GUINNESS FLIGHT INVESTMENT FUNDS INC, N-30D, 1997-03-05

GUINNESS FLIGHT INVESTMENT FUNDS INC
N-30D, 1997-03-05

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<PAGE> 1

ANNUAL REPORT 12/31/96

NO LOAD INVESTING

GUINNESS FLIGHT ASIA BLUE CHIP FUND

GUINNESS FLIGHT ASIA SMALL CAP FUND

GUINNESS FLIGHT CHINA & HONG KONG FUND

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
<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

February 24, 1997

Dear Guinness Flight Fund Shareholder:

Guinness Flight called 1996 "The Year of the Investor." Looking back on the
year, we can say more precisely that it was a year of growth for our investors
and for the Guinness Flight Investment Funds. Fund performance was up for the
year; the number of funds in the family was doubled to four; and total assets
under management grew more than six-fold, increasing from $56 million on
December 31, 1995 to $369 million at year-end 1996. With such growth, we wanted
to take this opportunity to welcome new shareholders to the Guinness Flight Fund
Family.

Looking ahead, we are excited about the prospects for 1997 and the success that
we can again share with our shareholders. We continue to work hard to deliver
superior service to our shareholders. In 1996, improvements were made to our
overall methods of shareholder communication. You can count on seeing more
changes and improvements in 1997, including a Guinness Flight Shareholder Guide
and a World Wide Web site exclusively for Guinness Flight shareholders.
Clearly though, investment management is what decides your investment decisions.
Be certain that your assets are being managed by dedicated and experienced
portfolio managers. We are proud to report that all four Guinness Flight Funds
posted satisfactory results in 1996.

Guinness Flight China & Hong Kong Fund

The China & Hong Kong Fund produced a total return of 34.38% for the 12-month
period ending December 31, 1996. This return represents a 0.9% outperformance
over the 33.48% (US$) posted by the Hang Seng Index for the same period. This
outperformance can be attributed to being fully weighted in the property sector
and underweighted in utilities, particularly during the latter part of the year.
The Hang Seng Index climbed steadily since our mid-year report, regularly
hitting new highs and reaching a peak during the year of 13,531.

Guinness Flight Asia Blue Chip Fund

The Asia Blue Chip Fund produced a total return of 3.84% since inception on
April 29, 1996 through December 31, 1996. The funds' total return can be
compared to the -3.6% return of the Morgan Stanley AC Asia Free Ex-Japan
<PAGE> 3

Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund

Index for the same eight-month period. The last eight-month period has been a
difficult time for Asian Blue Chip securities, with Hong Kong being the
exception. However the expectations for the potential of Asian Blue Chips in
1997 is favorable. We are predicting better value in emerging markets like
Thailand, India and Korea, all of which fell precipitously last year.

Guinness Flight Asia Small Cap Fund

For the first eight months since inception, the Fund produced a 13.08% return,
outperforming by far the benchmark HSBC James Capel Southeast Asia Smaller
Companies Index's total return of -2.8% (US$). The Fund's strong performance was
achieved mainly through being overweight in Hong Kong and underweight in
Malaysia, Singapore and Thailand. The possibility of higher U.S. interest rates
coupled with poor export demand led to the underweight positions in most Asian
markets excluding Hong Kong.

Guinness Flight Global Government Bond Fund

For the 12-month period, the Fund's return was 6.21% versus the 3.62% (US$)
return for the Salomon Brothers World Government Bond Index. The Fund benefited
from overweight positions in the U.S. dollar and German mark. In the latter part
of 1996, Canadian bond positions were reduced while a high currency position in
this market was maintained. In Australia, the gradually declining economy
renewed calls for an interest rate reduction, supporting the bond market but
depressing its currency.

Reflection and Outlook

In 1996, as in 1995, Hong Kong remained "the jewel in the crown" of Asia. This
market's recent success has been driven by the recovery of the Chinese economy,
the strong property market and improving sentiment towards the territory's
transition back to Chinese rule on July 1, 1997.

In 1996, major events affecting the Hong Kong and Chinese economies included the
April General Election and the May interest rate cut in China. Undoubtedly the
possible effects of Hong Kong's transition to new leadership on July 1, 1997
will dominate economic trends in the coming year. While there is potential for
volatility, we believe the transition will be seen as a positive event for the
market, with all the negative aspects already being out of the way. The last
thing the Chinese leadership would want the world to say is that Hong Kong was a
<PAGE> 4

Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund

smashing success under the British but went into decline as soon as the Chinese
took over. As optimism surrounding the transition continues to rise, there will
be a rippling effect causing a pick-up in consumer spending, which has been very
weak in the last two years.

As for other Asian markets, smart stock selection will be the key to investing
in the region in 1997. The situation in Singapore is looking increasingly
positive, particularly after recent strong earnings, due in large part to better
prospects in the electronics industry. The economic slowdown is expected to
continue in Malaysia, while we expect to see a generally recovering economic and
political outlook in Thailand after the deterioration over the last 12 months.
We expect to see outperformance in Indonesia, given its robust economic
fundamentals and undemanding market multiples. The Philippines will continue to
be clouded by interest rate worries, especially given the property market's
substantial representation in the stock market. A few bargains may be picked up
in Korea.

In the global currency and bond markets, the outlook for 1997 remains mixed. The
U.S. economy appears to have picked up momentum from the relatively sluggish
pace of the third quarter but is, as yet, not threatening to accelerate away.
U.S. inflation remains subdued, although wage inflation and high energy costs
could creep into the headline figures. Elsewhere in the world, some economies
are not on such a strong footing. Fiscal tightening in Europe and now Japan is
likely to depress activity in 1997, offsetting the significant easing of
monetary policy that has occurred so far. We continue to expect selective
currencies such as the British pound sterling, the Norwegian kroner and the U.S.
dollar to outperform the hard European currencies, and to a lesser extent, the
Japanese yen.

Summary

While there are still moderate concerns about the effects of the July 1
transition on the markets, we remain optimistic and even bullish about the
economic future in Asia and especially in China. In Hong Kong, earnings are
forecast to grow by nearly 15% in 1997 at 13,000 with the market trading on a
Price/Earnings ratio of 13.8 times 1997 earnings. Risks to the market include a
correction on Wall Street, a flaring up of inflation in China or some
unpredictable political crisis.
<PAGE> 5

Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund

As we have cautioned in the past, these markets are volatile; however, we are
confident investors who are in it for the long term will be well-rewarded. We
appreciate your confidence in our management team and look forward to a long and
profitable relationship.

/s/ Timothy Guinness /s/ Howard Flight
- ---------------------- --------------------
Timothy Guinness Howard Flight
<PAGE> 6

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA BLUE CHIP FUND AND THE MORGAN STANLEY AC ASIA FREE EX-JAPAN INDEX

04/29/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- --------
Guinness Flight Asia Blue Chip Fund $10,000 $9,904 $9,980 $10,384
Morgan Stanley AC Asia Free Ex-Japan 10,000 9,706 9,372 9,564

Total Return Since Inception 3.84%

__________________

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA SMALL CAP FUND AND THE HSBC JAMES CAPEL SOUTHEAST ASIA SMALLER
COMPANIES INDEX (HSBC JAMES CAPEL SASC INDEX)

04/29/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- --------
Guinness Flight Asia Small Cap Fund $10,000 $10,461 $10,397 $11,308
HSBC James Capel Southeast Asia
Smaller Companies Index 10,000 9,530 9,467 9,720

Total Return Since Inception 13.08%
<PAGE> 7

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT CHINA & HONG KONG FUND AND THE HANG SENG INDEX

<TABLE>
<CAPTION>
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guinness Flight
China &
Hong Kong Fund $10,000 $10,616 $9,226 $9,274 $10,040 $10,680 $11,112 $12,066 $12,254 $13,054 $14,933
Hang Seng Index 10,000 10,871 9,352 9,805 10,512 11,014 11,501 12,510 12,582 13,589 15,358
</TABLE>

Average Annual Total Return

One Year Since Inception
-------- ---------------
34.38% 17.35%

________________

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND AND
THE SALOMON BROTHERS' WORLD GOVERNMENT BOND INDEX

<TABLE>
<CAPTION>
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guinness Flight
Global Government
Bond Fund $10,000 $ 9,754 $ 9,767 $10,093 $10,638 $10,809 $11,183 $11,083 $11,197 $11,378 $11,877
Salomon Bros.
World Gov't
Bond Index 10,000 10,117 10,166 11,278 11,879 11,755 12,102 11,875 11,923 12,248 12,540
</TABLE>

Average Annual Total Return

One Year Since Inception
-------- ---------------
6.21% 7.10%
<PAGE> 8

Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund

Index to Financial Statements

<TABLE>
<S> <C> <C>
Guinness Flight Asia Blue Chip Fund
Portfolio of Investments............................ 9
Statement of Assets and Liabilities................. 13
Statement of Operations............................. 14
Statement of Changes in Net Assets.................. 15
Financial Highlights................................ 16

Guinness Flight Asia Small Cap Fund
Portfolio of Investments............................ 17
Statement of Assets and Liabilities................. 23
Statement of Operations............................. 24
Statement of Changes in Net Assets.................. 25
Financial Highlights................................ 26

Guinness Flight China & Hong Kong Fund
Portfolio of Investments............................ 27
Statement of Assets and Liabilities................. 32
Statement of Operations............................. 33
Statements of Changes in Net Assets................. 34
Financial Highlights................................ 35

Guinness Flight Global Government Bond Fund
Portfolio of Investments............................ 36
Statement of Assets and Liabilities................. 39
Statement of Operations............................. 40
Statements of Changes in Net Assets................. 41
Financial Highlights................................ 42

Notes to Financial Statements.............................. 43
Report of Independent Auditors............................. 48
</TABLE>

8
<PAGE> 9

GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares COMMON STOCKS: 92.03% Value
- ------------------------------------------------------------------------
<C> <S> <C>
CHINA: 2.44%
4,000 Huaneng Power International Inc. ADR*........... $ 90,000
----------
HONG KONG: 41.63%
60,000 Amoy Properties Ltd............................. 86,496
100,000 CDL Hotel International......................... 57,211
7,000 Cheung Kong..................................... 62,221
36,000 First Pacific Co................................ 46,777
7,200 HSBC Holdings Plc............................... 154,063
8,000 Hang Seng Bank.................................. 97,227
35,000 Hong Kong & China Gas........................... 67,651
20,000 Hong Kong Electric*............................. 66,455
32,500 Hong Kong & Shanghai Hotels*.................... 61,349
2,500 Hong Kong & Shanghai Hotels Wts.*............... 937
35,000 Hong Kong Land Holdings Ltd..................... 97,300
30,000 Hong Kong Telecom............................... 48,290
12,000 Hutchison Whampoa............................... 94,253
100,000 National Mutual Ltd.*........................... 95,029
20,000 New World Development........................... 135,109
30,000 Shangri-La Asia Ltd............................. 44,411
6,000 Sun Hung Kai Properties Ltd..................... 73,502
12,000 Swire Pacific Ltd. A............................ 114,422
20,000 Television Broadcasts Ltd....................... 79,902
200,000 Tingyi (Cayman Island) Holding Co.*............. 52,363
----------
Total Hong Kong................................. 1,534,968
----------
INDIA: 4.53%
5,000 State Bank of India GDR*........................ 87,500
3,600 Crompton Greaves Ltd. GDR*...................... 14,310
6,000 Tata Engineering & Locomotive Ltd. GDR*......... 65,100
----------
Total India..................................... 166,910
----------
INDONESIA: 7.22%
82,806 Bank International Indonesia (Alien Mkt)........ 81,509
25,000 Bank Intl Indonesia (For Reg)*.................. 24,608
30,000 Pt Indofood Sukses Makmur-F*.................... 59,695
30,000 Pt Indocement Tunggal Prakarsa*................. 45,724
2,000 Pt Indonesia Satellite.......................... 54,750
----------
Total Indonesia................................. 266,286
----------
</TABLE>

9
<PAGE> 10

GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
KOREA (SOUTH): 3.18%
1,000 Dong-Ah Construction EDR*....................... $ 10,750
1,500 Pohong Iron & Steel Ltd. ADR.................... 30,375
3,000 Korea Electric Power Corp. ADR.................. 61,500
800 Samsung Electronics GDS*........................ 14,760
----------
Total South Korea............................... 117,385
----------
MALAYSIA: 14.87%
20,000 DCB Holdings Berhad*............................ 68,507
6,000 Edaran Otomobil Nasional Berhad................. 59,993
50,000 IOI Corporation Berhad.......................... 76,823
15,000 Kuala Lumpur Kepong Berhad...................... 38,015
45,000 Kumpulan Guthrie Berhad*........................ 79,832
10,000 Malayan Banking Berhad.......................... 110,878
8,000 Petronas Gas Berhad............................. 33,263
4,000 Telekom Malaysia Berhad......................... 35,639
5,000 United Engineers Berhad......................... 45,143
----------
Total Malaysia.................................. 548,093
----------
PHILIPPINES: 4.80%
30,000 Ayala Corp. Class B............................. 32,510
200,000 Metro Pacific Corp.*............................ 49,430
2,750 Metropolitan Bank & Trust Co.................... 67,966
80,000 Petron Corp.*................................... 27,072
----------
Total Philippines............................... 176,978
----------
SINGAPORE: 7.15%
7,000 City Developments Ltd. ......................... 63,059
8,100 Overseas Chinese Banking Corp. (For. Reg)....... 100,765
6,000 Singapore Airlines Ltd (For. Reg)............... 54,479
8,000 Singapore Telecom Ltd. ......................... 18,875
10,000 Wont Nant Holdings*............................. 26,300
----------
Total Singapore................................. 263,478
----------
TAIWAN: 2.69%
3,000 China Steel Corp. GDS........................... 59,775
2,200 President Enterprise GDS*....................... 39,325
----------
Total Taiwan.................................... 99,100
----------
</TABLE>

10
<PAGE> 11

GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
THAILAND: 3.52%
2,000 Land & House Plc Alien Market*.................. $ 14,589
1,600 Siam Cement Co Ltd. (For. Reg).................. 50,181
5,000 Siam Makro Public Co Ltd.*...................... 21,065
10,000 Siam Makro Public Co. (For. Reg)*............... 44,080
----------
Total Thailand.................................. 129,915
----------
Total Common Stocks: (Identified cost
$3,227,448) 92.03%.............................. $3,393,113
----------
- ------------------------------------------------------------------------
Par
Value CORPORATE BONDS: 3.01% Value
- ------------------------------------------------------------------------
$50,000 Formosa Chemical & Fiber 1.75% due 07/19/01..... $ 56,125
20,000 Nan Ya Plastics Convertible Bond 1.75% due
07/19/01........................................ 22,800
30,000 Ssangyong Oil Refining 3.75% due 12/31/08....... 32,213
----------
Total Corporate Bonds: 3.01%
(Identified cost $109,650)...................... 111,138
----------
Total Investments in Securities
(cost $3,337,098+): 95.04%...................... $3,504,251
----------
Other Assets Less Liabilities: 4.96%............ 182,914
----------
NET ASSETS: 100.00%............................. $3,687,165
==========
</TABLE>

* Security is non-income producing

+ Cost for federal income tax purposes is the same:

<TABLE>
<S> <C>
Net unrealized appreciation consists of:
Gross unrealized appreciation.......................... $ 372,011
Gross unrealized depreciation.......................... (204,858)
---------
167,153
=========
</TABLE>

See accompanying notes to financial statements.

11
<PAGE> 12

GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Automobile.................................................. 1.63%
Banking..................................................... 19.65
Chemical.................................................... 1.52
Construction................................................ 5.06
Diversified operations...................................... 10.61
Electric utilities.......................................... 5.91
Electronics................................................. 0.39
Finance..................................................... 2.58
Food and beverage........................................... 6.59
Gas......................................................... 2.74
Hotels...................................................... 4.45
Industrial.................................................. 0.62
Iron and steel.............................................. 2.44
Media....................................................... 2.17
Oil/Petroleum refining...................................... 1.61
Real-Estate................................................. 14.44
Technology.................................................. 1.22
Telecommunications.......................................... 4.27
Transportation.............................................. 3.24
Wholesalers................................................. 3.90
------
TOTAL INVESTMENTS IN SECURITIES............................. 95.04
OTHER ASSETS LESS LIABILITIES............................... 4.96
------
NET ASSETS.................................................. 100.00%
======
</TABLE>

12
<PAGE> 13

GUINNESS FLIGHT ASIA BLUE CHIP FUND

STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $3,337,098)..... $3,504,251
Cash...................................................... 250,669
Receivables:
Fund shares sold..................................... 40,000
Dividends and interest............................... 7,197
Prepaid expenses.......................................... 8,610
Deferred organization costs, net.......................... 7,561
----------
Total assets......................................... 3,818,288
----------
LIABILITIES
Payables
Securities purchased................................. 89,867
Due to Adviser....................................... 18,395
Accrued expenses.......................................... 22,861
----------
Total liabilities.................................... 131,123
----------
NET ASSETS................................................ $3,687,165
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($3,687,165/284,068 shares outstanding; unlimited
number of shares authorized without par value)....... $12.98
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $3,517,505
Undistributed net investment income.................. 838
Accumulated net realized gain on investments......... 1,740
Net unrealized appreciation on investments and
foreign currency................................... 167,082
----------
Net assets...................................... $3,687,165
==========
</TABLE>

See accompanying notes to financial statements.

13
<PAGE> 14

GUINNESS FLIGHT ASIA BLUE CHIP FUND

STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld $1,517)....... $ 20,595
Interest............................................... 5,834
--------------
Total Investment Income........................... 26,429
EXPENSES
Advisory fees (Note 3)................................. 12,860
Administration fee (Note 3)............................ 13,424
Custodian.............................................. 10,963
Accounting............................................. 20,137
Transfer agent fees.................................... 16,767
Auditing fees.......................................... 15,741
Legal fees............................................. 4,213
Directors' fees........................................ 4,699
Registration fees...................................... 14,095
Reports to shareholders................................ 2,350
Deferred organization costs amortization............... 1,184
Miscellaneous.......................................... 2,014
--------------
Total expenses.................................... 118,447
Less: Expenses reimbursed (Note 3)................ (92,856)
--------------
Net expenses...................................... 25,591
--------------
NET INVESTMENT INCOME........................ 838
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments..................... 2,695
Net realized loss from foreign currency................ (955)
Net unrealized appreciation on investments and foreign
currency............................................. 167,082
--------------
Net realized and unrealized gain on investments... 168,822
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 169,660
==============
</TABLE>

*Commencement of operations.

See accompanying notes to financial statements.

14
<PAGE> 15

GUINNESS FLIGHT ASIA BLUE CHIP FUND

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income................................ $ 838
Net realized gain from investments................... 2,695
Net realized loss on foreign currency................ (955)
Net unrealized appreciation on investments and
foreign currency................................... 167,082
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 169,660
---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 3,961,160
Cost of shares redeemed.............................. (843,655)
---------------
Net increase from capital share transactions......... 3,117,505
---------------
TOTAL INCREASE IN NET ASSETS.................... 3,287,165
NET ASSETS
Beginning of period.................................. 400,000
---------------
End of period (including undistributed net investment
income of $838).................................... $ 3,687,165
===============
CHANGES IN SHARES
Shares sold.......................................... 320,248
Shares redeemed...................................... (68,180)
---------------
NET INCREASE.................................... 253,068
===============
</TABLE>

*Commencement of operations.

See accompanying notes to financial statements.

15
<PAGE> 16

GUINNESS FLIGHT ASIA BLUE CHIP FUND

FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period.................. $ 12.50
--------
Income from investment operations:
Net investment income............................... 0.00
Net realized and unrealized gain on investments and
foreign currency................................. 0.48
--------
Total from investment operations...................... 0.48
--------
Net asset value, end of period........................ $ 12.98
========
Total return.......................................... 3.84%+
Ratios/supplemental data:
Net assets, end of period (thousands)................. $ 3,687
Ratio of expenses to average net assets:**
Before expense reimbursement........................ 9.14%
After expense reimbursement......................... 1.98%
Ratio of net investment income (loss) to average net
assets:**
Before expense reimbursement........................ (7.10)%
After expense reimbursement......................... 0.06%
Portfolio turnover rate............................... 10.97%
Average Commission Rate Paid++........................ $0.0190
</TABLE>

* Commencement of operations.

** Annualized.

+ Not annualized.

++ A fund is required to disclose its average commission rate per share for
security trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures
may differ.

See accompanying notes to financial statements.

16
<PAGE> 17

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares COMMON STOCKS: 82.84% Value
- --------------------------------------------------------------------------
<C> <S> <C>
CHINA: 11.18%
1,100,000 Anhui Expressway Co Ltd-H*.................... $ 309,328
455,400 Changchai Co. Ltd. B*......................... 395,667
457,478 China First Pencil-B*......................... 202,205
472,280 Dazhong Taxi-B*............................... 390,103
1,373,000 Guandong Kelon Elec Hld-H*.................... 887,582
476,100 Guangdong Provincial Expr-B*.................. 461,665
855,000 Huangshan Tourism DVLP Co-B*.................. 376,200
500,000 Inner Mongolia Erdos Cashmere*................ 315,000
2,468,000 Nanjing Panda Electronics-H*.................. 542,453
772,000 Shanghai Dajiang Group-B*..................... 375,964
1,149,000 Shanghai Diesel Engineering-B*................ 544,626
90,000 Shanghai Refrigerator Comp-B ADR.............. 48,960
860,000 Shanghai Tyre and Rubber Co-B*................ 364,640
480,000 Shenzhen Fangda Co Ltd-B*..................... 471,653
------------
Total China................................... 5,686,046
------------
HONG KONG: 40.50%
500,000 ASM Pacific Technology........................ 387,873
2,400,000 Allied Properties............................. 390,976
250,000 Anex International Holdings Ltd............... 42,989
162,000 Apt Satellite Holdings*....................... 268,097
1,188,000 Asean Resources*.............................. 326,395
980,000 CIG Wh Intl Holdings Ltd.*.................... 240,740
2,200,000 Chaifa Holdings Ltd........................... 575,991
32,000 Chen Hsong Holdings........................... 19,445
510,000 China Elegance Intl Fashion*.................. 296,722
250,000 China Resources Beijing Land*................. 158,381
668,000 Companion Building Material................... 124,367
15,160 Concord Land Dev Co Ltd.*..................... 6,566
160,000 Dah Sing Financial Holdings*.................. 649,557
135,000 Dickson Cocept Intl-New*...................... 506,174
200,000 FPB Bank Holding Co Ltd.*..................... 89,857
1,628,000 First Sign International Holdings Ltd......... 520,952
1,200,000 Founder Hong Kong Limited*.................... 461,568
1,182,000 Four Seas Mercantile Holdings*................ 618,928
1,500,000 Gold Lion Holdings Ltd.*...................... 1,231,497
1,500,000 Glorious Sun Enterprises Ltd.*................ 625,444
1,500,000 Guangnan Holdings Ltd......................... 1,289,676
</TABLE>

17
<PAGE> 18

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
HONG KONG: (CONTINUED)
548,000 High Fashion International*................... $ 53,139
983,000 Hung Hing Print Group......................... 355,860
600,000 Interform Ceramics*........................... 93,865
1,980,000 Innovative Intl Holdings Ltd.*................ 831,987
300,000 Jardine Intl Motor Holdings*.................. 401,448
800,000 Kumagai Gumi*................................. 930,894
80,000 Kwong On Bank Ltd.*........................... 94,124
69,800 Lai Sun Development........................... 105,587
200,000 Luen Fat Hong International Holding Ltd....... 44,217
13,125 Lung Kee (Bermuda) Holdings................... 3,903
200,000 Midlands Realty Holdings Ltd.................. 183,593
410,000 Moulin International Holdings................. 286,250
800,000 NG Fung Hong Ltd.............................. 718,857
40,000 Nanyang Holdings Ltd.*........................ 62,060
10,000 New Asia Realty & Trust Co.................... 36,913
758,000 Pacific Concord Holdings...................... 195,025
150,000 Playmates Toys Holdings Ltd................... 40,242
1,200,000 QPL Intl Holdings Limited*.................... 930,894
1,778,000 Qingling Motors Company Ltd.*................. 982,731
830,000 Ryoden Developments Ltd....................... 244,133
85,000 Shanghai Industrial Holdings Ltd.*............ 309,910
1,230,000 Silver Grant Intl Ltd.*....................... 548,646
626,000 Sinocan Holdings Ltd.......................... 307,557
20,000 South China Morning Post...................... 16,549
1,200,000 Stelux Holdings International Ltd............. 310,298
2,942,000 Ta Fu International Ltd.*..................... 471,663
516,000 Tai Cheung Holdings*.......................... 487,013
2,150,000 Tysan Holdings Limited*....................... 469,778
1,500,000 USI Holdings Ltd.............................. 698,171
794,000 Vanda Systems & Communications*............... 207,880
176,000 Varitronix International Ltd.................. 318,573
1,000,000 Wongs International........................... 313,530
223,000 YGM Trading................................... 227,772
1,324,000 Zhenhai Refining & Chem Co.*.................. 487,866
------------
Total Hong Kong............................... 20,603,125
------------
</TABLE>

18
<PAGE> 19

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
INDONESIA: 2.88%
250,000 Pt Bank Dagang Nasional (For Reg)*............ $ 254,022
180,000 Pt Bank Tiara Asia (For Reg)*................. 194,327
52,000 Pt Citra Marga Nusaphala Per.................. 40,728
100,000 Pt Darya Varia Lab (For Reg)*................. 160,881
200,000 Pt Enseval Putera Mega (For Reg)*............. 97,375
216,000 Pt Indorama Synthetics (For Reg)*............. 210,330
180,000 Pt Semen Cibinong*............................ 506,774
------------
Total Indonesia............................... 1,464,437
------------
MALAYSIA: 9.89%
3,000 Arab Malaysian Fin (Alien).................... 16,750
60,000 Brisdale Holdings Berhad*..................... 95,989
88,000 Kumpulan Jetson Berhad*....................... 362,412
100,000 Hock Hua Bank Berhad (For Reg)*............... 463,311
130,000 IJM Corp Berhad-A*............................ 306,300
300,000 MBM Resources Berhad.......................... 641,508
65,000 Malakoff Berhad*.............................. 319,170
250,000 Malayan Credit Limited*....................... 434,332
15,000 Pan Pacific Asia Berhad*...................... 44,252
120,000 Road Builder*................................. 679,523
25,000 Sap Holdings*................................. 119,788
30,000 Star Publications (Malaysia).................. 118,204
18,000 Sungei Way Holdings Berhad.................... 53,459
1,800 Sungei Way Holdings Berhad Rights*............ 2,138
200,000 Tractors Malaysia Hldgs Bhd................... 375,401
180,000 Tradewinds (Malaysia) Berhad.................. 602,305
195,000 United Merchant Group Berhad*................. 321,229
48,000 Worldwide Holdings Berhad..................... 76,031
------------
Total Malaysia................................ 5,032,102
------------
</TABLE>

19
<PAGE> 20

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
PHILIPPINES: 1.49%
2,724,000 Alaska Milk Corporation*...................... $ 352,152
180,000 Cn Solid Group Inc.*.......................... 36,958
375,000 Davao Union Cement Corp.-B.................... 105,513
1,680,000 Universal Rightfield Property*................ 220,380
80,000 Universal Robina Corp.*....................... 44,867
------------
Total Philippines............................. 759,870
------------
SINGAPORE: 11.53%
25,000 Acer Computer International Ltd............... 43,000
359,000 Amtek Engineering............................. 713,534
19,000 Aztech Systems Ltd............................ 5,841
18,000 Clipsal Industries Ltd........................ 65,520
80,000 Comfort Group Ltd............................. 70,923
62,000 Datacraft Asia Limited........................ 103,540
600,000 Delifrance Asia Limited*...................... 493,315
432,000 Elec & Eltek Int Co Ltd....................... 1,641,600
680,000 FJ Benjamin Holdings Ltd.*.................... 478,873
440,000 Pacific Andes Hldg Ltd.*...................... 217,800
600,000 Roly International Holdings................... 438,000
50,000 Singapore Tech Automotive (For Reg)*.......... 111,532
600,000 Sunright Ltd.*................................ 634,875
300,000 Venture Manufacturing*........................ 746,407
100,000 Wong's Circuits Hldgs Ltd.*................... 99,000
------------
Total Singapore............................... 5,863,760
------------
</TABLE>

20
<PAGE> 21

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
THAILAND: 5.37%
63,000 Jasmine Intl PLC Foreign*..................... $ 96,460
3,000 Kce Electronics*.............................. 8,894
70,000 Lam Soon (Thailand)-Foreign*.................. 84,650
160,000 National Petrochemical-Foreign................ 123,269
347,000 Robinson Department Store-Foreign*............ 673,425
50,000 Thairung Union Car Pub Co.-Foreign*........... 243,807
6,000 Tipco Asphalt*................................ 36,513
100,000 Tipco Asphalt-Local*.......................... 608,543
885,300 Tuntex (Thailand) Co Ltd.*.................... 854,737
------------
Total Thailand................................ 2,730,298
------------
Total Common Stocks
(Identified cost $40,254,577): 82.84%......... $ 42,139,638
------------
</TABLE>

FORWARD CONTRACTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Currency Delivery Unrealized
Receivable Currency Deliverable Date Gain/(Loss)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $ 534,277 Hong Kong Dollar 4,132,096.... 01/02/97 $ (32)
U.S. $ 367,148 Malaysian Ringgit 927,340..... 01/02/97 47
U.S. $ 677,686 Malaysian Ringgit 1,711,293... 01/03/97 (98)
U.S. $ 330,959 Singapore Dollar 462,912...... 01/03/97 46
U.S. $ 381,193 Thai Baht 9,760,443........... 01/03/97 (446)
-----------
Total Forward Contracts....... (483)
-----------
Total Investments in
Securities:
(cost $40,254,577+) 82.84%.... $42,139,155
Other assets less liabilities:
17.16%...................... 8,729,129
-----------
NET ASSETS: 100.0%............ $50,868,284
===========

* Security is non-income producing.

+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......... $3,037,791
Gross unrealized depreciation......... (1,152,730)
-----------
Net unrealized appreciation...... $1,885,061
===========
</TABLE>

See accompanying notes to financial statements.

21
<PAGE> 22

GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Agriculture................................................. 1.18%
Automobile.................................................. 7.96
Chemical.................................................... 1.37
Construction................................................ 9.81
Consumer-related............................................ 15.54
Energy...................................................... 0.87
Finance..................................................... 4.95
Food........................................................ 6.54
Manufacturing............................................... 2.11
Media....................................................... 0.26
Pharmaceutical.............................................. 0.51
Pulp........................................................ 0.09
Real-Estate................................................. 5.90
Retail...................................................... 9.61
Technology.................................................. 13.21
Telecommunications.......................................... 1.10
Toys........................................................ 0.09
Transportation.............................................. 1.74
------
TOTAL INVESTMENTS IN SECURITIES............................. 82.84
OTHER ASSETS LESS LIABILITIES............................... 17.16
------
NET ASSETS.................................................. 100.00%
======
</TABLE>

22
<PAGE> 23

GUINNESS FLIGHT ASIA SMALL CAP FUND

STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $40,254,577)... $42,139,155
Cash..................................................... 14,605,938
Receivables:
Fund shares sold.................................... 534,304
Securities sold..................................... 27,027
Dividends and interest.............................. 68,112
Prepaid expenses......................................... 12,127
Deferred organization costs, net......................... 7,561
-----------
Total assets........................................ 57,394,224
-----------
LIABILITIES
Payables:
Securities purchased................................ 6,381,487
Fund shares redeemed................................ 38,003
Dividends to shareholders........................... 6,653
Due to Adviser (Note 3).................................. 60,838
Accrued expenses......................................... 38,959
-----------
Total liabilities................................... 6,525,940
-----------
NET ASSETS............................................... $50,868,284
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($50,868,284/3,608,723, shares outstanding;
unlimited number of shares authorized without par
value).............................................. $14.10
=======
SOURCE OF NET ASSETS
Paid-in capital..................................... $48,964,942
Overdistribution of net investment income........... (15,240)
Undistributed net realized gain on investments...... 37,404
Net unrealized appreciation (depreciation) on:
Investments.................................... 1,885,061
Foreign currency............................... (3,883)
-----------
Net assets..................................... $50,868,284
===========
</TABLE>

See accompanying notes to financial statements.

23
<PAGE> 24

GUINNESS FLIGHT ASIA SMALL CAP FUND

STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (Net of foreign taxes withheld $2,351)...... $ 56,603
Interest.............................................. 92,775
-----------
Total Investment Income.......................... 149,378
EXPENSES
Advisory fees (Note 3)................................ 62,680
Administration fee (Note 3)........................... 13,424
Custodian............................................. 28,156
Accounting............................................ 27,637
Transfer agent fees................................... 16,767
Auditing fees......................................... 17,241
Legal fees............................................ 7,713
Directors' fees....................................... 4,699
Registration fees..................................... 14,095
Reports to shareholders............................... 2,350
Deferred organization costs amortization.............. 1,184
Miscellaneous......................................... 2,014
-----------
Total expenses................................... 197,960
Less: Expenses reimbursed (Note 3)............... (71,583)
-----------
Net expenses..................................... 126,377
-----------
NET INVESTMENT INCOME....................... 23,001
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments.................... 73,470
Net realized loss from foreign currency............... (7,229)
Net unrealized appreciation on investments............ 1,885,061
Net unrealized loss on foreign currency............... (3,883)
-----------
Net realized and unrealized gain on
investments.................................... 1,947,419
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 1,970,420
===========
</TABLE>

*Commencement of operations.

See accompaning notes to financial statements.

24
<PAGE> 25

GUINNESS FLIGHT ASIA SMALL CAP FUND

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income.................................. $ 23,001
Net realized gain from investments..................... 73,470
Net realized loss on foreign currency.................. (7,229)
Net unrealized appreciation on investments............. 1,885,061
Net unrealized loss on foreign currency................ (3,883)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 1,970,420
-----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.............. (38,241)
Distributions from taxable realized gains.............. (28,837)
-----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (67,078)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.............................. 49,952,419
Net asset value of shares issued on reinvestment of
distributions........................................ 60,299
Cost of shares redeemed................................ (1,447,776)
-----------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS...... 48,564,942
-----------
TOTAL INCREASE IN NET ASSETS...................... 50,468,284
NET ASSETS
Beginning of period.................................... 400,000
-----------
End of period (including overdistributed net investment
income of $15,240)................................... $50,868,284
===========
CHANGES IN SHARES
Shares sold............................................ 3,681,439
Shares reinvested from distributions................... 4,288
Shares redeemed........................................ (109,004)
-----------
NET INCREASE...................................... 3,576,723
===========
</TABLE>

*Commencement of operations.

See accompanying notes to financials statements.

25
<PAGE> 26

GUINNESS FLIGHT ASIA SMALL CAP FUND

FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period.................. $ 12.50
--------
Income from investment operations:
Net investment income............................... 0.02
Net realized and unrealized gain on investments..... 1.61
--------
Total from investment operations...................... 1.63
--------
Less distributions:
Dividends from net investment income................ (0.02)
Distributions from taxable net capital gains........ (0.01)
--------
(0.03)
--------
Net asset value, end of period........................ $ 14.10
========
Total return.......................................... 13.08%+
Ratios/supplemental data:
Net assets, end of period (thousands)................. $50,868
Ratio of expenses to average net assets:**
Before expense reimbursement........................ 3.09%
After expense reimbursement......................... 1.98%
Ratio of net investment income to average net
assets:**
Before expense reimbursement........................ (0.76)%
After expense reimbursement......................... 0.36%
Portfolio turnover rate............................... 21.91%
Average Commission Rate Paid++........................ $0.0029
</TABLE>

* Commencement of operations.

** Annualized.

+ Not annualized.

See accompanying notes to financial statements.

26
<PAGE> 27

GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares COMMON STOCKS: (97.51%) Value
- -------------------------------------------------------------------------
<C> <S> <C>
AIR TRANSPORT, SCHED, & AIR COURIER SERVICES:
1.09%
2,160,000 Cathay Pacific Airways Ltd. ................. $ 3,407,072
------------
APPAREL, PIECE GOODS, & NOTIONS: 0.35%
1,287,000 Giordano Holdings Ltd. ...................... 1,098,222
------------
AUTOMOTIVE DEALERS: 0.83%
4,686,000 Qingling Motors Company Ltd. ................ 2,590,038
------------
BANKS: 20.72%
735,400 Bank of East Asia Hong Kong.................. 3,270,769
851,000 Dao Heng Bank Group Ltd...................... 4,081,983
1,613,500 Hang Seng Bank............................... 19,609,412
1,548,400 HSBC Holding Plc............................. 33,132,096
604,000 Liu Chong Hing Investment Ltd. .............. 745,775
536,000 Union Bank of Hong Kong...................... 675,674
666,000 Wing Hang Bank Limited....................... 3,022,380
------------
Total Banks.................................. 64,538,089
------------
BOOT & SHOE CUT STOCK & BINDING: 0.39%
3,234,000 Yue Yuen Industrial Holdings................. 1,233,473
------------
CHEMICALS: 0.53%
2,834,000 Shanghai Petrochemical....................... 861,064
3,210,000 Yizheng Chemical Fibre Co. .................. 780,244
------------
Total Chemicals.............................. 1,641,308
------------
CONTAINER - MARINE: 1.76%
4,699,000 Cosco Pacific Ltd. .......................... 5,467,839
------------
CONSUMER GOODS: 0.55%
642,000 Inner Mongolia Erdos Cashmere................ 404,460
1,020,000 Shanghai Refrigerator Comp - B*.............. 554,880
750,000 Wuxi Little Swan*............................ 756,351
------------
Total Consumer Goods......................... 1,715,691
------------
</TABLE>

27
<PAGE> 28

GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
DEPARTMENT STORES: 0.16%
1,932,000 Joyce Boutique............................... $ 489,588
------------
DIVERSIFIED OPERATIONS: 11.28%
2,438,000 Citic Pacific Ltd. .......................... 14,152,977
1,723,000 First Pacific Co. ........................... 2,238,820
509,000 Gold Lion Holdings Ltd. ..................... 417,887
4,605,000 Guangdong Investment Ltd. ................... 4,435,613
1,244,733 New World Infrastructure*.................... 3,637,076
132,000 Shanghai Industrial Holdings Ltd.*........... 481,272
673,000 Sinocan Holdings Ltd. ....................... 330,648
991,000 Swire Pacific Ltd. A......................... 9,449,383
------------
Total Diversified Operations................. 35,143,676
------------
ELECTRIC POWER: 3.40%
932,500 China Light & Power Co. ..................... 4,147,392
1,742,000 Hong Kong Electric........................... 5,788,273
30,000 Huaneng Power International Inc. ADR*........ 675,000
------------
Total Electric Power......................... 10,610,665
------------
FINANCIAL SERVICES: 1.70%
803,200 Dah Sing Financial Holdings.................. 3,260,777
816,000 National Mutual Asia Ltd. ................... 775,435
725,000 Peregrine Investment Holdings................ 1,242,000
35,000 Peregrine Investment Holdings Wts.-98*....... 11,200
------------
Total Financial Services..................... 5,289,412
------------
FOOD & BEVERAGE: 0.42%
1,602,000 Four Seas Mercantile Holdings*............... 838,852
320,400 Four Seas Mercantile Holdings Wts.*.......... 40,182
1,630,000 Tingyi (Cayman Island) Holding Co.*.......... 426,757
------------
Total Food & Beverage........................ 1,305,791
------------
</TABLE>

28
<PAGE> 29

GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
GAS PRODUCTION & DISTRIBUTION: 3.08%
4,896,800 Hong Kong & China Gas........................ $ 9,465,015
238,900 Hong Kong & China Gas Wts*................... 132,817
------------
Total Gas Productions & Distribution......... 9,597,832
------------
HOTELS, TOURIST COURTS & MOTELS: 2.72%
350,000 Assoc. International Hotels.................. 262,460
1,942,000 CDL Hotel International...................... 1,111,041
2,054,875 Hong Kong & Shanghai Hotels.................. 3,878,877
146,375 Hong Kong & Shanghai Hotels Wts.-98* ........ 54,882
1,986,000 Shangri - La Asia Ltd. ...................... 2,940,035
529,000 Shanghai New Asia Group Ltd.-B............... 230,644
------------
Total Hotels, Tourist Courts & Motels........ 8,477,939
------------
RETAILERS: 0.57%
4,050,000 Esprit Asia Holdings Ltd..................... 1,793,426
------------
MANUFACTURING - ELECTRICAL EQUIPMENT: 0.48%
1,446,000 Gold Peak Industrial......................... 990,859
276,000 Varitronix International Ltd................. 499,580
------------
Total Manufacturing-Electrical Equipment..... 1,490,439
------------
MANUFACTURING - SHOES: 0.02%
193,800 Guangdong Tannery*........................... 48,860
------------
MEDIA: 0.20%
153,000 Television Broadcasts Ltd. .................. 611,248
------------
PETROLEUM REFINING: 0.67%
5,690,000 Zhenhai Refining & Chemical Co............... 2,096,645
------------
REAL ESTATE - AGENTS, BROKERS & MANAGERS:
0.70%
964,000 China Resources Enterprises.................. 2,168,673
------------
</TABLE>

29
<PAGE> 30

GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE - OPERATIONS & LESSORS: 20.63%
3,742,000 Amoy Properties Ltd. Ord. ................... $ 5,394,440
2,146,000 Cheung Kong.................................. 19,075,247
2,231,000 Sun Hung Kai Properties Ltd. ................ 27,330,435
2,499,000 Wharf Holdings Ltd. ......................... 12,471,575
------------
Total Real Estate - Operations & Lessors..... 64,271,697
------------
REAL ESTATE - SUBDIVIDERS, DEVELOPERS &
OPERATIVE BUILDERS: 12.88%
1,448,000 Henderson Land Development................... 14,602,625
1,309,600 HKR International Ltd.* ..................... 2,209,617
1,400,000 Hysan Development Company.................... 5,575,021
38,850 Hysan Development Company Wts-98*............ 35,161
200,000 New Asia Realty & Trust Co. ................. 738,251
2,069,000 New World Development........................ 13,977,019
2,436,000 Sino Land Company............................ 2,976,301
------------
Total Real Estate - Subdividers, Developers &
Operative Builders......................... 40,113,995
------------
TELECOMMUNICATIONS: 3.26%
52,000 Asia Satellite Telecom Holdings*............. 120,680
6,231,600 Hong Kong Telecom............................ 10,030,826
------------
Total Telecommunications..................... 10,151,506
------------
WHOLESALE TRADE - MISC. WHOLESALERS: 9.12%
3,520,000 Hutchison Whampoa............................ 27,647,556
868,000 Li & Fung Ltd................................ 768,738
------------
Total Wholesale Trade - Misc. Wholesalers.... 28,416,294
------------
</TABLE>

30
<PAGE> 31

GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
Total Investments in Securities
(Identified cost $256,329,436+): 97.51%...... $303,769,418
------------
Other Assets less Liabilities: 2.49%......... 7,751,444
------------
NET ASSETS: 100.00%.......................... $311,520,862
============

* Security is non-income producing
+ Cost to federal income tax purpose is as
follows:
Gross unrealized appreciation................ $ 50,514,566
Gross unrealized depreciation................ (3,074,584)
------------
$ 47,439,982
============
</TABLE>

See accompanying notes to financial statements.

31
<PAGE> 32

GUINNESS FLIGHT CHINA & HONG KONG FUND

STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost
$256,329,436)........................................ $303,769,418
Cash................................................... 10,036,497
Receivables:
Fund shares sold.................................. 993,246
Dividends and interests........................... 232,553
Prepaid expenses....................................... 9,099
Deferred organizational costs, net..................... 29,420
------------
Total assets...................................... 315,070,233
------------
LIABILITIES
Payables:
Securities purchased.............................. 2,769,170
Dividends to shareholders......................... 203,563
Fund shares redeemed.............................. 121,858
Due to Adviser (Note 3)................................ 235,415
Other accrued expenses................................. 219,365
------------
Total liabilities................................. 3,549,371
------------
NET ASSETS............................................. $311,520,862
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($311,520,862/17,589,379 shares outstanding;
unlimited number of shares authorized without par
value)............................................ $17.71
=======
SOURCE OF NET ASSETS
Paid-in capital................................... $263,479,700
Undistributed net investment income............... 46,560
Undistributed net realized gain on investments.... 555,628
Net unrealized appreciation (depreciation) on:
Investments.................................. 47,439,982
Foreign currency............................. (1,008)
------------
Net assets................................... $311,520,862
============
</TABLE>

See accompanying notes to financial statements.

32
<PAGE> 33

GUINNESS FLIGHT CHINA & HONG KONG FUND

STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends.............................................. $ 5,754,444
Interests.............................................. 203,761
----------------
Total investment income........................... 5,958,205
EXPENSES
Advisory fees (Note 3)................................. 1,772,174
Administration fees (Note 3)........................... 443,043
Custodian.............................................. 329,720
Accounting............................................. 50,511
Transfer agent fees.................................... 268,776
Auditing fees.......................................... 31,109
Legal fees............................................. 61,646
Director's fees........................................ 13,777
Registration fees...................................... 87,888
Reports to shareholders................................ 46,560
Deferred organization costs amortization............... 11,757
Interest on loans...................................... 5,977
Miscellaneous.......................................... 46,383
----------------
Total expenses.................................... 3,169,321
Expenses recouped (Note 3)........................ 315,433
----------------
Net expenses...................................... 3,484,754
----------------
NET INVESTMENT INCOME........................ 2,473,451
----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments..................... 5,591,892
Net realized loss from foreign currency................ (54,179)
Net change in unrealized appreciation (depreciation)
on:
Investments....................................... 43,834,616
Foreign currency.................................. (1,038)
----------------
Net realized and unrealized gain on
investments................................ 49,371,291
----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $51,844,742
================
</TABLE>

See accompanying notes to financial statements.

33
<PAGE> 34

GUINNESS FLIGHT CHINA & HONG KONG FUND

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income....................... $ 2,473,451 $ 300,352
Net realized gain from investments.......... 5,591,892 28,920
Net realized loss on foreign currency....... (54,179) (6,121)
Net unrealized appreciation on investments
and foreign currency...................... 43,833,578 3,847,844
------------ -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... 51,844,742 4,170,995
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income... (2,426,162) (301,331)
Distributions from taxable realized gains... (4,883,242) (123,918)
------------ -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (7,309,404) (425,249)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................... 344,443,893 57,621,477
Net asset value of shares issued on
reinvestment of distributions............. 6,537,646 395,581
Cost of shares redeemed..................... (139,736,255) (8,309,577)
------------ -----------
Net increase from capital share
transactions.............................. 211,245,284 49,707,481
------------ -----------
TOTAL INCREASE IN NET ASSETS........... 255,780,622 53,453,227
NET ASSETS
Beginning of year........................... 55,740,240 2,287,013
------------ -----------
End of year (including undistributed
(overdistributed) net investment income of
$46,560 and $(729), respectively)......... $311,520,862 $55,740,240
============ ===========
CHANGES IN SHARES
Shares sold................................. 22,049,194 4,513,348
Shares reinvested from distributions........ 453,347 29,558
Shares redeemed............................. (8,999,261) (656,232)
------------ -----------
NET INCREASE........................... 13,563,280 3,886,674
============ ===========
</TABLE>

See accompanying notes to financial statements.

34
<PAGE> 35

GUINNESS FLIGHT CHINA & HONG KONG FUND

FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGH THE PERIOD
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Years From June 30,
Ended 1994*
December 31, through
------------------ December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 13.64 $ 11.47 $12.50
-------- ------- ----------
Income from investment operations:
Net investment income...................... 0.19 0.14 0.04
Net realized and unrealized gain (loss) on
investments.............................. 4.43 2.20 (0.96)
-------- ------- ----------
Total from investment operations............. 4.62 2.34 (0.92)
-------- ------- ----------
Less distributions:
Dividends from net investment income....... (0.19) (0.14) (0.04)
Distributions from taxable net capital
gains.................................... (0.36) (0.03) (0.07)
-------- ------- ----------
Total distributions.......................... (0.55) (0.17) (0.11)
-------- ------- ----------
Net asset value, end of period............... $ 17.71 $ 13.64 $11.47
======== ======= ==========
Total return................................. 34.38% 20.45% (7.74)%++
Ratios/supplemental data:
Net assets, end of period (thousands)........ $311,521 $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement
(recoupement)............................ 1.78% 3.02%** 19.92%+
After expense reimbursement
(recoupement)............................ 1.96% 1.98% 2.00%+
Ratio of net investment income to average net
assets:
Before expense reimbursement
(recoupement)............................ 1.57% 0.49% (17.15)%+
After expense reimbursement
(recoupement)............................ 1.39% 1.52% 0.78%+
Portfolio turnover rate...................... 30.04% 10.89% 27.25%
Average Commission Rate Paid#................ $ 0.0070 -- --
BANK LOANS
Amount outstanding at end of period (000).... -- -- --
Average amount of bank loans outstanding
during the period (monthly average)
(000)...................................... $ 1,413 -- --
Average number of shares outstanding during
the period (monthly average) (000)......... 11,419 -- --
Average amount of debt per share during the
period..................................... $ 0.12 -- --
</TABLE>

* Commencement of operations.

** Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the ratio of expenses to average net assets
before "expense reimbursement" would have been 3.04%

+ Annualized.

++ Not Annualized.

# For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commissions rate per share for security trades on
which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.

See accompanying notes to financial statements.

35
<PAGE> 36

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Value GOVERNMENT BONDS: 79.59% Market Value US$
- ----------------------------------------------------------------------------
<C> <S> <C>
AUSTRALIAN DOLLAR: 9.59%
670,000 Australian Government 10.000% 10/15/07...... $ 629,768
----------
BRITISH POUND: 11.41%
90,000 United Kingdom Gilts 8.000% 06/07/21........ 160,627
295,000 United Kingdom Gilts 7.500% 12/07/06........ 504,860
40,000 Italy Sterling NCL 10.500% 04/28/14......... 83,183
----------
Total British Pound......................... 748,670
----------
CANADIAN DOLLAR: 2.19%
177,000 Canadian Government Bond 8.000% 06/01/23.... 143,845
----------
DANISH KRONER: 2.37%
970,000 Kingdom of Denmark 7.000% 11/10/24.......... 155,749
----------
EUROPEAN CURRENCY UNIT: 4.87%
240,000 France O.A.T. 7.000% 04/25/06............... 319,554
----------
GERMAN MARKS: 12.08%
1,135,000 Deutschland Republic 6.875% 05/12/05........ 793,087
----------
IRISH PUNT: 1.29%
30,000 Irish Gilts 9.750% 06/01/98................. 53,447
18,000 Irish Gilts 8.750% 07/27/97................. 30,960
----------
Total Irish Punt............................ 84,407
----------
</TABLE>

36
<PAGE> 37

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Value Market Value US$
- ----------------------------------------------------------------------------
<C> <S> <C>
NORWEGIAN KRONER: 4.14%
1,385,000 Norwegian Government 9.500% 10/31/02........ $ 256,738
100,000 Norwegian Government 5.750% 11/30/04........ 15,314
----------
Total Norwegian Kroner...................... 272,052
----------
SPANISH PESETA: 9.87%
35,000,000 Spanish Government 10.500% 10/30/03......... 327,610
35,000,000 Spanish Government 10.300% 06/15/02......... 320,062
----------
Total Spanish Peseta........................ 647,672
----------
SWEDISH KRONA: 2.38%
1,100,000 Kingdom of Sweden 6.000% 02/09/05........... 156,266
----------
UNITED STATES DOLLAR: 19.40%
360,000 Tokyo Metro 6.125% 03/27/06................. 348,840
847,000 U.S. Treasury Note 7.875% 11/15/04.......... 924,553
----------
Total United States Dollar.................. 1,273,393
----------
Total Government Bonds -- 79.59% (Identified
Cost $5,169,524).......................... $ 5,224,463
----------
</TABLE>

37
<PAGE> 38

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FORWARD CONTRACTS: (0.26%)
- -----------------------------------------------------------------------------
Currency Unrealized
Receivable Currency Deliverable Delivery Date Gain/(Loss)
- --------------- -------------------------------- ------------- ----------
<S> <C> <C> <C> <C>
US$ 294,953 Australian Dollar 376,176 01/23/97 $ 3,493
US$ 620,760 Canadian Dollar 844,420 01/23/97 (590)
US$ 2,469,395 Deutsche Mark 3,686,612 01/23/97 4,726
US$ 62,125 Danish Krone 362,812 01/23/97 363
US$ 355,685 Spanish Peseta 43,061,277 01/23/97 (804)
US$ 8,753 French Franc 45,342 01/23/97 9
US$ 651,341 British Pound Sterling 416,187 01/23/97 17,361
US$ 317,342 Irish Punt 198,705 01/23/97 (4,327)
US$ 908,089 Italian Lira 1,380,901,671 01/23/97 4,292
US$ 570,427 Japanese Yen 3,751,746,093 01/23/97 (1,246)
US$ 118,198 New Zealand Dollar 172,258 01/23/97 159
US$ 181,682 Norwegian Krone 4,056,466 01/23/97 891
US$ 741,778 Swedish Krona 4,921,302 01/23/97 6,068
US$ 228,697 Singapore Dollar 321,846 01/23/97 1,386
US$ 327,428 European Currency Unit 261,725 01/23/97 235
US$ 2,941,784 Australian Dollar 2,333,804 04/24/97 (52,937)
US$ 2,044,428 Canadian Dollar 2,713,639 04/24/97 (14,232)
US$ 1,957,744 Deutsche Mark 2,973,742 04/24/97 9,411
US$ 98,972 Danish Krone 578,627 04/24/97 1,199
US$ 959,946 Spanish Peseta 124,628,851 04/24/97 (303)
US$ 4,924,753 British Pound Sterling 3,001,572 04/24/97 46,282
US$ 656,820 Irish Punt 393,335 04/24/97 (2,466)
US$ 2,454,355 Italian Lira 3,750,746,093 04/24/97 (9,991)
US$ 1,433,829 Japanese Yen 159,315,100 04/24/97 (15,214)
US$ 651,103 Norwegian Krone 4,150,502 04/24/97 (880)
US$ 43,269 New Zealand Dollar 62,560 04/24/97 682
US$ 29,533 Swedish Krona 193,912 04/24/97 (937)
US$ 494,195 Singapore Dollar 691,978 04/24/97 (3,337)
US$ 503,682 European Currency Unit 394,264 04/24/97 (6,075)
----------
Total Forward Contracts........................ (16,782)
----------
Total Investments in Securities: (cost
$5,169,524*) 79.33%............................ 5,207,681
Other Assets Less Liabilities: 20.67%.......... 1,356,609
----------
NET ASSETS: 100.0%............................. $6,564,290
==========
*Cost for federal income tax purposes is the
same.
Net unrealized depreciation consists of:
Gross unrealized appreciation.................. $ 107,536
Gross unrealized depreciation.................. (52,597)
----------
Net unrealized appreciation.................... $ 54,939
==========
</TABLE>

See accompanying notes to financial statements.

38
<PAGE> 39

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $5,169,524)..... $5,207,681
Cash...................................................... 1,255,124
Receivables:
Fund shares sold..................................... 2,500
Interests............................................ 135,555
Prepaid expenses.......................................... 216
Deferred organizational costs, net........................ 29,420
----------
Total assets......................................... 6,630,496
----------
LIABILITIES
Dividends payable to shareholders......................... 2,891
Due to Adviser............................................ 27,374
Other accrued expenses.................................... 35,941
----------
Total liabilities.................................... 66,206
----------
NET ASSETS................................................ $6,564,290
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($6,564,290/516,037 shares outstanding; unlimited number
of shares authorized without par value)................. $12.72
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $6,460,077
Undistributed net investment income (including
equalization credits of $44,071)................... 21,798
Undistributed net realized gain on investments....... 43,561
Net unrealized appreciation (depreciation) on:
Investments..................................... 54,939
Foreign currency................................ (16,085)
----------
Net assets...................................... $6,564,290
==========
</TABLE>

See accompanying notes to financial statements.

39
<PAGE> 40

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interests.............................................. $ 164,890
----------
EXPENSES
Advisory fees (Note 3)................................. 19,110
Administration fee (Note 3)............................ 27,122
Custodian.............................................. 13,898
Accounting............................................. 40,022
Transfer agent fees.................................... 34,891
Auditing fees.......................................... 16,002
Legal fees............................................. 8,599
Directors' fees........................................ 13,777
Registration fees...................................... 18,501
Reports to shareholders................................ 3,419
Deferred organization costs amortization............... 11,757
Miscellaneous.......................................... 2,742
----------
Total expenses.................................... 209,840
Less: Expenses reimbursed (Note 3)................ (176,407)
----------
Net expenses...................................... 33,433
----------
NET INVESTMENT INCOME........................ 131,457
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments..................... 75,867
Net realized gain from foreign currency................ 575
Net change in unrealized appreciation on investments... 21,387
Net change in unrealized loss on foreign currency...... (16,057)
----------
Net realized and unrealized gain on investments... 81,772
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 213,229
==========
</TABLE>

See accompanying notes to financial statements.

40
<PAGE> 41

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income......................... $ 131,457 $ 55,076
Net realized gain from investments............ 75,867 33,385
Net realized gain (loss) on foreign
currency.................................... 575 (12,113)
Net change in unrealized appreciation on
investments................................. 21,387 52,690
Net change in unrealized depreciation on
foreign currency............................ (16,057) (28)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................. 213,229 129,010
----------- -----------
NET EQUALIZATION CREDITS...................... 44,071 1,667
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income..... (162,397) (51,665)
Distributions from net capital gains.......... (22,795) (25,177)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS....... (185,192) (76,842)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..................... 6,348,475 1,144,047
Net asset value of shares issued on
reinvestment of distributions............... 175,240 44,505
Cost of shares redeemed....................... (1,184,883) (840,420)
----------- -----------
Net increase from capital share
transactions................................ 5,338,832 348,132
----------- -----------
TOTAL INCREASE IN NET ASSETS.............. 5,410,940 401,967
NET ASSETS
Beginning of year............................. 1,153,350 751,383
----------- -----------
End of year (including undistributed net
investment income of $21,798 and $8,667,
respectively)............................... $ 6,564,290 $ 1,153,350
=========== ===========
CHANGES IN SHARES
Shares sold................................... 507,485 90,886
Shares issued from dividend distributions..... 13,939 3,547
Shares redeemed............................... (95,726) (66,716)
----------- -----------
NET INCREASE.............................. 425,698 27,717
=========== ===========
</TABLE>

See accompanying notes to financial statements.

41
<PAGE> 42

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Year Ended From June 30,
December 31, 1994*
------------------- through
1996 1995 December 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period...................... $ 12.77 $ 12.00 $ 12.50
------- ------- -------------
Income from investment
operations:
Net investment income.......... 0.63 0.69 0.29
Net realized and unrealized
gain (loss) on
investments................. 0.13 1.01 (0.58)
------- ------- -------------
Total from investment
operations..................... 0.76 1.70 (0.29)
------- ------- -------------
Less distributions:
Dividends from net investment
income...................... (0.69) (0.65) (0.21)
Distributions from net capital
gains....................... (0.12) (0.28) --
------- ------- -------------
Total distributions.............. (0.81) (0.93) (0.21)
------- ------- -------------
Net asset value, end of period... $ 12.72 $ 12.77 $ 12.00
======= ======= =============
Total return..................... 6.21% 14.49% (2.33)%++
Ratios/supplemental data:
Net assets, end of period
(thousands).................... $ 6,564 $ 1,153 $ 751
Ratio of expenses to average net
assets:
Before expense reimbursement... 8.21% 21.52%** 40.78%+
After expense reimbursement.... 1.31% 1.73% 1.75%+
Ratio of net investment income to
average net assets:
Before expense reimbursement... (1.76)% (14.26)% (34.18)%+
After expense reimbursement.... 5.14% 5.53% 4.86%+
Portfolio turnover rate.......... 296.51% 202.54% 46.15%
</TABLE>

+ Annualized

++ Not Annualized

* Commencement of operations.

** Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the ratio of expenses to average net assets
before expense reimbursement" would have been 21.68%
See accompanying notes to financial statements.

42
<PAGE> 43

Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION

The Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a Maryland
Corporation incorporated on January 7, 1994 and registered under the Investment
Company Act of 1940 (the "1940 Act") as a non-diversified, open-end management
investment company. Currently, the Guinness Funds offer four separate series
portfolios: Guinness Flight Asia Blue Chip Fund (the "Asia Blue Chip Fund")
whose objective is long-term capital appreciation, Guinness Flight Asia Small
Cap Fund (the "Asia Small Cap Fund") whose objective is long-term capital
appreciation, Guinness Flight China & Hong Kong Fund (the "China Fund") whose
objective is long-term capital appreciation, and Guinness Flight Global
Government Bond Fund (the "Global Government Fund") whose objective is to
provide current income and capital appreciation (collectively, the "Funds"). The
China and Global Government Funds began operations on June 30, 1994 and the Asia
Blue Chip and Asia Small Cap Funds began operations on April 29, 1996.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.

A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there has been no sale are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with accrued
interest, approximates market value.

U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60 day period that
this amortized cost basis does not represent fair value.

Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Funds do not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period.

43
<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
- --------------------------------------------------------------------------------

Interest income is translated at the exchange rates which existed at the
dates the income was accrued. Exchange gains and losses related to interest
income are included in interest income on the accompanying Statements of
Operations.

B. Forward Foreign Currency Exchange Contracts. The Funds may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates and at specified
rates, and is subject to the risks of foreign exchange fluctuations. All
commitments are "marked-to-market" daily and any resulting unrealized gains or
losses are included as unrealized appreciation (depreciation) on foreign
currency denominated assets and liabilities. The Funds record realized gains or
losses at the time the forward contract is settled. Counterparties to these
forward contracts are major U.S. financial institutions.

The Asia Blue Chip Fund, Asia Small Cap Fund and Global Government Fund use
forward foreign currency exchange contracts as part of their strategy of
preserving capital. Upon entering into forward foreign currency contracts, the
funds are required to deposit with the broker an amount of cash or cash
equivalents equal to the amount of the contract. The daily changes in the
contract are recorded as unrealized gains or losses. The funds recognize a
realized gain or loss when the contract is sold.

C. Security Transactions, Dividends and Distributions. As is common in the
industry, security transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.

D. Federal Income Taxes. The Funds intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to its shareholders. Therefore, no
federal income tax provision is required.

E. Equalization. The Global Government Fund follows the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of redemptions of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of the Fund's shares.

F. Deferred Organization Costs. The China Fund and the Global Government
Fund have each incurred expenses of $58,785 in connection with their
organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have each
incurred expenses of $8,745 in connection with their origination. These costs
have been deferred and are being amortized on a straight line basis over a

44
<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
- --------------------------------------------------------------------------------

period of sixty months from the date the Funds commenced investment operations.
In the event that any of the initial shares of either Fund are redeemed by the
holder during the period of amortization of the Funds' organization costs, the
redemption proceeds will be reduced by any such unamortized organization costs
in the same proportion as the number of initial shares being redeemed bears to
the number of those shares outstanding at the time of redemption.

G. Concentration of Risk. The Asia Blue Chip Fund and Asia Small Cap Fund
invests substantially all of its assets in Asian continent. The China Fund
invests substantially all of its assets in securities that are traded in China
or Hong Kong or that are issued by companies that do a substantial part of their
business in China. The Global Government Fund invests substantially in bonds
issued by various European governments. The consequences of political, social or
economic changes in the countries in which the securities are offered or the
issuers conduct of their operations as well as foreign currency fluctuations,
may affect the market prices of the Funds' investments and any income generated,
as well as the Funds' ability to repatriate such amounts.

H. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

I. Other. Under terms of the Custodial Agreement, the Funds may earn
credits, based on custody cash balances, to be applied to custodian fees. For
the year ended December 31, 1996, there were no such credits.

NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES

Guinness Funds, on behalf of the Funds, entered into an Investment Advisory
Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to
provide the Funds with investment management services. The Advisor furnished all
investment advice, office space and certain administrative services, and
provides certain personnel needed by the Funds. As compensation

45
<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
- --------------------------------------------------------------------------------

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 Fund 1.00%
Global Government 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
following levels. Expenses reimbursed from the Adviser for the year ended
December 31, 1996 are stated in the Funds' Statement of Operations:

<TABLE>
<S> <C>
Asia Blue Chip Fund 1.98%
Asia Small Cap Fund 1.98%
China Fund 1.98%
Global Government Fund 0.75%*
*(effective 10/31/96)
</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 Directors; monitors the activities of the Funds'
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Funds' expense accruals. For its
services, the Administrator receives an annual fee equal to the greater of 0.25
of 1% of the Funds' average daily net assets, subject to a $40,000 annual
minimum for the China Fund and $60,000 allocated based on average daily net
assets of the Asia Blue Chip Fund, Asia Small Cap Fund and Global Government
Fund.

The Funds will reimburse the Advisor and Administrator in subsequent years when
operating expenses (before reimbursements) are less than the applicable
percentage limitation in effect at that time for each of the Funds.

First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.

Certain officers of the Guinness Funds are also officers and/or Directors of the
Administrator and Distributor.

46
<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
- --------------------------------------------------------------------------------

NOTE 4 - PURCHASES AND SALES OF SECURITIES

The cost of purchases and the proceeds from sales of securities, excluding U.S.
Government obligations and short-term investments, for the year ended December
31, 1996 were:

<TABLE>
<CAPTION>
FUND PURCHASES SALES
---------------------------------- ------------ -----------
<S> <C> <C>
Asia Blue Chip Fund $ 3,556,809 $ 222,407
Asia Small Cap Fund $ 41,644,290 $ 1,465,163
China Fund $251,846,277 $52,153,660
Global Government Fund $ 7,517,715 $ 4,430,766
</TABLE>

Purchases and sales of U.S. Government obligations by the Global Government Fund
were $1,629,500 and $1,010,692, respectively.

NOTE 5 - LINE OF CREDIT

The Funds have a $20 million unsecured line of credit with a bank that expires
on October 11, 1997. The interest rate on the line of credit is the bank's base
rate, as revised from time to time.

47
<PAGE> 48

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
Guinness Flight Investment Funds, Inc.

We have audited the accompanying statements of assets and liabilities of the
Guinness Flight Asia Blue Chip Fund ("Blue Chip Fund"), Guinness Flight Asia
Small Cap Fund ("Small Cap Fund"), Guinness Flight China & Hong Kong Fund
("China Fund") and Guinness Flight Global Government Bond Fund ("Global Bond
Fund"), (collectively, the "Funds"), series of Guinness Flight Investment Funds,
Inc., including the portfolios of investments, as of December 31, 1996, and the
related statements of operations for the year then ended for the China Fund and
Global Bond Fund and for the period April 29, 1996 (commencement of investment
operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund,
and the statements of changes in net assets and the financial highlights for
each of the two years in the period then ended for the China Fund and Global
Bond Fund, and for the period April 29, 1996 (commencement of investment
operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the China Fund and Global Bond Fund for the period from June 30,
1994 (commencement of operations) through December 31, 1994, were audited by
other auditors whose report dated February 8, 1995 expressed an unqualified
opinion on those financial highlights.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund,
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund as of December 31, 1996, the results of their operations for the year
then ended for the China Fund and Global Bond Fund and for the period from April
29, 1996 (commencement of investment operations) through December 31, 1996 for
the Blue Chip Fund and Small Cap Fund, and the changes in their net assets and
the financial highlights for each of the two years in the period then ended for
the China Fund and Global Bond Fund and for the period from April 29, 1996
(commencement of investment operations) through December 31, 1996 for the Blue
Chip Fund and Small Cap Fund in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Los Angeles, California
February 3, 1997

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<PAGE> 49

USEFUL GUINNESS FLIGHT PHONE NUMBERS

Shareholder Service Line: 1-800-915-6566

Fund Literature Line: 1-800-915-6565

Automated Line for NAVs: 1-800-915-6564

This report is intended for the shareholders of Guinness Flight
Investment Funds, Inc. and should not be used as sales
literature unless accompanied or preceded by the
Funds current prospectus.