INVESTMENTS IN SECURITIES............................. 95.04 OTHER ASSETS LESS LIABILITIES............................... 4.96 ------ NET ASSETS.................................................. 100.00% ======
-11- GUINNESS FLIGHT ASIA BLUE CHIP FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $3,337,098)..... $3,504,251 Cash...................................................... 250,669 Receivables: Fund shares sold..................................... 40,000 Dividends and interest............................... 7,197 Prepaid expenses.......................................... 8,610 Deferred organization costs, net.......................... 7,561 ---------- Total assets......................................... 3,818,288 ---------- LIABILITIES Payables Securities purchased................................. 89,867 Due to Adviser....................................... 18,395 Accrued expenses.......................................... 22,861 ---------- Total liabilities.................................... 131,123 ---------- NET ASSETS................................................ $3,687,165 ========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ($3,687,165/284,068 shares outstanding; unlimited number of shares authorized without par value)....... $12.98 ======= SOURCE OF NET ASSETS Paid-in capital...................................... $3,517,505 Undistributed net investment income.................. 838 Accumulated net realized gain on investments......... 1,740 Net unrealized appreciation on investments and foreign currency................................... 167,082 ---------- Net assets...................................... $3,687,165 ==========
See accompanying notes to financial statements. -12- GUINNESS FLIGHT ASIA BLUE CHIP FUND STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - -------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends (net of foreign taxes withheld $1,517)....... $ 20,595 Interest............................................... 5,834 -------------- Total Investment Income........................... 26,429 EXPENSES Advisory fees (Note 3)................................. 12,860 Administration fee (Note 3)............................ 13,424 Custodian.............................................. 10,963 Accounting............................................. 20,137 Transfer agent fees.................................... 16,767 Auditing fees.......................................... 15,741 Legal fees............................................. 4,213 Directors' fees........................................ 4,699 Registration fees...................................... 14,095 Reports to shareholders................................ 2,350 Deferred organization costs amortization............... 1,184 Miscellaneous.......................................... 2,014 -------------- Total expenses.................................... 118,447 Less: Expenses reimbursed (Note 3)................ (92,856) -------------- Net expenses...................................... 25,591 -------------- NET INVESTMENT INCOME........................ 838 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from investments..................... 2,695 Net realized loss from foreign currency................ (955) Net unrealized appreciation on investments and foreign currency............................................. 167,082 -------------- Net realized and unrealized gain on investments... 168,822 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $ 169,660 ==============
*Commencement of operations. See accompanying notes to financial statements. -13- GUINNESS FLIGHT ASIA BLUE CHIP FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - -------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM: OPERATIONS Net investment income................................ $ 838 Net realized gain from investments................... 2,695 Net realized loss on foreign currency................ (955) Net unrealized appreciation on investments and foreign currency................................... 167,082 --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... 169,660 --------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................ 3,961,160 Cost of shares redeemed.............................. (843,655) --------------- Net increase from capital share transactions......... 3,117,505 --------------- TOTAL INCREASE IN NET ASSETS.................... 3,287,165 NET ASSETS Beginning of period.................................. 400,000 --------------- End of period (including undistributed net investment income of $838).................................... $ 3,687,165 =============== CHANGES IN SHARES Shares sold.......................................... 320,248 Shares redeemed...................................... (68,180) --------------- NET INCREASE.................................... 253,068 ===============
*Commencement of operations. See accompanying notes to financial statements. -14- GUINNESS FLIGHT ASIA BLUE CHIP FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - -------------------------------------------------------------------------- Net asset value, beginning of period.................. $ 12.50 -------- Income from investment operations: Net investment income............................... 0.00 Net realized and unrealized gain on investments and foreign currency................................. 0.48 -------- Total from investment operations...................... 0.48 -------- Net asset value, end of period........................ $ 12.98 ======== Total return.......................................... 3.84%+ Ratios/supplemental data: Net assets, end of period (thousands)................. $ 3,687 Ratio of expenses to average net assets:** Before expense reimbursement........................ 9.14% After expense reimbursement......................... 1.98% Ratio of net investment income (loss) to average net assets:** Before expense reimbursement........................ (7.10)% After expense reimbursement......................... 0.06% Portfolio turnover rate............................... 10.97% Average Commission Rate Paid++........................ $0.0190
* Commencement of operations. ** Annualized. + Not annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. See accompanying notes to financial statements. -15- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996 - --------------------------------------------------------------------------------
Shares COMMON STOCKS: 82.84% Value - -------------------------------------------------------------------------- CHINA: 11.18% 1,100,000 Anhui Expressway Co Ltd-H*.................... $ 309,328 455,400 Changchai Co. Ltd. B*......................... 395,667 457,478 China First Pencil-B*......................... 202,205 472,280 Dazhong Taxi-B*............................... 390,103 1,373,000 Guandong Kelon Elec Hld-H*.................... 887,582 476,100 Guangdong Provincial Expr-B*.................. 461,665 855,000 Huangshan Tourism DVLP Co-B*.................. 376,200 500,000 Inner Mongolia Erdos Cashmere*................ 315,000 2,468,000 Nanjing Panda Electronics-H*.................. 542,453 772,000 Shanghai Dajiang Group-B*..................... 375,964 1,149,000 Shanghai Diesel Engineering-B*................ 544,626 90,000 Shanghai Refrigerator Comp-B ADR.............. 48,960 860,000 Shanghai Tyre and Rubber Co-B*................ 364,640 480,000 Shenzhen Fangda Co Ltd-B*..................... 471,653 ------------ Total China................................... 5,686,046 ------------ HONG KONG: 40.50% 500,000 ASM Pacific Technology........................ 387,873 2,400,000 Allied Properties............................. 390,976 250,000 Anex International Holdings Ltd............... 42,989 162,000 Apt Satellite Holdings*....................... 268,097 1,188,000 Asean Resources*.............................. 326,395 980,000 CIG Wh Intl Holdings Ltd.*.................... 240,740 2,200,000 Chaifa Holdings Ltd........................... 575,991 32,000 Chen Hsong Holdings........................... 19,445 510,000 China Elegance Intl Fashion*.................. 296,722 250,000 China Resources Beijing Land*................. 158,381 668,000 Companion Building Material................... 124,367 15,160 Concord Land Dev Co Ltd.*..................... 6,566 160,000 Dah Sing Financial Holdings*.................. 649,557 135,000 Dickson Cocept Intl-New*...................... 506,174 200,000 FPB Bank Holding Co Ltd.*..................... 89,857 1,628,000 First Sign International Holdings Ltd......... 520,952 1,200,000 Founder Hong Kong Limited*.................... 461,568 1,182,000 Four Seas Mercantile Holdings*................ 618,928 1,500,000 Gold Lion Holdings Ltd.*...................... 1,231,497 1,500,000 Glorious Sun Enterprises Ltd.*................ 625,444 1,500,000 Guangnan Holdings Ltd......................... 1,289,676
-16- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - -------------------------------------------------------------------------- HONG KONG: (CONTINUED) 548,000 High Fashion International*................... $ 53,139 983,000 Hung Hing Print Group......................... 355,860 600,000 Interform Ceramics*........................... 93,865 1,980,000 Innovative Intl Holdings Ltd.*................ 831,987 300,000 Jardine Intl Motor Holdings*.................. 401,448 800,000 Kumagai Gumi*................................. 930,894 80,000 Kwong On Bank Ltd.*........................... 94,124 69,800 Lai Sun Development........................... 105,587 200,000 Luen Fat Hong International Holding Ltd....... 44,217 13,125 Lung Kee (Bermuda) Holdings................... 3,903 200,000 Midlands Realty Holdings Ltd.................. 183,593 410,000 Moulin International Holdings................. 286,250 800,000 NG Fung Hong Ltd.............................. 718,857 40,000 Nanyang Holdings Ltd.*........................ 62,060 10,000 New Asia Realty & Trust Co.................... 36,913 758,000 Pacific Concord Holdings...................... 195,025 150,000 Playmates Toys Holdings Ltd................... 40,242 1,200,000 QPL Intl Holdings Limited*.................... 930,894 1,778,000 Qingling Motors Company Ltd.*................. 982,731 830,000 Ryoden Developments Ltd....................... 244,133 85,000 Shanghai Industrial Holdings Ltd.*............ 309,910 1,230,000 Silver Grant Intl Ltd.*....................... 548,646 626,000 Sinocan Holdings Ltd.......................... 307,557 20,000 South China Morning Post...................... 16,549 1,200,000 Stelux Holdings International Ltd............. 310,298 2,942,000 Ta Fu International Ltd.*..................... 471,663 516,000 Tai Cheung Holdings*.......................... 487,013 2,150,000 Tysan Holdings Limited*....................... 469,778 1,500,000 USI Holdings Ltd.............................. 698,171 794,000 Vanda Systems & Communications*............... 207,880 176,000 Varitronix International Ltd.................. 318,573 1,000,000 Wongs International........................... 313,530 223,000 YGM Trading................................... 227,772 1,324,000 Zhenhai Refining & Chem Co.*.................. 487,866 ------------ Total Hong Kong............................... 20,603,125 ------------
-17- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - -------------------------------------------------------------------------- INDONESIA: 2.88% 250,000 Pt Bank Dagang Nasional (For Reg)*............ $ 254,022 180,000 Pt Bank Tiara Asia (For Reg)*................. 194,327 52,000 Pt Citra Marga Nusaphala Per.................. 40,728 100,000 Pt Darya Varia Lab (For Reg)*................. 160,881 200,000 Pt Enseval Putera Mega (For Reg)*............. 97,375 216,000 Pt Indorama Synthetics (For Reg)*............. 210,330 180,000 Pt Semen Cibinong*............................ 506,774 ------------ Total Indonesia............................... 1,464,437 ------------ MALAYSIA: 9.89% 3,000 Arab Malaysian Fin (Alien).................... 16,750 60,000 Brisdale Holdings Berhad*..................... 95,989 88,000 Kumpulan Jetson Berhad*....................... 362,412 100,000 Hock Hua Bank Berhad (For Reg)*............... 463,311 130,000 IJM Corp Berhad-A*............................ 306,300 300,000 MBM Resources Berhad.......................... 641,508 65,000 Malakoff Berhad*.............................. 319,170 250,000 Malayan Credit Limited*....................... 434,332 15,000 Pan Pacific Asia Berhad*...................... 44,252 120,000 Road Builder*................................. 679,523 25,000 Sap Holdings*................................. 119,788 30,000 Star Publications (Malaysia).................. 118,204 18,000 Sungei Way Holdings Berhad.................... 53,459 1,800 Sungei Way Holdings Berhad Rights*............ 2,138 200,000 Tractors Malaysia Hldgs Bhd................... 375,401 180,000 Tradewinds (Malaysia) Berhad.................. 602,305 195,000 United Merchant Group Berhad*................. 321,229 48,000 Worldwide Holdings Berhad..................... 76,031 ------------ Total Malaysia................................ 5,032,102 ------------
-18- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - -------------------------------------------------------------------------- PHILIPPINES: 1.49% 2,724,000 Alaska Milk Corporation*...................... $ 352,152 180,000 Cn Solid Group Inc.*.......................... 36,958 375,000 Davao Union Cement Corp.-B.................... 105,513 1,680,000 Universal Rightfield Property*................ 220,380 80,000 Universal Robina Corp.*....................... 44,867 ------------ Total Philippines............................. 759,870 ------------ SINGAPORE: 11.53% 25,000 Acer Computer International Ltd............... 43,000 359,000 Amtek Engineering............................. 713,534 19,000 Aztech Systems Ltd............................ 5,841 18,000 Clipsal Industries Ltd........................ 65,520 80,000 Comfort Group Ltd............................. 70,923 62,000 Datacraft Asia Limited........................ 103,540 600,000 Delifrance Asia Limited*...................... 493,315 432,000 Elec & Eltek Int Co Ltd....................... 1,641,600 680,000 FJ Benjamin Holdings Ltd.*.................... 478,873 440,000 Pacific Andes Hldg Ltd.*...................... 217,800 600,000 Roly International Holdings................... 438,000 50,000 Singapore Tech Automotive (For Reg)*.......... 111,532 600,000 Sunright Ltd.*................................ 634,875 300,000 Venture Manufacturing*........................ 746,407 100,000 Wong's Circuits Hldgs Ltd.*................... 99,000 ------------ Total Singapore............................... 5,863,760 ------------
-19- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - -------------------------------------------------------------------------- THAILAND: 5.37% 63,000 Jasmine Intl PLC Foreign*..................... $ 96,460 3,000 Kce Electronics*.............................. 8,894 70,000 Lam Soon (Thailand)-Foreign*.................. 84,650 160,000 National Petrochemical-Foreign................ 123,269 347,000 Robinson Department Store-Foreign*............ 673,425 50,000 Thairung Union Car Pub Co.-Foreign*........... 243,807 6,000 Tipco Asphalt*................................ 36,513 100,000 Tipco Asphalt-Local*.......................... 608,543 885,300 Tuntex (Thailand) Co Ltd.*.................... 854,737 ------------ Total Thailand................................ 2,730,298 ------------ Total Common Stocks (Identified cost $40,254,577): 82.84%......... $ 42,139,638 ------------
FORWARD CONTRACTS - --------------------------------------------------------------------------------
Currency Delivery Unrealized Receivable Currency Deliverable Date Gain/(Loss) - --------------------------------------------------------------------------- U.S. $ 534,277 Hong Kong Dollar 4,132,096.... 01/02/97 $ (32) U.S. $ 367,148 Malaysian Ringgit 927,340..... 01/02/97 47 U.S. $ 677,686 Malaysian Ringgit 1,711,293... 01/03/97 (98) U.S. $ 330,959 Singapore Dollar 462,912...... 01/03/97 46 U.S. $ 381,193 Thai Baht 9,760,443........... 01/03/97 (446) ----------- Total Forward Contracts....... (483) ----------- Total Investments in Securities: (cost $40,254,577+) 82.84%.... $42,139,155 Other assets less liabilities: 17.16%...................... 8,729,129 ----------- NET ASSETS: 100.0%............ $50,868,284 =========== * Security is non-income producing. + Cost for federal income tax purposes is the same. Net unrealized appreciation consists of: Gross unrealized appreciation......... $3,037,791 Gross unrealized depreciation......... (1,152,730) ----------- Net unrealized appreciation...... $1,885,061 ===========
See accompanying notes to financial statements. -20- GUINNESS FLIGHT ASIA SMALL CAP FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED) - --------------------------------------------------------------------------------
% OF INDUSTRY NET ASSETS - -------------------------------------------------------------------------- Agriculture................................................. 1.18% Automobile.................................................. 7.96 Chemical.................................................... 1.37 Construction................................................ 9.81 Consumer-related............................................ 15.54 Energy...................................................... 0.87 Finance..................................................... 4.95 Food........................................................ 6.54 Manufacturing............................................... 2.11 Media....................................................... 0.26 Pharmaceutical.............................................. 0.51 Pulp........................................................ 0.09 Real-Estate................................................. 5.90 Retail...................................................... 9.61 Technology.................................................. 13.21 Telecommunications.......................................... 1.10 Toys........................................................ 0.09 Transportation.............................................. 1.74 ------ TOTAL INVESTMENTS IN SECURITIES............................. 82.84 OTHER ASSETS LESS LIABILITIES............................... 17.16 ------ NET ASSETS.................................................. 100.00% ======
-21- GUINNESS FLIGHT ASIA SMALL CAP FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $40,254,577)... $42,139,155 Cash..................................................... 14,605,938 Receivables: Fund shares sold.................................... 534,304 Securities sold..................................... 27,027 Dividends and interest.............................. 68,112 Prepaid expenses......................................... 12,127 Deferred organization costs, net......................... 7,561 ----------- Total assets........................................ 57,394,224 ----------- LIABILITIES Payables: Securities purchased................................ 6,381,487 Fund shares redeemed................................ 38,003 Dividends to shareholders........................... 6,653 Due to Adviser (Note 3).................................. 60,838 Accrued expenses......................................... 38,959 ----------- Total liabilities................................... 6,525,940 ----------- NET ASSETS............................................... $50,868,284 =========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ($50,868,284/3,608,723, shares outstanding; unlimited number of shares authorized without par value).............................................. $14.10 ======= SOURCE OF NET ASSETS Paid-in capital..................................... $48,964,942 Overdistribution of net investment income........... (15,240) Undistributed net realized gain on investments...... 37,404 Net unrealized appreciation (depreciation) on: Investments.................................... 1,885,061 Foreign currency............................... (3,883) ----------- Net assets..................................... $50,868,284 ===========
See accompanying notes to financial statements. -22- GUINNESS FLIGHT ASIA SMALL CAP FUND STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - -------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends (Net of foreign taxes withheld $2,351)...... $ 56,603 Interest.............................................. 92,775 ----------- Total Investment Income.......................... 149,378 EXPENSES Advisory fees (Note 3)................................ 62,680 Administration fee (Note 3)........................... 13,424 Custodian............................................. 28,156 Accounting............................................ 27,637 Transfer agent fees................................... 16,767 Auditing fees......................................... 17,241 Legal fees............................................ 7,713 Directors' fees....................................... 4,699 Registration fees..................................... 14,095 Reports to shareholders............................... 2,350 Deferred organization costs amortization.............. 1,184 Miscellaneous......................................... 2,014 ----------- Total expenses................................... 197,960 Less: Expenses reimbursed (Note 3)............... (71,583) ----------- Net expenses..................................... 126,377 ----------- NET INVESTMENT INCOME....................... 23,001 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from investments.................... 73,470 Net realized loss from foreign currency............... (7,229) Net unrealized appreciation on investments............ 1,885,061 Net unrealized loss on foreign currency............... (3,883) ----------- Net realized and unrealized gain on investments.................................... 1,947,419 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................................... $ 1,970,420 ===========
*Commencement of operations. See accompaning notes to financial statements. -23- GUINNESS FLIGHT ASIA SMALL CAP FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - --------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income.................................. $ 23,001 Net realized gain from investments..................... 73,470 Net realized loss on foreign currency.................. (7,229) Net unrealized appreciation on investments............. 1,885,061 Net unrealized loss on foreign currency................ (3,883) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... 1,970,420 ----------- DISTRIBUTIONS TO SHAREHOLDERS Dividends paid from net investment income.............. (38,241) Distributions from taxable realized gains.............. (28,837) ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (67,078) ----------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold.............................. 49,952,419 Net asset value of shares issued on reinvestment of distributions........................................ 60,299 Cost of shares redeemed................................ (1,447,776) ----------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS...... 48,564,942 ----------- TOTAL INCREASE IN NET ASSETS...................... 50,468,284 NET ASSETS Beginning of period.................................... 400,000 ----------- End of period (including overdistributed net investment income of $15,240)................................... $50,868,284 =========== CHANGES IN SHARES Shares sold............................................ 3,681,439 Shares reinvested from distributions................... 4,288 Shares redeemed........................................ (109,004) ----------- NET INCREASE...................................... 3,576,723 ===========
*Commencement of operations. See accompanying notes to financials statements. -24- GUINNESS FLIGHT ASIA SMALL CAP FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - --------------------------------------------------------------------------------
April 29, 1996* through December 31, 1996 - -------------------------------------------------------------------------- Net asset value, beginning of period.................. $ 12.50 -------- Income from investment operations: Net investment income............................... 0.02 Net realized and unrealized gain on investments..... 1.61 -------- Total from investment operations...................... 1.63 -------- Less distributions: Dividends from net investment income................ (0.02) Distributions from taxable net capital gains........ (0.01) -------- (0.03) -------- Net asset value, end of period........................ $ 14.10 ======== Total return.......................................... 13.08%+ Ratios/supplemental data: Net assets, end of period (thousands)................. $50,868 Ratio of expenses to average net assets:** Before expense reimbursement........................ 3.09% After expense reimbursement......................... 1.98% Ratio of net investment income to average net assets:** Before expense reimbursement........................ (0.76)% After expense reimbursement......................... 0.36% Portfolio turnover rate............................... 21.91% Average Commission Rate Paid++........................ $0.0029
* Commencement of operations. ** Annualized. + Not annualized. ++ A fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. See accompanying notes to financial statements. -25- GUINNESS FLIGHT CHINA & HONG KONG FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 - --------------------------------------------------------------------------------
Shares COMMON STOCKS: (97.51%) Value - ------------------------------------------------------------------------- AIR TRANSPORT, SCHED, & AIR COURIER SERVICES: 1.09% 2,160,000 Cathay Pacific Airways Ltd. ................. $ 3,407,072 ------------ APPAREL, PIECE GOODS, & NOTIONS: 0.35% 1,287,000 Giordano Holdings Ltd. ...................... 1,098,222 ------------ AUTOMOTIVE DEALERS: 0.83% 4,686,000 Qingling Motors Company Ltd. ................ 2,590,038 ------------ BANKS: 20.72% 735,400 Bank of East Asia Hong Kong.................. 3,270,769 851,000 Dao Heng Bank Group Ltd...................... 4,081,983 1,613,500 Hang Seng Bank............................... 19,609,412 1,548,400 HSBC Holding Plc............................. 33,132,096 604,000 Liu Chong Hing Investment Ltd. .............. 745,775 536,000 Union Bank of Hong Kong...................... 675,674 666,000 Wing Hang Bank Limited....................... 3,022,380 ------------ Total Banks.................................. 64,538,089 ------------ BOOT & SHOE CUT STOCK & BINDING: 0.39% 3,234,000 Yue Yuen Industrial Holdings................. 1,233,473 ------------ CHEMICALS: 0.53% 2,834,000 Shanghai Petrochemical....................... 861,064 3,210,000 Yizheng Chemical Fibre Co. .................. 780,244 ------------ Total Chemicals.............................. 1,641,308 ------------ CONTAINER - MARINE: 1.76% 4,699,000 Cosco Pacific Ltd. .......................... 5,467,839 ------------ CONSUMER GOODS: 0.55% 642,000 Inner Mongolia Erdos Cashmere................ 404,460 1,020,000 Shanghai Refrigerator Comp - B*.............. 554,880 750,000 Wuxi Little Swan*............................ 756,351 ------------ Total Consumer Goods......................... 1,715,691 ------------
-26- GUINNESS FLIGHT CHINA & HONG KONG FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------- DEPARTMENT STORES: 0.16% 1,932,000 Joyce Boutique............................... $ 489,588 ------------ DIVERSIFIED OPERATIONS: 11.28% 2,438,000 Citic Pacific Ltd. .......................... 14,152,977 1,723,000 First Pacific Co. ........................... 2,238,820 509,000 Gold Lion Holdings Ltd. ..................... 417,887 4,605,000 Guangdong Investment Ltd. ................... 4,435,613 1,244,733 New World Infrastructure*.................... 3,637,076 132,000 Shanghai Industrial Holdings Ltd.*........... 481,272 673,000 Sinocan Holdings Ltd. ....................... 330,648 991,000 Swire Pacific Ltd. A......................... 9,449,383 ------------ Total Diversified Operations................. 35,143,676 ------------ ELECTRIC POWER: 3.40% 932,500 China Light & Power Co. ..................... 4,147,392 1,742,000 Hong Kong Electric........................... 5,788,273 30,000 Huaneng Power International Inc. ADR*........ 675,000 ------------ Total Electric Power......................... 10,610,665 ------------ FINANCIAL SERVICES: 1.70% 803,200 Dah Sing Financial Holdings.................. 3,260,777 816,000 National Mutual Asia Ltd. ................... 775,435 725,000 Peregrine Investment Holdings................ 1,242,000 35,000 Peregrine Investment Holdings Wts.-98*....... 11,200 ------------ Total Financial Services..................... 5,289,412 ------------ FOOD & BEVERAGE: 0.42% 1,602,000 Four Seas Mercantile Holdings*............... 838,852 320,400 Four Seas Mercantile Holdings Wts.*.......... 40,182 1,630,000 Tingyi (Cayman Island) Holding Co.*.......... 426,757 ------------ Total Food & Beverage........................ 1,305,791 ------------
-27- GUINNESS FLIGHT CHINA & HONG KONG FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------- GAS PRODUCTION & DISTRIBUTION: 3.08% 4,896,800 Hong Kong & China Gas........................ $ 9,465,015 238,900 Hong Kong & China Gas Wts*................... 132,817 ------------ Total Gas Productions & Distribution......... 9,597,832 ------------ HOTELS, TOURIST COURTS & MOTELS: 2.72% 350,000 Assoc. International Hotels.................. 262,460 1,942,000 CDL Hotel International...................... 1,111,041 2,054,875 Hong Kong & Shanghai Hotels.................. 3,878,877 146,375 Hong Kong & Shanghai Hotels Wts.-98* ........ 54,882 1,986,000 Shangri - La Asia Ltd. ...................... 2,940,035 529,000 Shanghai New Asia Group Ltd.-B............... 230,644 ------------ Total Hotels, Tourist Courts & Motels........ 8,477,939 ------------ RETAILERS: 0.57% 4,050,000 Esprit Asia Holdings Ltd..................... 1,793,426 ------------ MANUFACTURING - ELECTRICAL EQUIPMENT: 0.48% 1,446,000 Gold Peak Industrial......................... 990,859 276,000 Varitronix International Ltd................. 499,580 ------------ Total Manufacturing-Electrical Equipment..... 1,490,439 ------------ MANUFACTURING - SHOES: 0.02% 193,800 Guangdong Tannery*........................... 48,860 ------------ MEDIA: 0.20% 153,000 Television Broadcasts Ltd. .................. 611,248 ------------ PETROLEUM REFINING: 0.67% 5,690,000 Zhenhai Refining & Chemical Co............... 2,096,645 ------------ REAL ESTATE - AGENTS, BROKERS & MANAGERS: 0.70% 964,000 China Resources Enterprises.................. 2,168,673 ------------
-28- GUINNESS FLIGHT CHINA & HONG KONG FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------- REAL ESTATE - OPERATIONS & LESSORS: 20.63% 3,742,000 Amoy Properties Ltd. Ord. ................... $ 5,394,440 2,146,000 Cheung Kong.................................. 19,075,247 2,231,000 Sun Hung Kai Properties Ltd. ................ 27,330,435 2,499,000 Wharf Holdings Ltd. ......................... 12,471,575 ------------ Total Real Estate - Operations & Lessors..... 64,271,697 ------------ REAL ESTATE - SUBDIVIDERS, DEVELOPERS & OPERATIVE BUILDERS: 12.88% 1,448,000 Henderson Land Development................... 14,602,625 1,309,600 HKR International Ltd.* ..................... 2,209,617 1,400,000 Hysan Development Company.................... 5,575,021 38,850 Hysan Development Company Wts-98*............ 35,161 200,000 New Asia Realty & Trust Co. ................. 738,251 2,069,000 New World Development........................ 13,977,019 2,436,000 Sino Land Company............................ 2,976,301 ------------ Total Real Estate - Subdividers, Developers & Operative Builders......................... 40,113,995 ------------ TELECOMMUNICATIONS: 3.26% 52,000 Asia Satellite Telecom Holdings*............. 120,680 6,231,600 Hong Kong Telecom............................ 10,030,826 ------------ Total Telecommunications..................... 10,151,506 ------------ WHOLESALE TRADE - MISC. WHOLESALERS: 9.12% 3,520,000 Hutchison Whampoa............................ 27,647,556 868,000 Li & Fung Ltd................................ 768,738 ------------ Total Wholesale Trade - Misc. Wholesalers.... 28,416,294 ------------
-29- GUINNESS FLIGHT CHINA & HONG KONG FUND PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------------------------- Total Investments in Securities (Identified cost $256,329,436+): 97.51%...... $303,769,418 ------------ Other Assets less Liabilities: 2.49%......... 7,751,444 ------------ NET ASSETS: 100.00%.......................... $311,520,862 ============ * Security is non-income producing + Cost to federal income tax purpose is as follows: Gross unrealized appreciation................ $ 50,514,566 Gross unrealized depreciation................ (3,074,584) ------------ $ 47,439,982 ============
See accompanying notes to financial statements. -30- GUINNESS FLIGHT CHINA & HONG KONG FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $256,329,436)........................................ $303,769,418 Cash................................................... 10,036,497 Receivables: Fund shares sold.................................. 993,246 Dividends and interests........................... 232,553 Prepaid expenses....................................... 9,099 Deferred organizational costs, net..................... 29,420 ------------ Total assets...................................... 315,070,233 ------------ LIABILITIES Payables: Securities purchased.............................. 2,769,170 Dividends to shareholders......................... 203,563 Fund shares redeemed.............................. 121,858 Due to Adviser (Note 3)................................ 235,415 Other accrued expenses................................. 219,365 ------------ Total liabilities................................. 3,549,371 ------------ NET ASSETS............................................. $311,520,862 ============ NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ($311,520,862/17,589,379 shares outstanding; unlimited number of shares authorized without par value)............................................ $17.71 ======= SOURCE OF NET ASSETS Paid-in capital................................... $263,479,700 Undistributed net investment income............... 46,560 Undistributed net realized gain on investments.... 555,628 Net unrealized appreciation (depreciation) on: Investments.................................. 47,439,982 Foreign currency............................. (1,008) ------------ Net assets................................... $311,520,862 ============
See accompanying notes to financial statements. -31- GUINNESS FLIGHT CHINA & HONG KONG FUND STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
For the Year Ended December 31, 1996 - --------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends.............................................. $ 5,754,444 Interests.............................................. 203,761 ---------------- Total investment income........................... 5,958,205 EXPENSES Advisory fees (Note 3)................................. 1,772,174 Administration fees (Note 3)........................... 443,043 Custodian.............................................. 329,720 Accounting............................................. 50,511 Transfer agent fees.................................... 268,776 Auditing fees.......................................... 31,109 Legal fees............................................. 61,646 Director's fees........................................ 13,777 Registration fees...................................... 87,888 Reports to shareholders................................ 46,560 Deferred organization costs amortization............... 11,757 Interest on loans...................................... 5,977 Miscellaneous.......................................... 46,383 ---------------- Total expenses.................................... 3,169,321 Expenses recouped (Note 3)........................ 315,433 ---------------- Net expenses...................................... 3,484,754 ---------------- NET INVESTMENT INCOME........................ 2,473,451 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from investments..................... 5,591,892 Net realized loss from foreign currency................ (54,179) Net change in unrealized appreciation (depreciation) on: Investments....................................... 43,834,616 Foreign currency.................................. (1,038) ---------------- Net realized and unrealized gain on investments................................ 49,371,291 ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $51,844,742 ================
See accompanying notes to financial statements. -32- GUINNESS FLIGHT CHINA & HONG KONG FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the Years Ended December 31, -------------------------- 1996 1995 - ------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM: OPERATIONS Net investment income....................... $ 2,473,451 $ 300,352 Net realized gain from investments.......... 5,591,892 28,920 Net realized loss on foreign currency....... (54,179) (6,121) Net unrealized appreciation on investments and foreign currency...................... 43,833,578 3,847,844 ------------ ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... 51,844,742 4,170,995 ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS Dividends paid from net investment income... (2,426,162) (301,331) Distributions from taxable realized gains... (4,883,242) (123,918) ------------ ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (7,309,404) (425,249) ------------ ----------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold................... 344,443,893 57,621,477 Net asset value of shares issued on reinvestment of distributions............. 6,537,646 395,581 Cost of shares redeemed..................... (139,736,255) (8,309,577) ------------ ----------- Net increase from capital share transactions.............................. 211,245,284 49,707,481 ------------ ----------- TOTAL INCREASE IN NET ASSETS........... 255,780,622 53,453,227 NET ASSETS Beginning of year........................... 55,740,240 2,287,013 ------------ ----------- End of year (including undistributed (overdistributed) net investment income of $46,560 and $(729), respectively)......... $311,520,862 $55,740,240 ============ =========== CHANGES IN SHARES Shares sold................................. 22,049,194 4,513,348 Shares reinvested from distributions........ 453,347 29,558 Shares redeemed............................. (8,999,261) (656,232) ------------ ----------- NET INCREASE........................... 13,563,280 3,886,674 ============ ===========
See accompanying notes to financial statements. -33- GUINNESS FLIGHT CHINA & HONG KONG FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGH THE PERIOD - --------------------------------------------------------------------------------
For the Years From June 30, Ended 1994* December 31, through ------------------ December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------- Net asset value, beginning of period......... $ 13.64 $ 11.47 $12.50 -------- ------- ---------- Income from investment operations: Net investment income...................... 0.19 0.14 0.04 Net realized and unrealized gain (loss) on investments.............................. 4.43 2.20 (0.96) -------- ------- ---------- Total from investment operations............. 4.62 2.34 (0.92) -------- ------- ---------- Less distributions: Dividends from net investment income....... (0.19) (0.14) (0.04) Distributions from taxable net capital gains.................................... (0.36) (0.03) (0.07) -------- ------- ---------- Total distributions.......................... (0.55) (0.17) (0.11) -------- ------- ---------- Net asset value, end of period............... $ 17.71 $ 13.64 $11.47 ======== ======= ========== Total return................................. 34.38% 20.45% (7.74)%++ Ratios/supplemental data: Net assets, end of period (thousands)........ $311,521 $55,740 $2,287 Ratio of expenses to average net assets: Before expense reimbursement (recoupement)............................ 1.78% 3.02%** 19.92%+ After expense reimbursement (recoupement)............................ 1.96% 1.98% 2.00%+ Ratio of net investment income to average net assets: Before expense reimbursement (recoupement)............................ 1.57% 0.49% (17.15)%+ After expense reimbursement (recoupement)............................ 1.39% 1.52% 0.78%+ Portfolio turnover rate...................... 30.04% 10.89% 27.25% Average Commission Rate Paid#................ $ 0.0070 -- -- BANK LOANS Amount outstanding at end of period (000).... -- -- -- Average amount of bank loans outstanding during the period (monthly average) (000)...................................... $ 1,413 -- -- Average number of shares outstanding during the period (monthly average) (000)......... 11,419 -- -- Average amount of debt per share during the period..................................... $ 0.12 -- --
* Commencement of operations. ** Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the ratio of expenses to average net assets before "expense reimbursement" would have been 3.04% + Annualized. ++ Not Annualized. # For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commissions rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. See accompanying notes to financial statements. -34- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996 - --------------------------------------------------------------------------------
Par Value GOVERNMENT BONDS: 79.59% Market Value US$ - ---------------------------------------------------------------------------- AUSTRALIAN DOLLAR: 9.59% 670,000 Australian Government 10.000% 10/15/07...... $ 629,768 ---------- BRITISH POUND: 11.41% 90,000 United Kingdom Gilts 8.000% 06/07/21........ 160,627 295,000 United Kingdom Gilts 7.500% 12/07/06........ 504,860 40,000 Italy Sterling NCL 10.500% 04/28/14......... 83,183 ---------- Total British Pound......................... 748,670 ---------- CANADIAN DOLLAR: 2.19% 177,000 Canadian Government Bond 8.000% 06/01/23.... 143,845 ---------- DANISH KRONER: 2.37% 970,000 Kingdom of Denmark 7.000% 11/10/24.......... 155,749 ---------- EUROPEAN CURRENCY UNIT: 4.87% 240,000 France O.A.T. 7.000% 04/25/06............... 319,554 ---------- GERMAN MARKS: 12.08% 1,135,000 Deutschland Republic 6.875% 05/12/05........ 793,087 ---------- IRISH PUNT: 1.29% 30,000 Irish Gilts 9.750% 06/01/98................. 53,447 18,000 Irish Gilts 8.750% 07/27/97................. 30,960 ---------- Total Irish Punt............................ 84,407 ----------
-35- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
Par Value Market Value US$ - ---------------------------------------------------------------------------- NORWEGIAN KRONER: 4.14% 1,385,000 Norwegian Government 9.500% 10/31/02........ $ 256,738 100,000 Norwegian Government 5.750% 11/30/04........ 15,314 ---------- Total Norwegian Kroner...................... 272,052 ---------- SPANISH PESETA: 9.87% 35,000,000 Spanish Government 10.500% 10/30/03......... 327,610 35,000,000 Spanish Government 10.300% 06/15/02......... 320,062 ---------- Total Spanish Peseta........................ 647,672 ---------- SWEDISH KRONA: 2.38% 1,100,000 Kingdom of Sweden 6.000% 02/09/05........... 156,266 ---------- UNITED STATES DOLLAR: 19.40% 360,000 Tokyo Metro 6.125% 03/27/06................. 348,840 847,000 U.S. Treasury Note 7.875% 11/15/04.......... 924,553 ---------- Total United States Dollar.................. 1,273,393 ---------- Total Government Bonds -- 79.59% (Identified Cost $5,169,524).......................... $ 5,224,463 ----------
-36- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED - --------------------------------------------------------------------------------
FORWARD CONTRACTS: (0.26%) - ----------------------------------------------------------------------------- Currency Unrealized Receivable Currency Deliverable Delivery Date Gain/(Loss) - --------------- -------------------------------- ------------- ---------- US$ 294,953 Australian Dollar 376,176 01/23/97 $ 3,493 US$ 620,760 Canadian Dollar 844,420 01/23/97 (590) US$ 2,469,395 Deutsche Mark 3,686,612 01/23/97 4,726 US$ 62,125 Danish Krone 362,812 01/23/97 363 US$ 355,685 Spanish Peseta 43,061,277 01/23/97 (804) US$ 8,753 French Franc 45,342 01/23/97 9 US$ 651,341 British Pound Sterling 416,187 01/23/97 17,361 US$ 317,342 Irish Punt 198,705 01/23/97 (4,327) US$ 908,089 Italian Lira 1,380,901,671 01/23/97 4,292 US$ 570,427 Japanese Yen 3,751,746,093 01/23/97 (1,246) US$ 118,198 New Zealand Dollar 172,258 01/23/97 159 US$ 181,682 Norwegian Krone 4,056,466 01/23/97 891 US$ 741,778 Swedish Krona 4,921,302 01/23/97 6,068 US$ 228,697 Singapore Dollar 321,846 01/23/97 1,386 US$ 327,428 European Currency Unit 261,725 01/23/97 235 US$ 2,941,784 Australian Dollar 2,333,804 04/24/97 (52,937) US$ 2,044,428 Canadian Dollar 2,713,639 04/24/97 (14,232) US$ 1,957,744 Deutsche Mark 2,973,742 04/24/97 9,411 US$ 98,972 Danish Krone 578,627 04/24/97 1,199 US$ 959,946 Spanish Peseta 124,628,851 04/24/97 (303) US$ 4,924,753 British Pound Sterling 3,001,572 04/24/97 46,282 US$ 656,820 Irish Punt 393,335 04/24/97 (2,466) US$ 2,454,355 Italian Lira 3,750,746,093 04/24/97 (9,991) US$ 1,433,829 Japanese Yen 159,315,100 04/24/97 (15,214) US$ 651,103 Norwegian Krone 4,150,502 04/24/97 (880) US$ 43,269 New Zealand Dollar 62,560 04/24/97 682 US$ 29,533 Swedish Krona 193,912 04/24/97 (937) US$ 494,195 Singapore Dollar 691,978 04/24/97 (3,337) US$ 503,682 European Currency Unit 394,264 04/24/97 (6,075) ---------- Total Forward Contracts........................ (16,782) ---------- Total Investments in Securities: (cost $5,169,524*) 79.33%............................ 5,207,681 Other Assets Less Liabilities: 20.67%.......... 1,356,609 ---------- NET ASSETS: 100.0%............................. $6,564,290 ========== *Cost for federal income tax purposes is the same. Net unrealized depreciation consists of: Gross unrealized appreciation.................. $ 107,536 Gross unrealized depreciation.................. (52,597) ---------- Net unrealized appreciation.................... $ 54,939 ==========
See accompanying notes to financial statements. -37- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $5,169,524)..... $5,207,681 Cash...................................................... 1,255,124 Receivables: Fund shares sold..................................... 2,500 Interests............................................ 135,555 Prepaid expenses.......................................... 216 Deferred organizational costs, net........................ 29,420 ---------- Total assets......................................... 6,630,496 ---------- LIABILITIES Dividends payable to shareholders......................... 2,891 Due to Adviser............................................ 27,374 Other accrued expenses.................................... 35,941 ---------- Total liabilities.................................... 66,206 ---------- NET ASSETS................................................ $6,564,290 ========== NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ($6,564,290/516,037 shares outstanding; unlimited number of shares authorized without par value)................. $12.72 ======= SOURCE OF NET ASSETS Paid-in capital...................................... $6,460,077 Undistributed net investment income (including equalization credits of $44,071)................... 21,798 Undistributed net realized gain on investments....... 43,561 Net unrealized appreciation (depreciation) on: Investments..................................... 54,939 Foreign currency................................ (16,085) ---------- Net assets...................................... $6,564,290 ==========
See accompanying notes to financial statements. -38- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
For the Year Ended December 31, 1996 - --------------------------------------------------------------------------- INVESTMENT INCOME INCOME Interests.............................................. $ 164,890 ---------- EXPENSES Advisory fees (Note 3)................................. 19,110 Administration fee (Note 3)............................ 27,122 Custodian.............................................. 13,898 Accounting............................................. 40,022 Transfer agent fees.................................... 34,891 Auditing fees.......................................... 16,002 Legal fees............................................. 8,599 Directors' fees........................................ 13,777 Registration fees...................................... 18,501 Reports to shareholders................................ 3,419 Deferred organization costs amortization............... 11,757 Miscellaneous.......................................... 2,742 ---------- Total expenses.................................... 209,840 Less: Expenses reimbursed (Note 3)................ (176,407) ---------- Net expenses...................................... 33,433 ---------- NET INVESTMENT INCOME........................ 131,457 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from investments..................... 75,867 Net realized gain from foreign currency................ 575 Net change in unrealized appreciation on investments... 21,387 Net change in unrealized loss on foreign currency...... (16,057) ---------- Net realized and unrealized gain on investments... 81,772 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $ 213,229 ==========
See accompanying notes to financial statements. -39- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the Year Ended December 31, ---------------------------- 1996 1995 - ------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM: OPERATIONS Net investment income......................... $ 131,457 $ 55,076 Net realized gain from investments............ 75,867 33,385 Net realized gain (loss) on foreign currency.................................... 575 (12,113) Net change in unrealized appreciation on investments................................. 21,387 52,690 Net change in unrealized depreciation on foreign currency............................ (16,057) (28) ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. 213,229 129,010 ----------- ----------- NET EQUALIZATION CREDITS...................... 44,071 1,667 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS Dividends paid from net investment income..... (162,397) (51,665) Distributions from net capital gains.......... (22,795) (25,177) ----------- ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS....... (185,192) (76,842) ----------- ----------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold..................... 6,348,475 1,144,047 Net asset value of shares issued on reinvestment of distributions............... 175,240 44,505 Cost of shares redeemed....................... (1,184,883) (840,420) ----------- ----------- Net increase from capital share transactions................................ 5,338,832 348,132 ----------- ----------- TOTAL INCREASE IN NET ASSETS.............. 5,410,940 401,967 NET ASSETS Beginning of year............................. 1,153,350 751,383 ----------- ----------- End of year (including undistributed net investment income of $21,798 and $8,667, respectively)............................... $ 6,564,290 $ 1,153,350 =========== =========== CHANGES IN SHARES Shares sold................................... 507,485 90,886 Shares issued from dividend distributions..... 13,939 3,547 Shares redeemed............................... (95,726) (66,716) ----------- ----------- NET INCREASE.............................. 425,698 27,717 =========== ===========
See accompanying notes to financial statements. -40- GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - --------------------------------------------------------------------------------
For the Year Ended From June 30, December 31, 1994* ------------------- through 1996 1995 December 31, 1994 - ---------------------------------------------------------------------------- Net asset value, beginning of period...................... $ 12.77 $ 12.00 $ 12.50 ------- ------- ------------- Income from investment operations: Net investment income.......... 0.63 0.69 0.29 Net realized and unrealized gain (loss) on investments................. 0.13 1.01 (0.58) ------- ------- ------------- Total from investment operations..................... 0.76 1.70 (0.29) ------- ------- ------------- Less distributions: Dividends from net investment income...................... (0.69) (0.65) (0.21) Distributions from net capital gains....................... (0.12) (0.28) -- ------- ------- ------------- Total distributions.............. (0.81) (0.93) (0.21) ------- ------- ------------- Net asset value, end of period... $ 12.72 $ 12.77 $ 12.00 ======= ======= ============= Total return..................... 6.21% 14.49% (2.33)%++ Ratios/supplemental data: Net assets, end of period (thousands).................... $ 6,564 $ 1,153 $ 751 Ratio of expenses to average net assets: Before expense reimbursement... 8.21% 21.52%** 40.78%+ After expense reimbursement.... 1.31% 1.73% 1.75%+ Ratio of net investment income to average net assets: Before expense reimbursement... (1.76)% (14.26)% (34.18)%+ After expense reimbursement.... 5.14% 5.53% 4.86%+ Portfolio turnover rate.......... 296.51% 202.54% 46.15%
+ Annualized ++ Not Annualized * Commencement of operations. ** Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31, 1995, the ratio of expenses to average net assets before expense reimbursement" would have been 21.68% See accompanying notes to financial statements. -41- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION The Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a Maryland Corporation incorporated on January 7, 1994 and registered under the Investment Company Act of 1940 (the "1940 Act") as a non-diversified, open-end management investment company. Currently, the Guinness Funds offer four separate series portfolios: Guinness Flight Asia Blue Chip Fund (the "Asia Blue Chip Fund") whose objective is long-term capital appreciation, Guinness Flight Asia Small Cap Fund (the "Asia Small Cap Fund") whose objective is long-term capital appreciation, Guinness Flight China & Hong Kong Fund (the "China Fund") whose objective is long-term capital appreciation, and Guinness Flight Global Government Bond Fund (the "Global Government Fund") whose objective is to provide current income and capital appreciation (collectively, the "Funds"). The China and Global Government Funds began operations on June 30, 1994 and the Asia Blue Chip and Asia Small Cap Funds began operations on April 29, 1996. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with generally accepted accounting principles. A. Security Valuation. Investments in securities traded on a primary exchange are valued at the last reported sale price at the close of regular trading on the last business day of the period; securities traded on an exchange for which there has been no sale are valued at the last reported bid price. Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees. Short-term investments are stated at cost, which when combined with accrued interest, approximates market value. U.S. Government securities with less than 60 days remaining to maturity when acquired by the Fund are valued on an amortized cost basis. U.S. Government securities with more than 60 days remaining to maturity are valued at the current market value (using the mean between the bid and asked price) until the 60th day prior to maturity, and are then valued at amortized cost based upon the value on such date unless the Board determines during such 60 day period that this amortized cost basis does not represent fair value. Foreign securities are recorded in the financial statements after translation to U.S. dollars based on the applicable exchange rate at the end of the period. The Funds do not isolate that portion of the results of operations arising as a result of changes in the currency exchange rate from the fluctuations arising as a result of changes in the market prices of investments during the period. -42- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Interest income is translated at the exchange rates which existed at the dates the income was accrued. Exchange gains and losses related to interest income are included in interest income on the accompanying Statements of Operations. B. Forward Foreign Currency Exchange Contracts. The Funds may utilize forward foreign currency exchange contracts ("forward contracts") under which it is obligated to exchange currencies at specific future dates and at specified rates, and is subject to the risks of foreign exchange fluctuations. All commitments are "marked-to-market" daily and any resulting unrealized gains or losses are included as unrealized appreciation (depreciation) on foreign currency denominated assets and liabilities. The Funds record realized gains or losses at the time the forward contract is settled. Counterparties to these forward contracts are major U.S. financial institutions. The Asia Blue Chip Fund, Asia Small Cap Fund and Global Government Fund use forward foreign currency exchange contracts as part of their strategy of preserving capital. Upon entering into forward foreign currency contracts, the funds are required to deposit with the broker an amount of cash or cash equivalents equal to the amount of the contract. The daily changes in the contract are recorded as unrealized gains or losses. The funds recognize a realized gain or loss when the contract is sold. C. Security Transactions, Dividends and Distributions. As is common in the industry, security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. D. Federal Income Taxes. The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of their taxable income to its shareholders. Therefore, no federal income tax provision is required. E. Equalization. The Global Government Fund follows the accounting practice known as equalization, by which a portion of the proceeds from sales and costs of redemptions of capital shares, equivalent on a per share basis to the amount of undistributed net investment income on the date of the transaction, is credited or charged to undistributed net investment income. As a result, undistributed net investment income per share is unaffected by sales or redemptions of the Fund's shares. F. Deferred Organization Costs. The China Fund and the Global Government Fund have each incurred expenses of $58,785 in connection with their organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have each incurred expenses of $8,745 in connection with their origination. These costs have been deferred and are being amortized on a straight line basis over a -43- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- period of sixty months from the date the Funds commenced investment operations. In the event that any of the initial shares of either Fund are redeemed by the holder during the period of amortization of the Funds' organization costs, the redemption proceeds will be reduced by any such unamortized organization costs in the same proportion as the number of initial shares being redeemed bears to the number of those shares outstanding at the time of redemption. G. Concentration of Risk. The Asia Blue Chip Fund and Asia Small Cap Fund invests substantially all of its assets in Asian continent. The China Fund invests substantially all of its assets in securities that are traded in China or Hong Kong or that are issued by companies that do a substantial part of their business in China. The Global Government Fund invests substantially in bonds issued by various European governments. The consequences of political, social or economic changes in the countries in which the securities are offered or the issuers conduct of their operations as well as foreign currency fluctuations, may affect the market prices of the Funds' investments and any income generated, as well as the Funds' ability to repatriate such amounts. H. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. I. Other. Under terms of the Custodial Agreement, the Funds may earn credits, based on custody cash balances, to be applied to custodian fees. For the year ended December 31, 1996, there were no such credits. NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Guinness Funds, on behalf of the Funds, entered into an Investment Advisory Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to provide the Funds with investment management services. The Advisor furnished all investment advice, office space and certain administrative services, and provides certain personnel needed by the Funds. As compensation -44- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- for its services, the Advisor was entitled to a monthly fee equal to the following annual percentages of daily average net assets: Asia Blue Chip Fund 1.00% Asia Small Cap Fund 1.00% China Fund 1.00% Global Government Fund 0.75%
The Funds are responsible for their own operating expenses. The Advisor and Administrator have agreed to reimburse each Fund to the extent necessary so that its ratio of operating expenses to average daily net assets will not exceed the following levels. Expenses reimbursed from the Adviser for the year ended December 31, 1996 are stated in the Funds' Statement of Operations: Asia Blue Chip Fund 1.98% Asia Small Cap Fund 1.98% China Fund 1.98% Global Government Fund 0.75%* *(effective 10/31/96)
Investment Company Administration Corporation (the "Administrator") acts as the Funds' Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, prepares reports and materials to be supplied to the Directors; monitors the activities of the Funds' custodian, transfer agent and accountants; coordinates the preparation and payment of Fund expenses and reviews the Funds' expense accruals. For its services, the Administrator receives an annual fee equal to the greater of 0.25 of 1% of the Funds' average daily net assets, subject to a $40,000 annual minimum for the China Fund and $60,000 allocated based on average daily net assets of the Asia Blue Chip Fund, Asia Small Cap Fund and Global Government Fund. The Funds will reimburse the Advisor and Administrator in subsequent years when operating expenses (before reimbursements) are less than the applicable percentage limitation in effect at that time for each of the Funds. First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal underwriter in a continuous public offering of the Funds' shares. The Distributor is an affiliate of the Administrator. Certain officers of the Guinness Funds are also officers and/or Directors of the Administrator and Distributor. -45- Guinness Flight Asia Blue Chip Fund Guinness Flight Asia Small Cap Fund Guinness Flight China & Hong Kong Fund Guinness Flight Global Government Bond Fund NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4 - PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of securities, excluding U.S. Government obligations and short-term investments, for the year ended December 31, 1996 were:
FUND PURCHASES SALES ---------------------------------- ------------ ----------- Asia Blue Chip Fund $ 3,556,809 $ 222,407 Asia Small Cap Fund $ 41,644,290 $ 1,465,163 China Fund $251,846,277 $52,153,660 Global Government Fund $ 7,517,715 $ 4,430,766
Purchases and sales of U.S. Government obligations by the Global Government Fund were $1,629,500 and $1,010,692, respectively. NOTE 5 - LINE OF CREDIT The Funds have a $20 million unsecured line of credit with a bank that expires on October 11, 1997. The interest rate on the line of credit is the bank's base rate, as revised from time to time. -46- REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Guinness Flight Investment Funds, Inc. We have audited the accompanying statements of assets and liabilities of the Guinness Flight Asia Blue Chip Fund ("Blue Chip Fund"), Guinness Flight Asia Small Cap Fund ("Small Cap Fund"), Guinness Flight China & Hong Kong Fund ("China Fund") and Guinness Flight Global Government Bond Fund ("Global Bond Fund"), (collectively, the "Funds"), series of Guinness Flight Investment Funds, Inc., including the portfolios of investments, as of December 31, 1996, and the related statements of operations for the year then ended for the China Fund and Global Bond Fund and for the period April 29, 1996 (commencement of investment operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended for the China Fund and Global Bond Fund, and for the period April 29, 1996 (commencement of investment operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the China Fund and Global Bond Fund for the period from June 30, 1994 (commencement of operations) through December 31, 1994, were audited by other auditors whose report dated February 8, 1995 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of the Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government Bond Fund as of December 31, 1996, the results of their operations for the year then ended for the China Fund and Global Bond Fund and for the period from April 29, 1996 (commencement of investment operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund, and the changes in their net assets and the financial highlights for each of the two years in the period then ended for the China Fund and Global Bond Fund and for the period from April 29, 1996 (commencement of investment operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Los Angeles, California February 3, 1997 -47- USEFUL GUINNESS FLIGHT PHONE NUMBERS Shareholder Service Line: 1-800-915-6566 Fund Literature Line: 1-800-915-6565 Automated Line for NAVs: 1-800-915-6564 This report is intended for the shareholders of Guinness Flight Investment Funds, Inc. and should not be used as sales literature unless accompanied or preceded by the Funds current prospectus. EX-99.B13 12 INVESTMENT LETTERS New York, New York May 6, 1994 Guinness Flight Investment Funds, Inc. 201 South Lake Avenue, Suite 510 Pasadena, California 91101 Dear Gentlemen: I have this day purchased 4,000 shares (the "Shares") of the Common Stock, $.001 par value of Guinness Flight Investment Funds, Inc. (the "Company") at a price of $12.50 per share. I hereby represent that I have purchased the Shares for investment purposes and not with a view to or for sale in connection with any distribution hereof, provided, however, that the disposition of the Shares shall at all times be and remain within my control. I further agree that the Shares will not be resold except for redemption by the Company and that the proceeds of any such redemption will be reduced by an amount of the organization expenses of the Company remaining unamortized at the time of the redemption based on the proportion that the number of Shares being redeemed bears to the total number of share of the common stock of the Company outstanding at the time of the redemption. This letter may be signed in counterpart, each of which being considered an original, but all of which together being considered one and the same instrument. Sincerely yours, Guinness Mahon Nominees A/c James Hay Pension Trustees Limited A/c Tim Guinness By: /s/Howard Flight --------------------------- By: /s/Timothy Guinness --------------------------- By: /s/David Liddell --------------------------- New York, New York May 6, 1994 Guinness Flight Investment Funds, Inc. 201 South Lake Avenue, Suite 510 Pasadena, California 91101 Dear Gentlemen: I have this day purchased 4,000 shares (the "Shares") of the Common Stock, $.001 par value of Guinness Flight Investment Funds, Inc. (the "Company") at a price of $12.50 per share. I hereby represent that I have purchased the Shares for investment purposes and not with a view to or for sale in connection with any distribution hereof, provided, however, that the disposition of the Shares shall at all times be and remain within my control. I further agree that the Shares will not be resold except for redemption by the Company and that the proceeds of any such redemption will be reduced by an amount of the organization expenses of the Company remaining unamortized at the time of the redemption based on the proportion that the number of Shares being redeemed bears to the total number of share of the common stock of the Company outstanding at the time of the redemption. This letter may be signed in counterpart, each of which being considered an original, but all of which together being considered one and the same instrument. Sincerely yours, Guinness Mahon Nominees A/c James Hay Pension Trustees Limited A/c Howard Flight By: /s/Howard Flight --------------------------- By: /s/Timothy Guinness --------------------------- By: /s/David Liddell --------------------------- EX-99.B15 13 DISTRIBUTION AND SERVICE PLAN DISTRIBUTION AND SERVICE PLAN 1. This Distribution and Service Plan (the "Plan") when effective in accordance with its terms, shall be the written plan contemplated by Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act") of the funds listed on Schedule A (the "Portfolios"), duly established series of shares of Guinness Flight Investment Funds, a Delaware business trust, registered as an open-end investment company under the 1940 Act (the "Guinness Funds"). 2. Guinness Funds has entered into separate Administration ("Administration") and General Distribution ("Distribution") Agreements with Investment Company Administration Corporation (the "Administrator") and First Fund Distributors Inc. (the "Distributor"), respectively, with respect to the Portfolios under which the Distributor uses all reasonable efforts, consistent with its other business, to secure purchasers for each Portfolio's shares. Under the Distribution Agreement, the Distributor pays the expenses of printing and distributing any prospectuses, reports and other literature used by the Distributor, advertising, and other promotional activities in connection with the offering of shares of each Portfolio for sale to the public. Guinness Funds has entered into an Investment Advisory Agreement with Guinness Flight Investment Management Limited (the "Investment Adviser"). It is understood that the Administrator may reimburse the Distributor for these expenses from any source available to it, including the administration fee paid to the Administrator by each Portfolio. 3. The Investment Adviser may, subject to the approval of the Trustees, make payments to third parties who render shareholder support services, including but not limited to, answering routine inquiries regarding the Portfolios, processing shareholder transactions and providing such other shareholder and administrative services as Guinness Funds may reasonably request. 4. The Portfolios will not make separate payments as a result of this Plan to the Investment Adviser, Administrator, Distributor or any other party, it being recognized that each Portfolio presently pays, and will continue to pay, an investment advisory fee to the Investment Adviser and an administration fee to the Administrator. To the extent that any payments made by the Portfolios to the Investment Adviser or Administrator, including payment of fees under the Investment Advisory Agreement or the Administration Agreement, respectively, should be deemed to be indirect financing of any activity primarily intended to result in the sale of shares of the Portfolios within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to be authorized by this Plan. 5. This Plan shall become effective on April 28, 1997 following approval by a vote of at least a "majority of the outstanding voting securities of a Portfolio" (as defined in the 1940 Act), the Plan having been approved by a vote of a majority of the Trustees of Guinness Funds, including a majority of Trustees who are not interested persons of Guinness Funds (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of this Plan or in any agreements related to this Plan (the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on this Plan. 6. This Plan shall, unless terminated as hereinafter provided, remain in effect from April 28, 1997 through April 28, 1998, and from year to year thereafter, provided, however, that such continuance is subject to approval annually by a vote of a majority of the Trustees of Guinness Funds, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on this Plan. This Plan may be amended at any time by the Board of Trustees, provided that (a) any amendment to authorize direct payments by a Portfolio to finance any activity primarily intended to result in the sale of shares of a Portfolio, to increase materially the amount spent by a Portfolio for distribution, or any amendment of the Investment Advisory Agreement or the Administration Agreement to increase the amount to be paid by a Portfolio thereunder shall be effective only upon approval by a vote of a majority of the outstanding voting securities of such Portfolio, and (b) any material amendments of this Plan shall be effective only upon approval in the manner provided in the first sentence in this paragraph. 7. This Plan may be terminated at any time, with respect to a Portfolio, without the payment of any penalty, by vote of a majority of the Independent Trustees or by a vote of a majority of the outstanding voting securities of such Portfolio. 8. During the existence of this Plan, Guinness Funds shall require the Investment Adviser and/or Distributor to provide Guinness Funds, for review by Guinness Funds' Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended in connection with financing any activity primarily intended to result in the sale of shares of the Portfolios (making estimates of such costs where necessary or desirable) and the purposes for which such expenditures were made. 9. This Plan does not require the Investment Adviser or Distributor to perform any specific type or level of distribution activities or to incur any specific level of expenses for activities primarily intended to result in the sale of shares of the Portfolios. 10. Consistent with the limitation of shareholder and Trustee liability as set forth in the Guinness Funds' Trust Instrument, any obligations assumed by a Portfolio pursuant to this Plan and any agreements related to this Plan shall be limited in all cases to such Portfolio and its assets, and shall not constitute obligations of any shareholder or other series of shares of Guinness Funds or of any Trustee. 11. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby. - 2 - SCHEDULE A GUINNESS FLIGHT CHINA & HONG KONG FUND GUINNESS FLIGHT ASIA BLUE CHIP FUND GUINNESS FLIGHT ASIA SMALL CAP FUND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND EX-27 14 FINANCIAL DATA SCHEDULE
6 0000919160 GUINNESS FLIGHT INVESTMENT FUNDS INC. 1 GUINNESS FLIGHT CHINA & HONG KONG FUND 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 256329436 303769418 1225799 38519 10036497 315070233 2769170 0 780201 3549371 0 263479700 17589379 4086099 46560 0 555628 0 47438974 311520862 5754444 203761 0 3484754 2473451 5537713 43833578 51844742 0 (2426162) (4883242) 0 22049194 (8999261) 453347 51844742 0 0 (729) (98845) 1772174 0 1712580 173596825 13.64 0.19 4.43 (0.19) (0.36) 0 17.71 1.39 0 0
EX-27 15 FINANCIAL DATA SCHEDULE
6 0000919160 GUINNESS FLIGHT INVESTMENT FUNDS INC. 2 GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 5169524 5207681 16055 29636 1255124 6630496 0 0 66206 66206 0 6460077 516037 90339 21798 0 43561 0 38854 6564290 0 164890 0 33433 131457 75867 21387 213229 0 (162397) (22795) 0 507485 (95726) 13939 425698 8667 0 0 (10086) 19110 0 209840 1835147 12.77 0.63 0.13 (0.69) (0.12) 0 12.72 1.31 0 0
EX-27 16 FINANCIAL DATA SCHEDULE
6 0000919160 GUINNESS FLIGHT INVESTMENT FUNDS INC. 3 GUINNESS FLIGHT ASIA BLUE CHIP FUND 1 U.S. DOLLARS 8-MOS DEC-31-1996 APR-29-1996 DEC-31-1996 1 3337098 3504251 47197 16171 250669 3818288 108262 0 22861 131123 0 3517505 284068 0 838 0 1740 0 167082 3687165 20595 5834 0 25591 838 2695 167082 169660 0 0 0 0 320248 (68180) 0 253068 0 0 0 0 12860 0 118447 2028314 12.50 0 0.48 0 0 0 12.98 0.06 0 0
EX-27 17 FINANCIAL DATA SCHEDULE
6 0000919160 GUINNESS FLIGHT INVESTMENT FUNDS INC. 4 GUINNESS FLIGHT ASIA SMALL CAP FUND 1 U.S. DOLLARS 8-MOS DEC-31-1996 APR-29-1996 DEC-31-1996 1 40254577 42139155 599443 19688 14605938 57394224 6381487 0 144453 6525940 0 48964942 3608723 0 0 (15240) 37404 0 1881178 50868284 56603 92775 0 126377 23001 73470 1885061 1970420 0 (38241) (28837) 0 3681439 (1009004) 4288 3576723 0 0 0 0 62680 0 197960 6165239 12.50 0.02 1.61 (0.02) (0.01) 0 14.10 1.98 0 0
-----END PRIVACY-ENHANCED MESSAGE-----