<PAGE> 1
GUINNESS FLIGHT
SEMI ANNUAL REPORT 6/30/97
____________
NO-LOAD GLOBAL INVESTING
ASIA BLUE CHIP FUND
ASIA SMALL CAP FUND
CHINA & HONG KONG FUND
GLOBAL GOVERNMENT BOND FUND
<PAGE> 2
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
July 23, 1997
Dear Guinness Flight Shareholder:
During the first half of 1997, when the world thought of Asia, it thought
of the Hong Kong handover. Meanwhile, there have been many other political and
economic stories affecting this vast and divergent continent. This year, we have
been investing selectively, stock by stock, as certain markets in the region
have been quite volatile. This strategy has proven satisfactory resulting in
favorable performance for the Guinness Flight Investment Funds.
The total returns for the four funds for the six-month period ended June 30
were as follows: Guinness Flight Asia Blue Chip Fund, up 0.26%; Guinness Flight
Asia Small Cap Fund, up 18.55%; Guinness Flight China & Hong Kong Fund, up
14.38%; and Guinness Flight Global Government Bond Fund, down slightly to
- -1.23%. Inside this report, you will find market comments written by the fund
manager(s) of each fund. These comments, which outline the main economic events
of the last six months as well as our thoughts for what's ahead, precede the
financial and portfolio details for each fund.
We continue to increase our commitment to Asia investing in both our London
and Hong Kong offices. Following our April shareholder meeting, Hambros Fund
Management was merged into Guinness Flight, a combination that doubled from 7 to
14 the number of fund managers dedicated to Asian markets. Our additional
resources and staff in this area mean added value for you, our shareholders.
Undoubtedly, the dominating event in Asia this year was the return of Hong
Kong to Chinese sovereignty on July 1. In the aftermath, the world continues to
watch closely as China and the Hong Kong Special Administrative Region (SAR)
sort out how the vast mainland with its communist government will work along
side and in harmony with the world's most capitalist city.
1
<PAGE> 3
We continue to believe that Asia represents one of today's best long-term
investment opportunities. Despite our bullishness, we always caution investors
to expect volatility in these markets. Asia, with all of its potential, is not a
place to invest short-term. We thank each of you for your commitment and
dedication to Guinness Flight and no-load Asia investing and look forward to our
continued relationship.
Sincerely,
/S/ TIMOTHY GUINNESS /S/ HOWARD FLIGHT
Timothy Guinness Howard Flight
2
<PAGE> 4
Guinness Flight Asia Blue Chip Fund
Two significant events dominated the Asian investment scene during the last
six months. First, the reversion of Hong Kong to China was highly publicized,
but, as anticipated, proceeded without giving the market any anxiety. And
second, the strength of the U.S. Dollar, to which most Southeast Asian
currencies are at least somewhat aligned, made the most significant impact.
The Dollar's relentless advance resulted in a loss of competitive strength
at a point of particular vulnerability for many economies, which had enjoyed
several years of strong, and in some cases, unsustainable growth. The Malaysian
stock market was down 12.9% over the six-month period and the markets in both
Singapore and the Philippines were 11.4%, all having been touched by this factor
to a greater or lesser extent. Thailand, which added a property bubble and a
banking crisis to the problems of currency overvaluation, fell by 37.2%. On the
other hand, Indonesia gained 10.4% over the six-month period. The Hong Kong
market justified our faith in it with a 12.8% rise. Given the weak fundamentals
in the region and varying market performances, we believe that the fund's
slightly positive year-to-date return was satisfactory. The fund slightly
underperformed its benchmark, the MSCI AC Asia Free ex-Japan Index: the fund's
total return for the six months was 0.26% while that of the MSCI AC Asia Free
ex-Japan Index was 2.62%.
Over the last six months, the fund's exposure to Hong Kong, Malaysia and
Thailand was decreased in the portfolio, while exposure to Indonesia and India
was increased. I have a long-standing enthusiasm for the economic potential of
Hong Kong and southern China and believed that the return of the Colony to China
would be achieved without upsetting the prosperity of Hong Kong. In my opinion,
this is now well on the way to being achieved. The Hong Kong market deserves,
and will in time achieve, a higher rating.
I continue to be bullish on the long-term potential of the Hong Kong market
and see further potential in the short-term as well. Yet at some stage in the
future, there may well be a difficult period when action is taken in response to
the new administration's concerns about the expensive nature of Hong Kong's
property. Although official reaction to the problem will move prices lower, the
process may not be without anxiety.
3
<PAGE> 5
Guinness Flight Asia Blue Chip Fund (Continued)
In any case, we should welcome moves to address the problem as it is not in Hong
Kong's best long-term interest to have some of the most expensive property in
the world.
Although I believe that Indonesia offers attractive potential to the
investor and good value is emerging in Singapore and Malaysia, particularly as a
result of recent weakness, it will take some considerable time for Thailand to
work through its economic problems. It is from misfortunes like this that future
opportunities spring. The fund's exposure to Indonesia may be increased slightly
while positions in Singapore and Malaysia will be maintained at about their
current levels. The fund's exposure to Thailand has been at minimal levels for
some time, with no current plan to change this.
Richard Farrell -- London, July 31, 1997.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA BLUE CHIP FUND AND THE MORGAN STANLEY AC ASIA FREE EX-JAPAN INDEX
Morgan Stanley
Measurement Period Guinness Flight AC Asia Free
(Fiscal Year Covered) Asia Blue Chip Fund Ex-Japan Index
<S> <C> <C>
4/29/96* 10,000 10,000
6/30/96 9,904 9,706
9/30/96 9,640 9,372
12/31/96 10,384 9,584
3/31/97 9,880 9,247
6/30/97 10,411 9,215
</TABLE>
* Inception date.
Average Annual Total Return
One Year Since Inception
-------- ---------------
5.12% 3.50%
Past performance is not predictive of future performance
4
<PAGE> 6
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: 90.33% Value
- ------------------------------------------------------------------------
<C> <S> <C>
CHINA: 2.51%
6,000 Huaneng Power International Inc. ADR............ $ 153,000
----------
HONG KONG: 38.14%
60,000 Amoy Properties Ltd. ........................... 66,217
200,000 CDL Hotel International......................... 81,319
13,000 Cheung Kong..................................... 128,368
40,000 Cosco Pacific Ltd. ............................. 92,677
12,000 Dah Sing Financial Holdings..................... 66,449
100,000 First Pacific Co. .............................. 127,786
9,200 HSBC Holdings Plc............................... 276,690
9,500 Hang Seng Bank.................................. 135,499
68,000 Hong Kong & China Gas........................... 136,047
20,000 Hong Kong Electric.............................. 80,544
631 Hong Kong & Shanghai Hotels Wts. ............... 147
50,000 Hong Kong Land Holdings Ltd. ................... 133,000
54,800 Hong Kong Telecom............................... 130,858
25,000 Hutchison Whampoa............................... 216,204
19,000 New World Development........................... 113,304
30,000 Shangri-La Asia Ltd. ........................... 36,014
12,000 Sun Hung Kai Properties Ltd. ................... 144,437
20,000 Swire Pacific Ltd. A............................ 180,063
40,000 Television Broadcasts Ltd. ..................... 179,676
----------
Total Hong Kong................................. 2,325,299
----------
INDIA: 5.95%
3,400 Hindalco Industries Ltd. ADR.................... 92,883
5,000 State Bank of India GDR......................... 129,750
10,000 Tata Engineering & Locomotive Ltd. GDR.......... 140,150
----------
Total India..................................... 362,783
----------
INDONESIA: 9.84%
179,683 Bank International Indonesia-For Reg............ 155,154
15,972 Bank International Indonesia-For Reg............ 6,420
160,000 PT Bank Dagang Nasional......................... 103,662
60,000 Pt Indofood Sukses Makmur-F..................... 138,158
30,000 Pt Indocement Tunggal Prakarsa.................. 46,567
5,000 Pt Indonesia Satellite ADR...................... 149,688
----------
Total Indonesia................................. 599,649
----------
</TABLE>
5
<PAGE> 7
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA: 12.38%
20,000 DCB Holdings Berhad............................. $ 63,391
6,000 Edaran Otomobil Nasional Berhad................. 51,109
50,000 Hicom Holdings Berhad........................... 94,692
75,000 IOI Corporation Berhad.......................... 85,578
100,000 Kumpulan Guthrie Berhad......................... 158,479
14,000 Malayan Banking Berhad.......................... 146,989
15,000 Petronas Gas Berhad............................. 54,675
9,000 Systems Telekom Malaysia........................ 42,076
8,000 United Engineers................................ 57,686
----------
Total Malaysia.................................. 754,675
----------
PHILIPPINES: 5.05%
75,000 Ayala Corp. Class B............................. 54,026
15,600 Manila Electric................................. 76,888
300,000 Metro Pacific Corp.............................. 64,832
89 Metropolitan Bank & Trust....................... 1,890
180,000 Petron Corp..................................... 45,723
1,000 Philippine Long Distance Telephone ADR.......... 64,250
----------
Total Philippines............................... 307,609
----------
SINGAPORE: 9.24%
10,000 Asia Pulp & Paper ADR........................... 151,250
13,750 Keppel Corp. Ltd................................ 61,071
12,120 Overseas Chinese Banking Corp. For Reg.......... 125,464
6,000 Singapore Airlines Ltd-For Reg.................. 53,718
50,000 Singapore Telecom Ltd........................... 92,327
24,000 Want Want Holdings.............................. 79,680
----------
Total Singapore................................. 563,510
----------
SOUTH KOREA: 3.24%
10,000 Cho Hung Bank Co. ADR........................... 66,750
6,000 Dong-Ah Construction EDR........................ 53,100
800 Samsung Electronics GDS......................... 21,600
3,000 Korea Electric Power Corp. ADR.................. 56,063
----------
Total South Korea............................... 197,513
----------
</TABLE>
6
<PAGE> 8
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
TAIWAN: 2.75%
6,000 China Steel Corp. GDS........................... $ 126,750
2,200 President Enterprise GDS........................ 40,700
----------
Total Taiwan.................................... 167,450
----------
THAILAND: 1.23%
1,600 Siam Cement Co Ltd. For. Reg.................... 28,782
10,000 Total Access Communication...................... 46,400
----------
Total Thailand.................................. 75,182
----------
Total Common Stocks: (Identified cost
$5,286,882) 90.33%.............................. $5,506,670
----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Par Value CORPORATE BONDS: 4.67% Value
- ------------------------------------------------------------------------
<C> <S> <C>
$100,000 Formosa Chemical & Fiber
1.75% due 07/19/01............................. $ 112,500
100,000 Nan Ya Plastics Convertible Bond 1.75% due
07/19/01....................................... 141,500
30,000 Ssangyong Oil Refining 3.75% due 12/31/08...... 30,750
----------
Total Corporate Bonds: 4.67%
(Identified cost $267,358)..................... 284,750
----------
Total Investments in Securities
(cost $5,554,240+): 95.00%..................... $5,791,420
----------
Other Assets Less Liabilities: 5.00%........... 305,030
----------
NET ASSETS: 100.00%............................ $6,096,450
==========
</TABLE>
+ Cost for federal income tax purposes is the same:
<TABLE>
<C> <S> <C>
Net unrealized appreciation consists of:
Gross unrealized appreciation........................ $ 241,932
Gross unrealized depreciation........................ (4,752)
----------
Net Unrealized Appreciation.......................... $ 237,180
==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 9
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY JUNE 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Automobile.................................................. 0.84%
Banking..................................................... 18.84
Chemical.................................................... 1.85
Construction................................................ 4.71
Diversified Operations...................................... 9.90
Electric Utilities.......................................... 6.01
Electronics................................................. 0.35
Finance..................................................... 2.64
Food and Beverage........................................... 4.24
Gas......................................................... 3.13
Hotels...................................................... 1.93
Industrial.................................................. 7.32
Iron and Steel.............................................. 2.08
Media....................................................... 2.95
Oil/Petroleum Refining...................................... 1.25
Real-Estate................................................. 9.60
Technology.................................................. 0.95
Telecommunications.......................................... 8.62
Transportation.............................................. 3.18
Wholesalers................................................. 4.61
------
TOTAL INVESTMENTS IN SECURITIES............................. 95.00
OTHER ASSETS LESS LIABILITIES............................... 5.00
------
NET ASSETS.................................................. 100.00%
======
</TABLE>
8
<PAGE> 10
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $5,554,240)..... $5,791,420
Cash...................................................... 279,172
Receivables:
Fund shares sold..................................... 18,500
Dividends and interests.............................. 11,775
Due from affiliates (Note 3).............................. 13,758
Prepaid expenses.......................................... 7,280
Deferred organization costs, net.......................... 6,694
----------
Total Assets......................................... $6,128,599
----------
LIABILITIES
Payables:
Unrealized loss on forward currency contracts open
(Note 6)........................................... 4
Dividends to shareholders............................ 6,567
Fund shares redeemed................................. 16,094
Other Accrued expenses.................................... 9,484
----------
Total Liabilities.................................... 32,149
----------
Net Assets................................................ $6,096,450
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($6,096,450/469,055 shares outstanding; unlimited
number of shares authorized without par value)....... $13.00
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $5,931,542
Overdistributed net investment income................ (282)
Accumulated net realized loss on investments......... (71,959)
Net unrealized appreciation on investments and
foreign currency................................... 237,149
----------
NET ASSETS...................................... $6,096,450
==========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 11
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended
June 30, 1997
- -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld $2,216)....... $ 43,440
Interest............................................... 11,908
----------------
Total Investment Income........................... 55,348
EXPENSES
Advisory fees (Note 3)................................. 26,402
Administration fee (Note 3)............................ 6,617
Custodian.............................................. 16,280
Accounting............................................. 16,876
Transfer agent fees.................................... 14,578
Audit fees............................................. 7,935
Legal fees............................................. 4,959
Trustees' fees......................................... 6,639
Registration fees...................................... 10,413
Reports to shareholders................................ 2,236
Deferred organization costs amortization............... 867
Miscellaneous.......................................... 1,488
--------
Total expenses.................................... 115,290
Less: Expenses reimbursed (Note 3)................ (63,982)
----------------
Net expenses...................................... 51,308
----------------
NET INVESTMENT INCOME........................ $ 4,040
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments..................... (70,925)
Net realized loss from foreign currency................ (1,367)
Net change in unrealized appreciation on investments
and foreign currency................................. 70,068
----------------
Net Realized and Unrealized Loss on Investments... (2,224)
----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 1,816
========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 12
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended April 29, 1996*
June 30, 1997 through
(Unaudited) December 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income.............. $ 4,040 $ 838
Net realized (loss) gain from
investments...................... (70,925) 2,695
Net realized loss on foreign
currency......................... (1,367) (955)
Net change in unrealized
appreciation on investments and
foreign currency................. 70,068 167,082
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... 1,816 169,660
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment
income........................... (5,160) --
Distributions from taxable realized
gains............................ (1,407) --
---------- ----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS................ (6,567) --
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.......... 4,225,137 3,961,160
Cost of shares redeemed............ (1,811,101) (843,655)
---------- ----------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS.......... 2,414,036 3,117,505
---------- ----------
TOTAL INCREASE IN NET
ASSETS...................... 2,409,285 3,287,165
NET ASSETS
Beginning of period................ 3,687,165 400,000
---------- ----------
End of period (including
(overdistributed) and
undistributed net investment
income of ($282) and $838,
respectively)) .................. $ 6,096,450 $ 3,687,165
========== ==========
CHANGES IN SHARES
Shares sold........................ 328,539 320,248
Shares redeemed.................... (143,552) (68,180)
---------- ----------
NET INCREASE.................. 184,987 252,068
========== ==========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
11
<PAGE> 13
GUINNESS FLIGHT ASIA BLUE CHIP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended April 29, 1996*
June 30, 1997 through
(Unaudited) December 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period............ $ 12.98 $ 12.50
---------- ----------
Income from investment operations:
Net investment income......................... 0.02 0.00
Net realized and unrealized gain on
investments................................. 0.02 0.48
---------- ----------
Total from investment operations................ 0.04 0.48
---------- ----------
Less Distributions:
Dividends from net investment income.......... (0.01) --
Distributions from taxable net capital
gains....................................... (0.01) --
---------- ----------
(0.02) --
---------- ----------
Net asset value, end of period.................. $ 13.00 $ 12.98
========== ==========
Total return.................................... 0.26%++ 3.84%++
Ratios/supplemental data:
Net assets, end of period (thousands)........... $ 6,096 $ 3,687
Ratio of expenses to average net assets:+
Before expense reimbursement.................. 4.38% 9.14%
After expense reimbursement................... 1.98% 1.98%
Ratio of net investment income to average net
assets:+
Before expense reimbursement.................. (2.28)% (7.10)%
After expense reimbursement................... 0.12% 0.06%
Portfolio turnover rate......................... 14.64% 10.97%
Average Commission Rate Paid.................... $ 0.0119 $ 0.0190
BANK LOANS
Amount outstanding at end of period (000)....... $ 0 --
Average amount of bank loans outstanding during
the period (monthly average) (000)............ $ 8 --
Average number of shares outstanding during the
period (monthly average) (000)................ 422 --
Average amount of debt per share during the
period........................................ $ 0.019 --
</TABLE>
* Inception date.
+ Annualized
++ Not Annualized
See accompanying notes to financial statements.
12
<PAGE> 14
Guinness Flight Asia Small Cap Fund
For the six months ended June 30, the Asia Small Cap Fund returned 18.55%,
outperforming by far the 2.87% return for the HSBC James Capel Southeast Asia
Smaller Companies Index. The fund's strong performance can be attributed to its
overweight position in Hong Kong, China and Indonesia. Stock markets in
Singapore, Malaysia, the Philippines and Thailand performed poorly as weakness
in their domestic economy made them particularly susceptible to sell-offs
triggered by Thailand's worsening financial condition.
Excitement leading up to the June handover of Hong Kong drove up shares in
Hong Kong, particularly those with China exposure, to record-breaking levels
during the first half of the year. This boded well for the fund given its
overweight position in red chips, which offered the best exposure to the China
growth story, due to their political connections and capacity for growth through
asset injections. In the "B" share markets, domestic speculation during the
first quarter had reached such feverish levels that the fund took profits - a
strategy that was well-rewarded as Chinese authorities in May undertook a series
of actions to curb market speculation.
Despite the new regulations governing the activities of overseas
Chinese-controlled companies, I believe red chips will continue to be in vogue.
They have proven to be an effective and efficient fund-raising vehicle for
China. Uncertainty over further regulations and timing of potential asset
injections will undoubtedly lead to increased volatility. However, as an asset
class, red chips still offer far superior investment return to either "B" or "H"
shares.
Among other Asian markets, fundamentals have been weak, creating relatively
few investment opportunities, with the exception of Indonesia. Besides suffering
a slower-than expected recovery in export growth, most countries came under
heavy selling pressure as concerns over currency risk spilled over from
Thailand. The fund benefited from its overweight position in Indonesia.
A general turnaround in the region's economic outlook is not expected until
there are clear signs of a recovery in export growth, on which many of these
economies are still heavily dependent for growth. Further-
13
<PAGE> 15
Guinness Flight Asia Small Cap Fund (Continued)
more, with Thailand likely to unveil more financial woes in the months ahead, I
foresee that market sentiment toward most Southeast Asian stock markets will
undoubtedly be negative.
In this environment, stock selection remains the key to investing in the
region. I continue to look for value investments in more defensive and laggard
plays that have been overlooked. I also expect increased investment
opportunities in initial public offerings, given the Chinese authorities'
commitment to curb speculation through an increased supply of shares. While the
region is experiencing volatile times, performance of small-cap companies is
expected to remain strong as quality companies in the banking and
consumer-related sectors continue to trade at undemanding market multiples.
Nerissa Lee -- Hong Kong, July 31, 1997.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA SMALL CAP FUND AND THE HSBC JAMES CAPEL SOUTHEAST ASIA SMALLER
COMPANIES INDEX (HSBC JAMES CAPEL SASC INDEX)
<TABLE>
<CAPTION>
Guinness Flight HSBC James
Measurement Period Asia Small Cap Capel SASC
(Fiscal Year Covered) Fund Index
<S> <C> <C>
4/29/96* 10,000 10,000
6/30/96 10,461 9,622
9/30/96 10,397 9,467
12/31/96 11,308 9,710
3/31/97 12,048 10,336
6/30/97 13,406 9,999
</TABLE>
*Inception date.
- ----------------------------------------------------------------------------
Average Annual Total Return
One Year Since Inception
-------- ---------------
28.15% 28.47%
Past performance is not predictive of future performance
- ----------------------------------------------------------------------------
14
<PAGE> 16
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: 77.80% Value
- ------------------------------------------------------------------------
<C> <S> <C>
CHINA: 13.24%
6,059,000 Anhui Expressway Co Ltd - H................ $ 1,165,298
3,724,000 Beijing Datang Power - H................... 1,718,444
1,410,000 Bengang Steel Plates - B................... 433,157
1,174,190 Changchai Co. Ltd. - B..................... 1,066,991
1,000,000 China First Pencil - B..................... 400,000
550,000 China Southern Glass Co. - B............... 287,520
2,397,979 Dazhong Taxi - B........................... 2,129,405
1,000,000 Eastern Communications - B................. 1,476,000
1,098,000 First Tractor Co. - H...................... 722,807
2,900,000 Guandong Kelon Elec Hld - H................ 2,769,997
1,425,000 Guangdong Provincial Expr - B.............. 901,282
1,661,600 Heilongjiang Electric Power Co. ........... 1,329,280
30,000 Huaneng Power International Inc. - N....... 765,000
2,544,000 Huangshan Tourism DVLP Co - B.............. 2,335,392
2,712,000 Inner Mongolia Erdos Cashmere.............. 2,278,080
3,000,000 Nanjing Panda Electronics - H.............. 627,315
1,470,645 Shanghai Dajiang Group - B................. 454,429
646,000 Shanghai Diesel Engineering - B............ 219,640
1,296,600 Shanghai Kaikai Industrial Co. ............ 518,640
157,917 Shanghai Lujiazui Finance & Trade.......... 225,821
1,417,000 Shanghai Refrigerator Comp - B ADR......... 680,160
2,598,870 Shanghai Tyre and Rubber - B............... 1,273,446
3,255,660 Shenzhen Fangda Co Ltd - B................. 4,727,605
400,000 Wuxi Little Swan - B....................... 671,202
1,700,000 Zhenhai Refining & Chem Co. - H............ 614,408
------------
Total China................................ 29,791,319
------------
HONG KONG: 40.07%
368,000 ASM Pacific Technology..................... 256,502
2,400,000 Allied Properties.......................... 390,330
250,000 Anex International Holdings Ltd. .......... 19,362
407,000 CIG Wh Intl Holdings Ltd. ................. 127,396
8,350,000 CNPC Hong Kong Limited..................... 1,853,807
510,000 China Elegance Intl Fashion................ 276,483
3,520,000 China Everbright - Ihd................... 10,518,245
1,500,000 China Merchants Hai Hong Holdings.......... 4,666,142
2,470,000 China Resources Beijing Land............... 1,833,219
1,336,000 Companion Building Material................ 98,295
</TABLE>
15
<PAGE> 17
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
HONG KONG: (CONTINUED)
1,765,160 Concord Land Dev Co Ltd. .................. $ 1,948,049
7,752,000 Continental Mariner Investment............. 7,404,489
160,000 Dah Sing Financial Holdings................ 885,986
18,220,000 Denway Investment Ltd. .................... 2,892,699
135,000 Dickson Concept Intl - New................. 491,397
4,008,000 Espirit Holdings Limited................... 2,845,378
7,000,000 First Sign International Holdings Ltd. .... 1,355,311
4,182,000 Four Seas Mercantile Hldg. ................ 2,456,094
500,000 GZI Transportation Ltd. ................... 200,070
5,563,000 Glorious Sun Enterprises Ltd. ............. 2,638,858
4,800,000 Gold Lion Holdings Ltd. ................... 2,679,643
5,000,000 Guang Nan Holdings Ltd. ................... 7,809,172
331,714 Guangnan Ltd. Wts. ........................ 196,957
1,400,000 Guangzhou Investment....................... 772,527
548,000 High Fashion International................. 73,564
4,624,000 Innovative Intl Holdings Ltd. ............. 2,417,255
8,682,000 Interform Ceramics......................... 1,546,495
1,366,000 Kingboard Chemicals Holdings............... 436,391
530,000 Kwong On Bank Ltd. ........................ 752,520
169,800 Lai Sun Development........................ 190,681
34,079 Lai Sun Hotel Internatioal Wts. ........... 2,991
4,800,000 Leading Spirit Holding Co. ................ 1,065,662
253,750 Midlands Realty Holdings Ltd. ............. 130,195
2,564,000 Min Xin Holdings........................... 1,820,247
2,500,000 Mingly Corporation......................... 847,069
2,664,000 NG Fung Hong Ltd. ......................... 3,988,796
40,000 Nanyang Holdings Ltd. ..................... 63,248
538,000 Northeast Electric - H..................... 89,582
4,758,000 Pacific Concord Holdings................... 2,656,196
1,068,000 QPL Intl Holdings Limited.................. 902,947
6,000,000 Qingling Motors Company Ltd. - H........... 3,097,853
830,000 Ryoden Developments Ltd. .................. 219,625
555,000 SASA International Holdings Ltd. .......... 180,886
790,000 Semi - Tech Ltd. .......................... 1,289,934
85,000 Shanghai Industrial Holding Ltd............ 528,829
9,000,000 Silver Grant Intl Ltd. .................... 4,704,865
942,000 Sinocan Holdings Ltd. ..................... 465,085
1,200,000 Stelux Holdings International Ltd. ........ 232,339
</TABLE>
16
<PAGE> 18
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
HONG KONG: (CONTINUED)
240,000 Stelux Holdings International Ltd. Wts. ... $ 8,054
118,000 Ta Fu International Ltd. .................. 23,608
4,000,000 Texwinca Holdings Ltd. .................... 2,581,545
1,500,000 Theme International Holdings Ltd. ......... 842,229
1,639,000 Tysan Holdings Limited..................... 401,959
2,490,000 USI Holdings Ltd. ......................... 723,155
794,000 Vanda Systems & Communications............. 368,954
800,000 Varitronix International Ltd. ............. 1,357,892
1,000,000 Wongs International........................ 387,232
931,000 YGM Trading................................ 1,129,606
------------
Total Hong Kong............................ 90,143,900
------------
INDONESIA: 3.27%
951,000 Kalbe Farma................................ 1,270,868
100,000 Lautan Laus................................ 121,299
197,000 Pt Alumindo Light Metal Industrial......... 91,129
2,432,000 Pt Bank Dagang Nasional - For Reg.......... 1,575,648
125,000 Pt Bank Dagang Nasional - Wts.............. 37,150
447,500 Pt Bank Tiara Asia - For Reg............... 533,614
971,000 Pt Komatsu Indonesia - For Reg............. 1,517,188
392,000 Pt Semen Cibinong.......................... 1,156,497
895,000 Pt Steady Safe - For Reg................... 1,048,828
------------
Total Indonesia............................ 7,352,221
------------
MALAYSIA: 8.53%
6,000 Arab Malaysian Fin (Alien)................. 12,837
1,212,000 Berjaya Capital Berhad..................... 1,728,685
349,000 Brisdale Holdings Berhad................... 417,583
249,000 Cement Sarawak Berhad...................... 2,032,250
99,600 Cement Sarawak Berhad Wts.................. 98,653
675,000 Hap Seng Consolidated Berhad............... 1,684,826
509,000 Hock Hua Bank Berhad - For Reg............. 2,016,640
230,000 IJM Corp Berhad - A........................ 482,964
824,000 MBM Resources Berhad....................... 1,681,300
45,000 MNI Holdings Berhad........................ 212,163
500,000 Malakoff Berhad............................ 2,179,081
240,000 Road Builder............................... 1,131,537
</TABLE>
17
<PAGE> 19
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA: (CONTINUED)
551,000 Sunway Building Technology Berhad.......... $ 1,855,586
780,000 Tractors Malaysia Hldgs Berhad............. 1,304,120
1,693,000 United Merchant Group Berhad............... 2,347,662
------------
Total Malaysia............................. 19,185,887
------------
PHILIPPINES: 0.56%
2,724,000 Alaska Milk Corporation.................... 263,353
180,000 CN Solid Group Inc......................... 29,345
890,465 Davao Union Cement Corp. - B............... 104,657
8,000,000 Universal Rightfield Property.............. 834,092
80,000 Universal Robina Corp...................... 29,117
------------
Total Philippines.......................... 1,260,564
------------
SINGAPORE: 7.03%
240,000 Amtek Engineering.......................... 421,347
585,000 Avimo Group Ltd............................ 769,252
18,000 Clipsal Industries Ltd..................... 63,720
80,000 Comfort Group Ltd.......................... 63,230
500,000 Datacraft Asia Limited..................... 1,590,000
1,200,000 Delifrance Asia Limited.................... 1,342,939
900,000 Elec & Eltek Int Co Ltd.................... 5,040,000
200,000 First Capital Corp. - Singapore............ 520,389
870,000 Malayan Credit Limited..................... 1,320,487
96,000 Osprey Maritime Ltd........................ 125,565
600,000 Roly International Holdings................ 282,000
280,000 Singapore Tech Automotive For Reg.......... 701,126
2,046,000 Teledata Ltd............................... 1,144,856
306,900 Teledata Ltd. Wts.......................... 33,272
1,750,000 Uraco Holdings Ltd......................... 869,063
262,500 Uraco Holdings Ltd. Wts.................... 67,016
400,000 Venture Manufacturing...................... 1,303,770
100,000 Wong's Circuits Hldgs Ltd.................. 168,000
------------
Total Singapore............................ 15,826,032
------------
THAILAND: 5.10%
352,000 Central Pattana............................ 508,916
120,000 Eastern Water Resources.................... 144,578
</TABLE>
18
<PAGE> 20
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
THAILAND: (CONTINUED)
825,870 First Bangkok City Bank.................... $ 646,766
63,000 Jasmine Intl PLC Foreign................... 60,723
378,200 Kce Electronics............................ 1,199,912
70,000 Lam Soon (Thailand) - Foreign.............. 38,655
1,754,600 Mah Boon Krong Properties.................. 1,409,317
785,000 Phatra Thanakit Co. - Foreign.............. 1,008,835
100,000 Pizza Co. Ltd.............................. 534,137
86,900 Pizza Co. Ltd. - Foreign................... 406,580
808,000 Robinson Department Store.................. 298,538
471,700 Siam City Cement........................... 1,989,096
50,000 Thai Rung Union Car - Foreign.............. 187,751
373,000 Tipco Asphalt.............................. 2,022,289
1,349,300 Tuntex (Thailand) Co Ltd. ................. 1,002,492
------------
Total Thailand............................. 11,458,585
------------
Total Investments in Securities:
(Indentified cost $149,512,637+) 77.80%.... $175,018,508
Other Assets Less Liabilities: 22.20%...... 49,951,006
------------
NET ASSETS: 100.00%........................ $224,969,514
=============
+ Cost for federal income tax purposes is the same.
Net Unrealized Appreciation consists of:
Gross unrealized appreciation....................... $ 37,443,802
Gross unrealized depreciation....................... (11,937,931)
------------
Net Unrealized Appreciation......................... $ 25,505,871
=============
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 21
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Agriculture................................................. 0.82%
Automobile.................................................. 6.47
Chemical.................................................... 0.27
Construction................................................ 7.99
Consumer-Related............................................ 14.83
Energy...................................................... 3.19
Finance..................................................... 11.99
Food........................................................ 1.75
Manufacturing............................................... 2.06
Pharmaceutical.............................................. 0.57
Real-Estate................................................. 6.65
Retail...................................................... 10.42
Technology.................................................. 7.17
Telecommunications.......................................... 0.89
Transportation.............................................. 2.73
------
TOTAL INVESTMENTS IN SECURITIES............................. 77.80
OTHER ASSETS LESS LIABILITIES............................... 22.20
------
NET ASSETS.................................................. 100.00%
======
</TABLE>
20
<PAGE> 22
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost
$149,512,637)........................................ $175,018,508
Cash................................................... 51,130,911
Receivables:
Fund shares sold.................................. 403,799
Dividends and interests........................... 644,137
Prepaid expenses....................................... 61,428
Deferred organization costs, net....................... 6,694
------------
Total Assets...................................... $227,265,477
------------
LIABILITIES
Payables:
Securities purchased.............................. 1,185,284
Unrealized loss on forward currency contracts open
(Note 6)........................................ 25
Fund shares redeemed.............................. 26,524
Dividends to shareholders......................... 742,514
Due to affiliates (Note 3)............................. 194,320
Accrued expenses....................................... 147,296
------------
Total Liabilities................................. 2,295,963
------------
Net Assets............................................. $224,969,514
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($224,969,514/13,501,690 shares outstanding;
unlimited number of shares authorized without par
value)............................................ $16.66
=======
SOURCE OF NET ASSETS
Paid-in capital................................... $199,615,600
Undistributed net investment income............... 11,605
Accumulated net realized loss on investments...... (142,079)
Net unrealized appreciation (depreciation) on:
Investments.................................. 25,505,871
Foreign currency............................. (21,483)
------------
NET ASSETS................................... $224,969,514
============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 23
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended
June 30, 1997
- -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld of $61,495)... $ 1,361,911
Interest............................................... 745,982
------------------
Total Investment Income........................... 2,107,893
EXPENSES
Advisory fees (Note 3)................................. 757,766
Administration fee (Note 3)............................ 190,634
Custodian.............................................. 147,674
Accounting............................................. 25,876
Transfer agent fees.................................... 106,129
Audit fees............................................. 15,813
Legal fees............................................. 37,714
Trustees' fees......................................... 6,639
Registration fees...................................... 10,413
Reports to shareholders................................ 11,133
Deferred organization costs amortization............... 867
Miscellaneous.......................................... 10,211
------------------
Total expenses.................................... 1,320,869
Expenses recouped (Note 3)........................ 71,583
------------------
Net expenses...................................... 1,392,452
------------------
NET INVESTMENT INCOME........................ $ 715,441
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments..................... 589,918
Net realized loss from foreign currency................ (715,367)
Net change in unrealized appreciation on investments... 23,620,810
Net change in unrealized loss on foreign currency...... (17,600)
------------------
Net Realized and Unrealized Gain on Investments... 23,477,761
------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $24,193,202
==================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 24
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended April 29, 1996*
June 30, 1997 through
(Unaudited) December 31, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income.................. $ 715,441 $ 23,001
Net realized gain from investments..... 589,918 73,470
Net realized loss on foreign
currency............................. (715,367) (7,229)
Net change in unrealized appreciation
on investments....................... 23,620,810 1,885,061
Net change in unrealized loss on
foreign currency..................... (17,600) (3,883)
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $ 24,193,202 $ 1,970,420
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment
income............................... (688,596) (38,241)
Distributions from taxable realized
gains................................ (54,034) (28,837)
----------- -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... (742,630) (67,078)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.............. 176,372,634 49,952,419
Net asset value of shares issued on
reinvestment of distributions........ -- 60,299
Cost of shares redeemed................ (25,721,976) (1,447,776)
----------- -----------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS.................... 150,650,658 48,564,942
----------- -----------
TOTAL INCREASE IN NET ASSETS...... 174,101,230 50,468,284
NET ASSETS
Beginning of period.................... 50,868,284 400,000
----------- -----------
End of period [including undistributed
(overdistributed) net investment
income of $11,605 and ($15,240),
respectively]........................ $ 224,969,514 $50,868,284
=========== ===========
CHANGES IN SHARES
Shares sold............................ 11,567,317 3,681,439
Shares reinvested from distributions... -- 4,288
Shares redeemed........................ (1,674,350) (109,004)
----------- -----------
NET INCREASE...................... 9,892,967 3,576,723
=========== ===========
</TABLE>
*Inception date.
See accompanying notes to financials statements.
23
<PAGE> 25
GUINNESS FLIGHT ASIA SMALL CAP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended April 29, 1996*
June 30, 1997 through
(Unaudited) December 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period...... $ 14.10 $ 12.50
--------
------------
Income from investment operations:
Net investment income................... 0.04 0.02
Net realized and unrealized gain on
investments.......................... 2.58 1.61
--------
------------
Total from investment operations.......... 2.62 1.63
--------
------------
Less Distributions:
Dividends from net investment income.... (0.05) (0.02)
Distributions from taxable net capital
gains................................ (0.01) (0.01)
--------
------------
Total Distributions....................... (0.06) (0.03)
--------
------------
Net asset value, end of period............ $ 16.66 $ 14.10
======== =======
Total return.............................. 18.55%++ 13.08%++
Ratios/supplemental data:
Net assets, end of period (thousands)..... $ 224,970 $50,868
Ratio of expenses to average net assets:+
Before expense reimbursement/
recoupment........................... 1.74% 3.09%
After expense reimbursement/
recoupment........................... 1.84% 1.98%
Ratio of net investment income to average
net assets:+
Before expense reimbursement/
recoupment........................... 1.04% (0.76)%
After expense reimbursement/
recoupment........................... 0.94% 0.36%
Portfolio turnover rate................... 17.03% 21.91%
Average Commission Rate Paid.............. $ 0.0028 $0.0029
</TABLE>
* Inception date.
+ Annualized.
++ Not Annualized.
See accompanying notes to financial statements.
24
<PAGE> 26
Guinness Flight China & Hong Kong Fund
In the first half of this year, the Hong Kong market has been quite
volatile and has seen some exceptional returns from China-related stocks. The
overall strong performance of the Hang Seng Index was driven by the finance
sector, which rose 31.9%, largely attributable to HSBC, and the utilities
sector, which rose 36.1%, attributed to Hong Kong Telecom and China Light and
Power. Property stocks reversed sharply from their highs last year, dropping
5.7%, while the commercial and industrial sector was up 4.1%. Nevertheless, the
fund, with a six-month return of 14.38%, outperformed its benchmark, the Hang
Seng Index, which rose 12.8% over the same period.
Hong Kong's domestic economy is now firmly on a recovery path with real
economic growth in the first quarter of 1997 up 6%, putting the economy on track
for 5.5% growth this year, compared to 4.7% in 1996. Both consumption and
investment have performed well, with retail sales rising 1.9% in the first
quarter. Investment in the form of fixed capital formation grew 12.1% in 1996.
Trade numbers are still subdued with total exports up only 2.2% in the first
quarter, but these numbers have been mitigated by China's exceptionally strong
export recovery.
Inflation in Hong Kong has remained low and was 5.8% in May year over year.
This is mainly the result of lower food prices from China following a bumper
harvest last year. Excluding food, which accounts for 40% of the Consumer Price
Index, core inflation is rising at just below 8%, consistent with an economic
recovery. The buoyant economy and expanded liquidity is underpinned by the
recovery in the Chinese economy. CPI inflation in China fell to 2.8% in May and
company inventories are still high. For these reasons, it is expected that
authorities will ease policy further to stimulate the economy. However, it is
clear that the excess liquidity already created in China is finding its way into
the Hong Kong stock market, which has contributed to the volatility and the boom
in the China-related companies known as "red chips."
High residential property values have been a primary concern for the Hong
Kong administration and continue to be so under the new government. Prices rose
40% on average in 1996 and are estimated to have risen 15% so far this year in
spite of a 0.25% rise in U.S. interest rates and measures to increase land
supply. The outgoing administration announced that land supply would be
increased by 46% over the next five years and
25
<PAGE> 27
Guinness Flight China & Hong Kong Fund (Continued)
imposed measures to ensure the new developments should be sold in large enough
chunks to reduce the speculative element.
C.H. Tung, the new chief executive, has since announced a 10-year housing
program designed to bring on average 85,000 new units to the market per year
over that period. Mr. Tung has set a goal of reducing house prices to more
affordable levels and to bring home ownership up to 70% from the current 50%
level. As a consequence, we expect that a steady stream of news will keep the
share prices of residential property development companies weak.
In anticipation of weaker property prices, the fund reduced its exposure to
the sector and instead raised exposure to banks and the consumer sector. The
utilities weighting was raised because of the expected rise in interest rates.
China Light and Power and Hong Kong Telecom were both boosted by news of
China-related transactions. Hong Kong Telecom in particular surged on the back
of Cable & Wireless' decision to sell a 5.5% stake to China Telecommunications
Corp. Exposure to red chip stocks, such as China Resources Enterprise, Cosco
Pacific and Guangnan, has also been increased. As we are writing these comments,
red chips represent approximately 10% of our portfolio.
In the coming months, investors will be watching the new government and
monitoring the extent to which China honors its promises to the new Special
Administrative Region (SAR). Both C.H. Tung and the Chinese president Jiang
Zemin have been at pains to reassure both local residents and foreigners that
the rights and privileges of the people in Hong Kong will be protected. New
elections for the legislature have been promised in May 1998. The overall
success of the transition will largely depend on the new government's ability to
resist interference from mainland China and to ensure the continuation of Hong
Kong's sound governance and legal system. Only time will tell, but local and
international observers have been greatly reassured by statements made by the
two leaders.
Our outlook for the Hong Kong market is still positive given the
expectations of a stable transition and a sound economic backdrop. Earnings for
Hong Kong companies are forecast to grow 15% a year for the next two years. The
risks to the market in the near term center on the interest rate policy of the
U.S. Federal Reserve and on the possible regulatory moves prompted by further
stock market volatility and balloon-
26
<PAGE> 28
Guinness Flight China & Hong Kong Fund (Continued)
ing residential property prices. But with strong earnings momentum and a benign
economic environment, we believe the market has long-term fundamental support.
Richard Farrell and Lynda Johnstone -- London, July 31, 1997.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT CHINA & HONG KONG FUND AND THE HANG SENG INDEX
Guinness Flight
Measurement Period China & Hong
(Fiscal Year Covered) Kong Fund Hang Seng Index
<S> <C> <C>
6/30/94* 10,000 10,000
9/30/94 10,616 10,871
12/31/94 9,226 9,352
3/31/95 9,274 9,805
6/30/95 10,040 10,512
9/30/95 10,680 11,014
12/30/95 11,112 11,501
3/31/96 12,066 12,510
6/30/96 12,254 12,582
9/30/96 13,054 13,589
12/31/96 14,933 15,356
3/31/97 13,828 18,469
6/30/97 17,080 22,397
</TABLE>
* Inception date.
Average Annual Total Return
One Year Three years Since Inception
-------- ----------- ---------------
39.38% 19.53% 19.53%
Past performance is not predictive of future performance
27
<PAGE> 29
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: (97.60%) Value
- -------------------------------------------------------------------------
<C> <S> <C>
AIR TRANSPORT & AIR COURIER SERVICES: 0.01%
88,000 GZI Transportation Ltd. ..................... $ 35,212
17,600 GZI Transportation Ltd. Wts. ................ 1,817
------------
Total Air Transport & Air Courier Services... 37,029
------------
AUTOMOTIVE MANUFACTURER: 0.88%
5,826,000 Qingling Motors Company Ltd. ................ 3,008,015
------------
BANKS: 22.78%
1,284,500 Dao Heng Bank Group Ltd. .................... 7,029,907
1,501,500 Hang Seng Bank............................... 21,415,945
1,331,600 HSBC Holding Plc............................. 40,047,862
604,000 Liu Chong Hing Investment Ltd................ 880,978
731,000 Union Bank of Hong Kong...................... 2,113,562
955,200 Wing Hang Bank Limited....................... 5,770,186
------------
Total Banks.................................. 77,258,440
------------
BOOT & SHOE CUT STOCK & BINDING: 0.39%
646,800 Yue Yuen Industrial Holdings................. 1,339,969
------------
CONGLOMERATES & DIVERSIFIED OPERATIONS: 25.38%
1,472,000 China Resources Enterprises.................. 7,220,064
2,031,000 Citic Pacific Ltd. .......................... 12,688,343
3,535,000 First Pacific Co. ........................... 4,517,251
5,583,000 Guangdong Investment Ltd. ................... 8,395,435
558,300 Guangdong Investment Ltd. Wts. .............. 263,033
193,800 Guangdong Tannery............................ 75,045
3,665,000 Hutchison Whampoa............................ 31,695,558
1,268,500 Swire Pacific Ltd. A......................... 11,420,480
2,264,000 Wharf (Holdings) Ltd. ....................... 9,818,956
------------
Total Conglomerates & Diversified
Operations................................. 86,094,165
------------
CONSUMER GOODS: 0.50%
280,000 Dickson Concept International................ 1,019,194
1,326,000 Shanghai Refrigerator Comp - B............... 636,480
------------
Total Consumer Goods......................... 1,655,674
------------
</TABLE>
28
<PAGE> 30
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL CONSUMER GOODS: 0.54%
942,000 Guangdong Kelon Electric..................... $ 899,772
1,446,000 Gold Peak Industrial......................... 933,228
------------
Total Electrical Consumer Goods.............. 1,833,000
------------
ELECTRIC POWER: 6.32%
1,878,000 Beijing Datang Power......................... 866,605
1,886,500 China Light & Power Co. ..................... 10,689,834
2,156,000 Hong Kong Electric........................... 8,682,664
60,000 Huaneng Power International Inc. ADR......... 1,530,000
------------
Total Electric Power......................... 21,769,103
------------
ENGINEERING & INFRASTRUCTURE: 1.49%
1,413,733 New World Infrastructure..................... 3,996,328
3,860,000 Shenzen Expressway........................... 1,058,756
------------
Total Engineering & Infrastructure........... 5,055,084
------------
FINANCE: 2.21%
3,028,000 China Overseas Land & Investment............. 2,442,787
907,200 Dah Sing Financial Holdings.................. 5,023,541
35,000 Peregrine Investment Holdings Wts............ 15,360
------------
Total Finance................................ 7,481,688
------------
FINANCIAL SERVICES: 0.93%
2,000,000 QPL International Holdings................... 1,690,912
238,000 Shanghai Industrial Holding Ltd.............. 1,480,722
------------
Total Financial Services..................... 3,171,634
------------
FOOD & BEVERAGE: 0.18%
1,002,000 Four Seas Mercantile Holdings................ 588,476
320,400 Four Seas Mercantile Holdings Wts............ 41,356
------------
Total Food & Beverage........................ 629,832
------------
GAS PRODUCTION & DISTRIBUTION: 3.10%
5,260,176 Hong Kong & China Gas........................ 10,524,018
------------
</TABLE>
29
<PAGE> 31
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
HOTELS, TOURIST COURTS & MOTELS: 0.45%
1,284,000 Shangri - La Asia Ltd........................ $ 1,541,337
------------
HOUSEHOLD APPLIANCE STORES: 0.60%
800,000 Guang Nan Holdings Ltd....................... 1,249,468
480,000 Wuxi Little Swan............................. 805,442
------------
Total Household Appliance Stores............. 2,054,910
------------
INSURANCE: 0.47%
1,440,000 National Mutual Ltd.......................... 1,598,492
------------
MEDIA: 1.58%
2,084,000 South China Morning Post..................... 2,044,377
737,000 Television Broadcasts Ltd.................... 3,310,521
------------
Total Media.................................. 5,354,898
------------
PETROLEUM REFINING : 0.57%
5,390,000 Zhenhai Refining & Chemical Co............... 1,948,034
------------
REAL ESTATE: 20.60%
1,882,000 Amoy Properties Ltd. Ord. ................... 2,076,995
2,117,000 Cheung Kong.................................. 20,904,121
949,600 HKR International Ltd. ...................... 1,317,646
984,000 Henderson Land Company....................... 8,732,074
921,000 Hysan Development Company.................... 2,716,411
38,850 Hysan Development Wts - 98................... 15,044
1,747,000 New World Development........................ 10,418,004
724,000 Sino Land Company............................ 784,996
1,904,000 Sun Hung Kai Properties Ltd. ................ 22,917,403
------------
Total Real Estate............................ 69,882,694
------------
RETAILERS: 0.85%
4,050,000 Esprit Asia Holdings Ltd..................... 2,875,195
------------
TELECOMMUNICATIONS: 4.67%
6,634,000 Hong Kong Telecom............................ 15,841,519
------------
</TABLE>
30
<PAGE> 32
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY
JUNE 30, 1997 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION: 2.81%
4,101,000 Cosco Pacific Ltd. .......................... $ 9,501,755
------------
WHOLESALE TRADE - MISC. WHOLESALERS: 0.29%
868,000 Li & Fung Ltd. .............................. 974,740
------------
Total Investments in Securities
(Identified cost $264,826,609+): 97.60%...... $331,431,225
------------
Other Assets Less Liabilities: 2.40%......... 8,134,425
------------
NET ASSETS: 100.00%.......................... $339,565,650
============
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation................ $ 68,237,564
Gross unrealized depreciation................ (1,632,948)
------------
Net Unrealized Appreciation.................. $ 66,604,616
============
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 33
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost
$264,826,609)........................................ $331,431,225
Cash................................................... 10,053,075
Receivables:
Securities sold................................... 998,995
Fund shares sold.................................. 1,172,473
Dividends and interests........................... 753,217
Prepaid expenses....................................... 109,402
Deferred organizational costs, net..................... 23,642
------------
Total Assets...................................... $344,542,029
------------
LIABILITIES
Payables:
Securities purchased.............................. 1,683,882
Dividends to shareholders......................... 2,635,619
Fund shares redeemed.............................. 151,305
Due to affiliates (Note 3)............................. 286,908
Other accrued expenses................................. 218,665
------------
Total Liabilities................................. 4,976,379
------------
Net Assets............................................. $339,565,650
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($339,565,650/16,894,989 shares outstanding;
unlimited number of shares authorized without par
value)............................................ $20.10
=======
SOURCE OF NET ASSETS
Paid-in capital................................... $256,254,686
Overdistributed net investment income............. (70,509)
Undistributed net realized gain on investments.... 16,777,990
Net unrealized appreciation on:
Investments.................................. 66,604,616
Foreign currency............................. (1,133)
------------
NET ASSETS................................... $339,565,650
============
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 34
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months
Ended
June 30, 1997
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends.............................................. $ 4,140,940
Interests.............................................. 135,383
----------------
Total Investment Income........................... 4,276,323
EXPENSES
Advisory fees (Note 3)................................. 1,412,723
Administration fee (Note 3)............................ 353,181
Custodian.............................................. 206,286
Accounting............................................. 25,014
Transfer agent fees.................................... 201,059
Audit fees............................................. 19,517
Legal fees............................................. 57,232
Trustees' fees......................................... 6,639
Registration fees...................................... 14,259
Reports to shareholders................................ 19,480
Deferred organization costs amortization............... 5,778
Miscellaneous.......................................... 22,689
----------------
Total expenses before interests................... 2,343,857
Interest on loans (Note 5)........................ 22,136
----------------
Total expenses.................................... 2,365,993
----------------
NET INVESTMENT INCOME........................ 1,910,330
----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments..................... 16,856,980
Net realized loss from foreign currency................ (26,398)
Net change in unrealized appreciation on investments
and foreign currency................................. 19,164,509
----------------
Net Realized and Unrealized Gain on
Investments................................ 35,995,091
----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $37,905,421
================
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 35
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
June 30, 1997 Ended
(Unaudited) December 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income................. $ 1,910,330 $ 2,473,451
Net realized gain from investments.... 16,856,980 5,591,892
Net realized loss on foreign
currency............................ (26,398) (54,179)
Net unrealized appreciation on
investments and foreign currency.... 19,164,509 43,833,578
------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $ 37,905,421 $ 51,844,742
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment
income.............................. (2,027,399) (2,426,162)
Distributions from taxable realized
gains............................... (608,220) (4,883,242)
------------ -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS................... (2,635,619) (7,309,404)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............. 164,704,154 344,443,893
Net asset value of shares issued on
reinvestment of distributions....... -- 6,537,646
Cost of shares redeemed............... (171,929,168) (139,736,255)
------------ -----------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS..... (7,225,014) 211,245,284
------------ -----------
TOTAL INCREASE IN NET ASSETS..... 28,044,788 255,780,622
NET ASSETS
Beginning of period................... 311,520,862 55,740,240
------------ -----------
End of period [including
(overdistributed) undistributed net
investment income of $(70,509) and
$46,560, respectively].............. $339,565,650 $311,520,862
============ ===========
CHANGES IN SHARES
Shares sold........................... 9,172,712 22,049,194
Shares reinvested from
distributions....................... -- 453,347
Shares redeemed....................... (9,867,102) (8,999,261)
------------ -----------
NET INCREASE (DECREASE).......... (694,390) 13,503,280
============ ===========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 36
GUINNESS FLIGHT CHINA & HONG KONG FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the Years Ended From June 30,*
Months Ended December 31, through
June 30, 1997 -------------------- December 31,
(Unaudited) 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................... $ 17.71 $ 13.64 $ 11.47 $ 12.50
--------- ------ ----- ----------
Income from investment operations:
Net investment income................ 0.12 0.19 0.14 0.04
Net realized and unrealized gain
(loss) on investments.............. 2.43 4.43 2.20 (0.96)
--------- ------ ----- ----------
Total from investment operations...... 2.55 4.62 2.34 (0.92)
--------- ------ ----- ----------
Less distributions:
Dividends from net investment
income............................. (0.12) (0.19) (0.14) (0.04)
Distributions from taxable net
capital gains...................... (0.04) (0.36) (0.03) (0.07)
--------- ------ ----- ----------
Total distributions................... (0.16) (0.55) (0.17) (0.11)
--------- ------ ----- ----------
Net asset value, end of period........ $ 20.10 $ 17.71 $ 13.64 $ 11.47
========= ====== ===== ==========
Total return.......................... 14.38%++ 34.38% 20.45% (7.74)%++
Ratios/supplemental data:
Net assets, end of period
(thousands).......................... $ 339,566 $311,521 $55,740 $ 2,287
Ratio of expenses to average net
assets:+
Before expense reimbursement
(recoupement)...................... 1.69% 1.78% 3.02%** 19.92%
After expense reimbursement
(recoupement)...................... 1.69% 1.96% 1.98% 2.00%
Ratio of net investment income to
average net assets:+
Before expense reimbursement
(recoupement)...................... 1.36% 1.57% 0.49% (17.15)%
After expense reimbursement
(recoupement)...................... 1.36% 1.39% 1.52% 0.78%
Portfolio turnover rate............... 30.26% 30.40% 10.89% 27.25%
Average Commission Rate Paid#......... $ 0.0056 $ 0.0070 -- --
BANK LOANS
Amount outstanding at end of period
(000)................................ $ 0 -- -- --
Average amount of bank loans
outstanding during the period
(monthly average) (000).............. $ 4,098 $ 1,413 -- --
Average number of shares outstanding
during the period (monthly average)
(000)................................ 16,129 11,419 -- --
Average amount of debt per share
during the period.................... $ 0.25 $ 0.12 -- --
</TABLE>
* Inception date.
+ Annualized.
++ Not annualized.
** Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the ratio of expenses to average net assets
before "expense reimbursement" would have been 3.04%
# For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commissions rate per share for security trades on
which commissions are charged.
See accompanying notes to financial statements.
35
<PAGE> 37
Guinness Flight Global Government Bond Fund
The divergence of economic management and policies among the major
economies has held over in 1997 from last year. Loose monetary policies in
Continental Europe and Japan (offsetting a tight fiscal stance) contrasted with
a tightening of monetary policies in the Anglo-Saxon economies of the U.S., U.K.
and Canada. The performance of the major bond markets responded in the
traditional manner. The Anglo-Saxon bond markets generally underperformed while
European markets did well, with the peripheral markets performing best.
The tight monetary policies in the U.S. and the U.K. provided support for
the Dollar and Sterling while the European Monetary Union (EMU) uncertainty once
again undermined the Exchange Rate Mechanism (ERM) currencies. In this regard,
the fund was well positioned with initially overweight Dollar positions, but a
build-up of the Deutsche Mark position in May proved too early. For the
six-month period, the fund's total return of -1.23% slightly underperformed its
benchmark, the Salomon World Government Bond Index, which ended the six months
with a return of -0.69%.
There are early signs that the previous economic and market trends may be
coming to an end so we have gradually been altering our investment strategy.
The fragile economic recoveries in Europe and Japan are gaining momentum as
the year progresses. While the U.K. and the U.S. economies will maintain their
recent strength for the next few months, we believe they will likely trail off
towards the end of the year. Interest rates are close to a peak in both
countries, although the U.K.'s consumer boom may need some harsher medicine.
During the next three months, the market's attention will focus on the
brighter prospects for both Europe and Japan in 1998. With the French election
of May behind us, there is no longer a mandate for further fiscal austerity. In
the meantime, the weakness of the Deutsche Mark and the other ERM currencies
continues to provide support for the export sector. The fear of a soft monetary
union is increasingly becoming a reality but also less of a threat. The European
authorities are unlikely to be raising rates but the combination of a looser
fiscal stance in 1998, together with a
36
<PAGE> 38
Guinness Flight Global Government Bond Fund (Continued)
pickup in the domestic economy, should remind the markets that European rates
can go up as well as down.
This changing economic outlook has affected our investment strategy in two
ways. First, the high European bond exposure has been cut back in favor of the
U.S. and U.K. markets. Second, the currency profile has been simplified and
spread more evenly among the Dollar, Yen and Deutsche Mark.
We will continue to increase overall bond exposure in the portfolio as the
threat of rising U.S. interest rate subsides. Recent events in Asia suggest that
global synchronization of growth remains a dream and therefore global
inflationary pressures are likely to be subdued.
Michael Daley and John Stopford -- London, July 31, 1997.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND AND
THE SALOMON BROTHERS' WORLD GOVERNMENT BOND INDEX
Guinness Flight
Global Salomon Bros.
Measurement Period Government Bond World Govt Bond
(Fiscal Year Covered) Fund Index
<S> <C> <C>
6/30/94* 10,000 10,000
9/30/94 9,754 10,117
12/31/94 9,787 10,166
3/31/95 10,093 11,278
6/30/95 10,638 11,879
9/30/95 10,609 11,755
12/30/95 11,183 12,102
3/31/96 11,083 11,875
6/30/96 11,197 11,923
9/30/96 11,376 12,248
12/31/96 11,877 12,540
3/31/97 11,485 13,752
6/30/97 11,732 14,309
</TABLE>
* Inception date.
Average Annual Total Return
One Year Three Years Since Inception
-------- ----------- ---------------
4.78% 5.47% 5.47%
Past performance is not predictive of future performance
37
<PAGE> 39
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value GOVERNMENT BONDS: 67.23% Market Value US$
- ----------------------------------------------------------------------------
<C> <S> <C>
BRITISH POUND: 20.41%
$ 40,000 Italy Sterling NCL
10.500% 04/28/14.......................... $ 84,001
495,000 United Kingdom Gilts
7.500% 12/07/06........................... 845,657
280,000 United Kingdom Gilts
8.000% 06/07/21........................... 513,021
----------
Total British Pound......................... 1,442,679
----------
DANISH KRONER: 2.04%
970,000 Kingdom of Denmark 7.000% 11/10/24.......... 144,071
----------
IRISH PUNT: 4.81%
220,000 Irish Gilts 6.500%
10/18/01.................................. 340,110
----------
UNITED STATES DOLLAR: 39.97%
320,000 Canada-Global Bond
6.750% 08/28/06........................... 319,776
360,000 Tokyo Metro
6.125% 03/27/06........................... 343,620
890,000 U.S. Treasury Note
6.625% 03/31/02........................... 898,344
537,000 U.S. Treasury Bond
7.875% 11/15/04........................... 579,456
700,000 U.S. Treasury Note
6.250% 02/15/07........................... 684,906
----------
Total United States Dollar.................. 2,826,102
----------
Total Government Bonds (Identified cost
$4,699,236*).............................. $ 4,752,962
----------
Total Investments in Securities: (Identified
cost $4,699,236*) 67.23%.................. $ 4,752,962
Other Assets Less Liabilities: 32.77%....... 2,316,695
----------
NET ASSETS: 100.00%......................... $ 7,069,657
==========
*Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation....................... $ 87,820
Gross unrealized depreciation....................... (34,094)
----------
NET UNREALIZED APPRECIATION............... $ 53,726
==========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 40
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $4,699,236)..... $4,752,962
Cash...................................................... 2,360,960
Receivables:
Fund shares sold..................................... 2,500
Interests............................................ 89,564
Due from affiliates (Note 3).............................. 11,634
Prepaid expenses.......................................... 135
Deferred organizational costs, net........................ 23,642
----------
Total Assets......................................... $7,241,397
----------
LIABILITIES
Payables:
Unrealized loss on forward currency contracts open
(Note 6)........................................... 54,901
Dividends to shareholders............................ 85,575
Accrued expenses.......................................... 31,264
----------
Total Liabilities.................................... 171,740
----------
Net Assets................................................ $7,069,657
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($7,069,657/582,144 shares outstanding; unlimited
number of shares authorized without par value)....... $12.14
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $7,270,440
Undistributed net investment income (including
equalization credits of $5,394).................... 28,044
Accumulated net realized loss on investments......... (227,904)
Net unrealized appreciation (depreciation) on:
Investments..................................... 53,726
Foreign currency................................ (54,649)
----------
NET ASSETS...................................... $7,069,657
==========
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 41
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended
June 30, 1997
- -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interests............................................. $ 205,017
----------------
EXPENSES
Advisory fees (Note 3)................................ 25,633
Administration fee (Note 3)........................... 8,924
Custodian............................................. 9,331
Accounting............................................ 18,579
Transfer agent fees................................... 16,726
Auditing fees......................................... 18,863
Legal fees............................................ 5,481
Trustees' fees........................................ 6,639
Registration fees..................................... 9,095
Reports to shareholders............................... 1,352
Deferred organization costs amortization.............. 5,778
Miscellaneous......................................... 3,388
----------------
Total expenses................................... 129,789
Less: Expenses reimbursed (Note 3)............... (104,156)
----------------
Net expenses..................................... 25,633
----------------
NET INVESTMENT INCOME....................... $ 179,384
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments.................... (191,772)
Net realized loss from foreign currency............... (18,568)
Net change in unrealized depreciation on
investments......................................... (1,213)
Net change in unrealized loss on foreign currency..... (38,564)
----------------
Net Realized and Unrealized Loss on
Investments.................................... (250,117)
----------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ (70,733)
================
</TABLE>
See accompanying notes to financial statements.
40
<PAGE> 42
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year
June 30, 1997 Ended
(Unaudited) December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM:
OPERATIONS
Net investment income................. $ 179,384 $ 131,457
Net realized (loss) gain from
investments......................... (191,772) 75,867
Net realized (loss) gain on foreign
currency............................ (18,568) 575
Net change in unrealized
(depreciation) appreciation on
investments......................... (1,213) 21,387
Net change in unrealized depreciation
on foreign currency................. (38,564) (16,057)
----------------- -----------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS..................... (70,733) 213,229
----------------- -----------------
NET EQUALIZATION CREDITS.............. 5,394 44,071
--------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment
income.............................. (178,532) (162,397)
Distributions from net capital
gains............................... (61,125) (22,795)
----------------- -----------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS................... (239,657) (185,192)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............. 1,495,579 6,348,475
Net asset value of shares issued on
reinvestment of distributions....... 144,940 175,240
Cost of shares redeemed............... (830,156) (1,184,883)
----------------- -----------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS................... 810,363 5,338,832
----------------- -----------------
TOTAL INCREASE IN NET ASSETS..... 505,367 5,410,940
NET ASSETS
Beginning of period................... 6,564,290 1,153,350
----------------- -----------------
End of period (including undistributed
net investment income of $28,044 and
$21,798, respectively).............. $7,069,657 $ 6,564,290
========== ===========
CHANGES IN SHARES
Shares sold........................... 122,035 507,485
Shares issued from dividend
distributions....................... 11,920 13,939
Shares redeemed....................... (67,848) (95,726)
----------------- -----------------
NET INCREASE..................... 66,107 425,698
========== ===========
</TABLE>
See accompanying notes to financial statements.
41
<PAGE> 43
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended December 31, From June 30,*
June 30, 1997 ------------------ through
(Unaudited) 1996 1995 December 31, 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $ 12.72 $ 12.77 $ 12.00 $ 12.50
------ ------- ------- -------
Income from investment
operations:
Net investment income.......... 0.33 0.63 0.69 0.29
Net realized and unrealized
gain (loss) on investments... (0.48) 0.13 1.01 (0.58)
------ ------- ------- -------
Total from investment
operations..................... (0.15) 0.76 1.70 (0.29)
------ ------- ------- -------
Less distributions:
Dividends from net investment
income....................... (0.32) (0.69) (0.65) (0.21)
Distributions from net capital
gains........................ (0.11) (0.12) (0.28) --
------ ------- ------- -------
Total distributions.......... (0.43) (0.81) (0.93) (0.21)
------ ------- ------- -------
Net asset value, end of period... $ 12.14 $ 12.72 $ 12.77 $ 12.00
====== ======= ======= =======
Total return..................... (1.23)%++ 6.21% 14.49% (2.33)%++
Ratios/supplemental data:
Net assets, end of period
(thousands).................... $ 7,070 $ 6,564 $ 1,153 $ 751
Ratio of expenses to average net
assets:+
Before expense reimbursement... 3.83% 8.21% 21.52%# 40.78%
After expense reimbursement.... 0.75% 1.31% 1.73% 1.75%
Ratio of net investment income to
average net assets:+
Before expense reimbursement... 2.22% (1.76)% (14.26)% (34.18)%
After expense reimbursement.... 5.29% 5.14% 5.53% 4.86%
Portfolio turnover rate.......... 87.43% 296.51% 202.54% 46.15%
</TABLE>
* Inception date.
+ Annualized
++ Not 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.
42
<PAGE> 44
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Guinness Flight Investment Funds is a Delaware business trust was organized
on April 28, 1997 and registered under the Investment Company Act of 1940 (the
"1940 Act") as a non-diversified, open-end management investment company.
Currently, the Guinness Flight Investment Funds offer four separate series
portfolios: Guinness Flight Asia Blue Chip Fund whose objective is long-term
capital appreciation, Guinness Flight Asia Small Cap Fund whose objective is
long-term capital appreciation, Guinness Flight China & Hong Kong Fund whose
objective is long-term capital appreciation, and Guinness Flight Global
Government Bond Fund whose objective is to provide current income and capital
appreciation (collectively, the "Funds"). The China & Hong Kong Fund and the
Global Government Bond Fund began operations on June 30, 1994 and the Asia Blue
Chip Fund and the Asia Small Cap Fund began operations on April 29, 1996.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there has been no sale are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with accrued
interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60 day period that
this amortized cost basis does not represent fair value.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Funds do not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period.
43
<PAGE> 45
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Interest income is translated at the exchange rates which existed at the
dates the income was accrued. Exchange gains and losses related to interest
income are included in interest income on the accompanying Statements of
Operations.
B. Forward Foreign Currency Exchange Contracts. The Funds may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates and at specified
rates, and is subject to the risks of foreign exchange fluctuations. All
commitments are "marked-to-market" daily and any resulting unrealized gains or
losses are included as unrealized appreciation (depreciation) on foreign
currency denominated assets and liabilities. The Funds record realized gains or
losses at the time the forward contract is settled. Counter parties to these
forward contracts are major U.S. financial institutions.
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 Bond Fund follows the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of redemptions of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of the Fund's shares.
F. Deferred Organization Costs. The China & Hong Kong Fund and the Global
Government Bond Fund have each incurred expenses of $58,785 in connection with
their organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have
each incurred expenses of $8,745 in connection with their 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. Concentration of Risk. The Asia Blue Chip Fund and Asia Small Cap Fund
invests substantially all of its assets in Asian continent. The China & Hong
44
<PAGE> 46
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Kong Fund invests substantially all of its assets in securities that are traded
in China or Hong Kong or that are issued by companies that do a substantial part
of their business in China. The Global Government Bond Fund invests
substantially in bonds issued by various European governments. The consequences
of political, social or economic changes in the countries in which the
securities are offered or the issuers conduct their operations may affect the
market prices of the Funds' investments and any income generated, as well as the
Funds' ability to repatriate such amounts.
H. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
I. Other. Under terms of the Custodial Agreement, the Funds may earn
credits, based on custody cash balances, to applied to custodian fees. For the
six months ended June 30, 1997, there were no such credits.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
Guinness Funds, on behalf of the Funds, entered into an Investment Advisory
Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to
provide the Funds with investment management services. The Advisor furnished all
investment advice, office space and certain administrative services, and
provides certain personnel needed by the Funds. As compensation for its
services, the Advisor was entitled to a monthly fee equal to the following
annual percentages of daily average net assets:
<TABLE>
<S> <C>
Asia Blue Chip Fund 1.00%
Asia Small Cap Fund 1.00%
China & Hong Kong Fund 1.00%
Global Government Bond Fund 0.75%
</TABLE>
The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to reimburse each Fund to the extent necessary so that
its ratio of operating expenses to average daily net assets will not exceed the
45
<PAGE> 47
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
following levels. Expenses reimbursed from the Adviser for the six months ended
June 30, 1997 are stated in the Funds' Statement of Operations:
<TABLE>
<S> <C>
Asia Blue Chip Fund 1.98%
Asia Small Cap Fund 1.98%
China & Hong Kong Fund 1.98%
Global Government Bond Fund 0.75%
</TABLE>
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 Trustees; monitors the activities of the Funds'
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Funds' expense accruals. For its
services, the Administrator receives an annual fee equal to the greater of 0.25
of 1% of the Funds' average daily net assets, subject to a $40,000 annual
minimum for the China & Hong Kong Fund and $60,000 allocated based on average
daily net assets of the Asia Blue Chip Fund, Asia Small Cap Fund and Global
Government Bond Fund.
The Funds will reimburse the Advisor and Administrator in subsequent years when
operating expenses (before reimbursements) are less than the applicable
percentage limitation in effect at that time for each of the Funds.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Guinness Flight Investment Funds are also officers
and/or Directors of the Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding U.S.
Government obligations and short-term investments, for the six months ended June
30, 1997 were:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
------------------------------------ ----------- ----------
<S> <C> <C>
Asia Blue Chip Fund $ 63,678 $ 76,988
Asia Small Cap Fund $ 2,026,445 $4,345,381
China & Hong Kong Fund $21,232,542 $8,567,932
Global Government Bond Fund $ 178,717 $1,310,396
</TABLE>
46
<PAGE> 48
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Purchases and sales of U.S. Government obligations by the Global Government Fund
were $901,890 and $110,172, respectively.
NOTE 5 - LINE OF CREDIT
The Funds have a $20 million unsecured line of credit with a bank that expires
on June 18, 1998. The interest rate on the line of credit is the bank's base
rate, as revised from time to time.
NOTE 6 - FORWARD FOREIGN CURRENCY CONTRACTS
At June 30, 1997 the Funds had entered into forward foreign currency contracts
which obligated the Funds to exchange currencies at specified future dates. At
the maturity of a forward contract, the Funds may either make delivery of the
foreign currency from currency held, if any, or from the proceeds of the
portfolio securities sold, or it may terminate its obligation to deliver the
foreign currency at any time by purchasing an offsetting contract. The forward
value of amounts due to netted against the forward value of the currency to be
delivered by the Funds and the remaining amount is shown as receivable (payable)
for forward currency contracts in the financial statements. Open forward foreign
currency exchange contracts outstanding at June 30, 1997 were as follows:
GUINNESS FLIGHT ASIA BLUE CHIP FUND
<TABLE>
<CAPTION>
Delivery Unrealized
Currency Receivable Currency Deliverable Date Gain/(Loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pound Sterling
US $3,458 4,080......................... 07/01/97 $ (4)
-----------
Total Forward Contracts $ (4)
=========
</TABLE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
<TABLE>
<CAPTION>
Delivery Unrealized
Currency Receivable Currency Deliverable Date Gain/(Loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US $5,058 Hong Kong Dollar 39,200....... 07/03/97 $ (2)
US $9,032 Hong Kong Dollar 70,000....... 07/03/97 (3)
US $47,046 Hong Kong Dollar 364,634...... 07/03/97 (18)
US $6,451 Singapore Dollar 50,000....... 07/03/97 (2)
-----------
Total Forward Contracts $ (25)
=========
</TABLE>
47
<PAGE> 49
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
Currency Delivery Unrealized
Receivable Currency Deliverable Date Gain/(Loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US $842,558 Australian Dollar 1,090,600.... 07/31/97 $ 18,654
US $1,769,150 Canadian Dollar 2,443,868...... 07/31/97 13,278
US $2,621,719 Swiss Franc 2,443,818.......... 07/31/97 (26,409)
US $4,326,325 Deutsche Mark 7,175,876........ 07/31/97 (26,806)
US $137,864 Danish Krone 889,638........... 07/31/97 3,612
US $1,291,621 Spanish Peseta 18,829,278...... 07/31/97 5,737
British Pound Sterling
US $3,114,597 1,932,675...................... 07/31/97 (10,085)
US $1,296,118 Irish Pound 832,128............ 07/31/97 (4,025)
US $2,610,762 Japanese Yen 319,236,211....... 07/31/97 (2,121)
US $608,647 Norwegian Krone 4,141,322...... 07/31/97 (42,280)
European Currency Unit
US $938,141 818,324........................ 07/31/97 1,529
US $850,882 Australian Dollar 1,116,424.... 11/20/97 (5,903)
US $706,447 Canadian Dollar 966,000........ 11/20/97 5,473
US $1,213,275 Deutsche Mark 2,053,849........ 11/20/97 (23,067)
US $691,092 Spanish Peseta 100,288,481..... 11/20/97 265
British Pound Sterling
US $509,699 309,500........................ 11/20/97 (3,281)
US $352,267 Irish Pound 232,981............ 11/20/97 (95)
US $2,083,468 Japanese Yen 239,199,250....... 11/20/97 40,623
-----------
Total Forward Contracts $ (54,901)
=========
</TABLE>
48
<PAGE> 50
USEFUL GUINNESS FLIGHT PHONE NUMBERS
Shareholder Service Line: 1-800-915-6566
Fund Literature Line: 1-800-915-6565
Automated Line for NAVs: 1-800-915-6564
This report is intended for the shareholders of Guinness Flight
Investment Funds and should not be used as sales literature
unless accompanied or preceded by the Funds current prospectus.
B050 103-071097
