<PAGE> 1
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
ANNUAL REPORT DECEMBER 31, 1995
GUINNESS FLIGHT
<PAGE> 2
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
February 13, 1996
Dear Guinness Flight Fund Shareholder:
We are pleased to provide you with the 1995 annual report for the Guinness
Flight Investment Funds, Inc. covering both the Guinness Flight China & Hong
Kong Fund and the Guinness Flight Global Government Bond Fund. We are especially
pleased to report that both Funds posted favorable performance results for the
year; the China & Hong Kong Fund up 20.45% and the Global Government Bond Fund
up 14.50%. In addition, since our last report which covered the first half of
1995, the Guinness Flight Investment Funds have experienced significant growth
in size. The China & Hong Kong Fund increased from $12.8 million in net assets
as of June 30, 1995 to $55.0 million at year-end. As of the date of this letter
the China & Hong Kong Fund stands at over $133 million in assets. We welcome our
newest shareholders and thank all of you for your continued support.
Guinness Flight China & Hong Kong Fund
The China & Hong Kong Fund produced a total return of 20.45% for the year ending
December 31, 1995. The Hang Seng Index over the same period was up 23.06%. The
total return for the China & Hong Kong Fund for the six-month period ending
December 31, 1995 was 10.68% as compared to the Hang Seng Index return of 9.49%.
In the previous two reports to shareholders we expressed optimism that 1995
would represent a good, albeit volatile, year for the Hong Kong and China equity
markets. That forecast turned out to be correct on both counts. The Hong Kong
equity market gathered momentum last year largely in response to declining U.S.
interest rates from mid year and the view that the property market had bottomed.
The recovery of the Hang Seng Index in 1995 indicates to us that the Hong Kong
market has recovered from the bear market of 1994.
Outlook
We continue to believe that China will remain one of the world's fastest growing
economies, and our bullish outlook for the Hong Kong and China markets remain
intact. A number of factors will continue to bolster Hong Kong equities: buoyant
global liquidity conditions, low long term interest rates in the U.S., the
rising likelihood of an end to real estate deflation in Hong Kong, and, an
upturn in the business cycle in China. Chinese economic indicators continue to
improve with inflation measured by the Retail Price Index at 14.8% for 1995,
down from 21%
<PAGE> 3
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
in 1994. Despite our bullishness we continue to caution investors to expect
volatility in these markets.
Guinness Flight Global Government Bond Fund
During 1995 world bond yields fell from the oversold levels of late 1994. A
weaker than anticipated U.S. Dollar, falling to unsustainable levels against
other major currencies during the first quarter, began to appreciate as the year
progressed, improving the Fund's relative performance and narrowing the gap
between the Fund and the Salomon Brothers World Government Bond Index. The
Guinness Flight Global Government Bond Fund produced a total return of 14.50%
for the year ending December 31, 1995, as compared with the Salomon Brothers
World Government Bond Index which returned 19.04% for the same period. This
under performance relative to the index was largely a result of the Fund's
overweight position in U.S. dollars during the first half of the year; a period
in which the U.S. dollar was surprisingly weak. This overweight position in the
U.S. dollar benefited the Fund over the second half of the year as the Global
Government Bond Fund returned 5.12% versus the index return of 1.87% for the six
months ended December 31, 1995.
Outlook
The sharp fall in short-term interest rates and real bond yields around the
world which occurred during 1995 will eventually lead to a global economic
recovery. The best prospects for further bond price appreciation exist in
Europe. Inflation is low and growth weak, a friendly environment for bonds.
Turning to currencies, the Yen and, to a lesser extent, the core currencies of
Europe remain significantly overvalued, whereas the U.S. Dollar and the Italian
Lira stand out as being relatively inexpensive. It is expected that depressed
economic activity in the developed world, for the time being, will continue to
keep downward pressure on world interest rates.
Summary
As China and the other growing economies of Asia continue their historic
expansion in coming decades, the primary source of global economic growth will
be from this exciting region. In our previous report, we cited our view that
this growth is causing a transfer of productive capacity from the developed
western economies to the developing economies of Asia. This transfer is
simultaneously causing an economic boom in Asia and deflationary pressures in
the west. We continue to
<PAGE> 4
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
believe that this shift is a positive change for both the bond markets of
developed economies and for equity markets of Asia.
/s/Timothy Guinness /s/Howard Flight
- ------------------- ----------------
Timothy Guinness Howard Flight
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CHINA & HONG KONG
FUND, HANG SENG INDEX (US$), GLOBAL GOVERNMENT BOND FUND AND THE SALOMON
BROTHERS' WORLD GOVERNMENT BOND INDEX.
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
China & Hong Kong Hang Seng Global Government Salomon Bros
Fund Index Bond Fund World Gov't Bond Index
<S> <C> <C> <C> <C>
6/30/94 $10,000 $10,000 $10,000 $10,000
9/30/94 10,616 9,755 10,871 10,117
12/31/94 9,226 9,767 9,352 10,166
3/31/95 9,274 10,093 9,805 11,278
6/30/95 10,040 10,638 10,512 11,879
9/30/95 10,680 10,809 11,014 11,755
12/31/95 11,112 11,183 11,501 12,102
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return One Since
Year Inception
<S> <C> <C>
China & Hong Kong Fund 20.45% 7.26%
Global Gov't Bond Fund 14.49% 7.71%
</TABLE>
<PAGE> 5
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
Index to Financial Statements
<TABLE>
<S> <C>
Guinness Flight China & Hong Kong Fund
Portfolio of Investments ........................................ 6
Statement of Assets and Liabilities ............................. 10
Statement of Operations ......................................... 11
Statement of Changes in Net Assets .............................. 12
Financial Highlights ............................................ 13
Guinness Flight Global Government Bond Fund
Portfolio of Investments ........................................ 14
Statement of Assets and Liabilities ............................. 17
Statement of Operations ......................................... 18
Statement of Changes in Net Assets .............................. 19
Financial Highlights ............................................ 20
Notes to Financial Statements ......................................... 21
Report of Independent Auditors ........................................ 25
</TABLE>
<PAGE> 6
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------
Currency / Shares COMMON STOCKS: 98.04% Market Value US$
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIR TRANSPORT, SCHED, & AIR COURIER
SERVICES: 2.21%
HKD 806,000 Cathay Pacific Airways, Ltd. ................... $ 1,229,977
-----------
AUTOMOTIVE DEALERS: 0.53%
HKD 1,006,000 Qingling Motors Company, Ltd. .................. 292,726
-----------
BANKING: 21.25%
HKD 197,000 Dao Heng Bank Group, Ltd. ...................... 708,257
HKD 428,000 Hang Seng Bank ................................. 3,833,042
HKD 408,000 HSBC Holdings, PLC ............................. 6,173,424
HKD 604,000 Liu Chong Hing Investment, Ltd. ................ 585,839
HKD 240,000 Union Bank of Hong Kong ........................ 226,576
HKD 100,000 Wing Hang Bank Limited* ........................ 315,551
-----------
11,842,689
-----------
BUILDING MATERIALS & CONSTRUCTION: 0.12%
HKD 250,000 Luoyang Glass Company, Ltd. .................... 64,339
-----------
CHEMICALS: 0.33%
HKD 816,000 Yizheng Chemical Fibre Co. ..................... 183,620
-----------
DIVERSIFIED: 7.18%
HKD 550,000 Citic Pacific, Ltd. ............................ 1,881,345
HKD 900,000 First Pacific Co. .............................. 1,000,970
HKD 1,200,000 Guangdong Investment, Ltd. ..................... 721,629
US$ 16,000 Jardine Matheson Holdings ...................... 109,600
HKD 151,733 New World Infrastructure* ...................... 290,417
-----------
4,003,961
-----------
ELECTRICAL EQUIPMENT: 0.96%
HKD 310,000 Florens International Group, Ltd.* ............. 202,457
US$ 9,000 Shanghai Shangling Electrical Appliance - B .... 5,508
HKD 175,000 Varitronix International, Ltd. ................. 324,766
-----------
532,731
-----------
ELECTRIC SERVICES: 1.62%
HKD 275,500 Hong Kong Electric ............................. 903,191
-----------
</TABLE>
6
<PAGE> 7
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------------------------------------
Currency / Shares COMMON STOCKS: 98.04% Market Value US$
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRIC UTILITIES: 3.87%
HKD 377,500 China Light & Power Co. ........................ $ 1,737,989
HKD 850,000 Gold Peak Industrial ........................... 420,466
-----------
2,158,455
-----------
FINANCIAL SERVICES: 1.81%
HKD 900,000 National Mutual, Ltd. .......................... 814,743
HKD 150,000 Peregrine Investment Holdings .................. 193,986
-----------
1,008,729
-----------
FOOD & BEVERAGE: 0.33%
HKD 600,000 Four Seas Mercantile Holdings .................. 184,287
-----------
GAS PRODUCTION & DISTRIBUTION: 2.45%
HKD 850,000 Hong Kong & China Gas .......................... 1,368,574
-----------
HOTELS / MOTELS: 1.23%
HKD 350,000 Assoc. International Hotels .................... 199,159
HKD 400,000 Shangri-La Asia, Ltd. .......................... 488,846
-----------
688,005
-----------
INDUSTRIAL: 5.93%
HKD 1,200,000 Sinocan Holdings Limited ....................... 426,770
HKD 291,000 Swire Pacific, Ltd. - A ........................ 2,258,002
HKD 1,500,000 World Houseware Holdings, Ltd. ................. 225,024
HKD 1,500,000 Yue Yuen Industrial Holdings* .................. 397,672
-----------
3,307,468
-----------
LODGING & RESTAURANTS: 0.54%
HKD 600,000 CDL Hotel International ........................ 302,619
-----------
MOTORCYCLES, BICYCLES, & PARTS: 0.00%
HKD 1,200 Shenzhen China Bicycles Co. - B ................ 197
-----------
OPTICAL & OPHTHALMIC GOODS,
PHOTO EQUIPMENT: 0.71%
HKD 700,000 China - HK Photo Product Holdings, Ltd. ........ 396,056
-----------
</TABLE>
7
<PAGE> 8
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------------------------------------
Currency / Shares COMMON STOCKS: 98.04% Market Value US$
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PETROLEUM REFINING: 0.66%
HKD 748,000 Shanghai Petrochemical ......................... $ 215,234
HKD 800,000 Zhenhai Refining & Chemical Co. ................ 150,016
-----------
365,250
-----------
REAL ESTATE - AGENTS, BROKERS &
MANAGERS: 0.65%
HKD 704,000 China Resources Enterprises .................... 364,177
-----------
REAL ESTATE - OPERATIONS & LESSORS: 19.06%
HKD 545,000 Amoy Properties Ltd. Ord. ...................... 542,709
HKD 579,000 Cheung Kong .................................... 3,526,790
US$ 125,000 Hong Kong Land Holdings, Ltd. .................. 231,250
HKD 596,000 Sun Hung Kai Properties, Ltd. .................. 4,875,136
HKD 436,000 Wharf Holdings, Ltd. ........................... 1,451,924
-----------
10,627,809
-----------
REAL ESTATE - SUBDIVIDERS, DEVELOPERS &
OPERATIVE BUILDERS: 8.45%
HKD 282,000 Henderson Land Company ......................... 1,699,476
HKD 253,000 Hysan Development Company ...................... 669,104
HKD 200,000 New Asia Realty & Trust Company ................ 382,800
HKD 450,000 New World Development .......................... 1,961,203
-----------
4,712,583
-----------
RETAILER: 1.12%
HKD 600,000 Esprit Asia Holdings, Ltd. ..................... 205,626
HKD 257,000 Gold Lion Holdings, Ltd. ....................... 187,785
HKD 992,000 Joyce Boutique ................................. 230,921
-----------
624,332
-----------
TELECOMMUNICATIONS: 6.28%
HKD 300,000 Chengdu Telecom Cable Company .................. 51,212
HKD 1,933,600 Hong Kong Telecommunications ................... 3,450,848
-----------
3,502,060
-----------
WHOLESALE - APPAREL, PIECE GOODS,
NOTIONS: 0.36%
HKD 232,000 Giordano Holdings, Ltd. ........................ 198,021
-----------
WHOLESALE - GROCERIES & RELATED
PRODUCTS: 0.54%
HKD 700,000 Vitasoy International Holdings, Ltd. ........... 298,739
-----------
</TABLE>
8
<PAGE> 9
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------------------------------------
Currency / Shares COMMON STOCKS: 98.04% Market Value US$
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
WHOLESALE TRADE - MISC. WHOLESALERS: 9.85%
HKD 845,000 Hutchison Whampoa .............................. $ 5,147,039
HKD 384,000 Li & Fung, Ltd. ................................ 342,659
-----------
5,489,698
-----------
Total Common Stocks
(cost $51,044,927): 98.04% .................. 54,650,293
Other Assets Less Liabilities: 1.96% ........... 1,089,947
-----------
TOTAL NET ASSETS: 100.00% ...................... $55,740,240
===========
</TABLE>
* Indicates non-income producing security.
Cost for federal income tax purposes is the same.
<TABLE>
<S> <C>
Net unrealized appreciation consists of:
Gross unrealized appreciation ...... $ 4,380,224
Gross unrealized depreciation ...... (774,858)
-----------
Net unrealized appreciation .. $ 3,605,366
===========
</TABLE>
Currency Legend:
HKD Hong Kong dollar
US$ United States dollar
See accompanying notes to financial statements.
8
<PAGE> 10
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- -------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $51,044,927) ............... $54,650,293
Cash ................................................................. 1,610,692
Receivables:
Fund shares sold ................................................ 232,185
Dividends and interests ......................................... 117,971
Prepaid expenses ..................................................... 34,265
Deferred organizational costs, net ................................... 41,177
-----------
Total assets .................................................... 56,686,583
-----------
LIABILITIES
Payables:
Due to Affiliate (Note 3) ....................................... 28,814
Securities purchased ............................................ 823,025
Dividends to shareholders ....................................... 20,122
Fund shares repurchased ......................................... 21,799
Accrued expenses ..................................................... 52,583
-----------
Total liabilities ............................................... 946,343
-----------
NET ASSETS ........................................................... $55,740,240
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($55,740,240/4,086,099 shares outstanding; unlimited
number of shares authorized without par value) .................. $ 13.64
===========
SOURCE OF NET ASSETS
Paid-in capital ................................................. $52,234,416
Overdistribution of net investment income ....................... (729)
Overdistribution of net realized gain on investments ............ (98,843)
Net unrealized appreciation on:
Investments ................................................. 3,605,366
Foreign currency ............................................ 30
-----------
Net assets ............................................. $55,740,240
===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------
For the Year
ended
December 31, 1995
- --------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends ....................................................... $ 656,972
Interests ....................................................... 33,783
-----------
Total investment income .................................... 690,755
EXPENSES
Advisory fees (Note 3) .......................................... 197,173
Administration fee (Note 3) ..................................... 49,293
Custodian ....................................................... 74,889
Accounting ...................................................... 44,387
Transfer agent fees ............................................. 88,488
Auditing fees ................................................... 18,869
Legal fees ...................................................... 59,689
Directors' fees ................................................. 15,958
Registration fees ............................................... 18,378
Reports to shareholders ......................................... 8,976
Deferred organization costs amortization ........................ 11,717
Miscellaneous ................................................... 12,046
-----------
Total expenses ............................................. 599,863
Less: Expenses paid indirectly (Note 2) .................... (5,162)
Expenses reimbursed (Note 3) ......................... (204,298)
-----------
Net expenses ............................................... 390,403
-----------
NET INVESTMENT INCOME .................................. 300,352
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments .............................. 28,920
Net realized loss from foreign currency ......................... (6,121)
Net unrealized appreciation on investments ...................... 3,847,844
-----------
Net realized and unrealized gain on investments ............ 3,870,643
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 4,170,995
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
Guinness Flight China & Hong Kong Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------
For the Year June 30, 1994*
ended through
December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income ...................... $ 300,352 $ 4,814
Net realized gain from investments ......... 28,920 10,016
Net realized loss on foreign currency ...... (6,121) -0-
Net unrealized appreciation (depreciation)
on investments ........................ 3,847,844 (242,448)
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......... 4,170,995 (227,618)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income .. (301,331) (4,564)
Distributions from taxable realized gains .. (123,918) (7,740)
------------ -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ... (425,249) (12,304)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 57,621,477 4,610,830
Net asset value of shares issued on
reinvestment of distributions ......... 395,581 11,396
Cost of shares redeemed .................... (8,309,577) (2,145,291)
------------ -----------
Net increase from capital share transactions 49,707,481 2,476,935
------------ -----------
TOTAL INCREASE IN NET ASSETS .......... 53,453,227 2,237,013
NET ASSETS
Beginning of period ........................ 2,287,013 50,000
------------ -----------
END OF PERIOD (including (overdistributed)
undistributed net investment income of
$(729) and $250, respectively) ........ $ 55,740,240 $ 2,287,013
============ ===========
CHANGES IN SHARES
Shares sold ................................ 4,513,348 363,879
Shares reinvested from distributions ....... 29,558 994
Shares redeemed ............................ (656,232) (169,448)
------------ -----------
Net increase ............................... 3,886,674 195,425
============ ===========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
12
<PAGE> 13
Guinness Flight China & Hong Kong Fund
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- -----------------------------------------------------------------------------------------------
<CAPTION>
For the Year June 30, 1994*
Ended through
December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ................ $ 11.47 $12.50
Income from investment operations:
Net investment income ......................... .14 .04
Net realized and unrealized gain (loss)
on investments .......................... 2.20 (.96)
------- ------
Total from investment operations .................... 13.81 (.92)
------- ------
Less distributions:
Dividends from net investment income .......... (.14) (.04)
Distributions from taxable net
capital gains ........................... (.03) (.07)
------- ------
Total distributions ................................. (.17) (.11)
------- ------
Net asset value, end of period ...................... $ 13.64 $11.47
======= ======
Total return ........................................ 20.45% (7.74)%
Ratios/supplemental data:
Net assets, end of period (thousands) ............... $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement .................. 3.02%++ 19.92%+
After expense reimbursement ................... 1.98% 2.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement .................. 0.49% (17.15)%+
After expense reimbursement ................... 1.52% 0.78%+
Portfolio turnover rate ............................. 10.89% 27.25%
</TABLE>
*Commencement of operations.
+Annualized.
++Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the "ratio of expenses to average net assets
before expense reimbursement" would have been 3.04%.
See accompanying notes to financial statements.
13
<PAGE> 14
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------------
Principal Amount GOVERNMENT BONDS: 93.11% Market Value US$
- --------------------------------------------------------------------------------------
<S> <C> <C>
BRITISH POUND: 13.02%
40,000 Italy, 10.500%, due 4/28/2014 ............... $ 70,841
45,000 United Kingdom Treasury, 9.750%,
due 8/27/2002 ............................ 79,330
150,171
CANADIAN DOLLAR: 6.59%
100,000 Canada, 7.500%, due 9/1/2000 ................ 76,044
DANISH DRONER: 4.86%
280,000 Denmark, 9.000%, due 11/15/2000 ............. 56,025
EUROPEAN CURRENCY UNIT: 6.48%
40,000 France O.A.T., 6.000%, due 4/25/2004 ........ 48,244
20,000 France O.A.T., 7.500%, due 4/25/2005 ........ 26,437
74,681
FRENCH FRANC: 12.54%
230,000 France O.A.T., 7.750%, due 10/25/2005 ....... 50,504
330,000 France O.A.T., 6.000%, due 10/25/2025 ....... 55,768
180,000 France O.A.T., 7.000%, due 10/12/2000 ....... 38,387
144,659
GERMAN MARKS: 11.53%
145,000 Germany, 6.875%, due 5/12/2005 .............. 106,977
40,000 Germany, 6.250%, due 1/4/2024 ............... 25,972
132,949
ITALIAN LIRA: 2.99%
55,000,000 Italy BTPS, 10.500%, due 4/1/2005 ........... 34,483
NORWEGIAN KRONER: 2.52%
75,000 Norway, 9.500%, due 10/21/2002 .............. 14,011
100,000 Norway, 5.750%, due 11/30/2004 .............. 15,104
29,115
SPANISH PESETA: 4.70%
3,500,000 Spain, 11.450%, due 8/30/1998 ............... 30,231
2,650,000 Spain, 12.250%, due 3/25/2000 ............... 23,926
54,157
</TABLE>
14
<PAGE> 15
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------------
Principal Amount GOVERNMENT BONDS: 93.11% Market Value US$
- --------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES DOLLAR: 27.88%
100,000 U.S. Treasury Note, 6.750%, due 4/30/2000 .... $ 105,281
75,000 U.S. Treasury Note, 6.125%, due 7/31/2000 .... 77,250
120,000 U.S. Treasury Note, 7.875%, due 11/15/2004 ... 139,013
-----------
321,544
-----------
Total Government Bonds
(cost $1,037,281): 93.11% ................. 1,073,828
-----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
FORWARD CONTRACTS: (0.26)% Unrealized Gain/Loss
- --------------------------------------------------------------------------------------
Purchase Sell Settlement Date
<S> <C> <C> <C>
U.S. $ 67,239 Italian Lira 109,888,005 1/11/96 $ 1,874
U.S. $ 57,325 Danish Krone 327,153 1/11/96 (1,562)
U.S. $ 60,285 Swedish Krona 426,880 1/11/96 3,990
U.S. $149,233 British Pound Sterling 95,018 1/11/96 452
U.S. $217,064 French Franc 1,077,945 1/11/96 2,484
U.S. $ 76,770 New Zealand Dollar 117,781 1/11/96 (301)
U.S. $155,911 European Currency Unit 122,198 1/11/96 (1,130)
U.S. $ 50,548 Canadian Dollar 68,037 1/11/96 681
U.S. $ 97,000 Japanese Yen 9,601,060 1/11/96 3,879
U.S. $122,838 German Deutschemark 180,266 1/11/96 2,840
U.S. $130,495 Netherlands Guilder 205,008 1/11/96 (2,772)
U.S. $ 53,867 Swiss Franc 61,022 1/11/96 (886)
U.S. $128,139 Netherlands Guilder 202,177 4/18/96 1,491
U.S. $118,729 Swedish Krona 809,326 4/18/96 (2,856)
U.S. $200,278 European Currency Unit 154,591 4/18/96 (693)
U.S. $ 61,277 Norwegian Krone 389,200 4/18/96 33
U.S. $105,467 New Zealand Dollar 161,747 4/18/96 367
U.S. $346,044 Japanese Yen 33,816,161 4/18/96 (5,949)
U.S. $ 50,000 Swiss Franc 58,015 4/18/96 (881)
U.S. $578,718 German Deutschemark 813,701 4/18/96 (3,455)
U.S. $245,646 Australian Dollar 329,325 4/18/96 313
U.S. $360,855 Canadian Dollar 491,620 4/18/96 (41)
U.S. $130,921 Danish Krone 712,912 4/18/96 323
U.S. $ 80,135 British Pound Sterling 51,321 4/18/96 (177)
U.S. $202,677 Italian Lira 331,957,297 4/18/96 (1,766)
U.S. $121,392 Spanish Peseta 15,024,831 4/18/96 (340)
U.S. $268,674 French Franc 1,329,839 4/18/96 1,087
-------
Total Forward Contracts (2,995)
-------
</TABLE>
15
<PAGE> 16
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------
Market Value US$
- -----------------------------------------------------------------------------------------
<S> <C>
Total Investments: (cost $1,037,281+) 92.85% ..... $1,070,833
Other Assets Less Liabilities: 7.15% ............. 82,517
----------
TOTAL NET ASSETS: 100.00% ........................... $1,153,350
==========
</TABLE>
+ Cost for federal income tax purposes is the same.
<TABLE>
<S> <C>
Net unrealized appreciation consists of:
Gross unrealized appreciation ........ $ 56,459
Gross unrealized depreciation ........ (22,907)
----------
Net unrealized appreciation ... $ 33,552
==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $1,037,281) ... $ 1,073,828
Cash .................................................... 83,698
Interest receivable ..................................... 30,149
Prepaid expenses ........................................ 1,333
Deferred organizational costs, net ...................... 41,177
-----------
Total assets ....................................... 1,230,185
-----------
LIABILITIES
Dividends payable to shareholders ....................... 25,177
Due to Affiliate (Note 3) ............................... 12,698
Accrued expenses ........................................ 38,960
-----------
Total liabilities .................................. 76,835
-----------
NET ASSETS .............................................. $ 1,153,350
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,153,350/90,339 shares outstanding; unlimited
number of shares authorized without par value) ..... $ 12.77
===========
SOURCE OF NET ASSETS
Paid-in capital .................................... $ 1,121,245
Undistributed net investment income (including
equalization credits of $2,413) ................ 8,667
Overdistribution of net realized gain on investments (10,086)
Net unrealized appreciation on:
Investments .................................... 33,552
Foreign currency ............................... (28)
-----------
Net assets ................................ $ 1,153,350
===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------
For the Year
Ended
December 31, 1995
- ----------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C>
Interest ................................................... $ 72,291
---------
EXPENSES
Advisory fees (Note 3) ..................................... 7,425
Administration fee (Note 3) ................................ 40,000
Custodian .................................................. 5,406
Accounting ................................................. 43,087
Transfer agent fees ........................................ 35,885
Auditing fees .............................................. 15,958
Legal fees ................................................. 11,944
Directors' fees ............................................ 15,958
Registration fees .......................................... 18,378
Reports to shareholders .................................... 4,976
Deferred organization costs amortization ................... 11,717
Miscellaneous .............................................. 5,094
---------
Total expenses ........................................ 215,828
Less: Expenses paid indirectly (Note 2) ............... (1,499)
Expenses reimbursed (Note 3) .................... (197,114)
---------
Net expenses .......................................... 17,215
---------
NET INVESTMENT INCOME ............................. 55,076
---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments ......................... 33,385
Net realized loss from foreign currency .................... (12,113)
Net unrealized appreciation on investments ................. 52,690
Net unrealized loss on foreign currency .................... (28)
---------
Net realized and unrealized gain on investments ....... 73,934
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $ 129,010
=========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------
For the Year June 30, 1994*
ended through
December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income ...................... $ 55,076 $ 13,218
Net realized gain from investments ......... 33,385 (6,181)
Net realized loss on foreign currency ...... (12,113) -0-
Net unrealized appreciation (depreciation)
on investments ........................ 52,690 (19,138)
Net unrealized depreciation on foreign
currency .............................. (28) -0-
----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......... 129,010 (12,101)
----------- ---------
NET EQUALIZATION CREDITS ................... 1,667 746
----------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income .. (51,665) (10,375)
Distributions from net capital gains ....... (25,177) -0-
----------- ---------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ... (76,842) (10,375)
----------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 1,144,047 819,678
Net asset value of shares issued on
reinvestment of distributions ......... 44,505 8,348
Cost of shares redeemed .................... (840,420) (104,913)
----------- ---------
Net increase from capital share transactions 348,132 723,113
----------- ---------
TOTAL INCREASE IN NET ASSETS .......... 401,967 701,383
NET ASSETS
Beginning of period ........................ 751,383 50,000
----------- ---------
END OF PERIOD (including undistributed net
investment income of $8,667 and
$3,589, respectively) ................. $ 1,153,350 $ 751,383
=========== =========
CHANGE IN SHARES
Shares sold ................................ 90,886 66,556
Shares issued from dividend distributions .. 3,547 689
Shares redeemed ............................ (66,716) (8,624)
----------- ---------
Net increase ............................... 27,717 58,621
=========== =========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
19
<PAGE> 20
Guinness Flight Global Government Bond Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- -------------------------------------------------------------------------------------------------
For the Year June 30, 1994*
ended through
December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ................ $ 12.00 $ 12.50
Income from investment operations:
Net investment income ......................... .69 .29
Net realized and unrealized gain (loss)
on investments ................................ 1.01 (.58)
--------- ---------
Total from investment operations .................... 1.70 (.29)
--------- ---------
Less distributions:
Dividends from net investment income .......... (.65) (.21)
Distributions from net capital gains .......... (.28) -0-
--------- ---------
Total distributions ................................. (.93) (.21)
--------- ---------
Net asset value, end of period ...................... $ 12.77 $ 12.00
========= =========
Total return ........................................ 14.49% (2.33)%
Ratios/supplemental data:
Net assets, end of period (thousands) ............... $ 1,153 $ 751
Ratio of expenses to average net assets:
Before expense reimbursement .................. 21.52%++ 40.78%+
After expense reimbursement ................... 1.73% 1.75%+
Ratio of net investment income to average net assets:
Before expense reimbursement .................. (14.26)% (34.18)%+
After expense reimbursement ................... 5.53% 4.86%
Portfolio turnover rate ............................. 202.54% 46.15%
</TABLE>
*Commencement of operations.
+Annualized.
++Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the "ratio of expenses to average net assets
before expense reimbursement" would have been 21.68%.
See accompanying notes to financial statements.
20
<PAGE> 21
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a Maryland
Corporation incorporated on January 7, 1994 and registered under the Investment
Company Act of 1940 (the "1940 Act") as a non-diversified, open-end management
investment company. Currently, the Guinness Funds offer two separate series
portfolios: Guinness Flight China & Hong Kong Fund (the "China Fund"), and
Guinness Flight Global Government Bond Fund (the "Global Government Fund")
(collectively, the "Funds"). The China Fund seeks to provide investors with
long-term capital growth. The Global Government Fund intends to provide
investors with current income while seeking opportunities for capital
appreciation. The Funds began operations on June 30, 1994.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there has been no sale are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with accrued
interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60 day period that
this amortized cost basis does not represent fair value.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Funds do not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period. Fluctuations in foreign exchange rates on investments are
thus included with net realized and unrealized gain (loss) on investments.
Dividend and interest income are translated at the exchange rates which
existed at the dates the income was accrued. Exchange gains and losses related
to dividend and interest income and other foreign-currency denominated payables
and
21
<PAGE> 22
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
receivables are included in realized and unrealized gain (loss) on foreign
currency on the accompanying Statements of Operations.
B. Forward Foreign Currency Exchange Contracts. The Funds may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates and at specified
rates, and is subject to the risks of foreign exchange
fluctuations.Counterparties to these forward contracts are major U.S. financial
institutions.
The Global Government Fund held forward foreign currency exchange contracts
with face value of $174,542, at December 31, 1995. The monthly average fair
values during 1995 and net trading loss for the year ended December 31, 1995
were $168,013 and $19,199, respectively. The China Fund did not utilize any
forward contracts during 1995.
C. Security Transactions, Dividends and Distributions. As is common in the
industry, security transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
D. Federal Income Taxes. The Funds intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to its shareholders. Therefore, no
federal income tax provision is required.
E. Equalization. The Global Government Fund follows the accounting practice
known as equalization, by which a portion of the proceeds from sales and costs
of redemptions of capital shares, equivalent on a per share basis to the amount
of undistributed net investment income on the date of the transaction, is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of the Fund's shares.
F. Deferred Organization Costs. The Funds have each incurred expenses of
$58,785 in connection with their organization. These costs have been deferred
and are being amortized on a straight line basis over a period of sixty months
from the date the Funds commenced investment operations. In the event that any
of the initial shares of either Fund are redeemed by the holder during the
period of amortization of the Funds' organization costs, the redemption proceeds
will be reduced by any such unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
those shares outstanding at the time of redemption.
G. Expenses Paid Indirectly. Under terms of the Custodian Agreement, the
Funds earn credits, based on custody cash balances, to be applied to custodian
fees. Such credits earned by the China Fund and Global Government Fund for the
year ended December 31, 1995 were $5,162 and $1,499, respectively.
22
<PAGE> 23
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
H. Concentration of Risk. The China Fund invests substantially all of its
assets in securities that are traded in China or Hong Kong or that are issued by
companies that do a substantial part of their business in China. The
consequences of political, social or economic changes in China may affect the
market prices of the China Fund's investments and any income generated, as well
as the Fund's ability to repatriate such amounts. The Global Government Fund
invests substantially in bonds issued by various European governments, and is
subject to the risks of foreign exchange fluctuations and local political
situations.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Guinness Funds, on behalf of the Funds, entered into an Investment Advisory
Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to
provide the Funds with investment management services. The Advisor furnishes all
investment advice, office space and certain administrative services, and
provides certain personnel needed by the Funds. As compensation for its
services, the Advisor was entitled to a monthly fee at the annual rate of 1.00%
and 0.75%, for the China Fund and Global Government Fund, respectively, based
upon the average daily net assets of the Funds. In order to maintain the Funds'
operating expenses at 1.98% and 1.73% of average daily net assets of the China
Fund and Global Government Fund, respectively, the Advisor has reimbursed the
China Fund and Global Government Fund, $149,856 and $126,986, respectively, for
the year ended December 31, 1995.
The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to limit the Funds' aggregate annual operating
expenses to the most stringent limits prescribed by any state in which the
Funds' shares are offered for sale. Currently, the most stringent limits
prescribed are 2.50% of the first $30 million of net assets and reduced amounts
thereafter.
Investment Company Administration Corporation (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, prepares reports and
materials to be supplied to the Directors; monitors the activities of the Funds'
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Funds' expense accruals. For its
services, the Administrator receives an annual fee equal to the greater of 0.25
of 1% of the Funds' average daily net assets or $40,000 for each of the Funds.
In order to maintain the Funds' operating expenses at 1.98% and 1.73% of average
daily net assets of the China Fund and Global Government Fund, respectively, the
Administrator has reimbursed the China Fund and Global Government Fund, $54,442
and $70,128, respectively, during the year ended December 31, 1995.
23
<PAGE> 24
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Funds will reimburse the Advisor and Administrator in subsequent years when
operating expenses (before reimbursements) are less than the applicable
percentage limitation in effect at that time for each of the Fund.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers and Directors of the Guinness Funds are also officers and/or
Directors of the Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, the cost of purchases and the proceeds
from sales of securities, excluding U.S. Government obligations and short-term
securities, were $50,798,794 and $2,142,340, respectively, for the China Fund
and $1,626,350 and $1,237,303, respectively, for the Global Government Fund.
Purchases and sales of U.S. Government obligations by the Global Government Fund
were $356,065 and $453,598, respectively.
NOTE 5 - LINE OF CREDIT
The Funds have a $1,250,000 unsecured line of credit with a bank that expires on
October 11, 1996. The interest rate on the line of credit is the bank's base
rate, as revised from time to time. At December 31, 1995, the Funds had no
outstanding borrowings under the line of credit.
24
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE
GUINNESS FLIGHT CHINA & HONG KONG FUND
AND GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
We have audited the accompanying statements of assets and liabilities of the
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund, (collectively, the "Funds"), series of Guinness Flight Investment
Funds, Inc. including the portfolios of investments, as of December 31, 1995,
and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets and the financial highlights for the period from June 30, 1994
(commencement of operations) through December 31, 1994, were audited by other
auditors whose report dated February 8, 1995 expressed an unqualified opinion on
those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund as of December 31, 1995, the results of their operations, the changes
in their net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 24, 1996
<PAGE> 26
This report is intended for the shareholders of the Guiness Flight Funds and
should not be used as sales literature unless accompanied or preceded by the
Fund's current prospectus.
