GUINNESS ASSET MANAGEMENT FUNDS PLC
Annual Reports and Audited Financial Statements
For the year ended 31 st December 2009
GUINNESS ASSET MANAGEMENT FUNDS PLC
Financial Statements (Audited) For the year ended 31 st December 2009
Contents Pages
Management and Administration ...... 2
Directors’ Report...... 3
Investment Manager's Report...... 5
Auditors Report...... 13
Custodians’ Report...... 15
Schedule of Investments...... 17
Statement of Net Assets Attributable to Participating Shareholders ...... 21
Statement of Operations...... 23
Statement of Changes in Net Assets Attributable to Participating Shareholders...... 25
Portfolio Movements (Unaudited)…………………………………………………………………………….26
Notes to the Financial Statements ...... 30
Appendix 1– TER Calculations (Unaudited)…………………………………………………………………..45
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Management and Administration
Directors of the Company Independent Auditors Paul Nunan* (Resigned as Director 26 th August 2009) Deloitte & Touche Anthony Joyce * Deloitte & Touche House Edward Guinness ** Earlsfort Terrace Andrew E. Martin Smith ** Dublin 2 James Leslie (Deceased 22 nd Feb 2009) Ireland Johnny McClintock David McGeough
Registered Office Irish Legal Advisers 1 Adelaide Court Dillon Eustace Adelaide Road 33 Sir John Rogerson's Quay Dublin 2 Dublin 2 Ireland Ireland
Promoter & Investment Manager Manager Guinness Asset Management Limited Capita Financial Managers (Ireland) Limited 14 Queen Anne’s Gate 1 Adelaide Court London SW1H 9AA Adelaide Road United Kingdom Dublin 2 Ireland
Administrator, Registrar and Company Secretary Custodian Capita Financial Administrators (Ireland) Limited JP Morgan Bank (Ireland) plc 1 Adelaide Court JP Morgan House Adelaide Road IFSC Dublin 2 Dublin 1 Ireland Ireland
Global Distributor Guinness Asset Management Limited 14 Queen Anne’s Gate London SW1H 9AA United Kingdom
Company Number: 450670
* Directors of the Manager and Administrator ** Employees of the Investment Manager
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Directors’ Report Guinness Asset Management
The Directors of Guinness Asset Management Fund Plc (the “Company”) present herewith their Annual Report and Audited Financial Statements for the year ended 31 st December 2009.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable Irish law and Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and published by the Institute of Chartered Accountants in Ireland.
Irish Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss for that year. In preparing those financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent; and
* prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at anytime the financial position of the Company and enable them to ensure that the financial statements comply with Irish Statute comprising the Companies Acts, 1963 to 2009, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 and the Listing Rules of the Irish Stock Exchange. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities and to this end the Company has appointed JP Morgan Bank (Ireland) Plc as Custodian of its assets.
Basis of Preparation
The format and certain wordings of the financial statements have been adapted from those contained in the Companies (Amendment) Act 1986 so that, in the opinion of the Directors, they more appropriately reflect the nature of the Company’s business as an investment fund.
Directors’ Statement on Proper Books of Account
To ensure that proper books of account are kept in accordance with Section 202 of the Companies Act 1990, the Directors of the Company have employed a service organisation, Capita Financial Administrators (Ireland) Limited (the “Administrator”). The books of account are located at the offices of the Administrator as stated on page 2.
Activities and Business Review
See the Investment Manager’s report on pages 5 to 12.
Risks and Uncertainties
The principal risks and uncertainties faced by the Company are outlined in the Prospectus. These risks include market price risk, currency risk, interest rate risk, liquidity risk and credit risk as per FRS 29. The Investment Manager reviews and agrees policies for managing each of these risks and these are detailed in Note 9 to the Financial Statements.
Directors The current Directors are as stated on page 2.
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Directors’ Report Guinness Asset Management (Continued)
Directors’ Interests in Shares of the Company During the period the following directors had a share holding in the Company. As at 31 st December 2009, Edward Guinness has a holding of 2,347.12 shares in Guinness Alternative Energy Fund.
Transactions involving Directors Other than as disclosed in note 7 to the Financial Statements under Related Party Disclosures, there were no contracts or arrangements of any significance in relation to the business of the Company in which the Directors had any interest, as defined in the Companies Act, 1990, at any time during the year.
Results of Operations The results of operations for the year are set out in the Statement of Operations on page 23.
Distributions The Directors declared a distribution for the year ended 31 st December 2009 of USD0.0495 (2008: USD0.028) per share on Class A US$, USD0.007 per share on Class B US$, EUR0.0052 per share on Class D EUR€ and USD0.013 per share on Class E US$ of the Guinness Global Energy Fund. The total distribution at fund level amounting to USD512,966 (2008: USD248,168) with an Ex date of 8 th March 2010 and a pay date of 18 th March 2010. The remaining class C GBP£ had insufficient income to distribute. Guinness Alternative Energy Fund distribution for the year ended 31 st December 2009 has been deferred, subject to HMRC approval.
Independent Auditors The Auditors, Deloitte & Touche, have indicated their willingness to continue in office in accordance with Section 160 (2) of the Companies Act, 1963.
Events after the Year End There have been no events after the year end, which impact on the financial statements for the year ended 31 st December 2009.
On behalf of the Board
Anthony Joyce
Johnny McClintock
Directors
Date: 27 th April 2010
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Global Energy Fund
Review
The Global Energy Fund in 2009 produced a total return of 60.69% (class B, in US$). This compares favourably to the price return of the Morgan Stanley Capital International World Energy Index of 26.98%, and is also well ahead of the broad market which recovered strongly from March onwards, as exemplified by the MSCI World Index’s total return of 30.81%.
The star performers over the year have been spread across the different sectors, although the Exploration & Production companies as a group stand out. Pioneer Natural Resources (up 198%), Dragon Oil (up 171%) and Newfield Exploration (up 144%), as well as Canadian Oil Sands producers Suncor (up 84%) and Canadian Natural Resources (up 83%) and deepwater driller Transocean (up 75%) were all significant contributors to performance. All of them benefited from continued strength in the oil price while the US E&P’s also enjoyed a recovery in the US natural gas price. The worst performing holdings have been the integrated companies: Hess, Marathon, ENI, Total and Royal Dutch Shell, up from 10% (ENI) to 19% (Total).
2009 has been a year of recovery for the oil price. Having ended 2008 at $44 it fell back to $35 in mid-January but moved up handsomely to reach $70 at the end of June. It fell back to $60 in July before moving gradually higher over the third quarter and then up to $80 in October. It ended the year at $79.36, having averaged just under $62 for the year as a whole.
The reasons for this recovery are well-documented. First and foremost, OPEC’s combined quota cuts of 4.2m barrels in October and December 2008, and the early compliance with the new quotas (compliance has slipped back to 60%), have done enough to balance the market. Added to this the increasing signs of economic recovery (International Energy Agency global oil demand forecast for 2009 moved up from 83m b/day to 85m b/day), strong imports from China, and index buying combined with a weaker dollar and the animal spirits of traders have moved the oil price back up to a level which remunerates oil producing nations and encourages investment without disrupting the world economy. We now think of the oil price trading range as $60-80.
Looking further ahead we are still anticipating a steadily rising oil price. Non-OPEC supply is forecast by the IEA to grow 0.2m b/day in 2010 which we consider optimistic, and there is little reason to believe that it can grow much in the future. 2009 was billed as the big year for non-OPEC supply and it grew by only 0.6m b/day. In the medium to long term we do not believe that growth in supply from Brazil, the Caspian and the Canadian Oil Sands will be enough to replace the shortfall from Mexico, Russia and the North Sea. On the demand side, alongside our confidence in continued growth from the non-OECD region, we draw considerable comfort from the fact that global oil demand in between 2007-9 fell only 1.8% in the midst of the banking crisis and recession.
We are also very focused on the US natural gas price which fell from $13 in mid 2008 to $2 in September 2009. We have positioned ourselves for a strengthening gas price as we expect the fall in the rig count to reduce supply just as demand recovers. This is beginning to play out, helped by some cold winter weather, and natural gas in storage is now back at the five-year average level. This has helped the price up to around $5.50, after averaging $3.95 for 2009.
Activity
Portfolio activity in the early part of the year was relatively light. During April we sold our position in Chevron and replaced it with a position in Unit. Chevron had become the most expensive ‘super major’ we held and a rotation into Unit gave us exposure to a US E&P company with good value reserves. Unit also has a land drilling business which could perform well when the services business cycle begins to recover. We also sold our position in Peabody, the US coal company, and bought a position in Whiting, an ‘oily’ E&P company with acreage in the US. The outlook for US coal remains weak in light of the supply/demand imbalance and lower international exports and we are cautious on the ability for the coal group to maintain their long-term pricing contracts at current levels. Whiting has good value reserves, a long reserve life and should benefit from any move up in the oil price. Page 5
GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Global Energy Fund (Continued)
Activity (continued)
During May we bought one new research position, Falkland Oil and Gas. Falkland is an oil exploration company with offshore acreage to the south of the Falkland Islands. Whilst Falkland has not yet drilled any of its prospects, we believe that given its farm in agreement with BHP Billiton there should be good opportunity over the next 12-24 months for the company to accelerate its development plans.
In July we sold our holding in Addax Petroleum and bought a holding in Forest Oil. Addax had been one of the Fund’s best performers this year and was the subject of a takeover bid by China Petroleum and Chemical Corporation (Sinopec), the state-owned integrated oil and gas company, and had been trading close to the bid price at the time of sale. Forest Oil is a US gas-focused E&P with cheap reserves that is trading on low P/E multiples. We also sold our position in the refiner Singapore Petroleum and purchased Valero. Singapore Petroleum performed well this year and was the subject of a takeover bid by PetroChina, the largest of the three Chinese state-owned integrated oil companies. Valero is the largest of the US refiners, a sector which has underperformed over the past 12 months, and was trading at a significant discount to book value.
At the end of July we sold our position in Petroleo Brasileiro (Petrobras) and bought a position in Chevron, the ‘supermajor’ integrated oil and gas company. Petrobras had been a strong performer in 2009 and had recovered almost in parallel with the oil price rising from $35 to $70. Chevron on the other hand had underperformed this year and was trading at lower P/E multiples than its peers. The final change to the portfolio in July was the sale of Whiting Petroleum, the oil-focused US E&P, and the purchase of Canadian Natural Resources. Whiting’s leverage to the oil price had seen it perform strongly over the period we owned it. Canadian Natural Resources production is approximately 50:50 oil:gas and based primarily in Canada. The company also owns the Horizon oil sands project which started production in early 2009 and is ramping up to full production at the end of 2009.
In August we sold our holding in Occidental and bought a holding in Chesapeake. Occidental is oil levered and had been a strong beneficiary of the rise in the oil price from the lows seen this year. Chesapeake is a gas-focused E&P and is the largest producer of natural gas in the US. It was trading on low multiples in both absolute terms and relative to its peers, has good value reserves and should do well in a rising gas price environment. We also saw the completion of two mergers of companies in the portfolio; the acquisition of PetroCanada by Suncor, and the acquisition of Grey Wolf Exploration (a research position) by Insignia. We continue to hold the ‘new’ Suncor and a research position in Insignia.
In November we switched out of CNOOC and bought PetroChina, the largest of the three Chinese national oil companies. CNOOC had performed very well over 2009 and was trading at a relatively high EV/proved reserve multiple. PetroChina has a much lower EV/proved reserves and should benefit from increasing gas demand in China over the next few years. We invested a half unit of the portfolio in JKX Oil & Gas and Gazprom (together c.1.7% of the portfolio). JKX is an independent exploration and production company producing oil and gas in Ukraine, is trading on low multiples and has cheap reserves. Gazprom is the Russian national oil and gas company which supplies approximately a quarter of European Union gas demand. The company is trading on low P/E multiples, has very cheap reserves and a long reserve life.
We also sold and bought back our position in Dragon Oil during the fourth quarter. We sold our original position in the Caspian Sea-focused E&P in early November following a bid for the company from the Emirates National Oil Company (ENOC). This bid was eventually rejected, causing the share price to fall back, and provided us with a good opportunity to place Dragon Oil back into the portfolio.
Finally we bought a ‘research’ position in Pantheon Resources (c.0.3% of the portfolio) via a share placing in December. Pantheon Resources is a small capitalization E&P company focusing on oil and gas in East Texas and Louisiana.
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Global Energy Fund (Continued)
Outlook
How might 2010 treat this fund? My view remains that energy equities represent a good store of value and there is potential for above average returns if the oil price stabilises around the level sought by OPEC ($60 - $80/ barrel) and the gas price recovers to $6-$7. We believe this the most plausible scenario.
We believe energy equities discount an oil price well below $70/barrel, possibly around $55 and a gas price well below our projected $6-$7. Clearly there are risks in our medium term positive analysis of the fundamentals. It may turn out that OPEC have not yet taken enough barrels off the market and that if compliance falters further the market will loosen even more. The US natural gas market may not rebalance as fast as we hope. But we keep coming back to one key proposition: oil and gas are running out and it does seem reasonable to believe that before they do run out they will trade at much higher prices than we have yet seen and shareholders in companies that are part of that world will be duly rewarded.
Overall, the Fund continues to seek to be well placed to benefit from the oil and gas price environment described above.
Tim Guinness January 2010
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Global Energy Fund (Continued)
Fund highlights as at 31st December 2009 Share prices Class Currency Price Price Price Price 31st December 30th June 31st December at launch 2009 2009 2008 A USD 8.8396 7.1119 5.51 10.00 B USD 8.8211 7.1149 5.49 10.00 C GBP 10.0470 7.9463 7.02 10.00 D EUR 9.2630 7.6231 5.92 10.00 E USD 9.1733 7.3710 5.67 10.00
Top 10 holdings (% of net assets) Canadian Natural Resources 3.4% Imperial Oil 3.3% OMV 3.4% Nexen 3.3% Hess 3.4% Repsol YPF 3.3% Petrochina 3.3% Total 3.3% Suncor Energy 3.3% Statoil 3.3%
Sector breakdown (% of net assets) 31st 31 st December December 2009 2008 Integrated Oil & Gas 48.2% 53.8% Oil & Gas Exploration & Production 33.0% 28.8% Oil & Gas Drilling 8.5% 5.2% Oil & Gas Equipment & Services 5.9% 6.4% Oil & Gas Refining & Marketing 3.2% 2.4% Coal & Consumable Fuels 0.0% 2.3% Construction & Engineering 0.3% 0.4% Cash & net current assets 0.9% 0.7%
Country breakdown (% of net assets) 31st 31 st December December 2009 2008 USA 47.8% 46.3% Canada 16.4% 14.3% UK 5.6% 3.7% China & Hong Kong 3.9% 4.0% Austria 3.4% 3.6% Spain 3.3% 3.5% France 3.3% 3.4% Norway 3.3% 3.5% Italy 3.3% 3.3% Netherlands 3.3% 3.3% Other 5.5% 10.4% Cash & net current assets 0.9% 0.7% Past performance should not be taken as an indicator of future performance. The source for all returns quoted is Bloomberg. Returns stated are in US dollars; returns in other currencies may be higher or lower as a result of currency fluctuations. Performance would be lower if initial charge and/or redemption fee were included. The information provided herein represents the opinion of the investment manager for the period stated and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Opinions, fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Alternative Energy Fund
Review The Alternative Energy Fund in 2009 produced a total return of 38.65% (class B, in US$). This compares favourably to the price return of the Wilderhill Clean Energy Index of 29.74%, and is also ahead of the broad market which recovered strongly from March onwards, as exemplified by the MSCI World Index’s total return of 30.81%. The year started poorly and the fund bottomed out in March, from where the fund has recovered well.
The main contributors to performance were the wind and solar sectors, with notable outperformance of our Asian solar holdings. Top performing stocks for the year were Trina Solar up 481%, Energy Development Corporation (Philippines geothermal) up 228%, Novera Energy up 161%, SMA Solar Technology up 157% and Canadian Hydro Developers up 107%. The poorest performers were Q-Cells down 49%, LDK Solar down 47%, Solar Fabrik down 33%, Daystar Technologies down 33% and Sunpower down 31%.
Activity
The first half of 2009 was relatively quiet, although we continued to rebalance the fund. We sold the remnants of our holdings in Tanfield and Solar Fabrik at the beginning of the year. We sold our research holding in Daystar in the second quarter and switched from Solaria, the Spanish solar developer into PV Crystalox.
In the third quarter, we increased the weightings in both existing and new solar names. We increased our holding in First Solar, the thin film solar manufacturer and Trina Solar, one of the leading Asian solar manufacturers. We bought new positions in Yingli Green Energy and Canadian Solar, two Chinese solar manufacturers and bought a holding in Phoenix Solar, an attractively valued German installer of solar systems. In addition, we increased our Clipper Windpower holding to a full unit as we became more comfortable that while still distressed, the company would manage to get through its current difficulties.
We sold the holdings in Echelon, in Verbund, the Austrian hydro utility, in Wacker Chemie, a German polysilicon refiner, in Q-Cells, the German solar cell manufacturer and in EDF Energies Nouvelles, the French renewable utility.
In the fourth quarter, we sold two holdings in corporate transactions – Canadian Hydro was acquired by Transalta and Novera was acquired by Terra Firma. We bought a holding in STR Holdings, who one of the leading manufacturers of solar encapsulents, we bought back into Acciona, the Spanish renewable utility and took a position in LSB industries, which complements the holding in Waterfurnace Renewable Energy to give exposure to the ground source heat pump market.
Outlook
We believe that 2010 will be an important year for a number of the alternative energy technologies. 2009 has been a difficult year for all companies, with limited availability of capital for both company balance sheets and projects and cautious end user demand. We believe 2010 will provide the platform for the next growth phase of the alternative energy industry.
Improving economics for the alternative energy industry and the return of financing combined with increasing government subsidies and long term incentive programmes are likely to result in increases in project backlogs and a firming of prices that will be beneficial for alternative energy equity valuations. We think investors will begin to be able to look towards the potential returns from the industry rather than focusing on the problems caused by the slowdown in the world economy.
The long term fundamental drivers of the slow shift away from our dependence on fossil fuels remains intact. We expect the cost of extracting the marginal barrel of oil and the cost of exploration will increase as reserves decline. At the same time the costs of alternative non fossil fuel energy sources are falling. This tangibly improves the economics and growth potential for the alternative energy industry.
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Alternative Energy Fund (Continued)
Outlook (continued)
Energy security remains an important issue in defining energy policy internationally. Russia and OPEC are able to wield disproportionate influence as a result of their energy reserves and world energy supplies remain vulnerable to geopolitical disruption. It is in all governments’ interest to reduce their dependence on other countries for basic resources such as energy.
The last of our major drivers, climate change, will remain the most intangible. The science is based on long term trends and is expected to have long term impacts. However, the complexity of modelling the global climate, with sensitive feedback loops and combinations of effects that can never be completely understood means that debate on the issue will remain open. We think this debate is important and do not feel comfortable with what sometimes feels like religious support for anything remotely linked to climate change. At the same time, we believe that the slightest chance of catastrophic warming of the planet should be taken seriously by everyone.
From the broadest perspective, it is clearly a positive idea that we should move towards sources of energy that are not finite and we should move towards using a variety of technologies that provides us with secure, cheap, abundant energy in the long run, and reduces risks from spikes to fossil fuel prices. This long term goal provides the attractive investment opportunity that we are looking to position the fund to profit from.
Looking at what the near term holds, we think that the next five to ten years are particularly exciting in terms of the growth offered. Different technologies are at differing stages of maturity and cost, and we believe that the most exciting opportunities are offered by those that are on the cusp of reaching economic feasibility without subsidies and are as yet unconstrained by grid stability issues and limits of geographic availability.
The solar industry has undergone a traumatic two years, where price targets for modules that were expected in 2015 or beyond are now being reached. This has lead to poor performance in the equities in the space, but now presents an opportunity for the cost and technology leaders to benefit from the next spurt of growth. 2009 was deemed a difficult year, but even in a tough year it appears from estimates that volumes will have grown by c.4%. We expect growth of around 50% for 2010, and possibly the same for 2011. This is principally because of the lower prices, which are enabling governments to provide increased support for solar at lower cost.
In Germany, the government is lowering the financial incentives for solar panels because the price of solar panels has fallen by more than half over the last 18 months. Underpinning the solar panel price falls has been a drop in the spot price of silicon to around $50 per kg today. We expect this to reach $35 per kg over the next few years, which will further support the cost reducing efforts of the industry. We believe that the German feed in tariff reductions are being aimed at keeping the German solar industry at over 3GW per annum in solar installations, which will provide a supportive floor as other countries, particularly the US and China catch up. This is in the context of a market of around 6GW in 2009, which we expect to rise to 9GW or above in 2010.
We think that the winners will be the low cost manufacturers, and as with many industries, that means manufacturing in Asia, where the history of semiconductor manufacturing has meant that companies have been able to climb the learning curve fast and deliver a good quality low cost product. Other winners in the long run will be those with differentiated brand and access to customers, and suppliers of some of the critical system parts such as inverters where there is lower competition. As the industry matures we expect the volatility of price caused by supply and demand surges will improve and provide strong returns for investors.
For the wind industry, 2009 was a good year from an installation perspective. The long lead times for turbines meant that 2009 order books were strong and the turbine manufacturers have been busy while able to prepare for any slowdown in the growth rate for the wind industry. As a result of the difficulty in obtaining project financing, fewer new projects have hit the order books over the last 18 months, and we see the prospect of turbine prices falling by 10-15% in 2010.
From a turbine manufacturer perspective, they have been able to lower their material costs and implement further internal cost reduction programmes that should enable them to operate profitably at lower price points. For developers, for whom the project finance markets are now beginning to open up, this creates an exciting opportunity set, particularly as renewable portfolio standards start to be targeted by utilities. For achieving Page 10
GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Alternative Energy Fund (Continued)
Outlook (continued) renewable portfolio standards that are now being set by government for 2020 and beyond, wind is one of the easiest non fossil fuel technologies to implement at a fast pace and we expect strong returns from developers over the next five years.
Geothermal is one of the most exciting potential sources of large scale base load electricity. Countries with easy access to the resource e.g. the United States, Iceland, Philippines, Kenya are looking to maximise their generation from geothermal energy. US developers have received a number of large grants to assist in exploration and development and there are improving subsidy regimes. The drawbacks of the industry are the high exploration risk – like in the oil and gas industry there is always the risk of a “dry hole” – and high valuations on development pipelines. We think that ongoing developments in the oil and gas industry will spill over into improved costs for geothermal drilling. Further out there is also the huge potential from the development of “Enhanced Geothermal Systems” which are not reliant on fault lines, but this is still probably 10 years from offering many public investment opportunities.
In the western world many of the major hydroelectric resources have been developed, and this provides different types of investment opportunities. Assets have long lives, with low operating costs, which mean that increases in electricity prices do not typically have associated cost increases. Growth opportunities are available in developing countries and in portfolios of run of river, smaller hydro opportunities benefiting from renewable portfolio standards and increasing electricity demand.
The biofuels market is showing signs of recovery. Deep pocketed energy companies including Shell and Valero have increased their exposure to the sector. These companies will be difficult for independent listed biofuels refining companies to compete with until margins improve but we continue to monitor the sector for opportunities. Some of the next generation technologies may be able to deliver the significantly higher yield per acre needed to address food versus fuel concerns. Concerns over rising food prices mean that we believe that the biofuels space continues to face a policy headwind, with further challenges from oversupply in the US market.
There is a broad spectrum of companies that fall into the “efficiency” bracket. An uplift in spending on electricity transmission grids appears inevitable and we expect a slow shift towards electrification of the vehicle fleet over the next ten years. Within efficiency current areas of research include energy storage, waste heat recovery, heat pumps, building control, demand response and smart metering.
A number of other potentially interesting sub sectors such as fuelcells, wave and tidal power are still at an early stage of technological development and make for more challenging investment areas. We will follow the progress of these technologies down the cost curve.
This is a sector that is impacted by moves in the broader markets, and we expect to see continued volatility over 2010, but believe that economies and markets will settle later in 2010 and that the outlook for alternative energy will be brighter as investors start to take a longer term perspective.
Tim Guinness, Edward Guinness, Matthew Page January 2010
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GUINNESS ASSET MANAGEMENT FUNDS PLC
Investment Manager's Report Guinness Alternative Energy Fund (Continued)
Fund highlights as at 31st December 2009 Share prices Class Currency Price Price Price Price 31st December 30th June 31 st December at launch 2009 2009 2008 A USD 4.7907 4.2303 3.44 10.00 B USD 4.7418 4.1974 3.42 10.00 C GBP 6.7801 5.8977 5.50 10.00 D EUR 6.2502 5.6464 4.63 10.00 E USD 6.1991 5.4656 4.44 10.00
Top 10 holdings (% of net assets) JA Solar Holdings 4.4% Yingli Green Energy 3.8% Canadian Solar 4.3% CEMIG 3.7% Clipper Windpower 4.1% LSB Industries 3.6% STR Holdings 3.8% Vestas Wind Systems 3.5% Trina Solar 3.8% Energy Development 3.5%
Sector breakdown (% of net assets) 31st 31 st December December 2009 2008 Solar 51.3% 49.8% Wind 29.1% 26.4% Efficiency 8.2% 7.3% Geothermal 6.8% 6.9% Hydro 3.7% 9.9% Biomass 1.6% 1.5% Cash & net current assets (0.7%) (1.8%)
Country breakdown (% of net assets) 31st 31 st December December 2009 2008 USA 23.5% 21.6% China & Hong Kong 18.3% 13.9% Spain 12.2% 11.8% Germany 9.6% 17.4% Canada 7.9% 5.8% UK 7.5% 2.4% Denmark 4.8% 5.6% Brazil 3.7% 3.0% Philippines 3.5% 3.1% Belgium 3.3% 3.7% Other 6.3% 13.6% Cash & net current assets (0.6%) (1.9%)
Past performance should not be taken as an indicator of future performance. The source for all returns quoted is Bloomberg. Returns stated are in US dollars; returns in other currencies may be higher or lower as a result of currency fluctuations. Performance would be lower if initial charge and/or redemption fee were included. The information provided herein represents the opinion of the investment manager for the period stated and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Opinions, fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
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INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUINNESS ASSET MANAGEMENT FUNDS PLC
We have audited the financial statements of Guinness Asset Management Funds plc for the year ended 31 st December 2009 which comprise the Statement of Net Assets Attributable to Participating Shareholders, the Statement of Operations, the Statement of Changes in Net Assets Attributable to Participating Shareholders and the related notes 1 to 16. These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance with Section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report, including as set out in the Statement of Directors’ Responsibilities, the preparation of the Financial Statements in accordance with applicable law and accounting standards issued by the Accounting Standards Board and published by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland).
Our responsibility, as independent auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009, and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003. We also report to you whether in our opinion: proper books of account have been kept by the company and whether the information given in the directors' report is consistent with the financial statements. In addition, we state whether we have obtained all information and explanations necessary for the purposes of our audit and whether the company's Statement of Net Assets Attributable to Participating Shareholders and Statement of Operations are in agreement with the books of account.
We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding directors’ remuneration and directors’ transactions is not given and, where practicable, include such information in our report.
We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the Financial Statements. The other information comprises only the Directors Report, the Investment Manager’s Report, the Custodian’s Report, the Schedule of Investments, the Portfolio Movements and Appendix 1. Our responsibilities do not extend to other information.
Basis of audit opinion
We read the Director’s report and consider the implications for our report if we become aware of any apparent misstatement within the Financial Statements.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
Page 13
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUINNESS ASSET MANAGEMENT FUNDS PLC (CONTINUED)
Basis of audit opinion (continued)
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements: • give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the affairs of the company as at 31 st December 2009 and of the profit for the year then ended; and
• have been properly prepared in accordance with the Companies Acts, 1963 to 2009, and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003.
We have obtained all the information and explanations we considered necessary for the purpose of our audit. In our opinion proper books of account have been kept by the company. The company’s Statement of Net Assets Attributable to Participating Shareholders and its Statement of Operations are in agreement with the books of account.
In our opinion the information given in the Directors’ Report is consistent with the financial statements.
Deloitte and Touche Chartered Accountants and Registered Auditors Dublin
Date: 27 th April 2010
Page 14 GUINNESS ASSET MANAGEMENT FUNDS PLC
Custodians’ Report
Statement of Custodian’s Responsibilities
The Custodian is required under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003, as amended, (the “Regulations”) to:-
1. ensure that the sale, issue, repurchase, redemption and cancellation of shares effected by or on behalf of the Company are carried out in accordance with the Regulations and in accordance with the Memorandum and Articles of Association. 2. ensure that the value of shares is calculated in accordance with the Regulations and the Memorandum and Articles of Association. 3. carry out the instructions of the Company unless they conflict with the Regulations or the Memorandum and Articles of Association . 4. ensure that in transactions involving the Company’s assets, any consideration is remitted to it within time limits which are acceptable market practice in the context of a particular transaction. 5. ensure that the Company’s income is applied in accordance with the Regulations and the Memorandum and Articles of Association. 6. enquire into the conduct of the Company in each annual accounting period and report thereon to the share holders. The Custodian’s report shall be delivered to the Company in good time to enable the Company to include a copy of the report in its Annual Report. The Custodian’s Report shall state whether in the Custodian’s opinion the Company has been managed in that period: (i) in accordance with the limitations imposed on the investment and borrowing powers of the Company and Custodian by the Memorandum and Articles of Association and the Regulations; and (ii) otherwise in accordance with the provisions of the Memorandum and Articles of Association and the Regulations. If the Company does not comply with (i) or (ii) above, the Custodian must state why this is the case and outline the steps which the Custodian has taken to rectify the situation. 7. notify the Financial Regulator promptly of any material breach of the Regulations, conditions imposed by the Financial Regulator or provisions of the prospectus with regard to the Company.
The duties provided for above may not be delegated by the Custodian to a third party. These duties must be carried out in the State.
The Custodian also takes into its custody or under its control all the assets of the Company and holds them in safekeeping for the share holders.
Report of the Custodian to the Shareholders
We have enquired into the conduct of the Guinness Asset Management Funds Plc (‘the Company’) for the year ended 31 st December 2009 in our capacity as Custodian to the Company.
This report including the opinion has been prepared for and solely for the shareholders in the Company as a body, in accordance with the Financial Regulator’s UCITS Notice 4 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.
Responsibilities of the Custodian
Our duties and responsibilities are outlined in the Financial Regulator’s UCITS Notice 4. One of those duties is to enquire into the conduct of the Company in each annual accounting period and report thereon to the shareholders.
Page 15 GUINNESS ASSET MANAGEMENT FUNDS PLC
Custodians’ Report (Continued)
Responsibilities of the Custodian (Continued)
Our report shall state whether, in our opinion the Company has been managed in that period, in accordance with the provisions of the Company’s Memorandum and Articles of Association and the UCITS Regulations. It is the overall responsibility of the Company to comply with these provisions. If the Company has not complied we, as Custodian must state why this is the case and outline the steps which we have taken to rectify the situation.
Basis of Custodian Opinion
The Custodian conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties as outlined in UCITS Notice 4 and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documents and the appropriate regulations and (ii) otherwise in accordance with the Company’s constitutional documents and the appropriate regulations.
Opinion
In our opinion, the Company has been managed during the period, in all material respects:
(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Memorandum and Articles of Association and by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003, as amended, (‘the Regulations’); and
(ii) otherwise in accordance with the provisions of the Memorandum and Articles of Association and the Regulations.
J.P. Morgan Bank (Ireland) plc JPMorgan House, IFSC, Dublin, 1.
Date: 27 th April 2010
Page 16 GUINNESS ASSET MANAGEMENT FUNDS PLC
Schedule of Investments as at 31 st December 2009 Guinness Global Energy Fund
Financial assets at fair value through Country Nominal Fair value USD % of profit or loss holding NAV
Integrated Oil & Gas BP UK 398,230 3,858,506 3.28% Cenovus Energy Canada 52,260 1,321,019 1.12% Chevron US 49,600 3,818,704 3.25% ConocoPhillips US 75,490 3,855,274 3.28% ENI Italy 151,140 3,859,872 3.28% Gazprom Russia 39,300 1,002,150 0.85% Hess US 65,290 3,950,045 3.36% Imperial Oil Canada 100,510 3,898,256 3.31% Marathon Oil US 121,820 3,803,220 3.23% OMV Austria 89,990 3,963,748 3.37% Petrochina China 3,268,000 3,927,981 3.34% Repsol YPF Spain 144,070 3,870,516 3.29% Royal Dutch Shell Netherlands 126,870 3,840,739 3.26% Statoil Norway 154,150 3,863,890 3.28% Suncor Energy Canada 110,375 3,917,636 3.33% Total France 59,840 3,863,899 3.28% 56,615,455 48.11%
Oil & Gas Exploration & Production Afren UK 205,320 281,828 0.24% Anadarko Petroleum US 40,870 2,551,105 2.17% Apache US 37,100 3,827,607 3.25% Canadian Natural Resources Canada 55,300 4,008,966 3.41% Chesapeake Energy US 143,200 3,706,016 3.15% Coastal Energy UK 138,600 700,701 0.60% Dragon Oil UAE 204,950 1,285,799 1.09% Encana Canada 40,360 1,313,187 1.12% Falkland Oil & Gas UK 145,406 298,209 0.25% Forest Oil US 84,400 1,877,900 1.60% Insignia Energy Canada 59,463 123,651 0.11% JKX Oil & Gas UK 210,200 958,926 0.82% Newfield Exploration US 79,900 3,853,577 3.28% Nexen Canada 161,860 3,893,842 3.31% Noble Energy US 53,435 3,805,641 3.23% OPTI Canada Canada 365,130 707,029 0.60% Pantheon Resources UK 1,190,000 432,378 0.37% Pioneer Natural Resources US 53,460 2,575,169 2.19% Swift Energy US 103,460 2,478,902 2.11% WesternZagros Resources Canada 171,780 126,170 0.11% 38,806,603 33.01%
Oil & Gas Equipment & Services Halliburton US 127,370 3,832,563 3.26% Helix Energy Solutions Group US 211,230 2,481,953 2.11% Shandong Molong Petroleum Machinery China 4,072,000 619,671 0.53% 6,934,187 5.90%
Page 17 GUINNESS ASSET MANAGEMENT FUNDS PLC
Schedule of Investments as at 31 st December 2009 Guinness Global Energy Fund (continued)
Country Nominal Fair Value % of Holding USD NAV Oil & Gas Drilling Patterson-UTI Energy US 162,540 2,494,989 2.12% Transocean Switzerland 46,310 3,834,468 3.26% Unit Corp US 87,694 3,726,995 3.17% 10,056,452 8.55%
Oil & Gas Refining & Marketing Valero Energy US 225,495 3,777,041 3.21%
Construction & Engineering Kentz Ireland 119,470 386,240 0.33%
Total financial assets at fair value through profit or loss 116,575,978 99.11% Cash at bank 4,545,366 3.86% Other net liabilities (3,461,698) (2.97%)
117,659,646 100%
Page 18 GUINNESS ASSET MANAGEMENT FUNDS PLC
Schedule of Investments as at 31 st December 2009 Guinness Alternative Energy Fund
Financial assets at fair value through Country Nominal Fair value USD % of profit or loss holding NAV
Solar Canadian Solar Canada 3,720 107,210 4.26% First Solar US 520 70,408 2.80% JA Solar Holdings China 19,380 110,466 4.39% LDK Solar China 4,910 34,419 1.37% MEMC Electronic Materials US 5,020 68,372 2.72% Phoenix Solar Germany 1,400 84,825 3.37% PV Crystalox Solar UK 85,829 85,101 3.38% Renesola China 8,540 40,650 1.62% Renewable Energy Norway 10,248 79,386 3.15% SMA Solar Technology Germany 620 82,950 3.30% Solarworld Germany 3,310 72,802 2.89% STR Holdings US 6,060 95,203 3.78% Sunpower US 3,920 82,124 3.26% Suntech Power China 5,200 86,476 3.44% Trina Solar China 1,760 94,987 3.77% Yingli Green Energy China 6,000 94,860 3.77% 1,290,239 51.27%
Wind Acciona Spain 630 82,344 3.27% Clipper Windpower UK 37,099 103,644 4.12% EDP Renovaveis Spain 8,590 81,711 3.25% Gamesa Spain 4,270 72,199 2.87% Greentech Energy Systems Denmark 7,350 33,730 1.34% Hansen Transmissions Belgium 46,710 82,219 3.27% Iberdrola Renovables Spain 15,130 72,069 2.86% Innergex Renewable Energy Canada 8,510 44,646 1.77% Theolia France 17,150 71,603 2.84% Vestas Wind Systems Denmark 1,440 88,017 3.50% 732,182 29.09%
Hydro CEMIG Brazil 5,210 94,093 3.74%
Biomass Boralex Canada 4,390 40,619 1.61%
Efficiency Composite Technology US 115,977 30,734 1.22% LSB Industries US 6,495 91,580 3.64% Thermal Energy Canada 99,567 5,698 0.23% Waterfurnace Renewable Energy US 3,150 78,003 3.10% 206,015 8.19%
Page 19 GUINNESS ASSET MANAGEMENT FUNDS PLC
Schedule of Investments as at 31 st December 2009 Guinness Alternative Energy Fund (continued)
Country Nominal Fair Value % of Holding USD NAV
Geothermal Energy Development Philippines 861,000 87,534 3.48% Geodynamics Australia 10,760 8,080 0.32% Ormat Technologies US 2,000 75,680 3.01% 171,294 6.81%
Total financial assets at fair value through profit or loss 2,534,442 100.71% Cash at bank 14,339 0.57% Other net liabilities (31,791) (1.28%)
2,516,990 100%
Page 20 GUINNESS ASSET MANAGEMENT FUNDS PLC
Statement of Net Assets Attributable to Participating Shareholders As at 31 st December 2009
Guinness Guinness Global Alternative Energy Fund Energy Fund TOTAL Notes $ $ $
ASSETS
Financial assets at fair value through profit or loss 2,8 116,575,978 2,534,442 119,110,420 (Cost $124,052,743) Cash at bank 4,545,366 14,339 4,559,705 Dividends receivable 28,673 - 28,673 Other assets 101 18,003 18,104
Total assets 121,150,118 2,566,784 123,716,902
LIABILITIES
Redemption payable 630,000 - 630,000 Other accrued expenses 37,491 23,259 60,750 Investment management fees payable 3 95,566 3,001 98,567 Administration fee payable 3 14,338 4,767 19,105 Custodian fee payable 3 18,767 18,767 37,534 Payable for securities purchased 2,694,310 - 2,694,310
Total liabilities (excluding net assets attributable to participating shareholders) 3,490,472 49,794 3,540,266
Net assets attributable to participating 117,659,646 2,516,990 120,176,636 shareholders
Number of redeemable participating shares in issue Class A shares 6 9,529,740.83 4,971.36 Class B shares 6 731,093.17 340,440.25 Class C shares 6 83,914.31 63,028.64 Class D shares 6 660,327.63 68.87 Class E shares 6 1,841,698.71 34,828.85
Net asset value per redeemable participating share Class A shares 12 $8.8351 $4.7385 Class B shares 12 $8.8166 $4.6901 Class C shares 12 £10.0419 £6.7062 Class D shares 12 €9.2583 €6.1821 Class E shares 12 $9.1687 $6.1315
On behalf of the Board
Anthony Joyce Johnny McClintock
Date: 27th April 2010
The accompanying notes form an integral part of the financial statements
Page 21 GUINNESS ASSET MANAGEMENT FUNDS PLC
Statement of Net Assets Attributable to Participating Shareholders As at 31 st December 2008
Guinness Guinness Global Alternative Energy Fund Energy Fund TOTAL Notes $ $ $
ASSETS
Financial assets at fair value through profit or loss 47,732,428 1,608,787 49,341,215 (Cost $90,986,576) 2 Cash at bank 2,671,660 5,130 2,676,790 Dividends receivable 76,890 - 76,890 Other assets 8,189 18,611 26,800
Total assets 50,489,167 1,632,528 52,121,695
LIABILITIES
Redemption payable 25,186 - 25,186 Other accrued expenses 28,156 38,505 66,661 Investment management fees payable 3 40,727 1,827 42,554 Administration fee payable 3 8,781 8,830 17,611 Custodian fee payable 3 15,990 4,881 20,871 Payable for securities purchased 2,298,196 - 2,298,196
Total liabilities (excluding net assets attributable to participating shareholders) 2,417,036 54,043 2,471,079
Net assets attributable to participating 48,072,131 1,578,485 49,650,616 shareholders
Number of redeemable participating shares in issue Class A shares 6 8,244,387.81 134,281.66 Class B shares 6 469,705.32 314,622.33 Class C shares 6 7,574.61 9,782.24 Class D shares 6 68.87 68.87 Class E shares 6 13,262.39 100
Net asset value per redeemable participating share Class A shares 12 $5.50 $3.36 Class B shares 12 $5.48 $3.34 Class C shares 12 £7.00 £5.37 Class D shares 12 €5.91 €4.52 Class E shares 12 $5.66 $4.33
The accompanying notes form an integral part of the financial statements
Page 22 GUINNESS ASSET MANAGEMENT FUNDS PLC
Statement of Operations For the year ended 31 st December 2009
Guinness Guinness Global Alternative Energy Energy Fund Fund TOTAL
Notes $ $ $
Investment income Net Gain on Financial Assets at fair value through Profit or Loss 8 35,829,583 627,601 36,457,184 Dividend income (net of w/tax) 1,667,026 14,484 1,681,510
Total investment income 37,496,609 642,085 38,138,694
Expenses Investment management fees 3 811,911 26,395 838,306 Administration fees 3 132,378 64,463 196,841 Custodian fees 3 34,043 36,989 71,032 Directors fees 4 58,292 6,225 64,517 Audit fees 26,608 18,998 45,606 Other expenses 82,653 43,416 126,069
Total expenses 1,145,885 196,486 1,342,371
Fee Cap Reimbursement 3 10,115 194,869 204,984
Net Expenses 1,135,770 1,617 1,137,387
Finance Costs Distribution 13 (248,168) - (248,168)
Increase in Net Assets attributable to holders of 36,112,671 640,468 36,753,139 participating shares from operations
All gains and losses relate to continuing operations.
On behalf of the Board
Anthony Joyce Johnny McClintock
Date: 27 th April 2010
The accompanying notes form an integral part of the financial statements
Page 23 GUINNESS ASSET MANAGEMENT FUNDS PLC
Statement of Operations For the period 12 th December 2007 (date of incorporation) until 31 st December 2008
Guinness Guinness Global Alternative Energy Energy Fund** Fund* TOTAL
Notes $ $ $
Investment income Dividend income 970,009 12,995 983,004 Interest income 451 189 640 Other Income 9,136 - 9,136 Net Loss on Financial Assets at fair value through Profit or Loss 8 (56,928,862) (2,565,125) (59,493,987)
Total investment loss (55,949,266) (2,551,941) (58,501,207)
Expenses Investment Management fees 3 474,254 28,678 502,932 Administration fees 3 82,435 58,350 140,785 Organisational fees 87,003 50,627 137,630 Custodian fees 3 66,390 40,081 106,471 Directors fees 4 26,936 39,753 66,689 Audit fees 12,307 19,342 31,649 Other expenses 62,815 51,024 113,839
Total expenses 812,140 287,855 1,099,995
Fee Cap Reimbursement 3 10,063 190,357 200,420
Net Expenses 802,077 97,498 899,575
Decrease in Net Assets attributable to holders of (56,751,343) (2,649,439) (59,400,782) participating shares from operations
* launched on 20th December 2007 ** launched on 31st March 2008
All gains and losses relate to continuing operations.
The accompanying notes form an integral part of the financial statements
Page 24 GUINNESS ASSET MANAGEMENT FUNDS PLC
Statement of Changes in Net Assets Attributable to Participating Shareholders For the year ended 31 st December 2009
Guinness Guinness Global Alternative Energy Fund Energy Fund TOTAL $ $ $
Net assets attributable to participating Shareholders at the 31 st December 2008 48,072,131 1,578,485 49,650,616 Increase in Net Assets attributable to participating shareholders from operations 36,112,671 640,468 36,753,139
Proceeds from sale of participating shares 65,572,543 1,319,049 66,891,592 Payment on redemption of participating shares (32,097,699) (1,021,012) (33,118,711)
Net assets attributable to participating Shareholders at 31 st December 2009 117,659,646 2,516,990 120,176,636
Statement of Changes in Net Assets Attributable to Participating Shareholders For the period 12 th December 2007 (date of incorporation) until 31 st December 2008
Guinness Guinness Global Alternative Energy Energy Fund** Fund* TOTAL $ $ $
Net assets attributable to participating Shareholders at the 12 th December 2007 - - - Decrease in Net Assets attributable to participating shareholders from operations (56,751,343) (2,649,439) (59,400,782)
Proceeds from sale of participating shares 128,521,369 6,609,293 135,130,662 Payment on redemption of participating shares (23,697,895) (2,381,369) (26,079,264)
Net assets attributable to participating Shareholders at 31 st December 2008 48,072,131 1,578,485 49,650,616
* launched on 20th December 2007 ** launched on 31st March 2008
The accompanying notes form an integral part of the financial statements
Page 25 GUINNESS ASSET MANAGEMENT FUNDS PLC
Portfolio Movements (Unaudited) For the year ended 31 st December 2009 Guinness Global Energy Fund Purchases Cost $ Sales Proceeds $
Petrochina Co 4,222,098 Cnooc Limited 4,080,562
Chevron Corporation 3,987,266 Singapore Petroleum 3,728,929
Valero Energy Corp 3,745,028 Petroleo Brasileiro 3,405,027
Chesapeake Energy 3,720,349 Occidental Petroleum 3,345,066
Canadian Natural Resources 3,706,312 Whiting Petroleum 3,084,899
Unit Corp 2,895,481 Dragon Oil 2,808,036
Hess Corporation 2,153,810 Chevron Corporation 1,940,860
Apache Corp 2,106,158 Addax Petroleum 1,884,738
Conocophillips 2,095,257 Peabody Energy 1,296,468
Imperial Oil 2,044,414 Suncor Energy 1,264,636
Marathon Oil Corporation 2,020,705 Pioneer Natural Resources 1,183,294
Whiting Petroleum 1,992,116 Jkx Oil & Gas 915,234
Jkx Oil & Gas 1,942,782 Newfield Exploration 753,588
Eni 1,868,654 Unit Corp 683,281
Bp 1,830,501 Halliburton 630,118
Royal Dutch Shell 1,796,133 Hess Corporation 483,801
Newfield Exploration co 1,764,501 Omv 478,246
Total 1,713,622 Canadian Natural Resources 468,761
Dragon Oil 1,557,831 Forest Oil 457,135
Repsol 1,483,208 Petro-Canada 423,464
Forest Oil Corp 1,481,955 Bp 309,668
Statoil 1,437,568 Transocean Limited 299,539
Nexen 1,428,646 Chesapeake Energy 281,416
Omv 1,409,453 Apache Corp 266,966
Noble Energy 1,377,695 Marathon Oil Corporation 265,913
Halliburton Co 1,256,308 Anadarko Petroleum 260,371
Patterson 1,077,897 Falkland Oil & Gas 259,053
Page 26 GUINNESS ASSET MANAGEMENT FUNDS PLC
Portfolio Movements (Unaudited) (Continued) For the year ended 31 st December 2009 Guinness Global Energy Fund (Continued ) Purchases Cost $ Sales Proceeds $
Pioneer Natural Resources 1,051,332 Statoil 254,879
Suncor Energy 1,040,555 Swift Energy 239,981
Encana Corporation 1,013,383 Patterson 198,812
Gazprom 1,002,877 Noble Energy 175,185
Occidental Petroleum 917,235 Nexen 150,573
Transocean Limited 895,377 Imperial Oil 149,439
Cnooc Limited 890,542 Helix Energy Solutions 148,462
Helix Energy Solutions 878,897 Royal Dutch Shell 145,716
Anadarko Petroleum 783,736 Repsol 140,804
Transocean Limited 692,847 Encana Corporation 129,911
Petroleo Brasileiro 418,894 Conocophillips 124,619
Swift Energy 410,842 Total 72,544
Opti canada inc 342,977 Suncor Energy 45,917
Falkland Oil & Gas 320,071 Valero Energy 27,452
Singapore Petroleum 308,094
Petro-Canada 271,940
Cenovus Energy 256,726
Pantheon Resources 256,253
Addax Petroleum 159,667
Peabody Energy 40,232
Page 27 GUINNESS ASSET MANAGEMENT FUNDS PLC
Portfolio Movements (Unaudited) (Continued) For the year ended 31 st December 2009 Guinness Alternative Energy Fund Purchases Cost $ Sales Proceeds $
Pv crystalox Solar 109,248 Novera Energy 120,452
Canadian Solar 85,562 Q-cells 92,335
Yingli Green Energy 81,757 Echelon Corp 90,220
Acciona 81,593 Wacker Chemie 85,939
Str Holdings 79,361 Edf Energies Nouvelles 75,723
Lsb Industries 78,486 Sma Solar Technology 72,284
Phoenix Solar 76,932 Oesterreichische Elektrizitats 71,395
Clipper Windpower 75,676 Trina Solar 60,228
Sunpower 60,316 Energy Development 55,848
Hansen Transmissions 60,001 Canadian Hydro Development 54,611
Memc Electronics 59,755 Suntech Power 41,649
Q-cells 51,711 Hansen Transmissions 40,420
Gamesa Corporacion 50,986 First Solar 38,379
Vestas Wind Systems 49,603 Solarworld 34,342
First Solar 45,541 Solaria Energia 32,731
Suntech Power 37,670 Ja Solar 29,245
Solarworld 37,278 Edp Renovaveis 25,053
Ja solar 37,237 Vestas Wind Systems 24,369
Ldk Solar 33,683 Gamesa Corporacion 22,905
Trina Solar 33,493 Sunpower 21,886
Novera Energy 32,218 Memc Electronics 21,121
Renewable Energy 31,751 Canadian Solar 20,282
Edp Renovaveis 31,701 Solar-fabrik ag 19,967
Ormat Technologies 30,572 Clipper Windpower 15,860
Theolia 27,377 Ormat Technologies 15,537
Cia Energetica 23,499 Ldk Solar 14,524
Iberdrola Renovables 22,822 Iberdrola Renovables 14,156
Page 28 GUINNESS ASSET MANAGEMENT FUNDS PLC
Portfolio Movements (Unaudited) (Continued) For the year ended 31 st December 2009 Guinness Alternative Energy Fund ( Continued ) Purchases Cost $ Sales Proceeds $
Wacker Chemie 18,681 Renesola 14,001
Energy Development 17,907 Renewable Energy 13,932
Renesola 15,863 Greentech Energy 11,636
Oesterreichische Elektrizitats 13,140 Cia Energetica 9,563
Sma Solar Technology 12,969 Boralex 4,990
Greentech Energy Systems 10,811 Tanfield Group 4,385
Composite Technology 9,549 Theolia 3,978
Echelon 8,716 Daystar Technologies 3,338
Edf Energies 7,401 Innergex Renewable Energy 2,125
Solaria Energia 5,939 Solar Millennium 2,117
Boralex 4,063
Page 29 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements For the year ended 31 st December 2009
1. Organisation and Nature of Business
The Guinness Asset Management Funds plc (the “Company”) is an open-ended investment company with variable capital incorporated in Ireland on 12 th December, 2007 under the Companies Acts, 1963 to 2009 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 with registration number 450670.
The Company launched “The Guinness Alternative Energy Fund” (the “Fund”) on 20 th December 2007. Two different Classes of Shares were initially issued in respect of the Fund, US Dollar Class A and US Dollar Class B shares. The investment objective of the Fund is to provide investors with long-term capital appreciation.
The Company launched “The Guinness Global Energy Fund” (the “Fund”) on 31 st March 2008. Two different Classes of Shares were initially issued in respect of the Fund, US Dollar Class A and US Dollar Class B shares. The investment objective of the Fund is to provide investors with long-term capital appreciation.
The Company launched three new share classes on the 3 rd September 2008 on both Sub funds. The three different share classes issued were GBP Sterling Class C Shares, Euro Class D Shares and USD Class E Shares.
2. Principal Accounting Policies
Basis of Preparation The financial statements have been prepared in accordance with accounting standards generally accepted in Ireland and Irish statute comprising the Companies Acts, 1963 to 2009 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 and the Listing Rules of the Irish Stock Exchange. Accounting standards generally accepted in Ireland in preparing financial statements giving a true and fair view are those published by the Institute of Chartered Accountants in Ireland and issued by the Accounting Standards Board (“ASB”). The financial statements have been prepared on a historical cost basis, except for financial instruments classified as fair value through profit or loss that have been measured at fair value. The Company has availed of the exemption available to open-ended investment funds under FRS 1 Cash Flow Statements not to prepare a cash flow statement.
The format and certain wordings of the financial statements has been adapted from those contained in the Companies (Amendment) Act, 1986 and FRS 3 “Reporting Financial Performance” so that, in the opinion of the Directors, they more appropriately reflect the nature of the Company’s business as an investment fund.
Historical cost convention The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities at fair value through profit or loss.
All references to net assets throughout this document refer to net assets attributable to holders of participating shares unless otherwise stated.
Foreign exchange translation (a) Functional currency The Fund’s financial statements are measured using the currency of the primary economic environment in which it operates (the ‘functional currency’). The functional currency for both the Guinness Alternative Energy Fund and the Guinness Global Energy Fund is US dollars ($).
(b) Transactions and balances Assets and liabilities denominated in other currencies are translated into the functional currency using exchange rates prevailing at year end. Page 30 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
2. Principal Accounting Policies (continued)
Basis of Preparation (continued) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Operations.
Financial Assetss at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated by management at fair value through profit or loss at inception. Financial assets held for trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term. The Funds investments are classified as held for trading.
Purchases and sales of investments are recognised on trade date – the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value, and transaction costs for all financial assets and liabilities carried at fair value through profit or loss are expensed as incurred. Financial assets at fair value through profit or loss are subsequently measured at fair value at the year end. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the Statement of Operations in the year in which they arise.
Securities held by the Company listed or traded on a stock exchange for which market quotations are available are valued at the last traded price on the Valuation day. In the opinion of the Directors this is not materially different from the valuation using bid prices as required by Financial Reporting Standard, 26.
In March 2009 the Accounting Standard Board (ASB) issued “Amendments to FRS29 – improving disclosures about Financial Instruments”. These amendments require enhanced disclosures of fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy will have the following levels:
• Level 1: Inputs reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date;
• Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
• Level 3: Inputs that are not observable.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgement by the Investment Manager. The Investment Manager considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorisation of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument.
Income from investments and deposits Dividend income arising from investments is accounted for on an ex-dividend basis. Deposit interest is accounted for on a receipt basis.
Page 31 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
2. Principal Accounting Policies (continued)
Cash and Other Liquid Assets Cash and other liquid assets are valued at their face value as at close of business at 31 st December 2009.
Redeemable Participating Shares Participating shares are redeemable at the Shareholder’s option and are classified as financial liabilities.
The participating shares provide the shareholders with the right to redeem their shares at any time for cash equal to a proportionate share of the Company’s net asset value. The redeemable shares are carried at the redemption amount that is payable at the year end date if the Shareholder exercised its right to put the share back to the Company and is presented as “Net assets attributable to participating shareholders” on the Statement of Net assets attributable to Participating Shareholders.
Operating Expenses The Company is responsible for all normal operating expenses including audit fees, stamp and other duties and charges incurred on the acquisition and realisation of investments. The Investment Manager meets all other operating expenses incurred by it in connection with its services.
3. Management, Distribution, Administration and Custodian Fees
Guinness Asset Management Limited, the Investment Manager, is entitled to receive from the Manager out of the assets of the Fund the following fees in respect of both the Guinness Alternative Energy Fund and the Guinness Global Energy Fund.
Class A Shares – 1.0% of the Net Asset Value of the Class A Shares Class B Shares – 1.5% of the Net Asset Value of the Class B Shares Class C Shares – 1.5% of the Net Asset Value of the Class C Shares Class D Shares – 1.0% of the Net Asset Value of the Class D Shares Class E Shares – 0.75% of the Net Asset Value of the Class E Shares
Guinness Asset Management Limited, the Global Distributor, is entitled to receive a distribution fee of 2% on subscription proceeds in respect of Class B Shares on each Fund and 5% on Class C.
Capita Financial Managers (Ireland) Limited, the Manager, is entitled to receive from the Company out of the assets of both the Guinness Alternative Energy Fund and the Guinness Global Energy Fund a fee as detailed below subject to a minimum annual fee of €78,000 (plus VAT, if any) thereon: - 0.15% of the Net Asset Value of the Fund on the first $100 million - 0.12% of the Net Asset Value of the Fund on amounts in excess of $100 million
Capita Financial Administrators (Ireland) Limited, the Administrator, will be paid by the Manager out of the fees which the Manager earns. The Administrator is also entitled to be repaid out of the assets of the Company, all of its reasonable out of pocket expenses incurred on behalf of the Fund which shall include, inter alia, legal fees, courier’s fees and telecommunication costs and expenses.
JP Morgan Bank (Ireland) plc, the Custodian, shall be entitled to receive out of the assets of each Fund an annual fee accrued at each Valuation Point and payable monthly in arrears, which shall not exceed 0.2% per annum of the Net Asset Value of each Fund subject to a minimum annual fee of €35,000.
Page 32 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
3. Management, Distribution, Administration and Custodian Fees (continued)
Notwithstanding the fees and expenses detailed above, the Investment Manager has agreed to reimburse until further notice, to the account of the Fund, any fees and expenses of the Fund, other than the fees of the Investment Manager, which exceed 0.5% of the Net Asset Value of the Fund per annum (such fees and expenses to include the annual fees of the custodian, the Manager, the Auditor, any Paying Agent and the Directors, and excluding any transaction charges, disbursements and out-of-pocket expenses that the Custodian, Manager, any Paying Agent and the Directors may be entitled to receive out of the assets of the Fund as outlined in the fund legal documents).
4. Directors Remuneration As at 31 st December 2009, the Company paid out $82,890 (2008: $48,316) to Directors and held an accrual for outstanding fees of $0 (2008: $18,373). Director Fee at Company Level* EUR Paul Nunan (Resigned 26 th August 2009) 16,000(Waived for half of year) Anthony Joyce 16,000(Waived for half of year) Edward Guinness Waived Andrew E. Martin Smith Waived James Leslie (Deceased 22 nd Feb 2009) 16,000 Johnny McClintock 16,000 David McGeough 16,000
*This is the fee per annum which would be pro rated from date of appointment.
5. Exchange Rates
The following exchange rates were used at the year end;
Exchange Rate Exchange Rate To USD To USD 31 st December 2009 31 st December 2008 Euro 0.696990 0.719400 Pound Sterling 0.619250 0.695530 Norwegian Kroner 5.776800 7.002100 Taiwan Dollar 31.985000 32.818000 Canadian Dollar 1.0483500 1.234500 Philippine Pesos 46.230000 47.550000 Australian Dollar 1.111910 1.434310 Danish Kroner 5.186250 5.354650 Hong Kong Dollar 7.754050 7.750200 Singapore Dollar 1.403950 1.440750
Page 33 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 stDecember 2009
6. Shareholders' Funds Subscriber Shares The authorised share capital of the Company is 500,000,000,000 shares of no par value and 2 redeemable non-participating shares of Euro 1.00 each. There are two non-participating shares currently in issue which were taken by the subscribers to the Company and are held by Guinness Asset Management Limited.
Participating Shares At 31 st December 2009, the Company had 9,534,712.19 Class A shares, 1,071,533.42 Class B US Dollar class shares, 146,942.95 Class C GBP shares, 660,396.50 Class D EUR shares and 1,876,527.56 Class E US Dollar shares in issue.
At 31 st December 2008, the Company had 8,378,669.47 Class A shares, 784,327.65 Class B US Dollar class shares, 17,356.85 Class C GBP shares, 137.74 Class D EUR shares and 13,362.39 Class E US Dollar shares in issue.
The Participating Share transactions during the year were as follows:
Guinness Guinness Guinness Guinness Guinness Global Energy Global Energy Global Energy Global Energy Global Energy Fund Fund Fund Fund Fund Class A Class B Class C Class D Class E Opening balance 8,244,387.81 469,705.32 7,574.61 68.87 13,262.39 Subscriptions 5,402,181.75 395,590.86 80,626.46 663,500.32 1,848,436.32 Redemptions (4,116,828.73) (134,203.01) (4,286.76) (3,241.56) (20,000.00) Closing balance 9,529,740.83 731,093.17 83,914.31 660,327.63 1,841,698.71
Guinness Guinness Guinness Guinness Guinness Alternative Alternative Alternative Alternative Alternative Energy Fund Energy Fund Energy Fund Energy Fund Energy Fund Class A Class B Class C Class D Class E Opening balance 134,281.66 314,622.33 9,782.24 68.87 100.00 Subscriptions 46,761.24 66,160.08 67,853.57 - 34,728.85 Redemptions (176,071.54) (40,342.16) (14,607.17) - - Closing balance 4,971.36 340,440.25 63,028.64 68.87 34,828.85
The Participating Share transactions for the year ended 31 st December 2008 were as follows:
Guinness Guinness Guinness Guinness Guinness Global Energy Global Energy Global Energy Global Energy Global Energy Fund Fund Fund Fund Fund Class A Class B Class C Class D Class E Opening balance - - - - - Subscriptions 11,318,021.45 734,307.82 8,757.36 68.87 13,262.39 Redemptions (3,073,633.64) (264,602.50) (1,182.75) - - Closing balance 8,244,387.81 469,705.32 7,574.61 68.87 13,262.39
Page 34 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
6. Shareholders' Funds (continued)
The Participating Share transactions for the year ended 31 st December 2008 were as follows (continued):
Guinness Guinness Guinness Guinness Guinness Alternative Alternative Alternative Alternative Alternative Energy Fund Energy Fund Energy Fund Energy Fund Energy Fund Class A Class B Class C Class D Class E Opening balance - - - - - Subscriptions 292,134.00 439,342.74 9,883.58 68.87 100.00 Redemptions (157,852.34) (124,720.41) (101.34) - - Closing balance 134,281.66 314,622.33 9,782.24 68.87 100.00
7. Related Party Disclosures
As at 31 st December 2009, the Company paid the Investment Manager $782,293 (2008: $460,378) and the Company held an accrual for outstanding fees of $98,567 (2008:$42,554).
As at 31 st December 2009, Edward Guinness (a director of the Company) has a holding of 2,347.12 shares (2008: 2,347.12 shares) in Guinness Alternative Energy Fund.
The following directors have waived their fee fully for the year ended 31 st December 2009; Edward Guinness and Andrew E. Martin Smith. Paul Nunan (resigned 26 th August 2009) and Anthony Joyce waived their fees for half of the year.
Guinness Asset Management Limited had the following shares in the fund as detailed below: Guinness Global Energy Fund Guinness Alternative Energy Fund Class A shares - - Class B shares - 108,834.83 Class C shares - - Class D shares 68.87 68.87 Class E shares 100 100
In 2008, Guinness Asset Management Limited had the following shares in the fund as detailed below: Guinness Global Energy Fund Guinness Alternative Energy Fund Class A shares - - Class B shares - 108,834.83 Class C shares - - Class D shares 68.87 68.87 Class E shares 100.00 100.00
Page 35 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
8. Financial assets at fair value through profit or loss
The below table is outlining the realised and unrealised gains/ (losses) for the year on financial assets at fair value through profit or loss to 31 st December 2009.
Year Ended Year Ended Year Ended Year Ended 31 st December 31 st December 31 st December 31 st December 2009 2008 2009 2008 Guinness Guinness Guinness Guinness Global Energy Global Energy Alternative Energy Alternative Energy Fund Fund Fund Fund $ $ $ $ Net realised gains/(losses) on investments 751,751 (17,349,008) (785,965) (579,156) Net realised gains/(losses) on currencies (201,519) 89,192 (2,754) (20,319) Movement in net unrealised gains/(losses) on investments 35,279,351 (39,669,046) 1,416,320 (1,965,650) Total 35,829,583 (56,928,862) 627,601 (2,565,125)
Investments Investments, whose values are based on quoted market prices in active markets, are classified within level 1. The Investment Manager does not adjust the quoted price for such instruments.
Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. Investments classified within level 3 have significant unobservable inputs, which are significant to the overall fair value measurement.
The fair values of investments valued under Levels 1 to 3 as at 31 st December 2009 were as follows:
Year Ended 31 st Year Ended 31 st December December
2009 2009 Guinness Guinness Global Energy Alternative Energy
Fund Fund $ $ Financial Assets at Fair Value Level 1 116,575,978 2,534,442
Page 36 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
9. Financial Instruments & Derivatives
In accordance with its investment objectives and policies, the Company holds financial instruments, which at any one time may comprise the following:
- securities held in accordance with the investment objectives and policies - cash and short-term debtors and creditors arising directly from operations
The main risks arising from the Company’s financial instruments are market risk and liquidity risk. The Investment Manager reviews and agrees policies for managing each of these risks and they are summarised below.
9.1 Market Risk
Market risk consists of currency risk, interest rate risk and market price risk. It represents the potential loss the Company might suffer through holding market positions in the face of market movements.
9.1.1 Currency Risk
The following table sets out the Company’s total exposure to foreign currency risk in their US Dollar equivalents.
Guinness Global Energy Fund Guinness Alternative Energy Fund 31 st December 2009 31 st December 2009 US$ US$ Australian Dollar - 8,080 Canadian Dollar 19,598,180 168,967 Danish Kroner - 121,747 Euro 18,938,495 620,503 Great British Pound 7,383,550 272,192 Hong Kong Dollar 4,454,642 - Norwegian Kroner 3,770,021 79,386 Philippine Peso - 87,534 Singapore Dollar - - Taiwan Dollar - 36 Total 54,144,888 1,358,445
Guinness Global Energy Fund Guinness Alternative Energy Fund 31 st December 2008 31 st December 2008 US$ US$ Australian Dollar - 8,402 Canadian Dollar 7,760,325 132,847 Danish Kroner - 89,006 Euro 8,285,427 615,645 Great British Pound 2,713,009 98,386 Hong Kong Dollar 1,941,762 - Norwegian Kroner 1,662,441 50,940 Philippine Peso - 49,588 Singapore Dollar 1,173,798 - Taiwan Dollar - 35 Total 23,536,762 1,044,849
Page 37 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
9. Financial Instruments & Derivatives (continued)
9.1 Market Risk (continued)
9.1.1 Currency Risk (continued)
A substantial portion of the net assets of the Company are denominated in currencies other than the US Dollar with the effect that the financial statements and total return can be significantly affected by currency movements. The Company does not currently enter into forward currency contracts to hedge this foreign currency risk.
Currency Sensitivity Analysis
Guinness Global Energy
The following details the Company’s sensitivity to a 10% increase and decrease in the Euro – US Dollar exchange rate and also a 10% increase and decrease in the Canadian – US Dollar exchange rate, representing management’s assessment of a reasonably possible change in exchange rates.
At 31 st December 2009, if the Euro had strengthened by 10% against the US Dollar with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $1,893,849 (2008: $828,543) higher arising due to the decrease in the fair value of financial assets at fair value through profit or loss. If the Euro had weakened by 10% against the US Dollar, with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $1,893,849 (2008: $828,543) lower.
At 31 st December 2009, if the Canadian Dollar had strengthened by 10% against the US Dollar with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $1,959,818 (2008: $776,103) higher arising due to the decrease in the fair value of financial assets at fair value through profit or loss. If the Canadian Dollar had weakened by 10% against the US Dollar, with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $1,959,818 (2008: $776,103) lower.
Guinness Alternative Energy
The following details the Company’s sensitivity to a 10% increase and decrease in the Euro – US Dollar exchange rate and also a 10% increase and decrease in the Canadian – US Dollar exchange rate, representing management’s assessment of a reasonably possible change in exchange rates.
At 31 st December 2009, if the Euro had strengthened by 10% against the US Dollar with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $62,050 (2008: $61,564) higher arising due to the decrease in the fair value of financial assets at fair value through profit or loss. If the Euro had weakened by 10% against the US Dollar, with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $62,050 (2008: $61,564) lower.
At 31 st December 2009, if the Canadian Dollar had strengthened by 10% against the US Dollar with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $16,897 (2008: $13,289) higher arising due to the decrease in the fair value of financial assets at fair value through profit or loss. If the Canadian Dollar had weakened by 10% against the US Dollar, with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $16,897 (2008: $13,289) lower.
Page 38 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
9. Financial Instruments & Derivatives (continued)
9.1 Market Risk (continued)
9.1.2 Interest Rate Risk
The Company is not significantly exposed to interest rate risk as 100% of its investments are in equities.
9.1.3 Market Price Risk
Market price risk arises mainly from uncertainty about future prices of equity investments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. Details of all investments held at 31 st December 2009 are listed in the schedule of investments including the comparative holdings within each country. The Investment Manager manages the Fund’s market price risk on a daily basis in accordance with the Fund’s investment objective and policies. The Fund’s overall market positions are monitored on a quarterly basis by the Board of Directors.
Price Sensitivity Analysis
Guinness Global Energy
The following details the Company’s sensitivity to a 10% increase and decrease in equity market prices, representing an illustrative change in market prices. Further discussion on performance of the portfolio is set out in the Investment Manager’s Report.
At 31 st December 2009, if equity prices had been 10% higher, with all other variables held constant, the Net Assets attributable to Participating Shareholders would have been $11,657,598 (2008: $4,773,243) higher, arising due to the increase in the fair value of financial assets at fair value through profit or loss.
At 31 st December 2009, if equity prices had been 10% lower with all other variables held constant, the Net Assets attributable to Participating Shareholders for the year would have been $11,657,598 (2008: $4,773,243) lower, arising due to the decrease in the fair value of financial assets at fair value through profit or loss.
Guinness Alternative Energy
The following details the Company’s sensitivity to a 10% increase and decrease in equity market prices, representing an illustrative change in market prices. Further discussion on performance of the portfolio is set out in the Investment Manager’s Report.
At 31 st December 2009, if equity prices had been 10% higher, with all other variables held constant, the Net Assets attributable to Participating Shareholders shares would have been $253,444 (2008: $160,879) higher, arising due to the increase in the fair value of financial assets at fair value through profit or loss.
At 31 st December 2009, if equity prices had been 10% lower with all other variables held constant, the Net Assets attributable to Participating Shareholders for the year would have been $253,444 (2008: $160,879) lower, arising due to the decrease in the fair value of financial assets at fair value through profit or loss.
Page 39 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
9. Financial Instruments & Derivatives (continued)
9.2 Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities as they fall due.
The Fund’s assets comprise mainly readily realisable securities, which can be sold in a short time frame. The main liability of the Fund is the redemption of any shares that the investors wish to sell.
The following table shows the residual contractual maturities of the Fund’s financial liabilities as at 31 st December 2009:
All amounts stated in USD Less than 1 to 3 3 months No stated Total
1 month months to 1 year maturity
Accrued expenses 8,108 - 52,642 - 60,750 Investment Management fees payable 98,567 - - - 98,567 Administration fee payable 19,105 - - - 19,105 Custodian fee payable 37,534 - - - 37,534 Payable for Securities Purchased 2,694,310 - - - 2,694,310 Redemption Payable 630,000 - - - 630,000 Total assets 123,716,902 - - - 123,716,092 Net assets attributable to participating shareholders 120,176,636 - - - 120,176,636 Total liabilities 3,487,624 - 52,642 - 3,540,266
The following table shows the residual contractual maturities of the Fund’s financial liabilities as at 31 st December 2008:
All amounts stated in USD Less than 1 to 3 3 months No stated Total 1 month months to 1 year maturity
Accrued expenses 25,011 - 41,650 - 66,661 Investment Management fees payable 42,554 - - - 42,554 Administration fee payable 17,611 - - - 17,611 Custodian fee payable 20,871 - - - 20,871 Payable for Securities Purchased 2,298,196 - - - 2,298,196 Redemption Payable 25,186 - - - 25,186 Total assets 52,121,695 - - - 52,121,695 Net assets attributable to participating shareholders 49,650,616 - - - 49,650,616 Total liabilities 2,429,429 - 41,650 - 2,471,079
Page 40 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
9. Financial Instruments & Derivatives (continued)
9.3 Credit Risk
The Company is exposed to credit risk on parties with whom it trades and also bears the risk of settlement default. Credit risk arises on cash at bank which is held with the Custodian. The Company has adopted a policy of only dealing with credit worthy counterparties and the Company’s exposure and the counterparty’s exposure are constantly monitored.
10. Soft Commission Arrangements
There were no soft commission arrangements in place during the year.
11. Taxation
The Company qualifies as an investment undertaking as defined in Section 739B of the Taxation Consolidation Acts 1997. As such, it is not chargeable to Irish tax on its income and gains.
However, Irish tax may arise on the happening of a “chargeable event”. A chargeable event includes any distribution payments to shareholders or any encashment, redemption or transfer of shares.
No tax will arise on the Company in respect of chargeable events in respect of:
(i) a shareholder who is neither Irish resident nor ordinarily resident in Ireland at the time of the chargeable event, provided the necessary signed statutory declarations are held by the Company, and
(ii) Certain exempted Irish resident investors who have provided the Company with the necessary signed statutory declarations.
Dividend income, interest and capital gains received by the Company may be subject to non-recoverable withholding tax in the country of origin.
12. Net Asset Value per Share
The published Net Asset Value per redeemable participation share at which the shareholders may subscribe to or redeem from the Company differs from the Net Asset Value per the financial statements. The difference is due to the treatment of formation expenses and redemptions payable. In accordance with the Prospectus, preliminary expenses are being amortised over 5 years. However for the purposes of these financial statements, formation expenses have been expensed as incurred in accordance with Generally Accepted Accounting Practice in Ireland (GAAP).
The quoted Net Asset Value per share was increased from 2 decimal places to 4 decimal places effective on 9 th June 2009.
Page 41 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
12. Net Asset Value per Share (continued)
As at 31 st December 2009: Guinness Guinness Global Alternative Energy Fund Energy Fund $ $ Net Asset Value per financial statements 117,659,646 2,516,990
Capitalised expenses 59,993 27,736 Redemption payable 630,000 -
Published Net Asset Value 118,349,639 2,544,726
Guinness Guinness Global Alternative Energy Fund Energy Fund Number of shares in issue class USD Class A shares 9,601,011.02 4,971.36 USD Class B shares 731,093.17 340,440.25 GBP Class C shares 83,914.31 63,028.64 EUR Class D shares 660,327.63 68.87 USD Class E shares 1,841,698.71 34,828.85
Published Net asset value per share class USD Class A shares $8.8396 $4.7907 USD Class B shares $8.8211 $4.7418 GBP Class C shares £10.0470 £6.7801 EUR Class D shares €9.2630 €6.2502 USD Class E shares $9.1733 $6.1991
Net impact reduction of NAV’s per share USD Class A shares $0.0045 $0.0522 USD Class B shares $0.0045 $0.0517 GBP Class C shares £0.0051 £0.0739 EUR Class D shares €0.0047 €0.0681 USD Class E shares $0.0046 $0.0676
Page 42 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
12. Net Asset Value per Share (continued)
As at 31 st December 2008: Guinness Guinness Global Alternative Energy Fund Energy Fund $ $ Net Asset Value per financial statements 48,072,131 1,578,485
Capitalised expenses 78,168 37,930 Redemption payable 25,186 -
Published Net Asset Value 48,175,485 1,616,415
Guinness Guinness Global Alternative Energy Fund Energy Fund Number of shares in issue class USD Class A shares 8,244,387.81 134,281.66 USD Class B shares 469,705.32 314,622.33 GBP Class C shares 7,574.61 9,782.24 EUR Class D shares 68.87 68.87 USD Class E shares 13,262.39 100
Published Net asset value per share class USD Class A shares $5.51 $3.44 USD Class B shares $5.49 $3.42 GBP Class C shares £7.02 £5.50 EUR Class D shares €5.92 €4.63 USD Class E shares $5.67 $4.44
Net impact reduction of NAV’s per share USD Class A shares $0.01 $0.08 USD Class B shares $0.01 $0.08 GBP Class C shares £0.02 £0.13 EUR Class D shares €0.01 €0.11 USD Class E shares $0.01 $0.11
13. Distributions
The Company may in general meeting declare dividends but no dividend shall exceed the amount recommended by the Directors. Dividends, if declared, will be paid annually within four months of declaration. It is intended that the Fund will pursue a distribution policy so that the Fund will be able to obtain certification as a “Distributing Fund” under the United Kingdom Income and Corporation Taxes Act 1988 for the purpose of United Kingdom taxation. A failure of the Fund to comply with this requirement to pay any dividend declared within four months of declaration will result in the Fund failing to obtain certification.
Dividends may be paid out of the net investment income. Otherwise all income and gains of the Fund will be accumulated within the Fund. Dividends which are not claimed or collected within six years of payment shall revert to and form part of the assets of the Fund.
Page 43 GUINNESS ASSET MANAGEMENT FUNDS PLC
Notes to the Financial Statements (continued) For the year ended 31 st December 2009
13. Distributions (continued)
Where the amount of any distribution payable to an individual Shareholder would be less than US$100 the Directors in their sole discretion may determine that such amount shall not be distributed but shall be retained and reinvested within and for the benefit of the Fund.
The Directors declared a distribution for the year ended 31 st December 2009 of USD0.0495 (2008:USD0.028) per share on Class A US$, USD0.007 per share on Class B US$, EUR0.0052 per share on Class D EUR€ and USD0.013 per share on Class E US$ of the Guinness Global Energy Fund. The total distribution at fund level amounting to USD512,966 (2008: USD248,168) with an Ex-date of 8 th March 2010 and a pay date of 18 th March 2010. The remaining class C GBP£ had insufficient income to distribute. Guinness Alternative Energy Fund distribution for the year ended 31 st December 2009 has been deferred subject to HMRC approval.
14. Efficient Portfolio Management
No efficient portfolio management techniques were used during the year.
15. Events after the Year End
There were no significant events after the year end, which are required to be reflected in these Financial Statements.
16. Approval of Financial Statements
The financial statements were approved for issue by the board of directors on 27 th April 2010.
Page 44 GUINNESS ASSET MANAGEMENT FUNDS PLC
Appendix 1 – Total Expense Ratio (TER) Calculations (Unaudited)
Guinness Alternative Energy Fund
TER - Share Class Level 2009 2008
CLASS A 1.50% 1.50%
CLASS B 2.00% 2.00%
CLASS C 2.00% 2.00%
CLASS D 1.50% 1.50%
CLASS E 1.25% 1.25%
Guinness Global Energy Fund
TER - Share Class Level 2009 2008
CLASS A 1.42% 1.41%
CLASS B 1.92% 1.91%
CLASS C 1.92% 1.91%
CLASS D 1.42% 1.41%
CLASS E 1.17% 1.16%
Page 45