GUINNESS FLIGHT INVESTMENT FUNDS, N-30D, 1998-08-28

GUINNESS FLIGHT INVESTMENT FUNDS
N-30D, 1998-08-28

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<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

July 24, 1998

Dear Guinness Flight Shareholder:

During the first half of 1998, the Asia crisis continued, affecting the
Pacific Rim and, from time to time, global markets. Last year at this time,
investors were concerned about the possible effects of the handover of Hong Kong
to Chinese rule. Instead of the handover placing negative pressure on the Hong
Kong and Chinese markets, economies across the Asian region have faltered for
the last 12 months, after a devaluation of the Thai baht triggered deep
sell-offs and currency devaluations across the region. The International
Monetary Fund (IMF) has entered the region with strict programs to aid the
various troubled economies, but for the short term, this seems to be a situation
of too little, too late.

ASIAN CRISIS CONTINUES

1997 was a difficult year for Asian markets, and to date 1998 has proved
equally testing. The first half of the year has seen equities and currencies
'see-saw' from such a sense of despair in early January that they looked
oversold into a liquidity driven rally that catapulted markets and currencies to
valuations unsupported by economic fundamentals and policy responses. Then came
the erosion of these gains as reality set in that the region was plunging into
recession, that policy responses were lacking and that the Indonesian and
Japanese situations brought additional problems to the forefront. Many markets
are now trading back at or near their January lows, although the currencies are
not.

THE IMPORTANCE OF JAPAN

Toward the second half of 1998, Japan entered and stayed in the spotlight
with investors focusing on government policy reaction to the deteriorating state
of the Japanese economy. While the Guinness Flight Asia equity funds do not
invest in Japan, one can no longer look at Southeast Asia without considering
Japan's effect. The Japanese equity market rallied strongly at the beginning of
the year, as the government raised the prospect of an imminent economic stimulus
package and the early implementation of public works projects, in an attempt to
manipulate the stock market higher ahead of the financial year-end. However,
increasingly weak economic data highlighting poor consumer demand and an
accelerating decline in corporate capital expenditure led to a subsequent
sell-off in the equity market.

The weakness of the Yen relative to the U.S. Dollar further exacerbated the
problem. In addition, exports to Asia dropped off sharply, although exports to
Europe remained strong. The release, at the beginning of June, of a
disappointing figure for first-quarter economic growth confirmed that the
Japanese economy is in recession. The Yen responded by weakening further, to an
eight-year low relative to the U.S. Dollar, and a corresponding free-fall in the
Japanese market was only halted by joint U.S.-Japan intervention in the foreign
exchange market. The Yen strengthened accordingly, and the Japanese market
subsequently rebounded strongly at the end of June. The government then turned
its focus on resolving the bad debt
<PAGE>
problem which continues to plague the Japanese banking sector, and which has
increasingly been identified as a barrier to a sustainable recovery in the
Japanese economy. However, it is by no means certain that the "bridge bank"
framework proposed by the government is a fully satisfactory solution to the
problem, as it is not clear that the authorities will in actual fact proactively
close functionally insolvent banks.

OUTLOOK

The outlook for the remainder of 1998 is somewhat dismal for Asia. Looking
forward, the Asian economic situation will continue to influence global
deflation and keep developed world interest rates low. Risk factors are most
obvious in Asia and include concerns over the possibility of future falls in
both the Yen and the Chinese Renminbi, although we believe that the latter is
more likely to be an issue next year. Other pressure points across the globe
that could have ramifications on Asia include Russia and Brazil. The former,
however, should receive sufficient international financial aid to avert
devaluation, while the latter has sufficient reserves to put off additional
structural reform until after this year's election.

CONCLUSION

As always, we continue to stress the volatility involved in investing in
Asia. The past year has particularly been a lesson in this regard. We would like
to point you to specific comments from the fund managers for each fund inside
this report. The fund managers discuss their respective performance and strategy
over the last six months and provide their assessment for the future. As a
prelude, the following table summarizes performance for the five funds over the
six-month period ended June 30, 1998.

<TABLE>
<CAPTION>
GUINNESS FLIGHT FUNDS 6-MONTH RETURN(1)
<S> <C>
Asia Blue Chip Fund -23.49%
Asia Small Cap Fund -36.07%
China & Hong Kong Fund -27.42%
Mainland China Fund -23.49%
Global Govt. Bond Fund 3.72%
(1)SHARE PRICES AND RETURNS FLUCTUATE SO
THAT YOU MAY HAVE A GAIN OR A LOSS WHEN YOU
REDEEM YOUR SHARES. PAST PERFORMANCE IS NOT
AN INDICATION OF FUTURE RESULTS.
</TABLE>

Despite these extremely trying markets, we remain committed to the region
and are confident that, while slow in coming, these markets will experience a
recovery and will reward investors, who like us, believe that the 21st Century
belongs to Asia.

We thank you for your continued loyalty and support.

Sincerely,

[SIGNATURE] [SIGNATURE]

Timothy Guinness Howard Flight

2
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

THE BACKDROP

The first quarter of the year saw improved confidence in the equity markets
and stabilization in Asian currencies. However, as the second quarter
progressed, the markets that had outperformed, in U.S. Dollar terms, during the
first quarter of 1998 began to slip back. Now that the initial euphoria has
passed, the markets are returning to their underlying trend. Essentially Asian
markets cannot recover until there is more progress on the economic
restructuring front. Economic reforms and the recapitalization of banking
systems are critical to reduce the burden of non-performing loans. Without a
rapid resolution of these issues, credit will continue to remain tight,
restricting the ability of Asian companies to expand production. Stronger
external accounts are also necessary to offset weak domestic demand. Net exports
are expected to be the main economic growth driver of Asian economies for some
time. So far we have seen the initial signs of improvement on trade balances in
Asia, as exports to Europe and the U.S. hold up while imports are falling
sharply due to the slowdown in domestic demand.

South Korea has reported a record trade surplus in April, and Thailand has
now reported six consecutive months of current account surpluses, after
previously reporting a deficit in every single month since 1986. In time, the
build-up of current account surpluses will allow Asian economies to pay down
external debt gradually and reduce interest rates.

During the economic adjustment process, we expect to see rising corporate
bankruptcies and unemployment as a result of the collapse in regional demand and
tight credit conditions. The impact on Asia of a weak Japanese Yen also suggests
a slower recovery for economies that compete directly with Japanese
manufacturers for exports. A weaker Yen has also led to a renewal of currency
volatility in the region, which is subsequently aggravating the Asian crisis.
Further downgrades of growth forecasts are expected for all non-Japan Asian
economies. Consequently, governments in the region will come under greater
pressure to ease their monetary and fiscal policy stance.

The U.S. intervention on 17th June supporting the Yen jointly with Japan
took the market by surprise. The short-term outlook has turned bearish for the
Japanese Yen but it remains to be seen whether Japan can deliver the necessary
policy response in restructuring the banking system and strengthening domestic
demand. In our view, Yen volatility is likely to linger despite promises of
policy action, as the Japanese reform path is bound to involve unexpected
developments and the weak economy should continue to supply disappointing
numbers.

THE FUND

During the first half of the year the Asia Blue Chip Fund fell 23.49%
compared with a fall of 26.20% for the Morgan Stanley AC Asia Free ex Japan
Index. The under-performance

3
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND (CONTINUED)

over the last months can be attributed to underweighted exposure to Taiwanese
and South Korean stocks. In U.S. Dollar terms, these markets have declined much
less than other markets in the region. The last three months have seen a pickup
in performance due to low exposure to Malaysia and Indonesia as well as a higher
than normal cash position.

THE OUTLOOK

The portfolio is heavily underweighted in the property and banking sectors.
We do not expect any increases in Asian property prices for at least the next
two years, and the banking sector will be held back by the massive
recapitalization and high provisioning that will be required during Asia's
recession.

- -- Richard Farrell in London, 24 July 1998.

4
<PAGE>
ASIA BLUE CHIP FUND
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
KEY PORTFOLIO STATISTICS
AS OF 6/30/98

<TABLE>
<S> <C>
# of Stocks in the Portfolio: 52
Portfolio Turnover: 19.57%
% of Stocks in Top 10: 38.41%
</TABLE>

FUND MANAGER:
Richard Farrell,
London

<TABLE>
<CAPTION>
TOP 10 HOLDINGS (%)
---------------------------------------
<S> <C>
HSBC Holdings 5.22%
Hong Kong Electric 4.66%
Dairy Farm 4.39%
Hutchison Whampoa 4.33%
Golden Hope Plantations 3.78%
Cheung Kong 3.36%
Huaneng Power Intl. 3.31%
Kumpulan Guthrie Bhd. 3.18%
Philippines Long Distance
Telephone 3.09%
State Bank of India 3.09%
TOP 5 SECTORS (%)
---------------------------------------
Banking 14.85%
Telecommunications 12.84%
Electric Power 10.28%
Wholesale 8.73%
Diversified 6.49%
TOP 5 COUNTRIES (%)
---------------------------------------
Hong Kong 39.76%
Singapore 15.65%
Malaysia 12.23%
Taiwan 7.81%
Philippines 5.97%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
GUINNESS FLIGHT ASIA BLUE CHIP FUND AND THE MORGAN STANLEY
AC ASIA FREE EX-JAPAN INDEX
MORGAN STANLEY
GUINNESS FLIGHT ASIA AC ASIA FREE
BLUE CHIP FUND EX-JAPAN INDEX
<S> <C> <C>
4/29/96* $10,000 $10,000
6/30/96 $9,904 $9,706
9/30/96 $9,840 $9,372
12/31/96 $10,384 $9,564
3/31/97 $9,880 $9,247
6/30/97 $10,411 $9,815
9/30/97 $8,697 $8,064
12/31/97 $6,471 $5,591
3/31/98 $6,759 $6,065
6/30/98 $4,951 $4,126
*Inception date.
Average Annual Total Return
One Year Since Inception
- -52.45% -27.67%
Past performance is not predictive of future performance
</TABLE>

5
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

SHARES COMMON STOCK: 91.07% VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
CHINA: 3.31%
18,000 Huaneng Power International Inc. ADR...................... $ 241,875
------------
HONG KONG: 39.76%
500,000 CDL Hotel International................................... 148,445
50,000 Cheung Kong............................................... 245,902
100,000 China Telecom............................................. 173,616
20,000 CLP Holdings Ltd.......................................... 91,132
80,000 Dao Heng Bank Group Ltd................................... 113,592
174,000 First Pacific Co.......................................... 72,996
15,500 Hang Seng Bank............................................ 87,634
165,000 Hong Kong & China Gas..................................... 187,427
7,500 Hong Kong & China Gas Wts................................. 513
110,000 Hong Kong Electric........................................ 340,777
34,800 Hong Kong Telecom......................................... 65,359
15,600 HSBC Holdings Plc......................................... 381,593
60,000 Hutchison Whampoa......................................... 316,768
60,000 Johnson Electric Holdings................................. 222,280
60,000 New World Development..................................... 116,174
74,500 Smartone Telecommunications............................... 181,754
60,000 Television Broadcasts Ltd................................. 158,771
------------
Total Hong Kong........................................... 2,904,733
------------
INDIA: 5.91%
3,400 Hindalco Industries Ltd. ADR.............................. 53,557
10,000 Mahanagar Tele Nigam GDR.................................. 97,000
20,000 State Bank of India GDR................................... 226,000
14,000 Tata Engineering & Locomotion............................. 55,009
------------
Total India............................................... 431,566
------------
INDONESIA: 0.00%
1,837 Bank International Indonesia Wts.......................... 9
------------
MALAYSIA: 12.23%
300,000 Golden Hope Plantations Berhad............................ 276,347
400,000 Kumpulan Guthrie Berhad................................... 232,713
100,000 Malaysian Intern Shipping Corp............................ 146,658
100,000 Petronas Gas Berhad....................................... 186,655
1,000 RHB Sakura Merchant Bankers............................... 262
</TABLE>

6
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

SHARES VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA: (CONTINUED)
30,000 Systems Telekom Malaysia.................................. $ 50,906
------------
Total Malaysia............................................ 893,541
------------
PHILIPPINES: 5.97%
300,000 Ayala Corp. Class B....................................... 77,338
50,000 Manila Electric........................................... 131,894
106 Metropolitan Bank & Trust................................. 623
10,000 Philippine Long Distance Telephone ADR.................... 226,250
------------
Total Philippines......................................... 436,105
------------
SINGAPORE: 15.65%
300,000 Dairy Farm International Holdings......................... 321,000
81,750 Keppel Corp. Ltd.......................................... 123,415
100,000 Keppel Land Ltd........................................... 92,125
26,120 Overseas Chinese Banking Corp. For Reg.................... 89,266
30,000 Singapore Airlines Ltd-Foreign............................ 140,862
100,000 Singapore Telecom Ltd..................................... 142,645
60,000 United Overseas Bank...................................... 187,221
10,800 Want Want Holdings - A.................................... 7,128
54,000 Want Want Holdings........................................ 39,960
------------
Total Singapore........................................... 1,143,622
------------
SOUTH KOREA: 0.10%
447 Samsung Electronics....................................... 7,143
------------
TAIWAN: 7.81%
8,882 China Steel Corp.......................................... 108,360
9,000 Fubon Insurance Co. GDR................................... 153,000
6,640 President Enterprise...................................... 59,760
10,000 Siliconware Precision GDR................................. 80,750
10,000 Taiwan Semiconductor ADR.................................. 168,750
------------
Total Taiwan 570,620
------------
THAILAND: 0.33%
14,600 Banpu Public Co Ltd. For. Reg............................. 23,872
------------
TOTAL COMMON STOCKS
(Identified Cost $9,164,303): 91.07%.................... 6,653,086
------------
</TABLE>

7
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

PAR VALUE CORPORATE BONDS: 3.26% VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
$ 100,000 Formosa Chemical & Fiber $ 108,000
1.75% due 07/19/01......................................
100,000 Nan Ya Plastics Convertible Bond 107,000
1.75% due 07/19/01......................................
30,000 Ssangyong Oil Refining 23,400
3.75% due 12/31/08......................................
------------
TOTAL CORPORATE BONDS
(Identified Cost $275,402): 3.26%....................... 238,400
------------
TOTAL INVESTMENTS IN SECURITIES
(Identified Cost $9,439,705+): 94.32%................... $ 6,891,486
------------
OTHER ASSETS LESS LIABILITIES: 5.68%...................... 415,086
------------
NET ASSETS: 100.00%....................................... $ 7,306,572
------------
------------
</TABLE>

<TABLE>
<S> <C>
+ Cost for federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation.................. $ 148,366
Gross unrealized depreciation.................. (2,696,585)
-----------
$(2,548,219)
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

8
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY (UNAUDITED)

JUNE 30, 1998

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

% OF
INDUSTRY NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C>

Agriculture............................................................. 3.78%
Airline................................................................. 1.93
Banking................................................................. 14.85
Chemical................................................................ 2.94
Construction............................................................ 1.26
Diversified Operations.................................................. 6.49
Electronics............................................................. 6.06
Electric Power.......................................................... 10.28
Food and Beverage....................................................... 1.47
Hotels.................................................................. 2.03
Insurance............................................................... 2.09
Manufacturers........................................................... 3.90
Media................................................................... 2.17
Mining Services......................................................... 0.33
Oil/Petroleum Refining.................................................. 0.32
Real-Estate............................................................. 4.96
Telecommunications...................................................... 12.84
Transportation.......................................................... 2.76
Utilities............................................................... 5.13
Wholesalers............................................................. 8.73
-----------
TOTAL INVESTMENTS IN SECURITIES......................................... 94.32
OTHER ASSETS LESS LIABILITIES........................................... 5.68
-----------
NET ASSETS.............................................................. 100.00%
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

9
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $9,439,705)................. $ 6,891,486
Cash.................................................................. 495,643
Receivables:
Fund shares sold.................................................. 23,500
Dividends and interests........................................... 27,587
Prepaid expenses...................................................... 7,812
Deferred organization costs, net...................................... 4,946
------------
Total assets...................................................... $ 7,450,974
------------
------------

LIABILITIES
Payables:
Securities purchased.............................................. 61,726
Dividends to shareholders......................................... 7,927
Fund shares redeemed.............................................. 10,721
Due to Advisor (Note 3)............................................... 28,084
Accrued expenses...................................................... 35,945
------------
Total liabilities................................................. 144,403
------------
NET ASSETS $ 7,306,571
------------
------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($7,306,571/1,189,392 shares outstanding; unlimited
number of shares authorized without par value).................... $6.14
-----
-----
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 11,402,746
Undistributed net investment income............................... 8,374
Accumulated net realized loss on investments...................... (1,556,872)
Net unrealized appreciation (depreciation) on:
Investments................................................... (2,548,219)
Foreign Currency.............................................. 542
------------
NET ASSETS................................................ $ 7,306,571
------------
------------
</TABLE>

See accompanying notes to financial statements.

10
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED
JUNE 30, 1998
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld $9,209)................ $ 108,423
Interest........................................................ 17,470
------------------
Total Investment Income..................................... 125,893

EXPENSES
Advisory fees (Note 3).......................................... 39,581
Administration fee (Note 3)..................................... 9,895
Custodian....................................................... 22,576
Accounting...................................................... 21,001
Transfer agent fees............................................. 22,760
Audit fees...................................................... 10,100
Legal fees...................................................... 4,120
Trustees' fees.................................................. 6,614
Registration fees............................................... 10,413
Reports to shareholders......................................... 8,416
Deferred organization costs amortization........................ 867
Miscellaneous................................................... 1,488
------------------
Total expenses.............................................. 157,831
Interest on loans........................................... 0
Commitment fee on credit line............................... 550
Less: Expenses reimbursed (Note 3).......................... (80,011)
------------------
Net expenses................................................ 78,370
------------------
NET INVESTMENT INCOME................................... $ 47,523
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments.............................. (993,992)
Net realized loss from foreign currency......................... (3,065)
Net change in unrealized (depreciation) appreciation on:
Investments................................................. (906,144)
Foreign currency............................................ 358
------------------
Net Realized and Unrealized Loss on Investments............. (1,902,843)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ (1,855,320)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

11
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

STATEMENT OF CHANGES IN NET ASSETS

DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.. (49,669) (5,180)
Dividends paid from net realized gains..... -- (1,407)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (49,669) (6,587)
------------------ ------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 5,659,309 10,083,304
Net asset value of shares issued on
reinvestment of distributions............ 41,742 6,157
Cost of shares redeemed.................... (3,406,927) (4,498,343)
------------------ ------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS............................. 2,294,124 5,591,118
------------------ ------------------
TOTAL INCREASE IN NET ASSETS........... 389,135 3,230,271
------------------ ------------------

NET ASSETS
Beginning of period........................ 6,917,436 3,687,165
------------------ ------------------
End of period (including undistributed net
investment income of $8,374 and $10,520,
respectively)............................ $ 7,306,571 $ 6,917,436
------------------ ------------------
------------------ ------------------

CHANGES IN SHARES
Shares sold................................ 778,166 982,882
Shares reinvested from distributions....... 6,798 474
Shares redeemed............................ (451,755) (411,241)
------------------ ------------------
Net Increase........................... 333,209 572,115
------------------ ------------------
------------------ ------------------
</TABLE>

See accompanying notes to financial statements.

12
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

FINANCIAL HIGHLIGHTS

FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FOR THE APRIL 29,
SIX MONTHS FOR THE YEAR 1996*
ENDED ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 8.08 $ 12.98 $ 12.50
-------- -------- --------
Income from investment operations:
Net investment income........................... 0.04 0.02 --
Net realized and unrealized gain (loss) on
investments................................... (1.94) (4.91) 0.48
-------- -------- --------
Total from investment operations.................. (1.90) (4.89) 0.48
-------- -------- --------

Less distributions:
Dividends from net investment income............ (0.04) (0.01) --
Distributions from taxable net captial gains.... -- -- --
-------- -------- --------
Total distributions............................... (0.04) (0.01) --
-------- -------- --------
Net asset value, end of period.................... $ 6.14 $ 8.08 $ 12.98
-------- -------- --------
-------- -------- --------
Total return...................................... (23.49)%++ (37.68)% 3.84 %++
Ratios/supplemental data:
Net assets, end of period (thousands)............. $ 7,307 $ 6,917 $ 3,687
Ratio of expenses to average net assets:
Before expense reimbursement.................... 4.14 %+ 4.41 % 9.14 %+
After expense reimbursement..................... 1.98 %+ 1.98 % 1.98 %+
Ratio of net investment income to average net
assets:
Before expense reimbursement.................... (0.97)%+ (2.16)% (7.10)%+
After expense reimbursement..................... 1.19 %+ 0.28 % 0.06 %+
Portfolio turnover rate........................... 19.57 % 34.69 % 10.97 %
Average Commission Rate Paid**.................... $ 0.0066 $ 0.0078 $ 0.0190

BANK LOANS
Amount outstanding at end of period (000)......... -- $ 0 --
Average amount of bank loans outstanding during
the period (monthly average) (000)............... -- $ 121 --
Average number of shares
outstanding during the period
(monthly average) (000).......................... -- 479 --
Average amount of debt per share during the
period........................................... -- $ 0.25 --
</TABLE>

<TABLE>
<S> <C>
* Commencement of operations.
** A fund is required to disclose its average commission rate per share for
security trades on which commissions are charged.This amount may vary from
period to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
+ Annualized
++ Not Annualized
</TABLE>

See accompanying notes to financial statements.

13
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

THE BACKDROP

The aftershocks from Southeast Asia's currency devaluations have continued
to spread during the first half of the year. High U.S. Dollar debt levels
crippled many Southeast Asian companies, pushing several into technical
bankruptcy. Banks in the region are now struggling to overcome high levels of
non-performing loans. Not surprisingly, this has brought new corporate fixed
investment almost to a halt. Business and consumer confidence has evaporated.
Southeast Asia is in the midst of a severe recession.

As domestic demand has dropped so sharply so too have Southeast Asia's
imports. Meanwhile exports have been steady to slightly negative rather than
showing any benefits from the currency devaluations. With steady exports and
sharply lower imports, trade surpluses are now the norm and the region is
beginning the process of repaying its substantial overseas debt. More progress
on exports in the coming months should result in currency stability, indeed
there should eventually be the possibility of the region's currencies
strengthening.

For Hong Kong the maintenance of the Hong Kong Dollar peg to the U.S. Dollar
has come at the price of substantially lower residential property prices. Hence
consumer confidence has been shaken and domestic consumption has fallen. Hong
Kong, considered by many to be the strongest economy in the region, is also in
the midst of a recession. Mainland China is the area in the region that is
expected to see growth in domestic demand. Chinese authorities introduced an
austerity program back in 1993, which successfully killed off inflation. They
are now encouraging domestic demand growth by cutting interest rates and
announcing substantial infrastructure spending projects. We believe the
authorities will struggle to achieve their 8% GDP target, but it should clearly
be the best in the region.

THE FUND

The affect of the economic downturn on the share prices of smaller companies
in the region has been very negative, as liquidity has been poor. Over the first
six months of the year, the Asia Small Cap Fund fell -36.07%, compared with
- -26.52% for the Fund's benchmark index, the HSBC James Capel Southeast Asia
Smaller Companies Index.

The portfolio has been rotated so that it is heavily overweighted in
manufacturers and exporters, which should benefit from the region's currency
devaluations, however in the short term these companies have just fallen in line
with the overall market. Going forward we hope to see the relatively better
earnings prospects of smaller companies being reflected in better relative
performance.

14
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND (CONTINUED)

THE OUTLOOK

The portfolio is heavily underweighted in the banking and property sectors,
where we foresee that earnings will be under pressure. The higher non-performing
loans will require the banking sector to try to recapitalize and this should
keep banking shares under pressure. While property prices may find a bottom in
the coming months we do not see a recovery in either property prices or an
increase in transaction volumes. Manufacturing must lead Asia out of its
economic difficulties and the currency devaluations have placed the sector in a
position to do so.

- -- Robert Conlon and Agnes Chow in Hong Kong, 24 July 1998.

15
<PAGE>
ASIA SMALL CAP FUND
- --------------------------------------------------------------------------------

FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
KEY PORTFOLIO STATISTICS
AS OF 6/30/98

<TABLE>
<S> <C>
# of Stocks in the Portfolio: 68
Portfolio Turnover: 13.85%
% of Stocks in Top 10: 34.39%
</TABLE>

FUND MANAGERS:
Robert Conlon & Agnes Chow,
Hong Kong

<TABLE>
<CAPTION>
TOP 10 HOLDINGS (%)
---------------------------------------
<S> <C>
Ng Fung Hong 4.47%
Elec & Eltek Intl 4.31%
Four Seas Mercantile 4.06%
Varitronix International 3.79%
KCE Electronics 3.32%
Venture Manufacturing 3.14%
Guangdong Kelon Electric 3.07%
Natsteel Electronics 2.79%
GPE Industries 2.77%
Qingling Motors Co. 2.67%
TOP 5 SECTORS (%)
---------------------------------------
Electronics 18.54%
Food & Beverage 11.07%
Consumer-Related 10.64%
Manufacturing 10.36%
Automobile 7.12%
TOP 5 COUNTRIES (%)
---------------------------------------
Hong Kong 30.01%
Singapore 23.89%
China 24.56%
Thailand 8.70%
Malaysia 6.03%
Indonesia 1.20%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
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)
HSBC JAMES
GUINNESS FLIGHT ASIA CAPEL SASC
SMALL CAP FUND INDEX
<S> <C> <C>
4/29/96* $10,000 $10,000
6/30/96 10,461 9,530
9/30/96 10,397 9,467
12/31/96 11,308 9,720
3/31/97 12,046 10,336
6/30/97 13,406 9,999
9/30/97 12,504 7,820
12/31/97 7,829 4,464
3/31/98 7,684 5,116
6/30/98 5,005 3,280
*Inception date.
Average Annual Total Return
One Year Since Inception
- -62.67% -27.31%
Past performance is not predictive of future performance
</TABLE>

16
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30,1998 (UNAUDITED)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES COMMON STOCK: 96.42% VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
CHINA: 24.56%
6,159,000 Anhui Expressway Co Ltd - H........................... $ 620,114
1,650,000 Beijing Datang Power - H.............................. 463,244
1,697,979 Dazhong Taxi.......................................... 927,097
2,200,000 First Tractor Co. - H................................. 582,161
1,608,000 Guandong Kelon Elec Hld - H........................... 1,266,142
1,500,000 Guangdong Brewery Holdings Ltd........................ 114,238
2,292,400 Heilongjiang Electric Power Co........................ 871,112
1,036,000 Huangshan Tourism DVLP Co - B......................... 400,932
2,700,000 Inner Mongolia Yitai Coal - B......................... 756,000
3,966,000 Qingling Motors Company Ltd. - H...................... 1,100,671
1,527,540 Shangdong Chenmimg Paper Ind. - B..................... 631,956
1,500,000 Shanghai Zhenhua Port Mach. - B....................... 558,000
1,200,000 Shanghai Worldbest Co. Ltd. - B....................... 308,400
1,000,000 Shenzhen Fangda Co Ltd - B............................ 738,350
1,700,000 Zhenhai Refining & Chem Co. - H....................... 219,440
1,980,000 Zhejiang Southeast Electric........................... 554,400
-------------
Total China........................................... 10,112,257
-------------
HONG KONG: 30.01%
1,166,000 ASM Pacific Technology................................ 496,683
6,263,000 CNPC Hong Kong Ltd.................................... 832,695
10,000,000 Denway Investment Ltd................................. 593,778
1,860,000 Founder Hong Kong Ltd................................. 792,307
4,182,000 Four Seas Mercantile Hldg............................. 1,673,448
500,000 GZI Transportation Ltd................................ 112,947
5,000,000 Glorious Sun Enterprises Ltd.......................... 916,484
3,392,000 Quality Healthcare Asia Ltd........................... 280,222
1,500,000 Hung Hing Print Group................................. 595,392
1,400,000 Lung Kee (Bermuda) Holdings........................... 274,687
2,664,000 NG Fung Hong Ltd...................................... 1,839,732
1,000,000 QPL Intl Holdings Ltd................................. 193,623
5,000,000 Silver Grant Intl Ltd................................. 606,686
7,508,000 Texwinca Holdings Ltd................................. 629,947
794,000 Vanda Systems & Communications........................ 143,488
779,000 Varitronix International Ltd.......................... 1,558,603
1,250,000 Vitasoy International Holdings Ltd.................... 411,450
</TABLE>

17
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30,1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
HONG KONG: (CONTINUED)
2,050,000 Wongs International................................... $ 402,220
200,000 Wongs International Wts............................... 3,692
-------------
Total Hong Kong....................................... 12,358,084
-------------
INDONESIA: 1.20%
25,825,000 Astra Agro............................................ 493,584
-------------
MALAYSIA: 6.03%
2,000,000 Hap Seng Consolidated Bhd............................. 1,066,602
750,000 PPB Oil Palms Bhd..................................... 490,879
500,000 Malakoff Berhad....................................... 927,217
-------------
Total Malaysia........................................ 2,484,698
-------------
PHILIPPINES: 2.03%
7,400,000 Cosmos Bottling Corporation........................... 834,053
-------------
SINGAPORE: 23.89%
850,000 Advanced Systems Automation........................... 338,484
585,000 Avimo Group Ltd....................................... 813,611
138,000 Clipsal Industries Ltd................................ 123,510
400,000 Datacraft Asia Limited................................ 960,000
525,000 Elec & Eltek Int Co Ltd............................... 1,774,500
1,000,000 Flextech Holdings Ltd................................. 261,516
200,000 Flextech Holdings Ltd Wts............................. 49,331
250,000 GP Batteries.......................................... 457,652
3,455,000 GPE Industries Ltd.................................... 1,140,150
684,000 Natsteel Electronics Ltd.............................. 1,150,502
51,840 Osprey Maritime Ltd. Pfd.............................. 18,487
192,000 Osprey Maritime Ltd................................... 89,010
1,438,449 Singapore Tech Automotive For Reg..................... 1,017,387
1,996,000 Teledata Ltd.......................................... 136,428
680,000 Venture Manufacturing................................. 1,293,314
509,000 Wong's Circuits Holdings Ltd.......................... 211,235
-------------
Total Singapore....................................... 9,835,117
-------------
THAILAND: 8.70%
524,000 Eastern Water Resources............................... 574,288
370,000 KCE Electronics....................................... 1,367,772
</TABLE>

18
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY COUNTRY

JUNE 30,1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
THAILAND: (CONTINUED)
1,918,264 Mah Boon Krong Properties............................. $ 715,939
526,200 Phatra Thanakit Co. -Foreign.......................... 47,383
199,900 Pizza Co. Ltd. -Foreign............................... 582,647
95,000 Thai Union Frozen Products............................ 292,654
-------------
Total Thailand........................................ 3,580,683
-------------
TOTAL INVESTMENTS IN SECURITIES
(Identified cost $67,347,144+): 96.42%.............. $ 39,698,476
-------------
OTHER ASSETS LESS LIABILITIES: 3.58%.................. 1,473,299
-------------
NET ASSETS: 100.00%................................... $ 41,171,775
-------------
-------------
</TABLE>

<TABLE>
<S> <C>
+ Cost for federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation.................. $ 1,030,585
Gross unrealized depreciation.................. (28,679,253)
-----------
$(27,648,668)
-----------
-----------
</TABLE>

See accompaying notes to financial statements.

19
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY (UNAUDITED)

JUNE 30, 1998

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

% OF
INDUSTRY NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C>

Agriculture............................................................. 4.64%
Automobile.............................................................. 7.12
Consumer Related........................................................ 10.64
Construction............................................................ 1.79
Electronics............................................................. 18.54
Electric Power.......................................................... 3.46
Electric Utilities...................................................... 1.13
Food and Beverage....................................................... 11.07
Machinery............................................................... 0.82
Manufacturers........................................................... 10.36
Material................................................................ 2.98
Medical Products........................................................ 0.68
Oil/Petroleum Refining.................................................. 2.56
Real-Estate............................................................. 3.33
Retail.................................................................. 1.42
Technology.............................................................. 2.82
Telecommunications...................................................... 4.59
Transportation.......................................................... 2.04
Travel Services......................................................... 0.97
Utilities............................................................... 1.39
Wholesalers............................................................. 4.07
-----------
TOTAL INVESTMENTS IN SECURITIES......................................... 96.42
OTHER ASSETS LESS LIABILITIES........................................... 3.58
-----------
NET ASSETS.............................................................. 100.00%
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

20
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $67,347,144)............... $ 39,698,476
Cash................................................................. 1,602,823
Receivables:
Securities sold.................................................. 15,597
Dividends and interests.......................................... 137,195
Fund shares sold................................................. 8,998
Prepaid expenses..................................................... 136,516
Deferred organization costs, net..................................... 4,946
-------------
Total assets..................................................... $ 41,604,551
-------------

LIABILITIES
Payables:
Securities purchased............................................. 325,131
Fund shares redeemed............................................. 17,499
Due to Advisor (Note 3).............................................. 33,714
Accrued expenses..................................................... 56,432
-------------
Total liabilities................................................ 432,776
-------------
NET ASSETS........................................................... $ 41,171,775
-------------
-------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($41,171,775/6,623,087 shares outstanding; unlimited number of
shares authorized without par value)............................. $6.22
-----
-----
SOURCE OF NET ASSETS
Paid-in capital.................................................. $ 136,527,867
Overdistributed net investment income............................ (427,588)
Undistributed net realized loss on investments................... (67,278,427)
Net unrealized depreciation on:
Investments.................................................. (27,648,668)
Foreign currency............................................. (1,409)
-------------
NET ASSETS............................................... $ 41,171,775
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

21
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED
JUNE 30, 1998
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld of $28,145)............ $ 768,718
Interest........................................................ 98,726
------------------
Total Investment Income..................................... 867,444

EXPENSES
Advisory fees (Note 3).......................................... 342,137
Administration fee (Note 3)..................................... 85,534
Custodian....................................................... 65,092
Accounting...................................................... 24,412
Transfer agent fees............................................. 106,918
Audit fees...................................................... 18,380
Legal fees...................................................... 19,691
Trustees' fees.................................................. 6,614
Registration fees............................................... 10,413
Reports to shareholders......................................... 19,830
Deferred organization costs amortization........................ 867
Miscellaneous................................................... 5,057
------------------
Total expenses.............................................. 704,945
------------------
Interest expense............................................ 2,444
Commitment fee on credit line............................... 4,310
Less: Expenses reimbursed (Note 3).......................... (12,349)
Indirectly paid expenses (Note 2)...................... (21,564)
------------------
Net expenses................................................ 677,786
------------------
NET INVESTMENT INCOME................................... $ 189,658
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments.............................. (47,396,435)
Net realized loss from foreign currency......................... (845,608)
Net change in unrealized appreciation on investments............ 15,802,895
Net change in unrealized gain on foreign currency............... 543,862
------------------
Net realized and unrealized loss on investments............. (31,895,286)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ (31,705,628)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

22
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 189,658 $ 830,403
Net realized loss from investments.......... (47,396,435) (19,050,729)
Net realized loss on foreign currency....... (845,608) (1,432,409)
Net change in unrealized (depreciation)
appreciation on investments............... 15,802,895 (45,336,624)
Net change in unrealized gain/loss on
foreign currency.......................... 543,862 (541,388)
------------------ ------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $ (31,705,628) $ (65,530,747)
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income... -- --
Distributions from taxable realized gains... -- (23,059)
Return of Capital........................... -- (719,699)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... -- (742,758)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................... 22,127,647 247,467,409
Net asset value of shares issued on
reinvestment of distributions............. -- 683,578
Cost of shares redeemed..................... (57,728,345) (124,267,665)
------------------ ------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS.............................. (35,600,698) 123,883,322
------------------ ------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS................................ (67,306,326) 57,609,817
------------------ ------------------
NET ASSETS
Beginning of period......................... 108,478,101 50,868,284
------------------ ------------------
End of period [including overdistributed net
investment income of $427,588 and $617,246
respectively]............................. $ 41,171,775 $ 108,478,101
------------------ ------------------
------------------ ------------------
CHANGES IN SHARES
Shares sold................................. 2,725,618 16,468,454
Shares reinvested from distributions........ -- 41,030
Shares redeemed............................. (7,257,351) (8,963,387)
------------------ ------------------
Net (Decrease) Increase................. (4,531,733) 7,546,097
------------------ ------------------
------------------ ------------------
</TABLE>

See accompanying notes to financials statements.

23
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FOR THE APRIL 29,
SIX MONTHS FOR THE YEAR 1996*
ENDED ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 9.73 $ 14.10 $ 12.50
------------- ------------ ------------
Income from investment operations:
Net investment income........................... 0.13 0.07 0.02
Net realized and unrealized gain (loss) on
investments................................... (3.64) (4.38) 1.61
------------- ------------ ------------
Total from investment operations.................. (3.51) (4.31) 1.63
------------- ------------ ------------
Less Distributions:
Dividends from net investment income............ -- -- (0.02)
Distributions from taxable net capital gains.... -- (0.01) (0.01)
Return of Capital............................... -- (0.05) --
------------- ------------ ------------
Total Distributions............................... -- (0.06) (0.03)
------------- ------------ ------------
Net asset value, end of period.................... $ 6.22 $ 9.73 $ 14.10
------------- ------------ ------------
------------- ------------ ------------
Total return...................................... (36.07)%++ (30.77)% 13.08%++
Ratios/supplemental data:
Net assets, end of period (thousands)............. $ 41,172 $108,478 $ 50,868
Ratio of expenses to average net assets:
Before expense reimbursement/ recoupment........ 2.06%+ 1.76% 3.09%+
After expense reimbursement/ recoupment......... 1.98%+ 1.80% 1.98%+
Ratio of net investment income to average net
assets:
Before expense reimbursement.................... 0.46%+ 0.53% (0.76)%+
After expense reimbursement..................... 0.55%+ 0.49% 0.36%+
Portfolio turnover rate........................... 13.85% 52.33% 21.91%
Average Commission Rate Paid**.................... $ 0.0012 $ 0.0029 $ 0.0029

BANK LOANS
Amount outstanding at end of period (000)......... $ 0 -- --
Average amount of bank loans outstanding during
the period (monthly average) (000).............. $ 1,046 -- --
Average number of shares outstanding during the
period (monthly average) (000).................. 7,700 -- --
Average number of debt per share during the period
(000)........................................... $ 0.14 -- --
</TABLE>

<TABLE>
<S> <C>
* Commencement of operations.
** A fund is required to disclose its average commission rate per share for
security trades on which commission are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
+ Annualized
++ Not Annualized
</TABLE>

See accompanying notes to financial statements.

24
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

THE BACKDROP

The first half of 1998 saw the Hong Kong stock market succumb to the
slowdown that is affecting the region. The economic fundamentals are still
substantially better than elsewhere in Asia with lower levels of private sector
debt, a well-backed currency and a well-capitalized banking system. However,
Hong Kong is an open economy with a currency pegged to the US Dollar, and, as a
consequence, the continued instability of regional currencies, particularly the
Japanese Yen, is putting pressure on share prices and interest rates. The result
is stock market volatility and high interest rates. As a result, property
prices, which have fallen some 40% from their peak a year ago, have not yet
found a floor. Moreover, the banks, the largest component of the Hang Seng
Index, are unwilling to lend, preferring instead to conserve liquidity in the
event of renewed pressure on the currency that would once again force up
interest rates.

The domestic economy is undoubtedly suffering with unemployment at 4.2% in
May and rising, the highest since 1983, while retail sales continue to fall away
sharply--down some 15% in the year to May. Tourists, who accounted for 29% of
retail sales in 1997, have also stayed away following the devaluations of their
own currencies. The economy actually contracted in the first quarter by 2%. It
was against this background that the Government launched a package designed to
stabilize property prices and boost consumption. This included a freeze on
government land sales until next year, a property tax rebate and an increase in
the availability of home loans for first-time buyers. In addition, a corporate
tax rebate on interest income on locally held deposits has been granted to
encourage a repatriation of funds to boost bank liquidity.

THE FUND

During the period, the benchmark Hang Seng Index fell 20.33% following a
liquidity-run that pushed the Index up to 11,810 in March. The China & Hong Kong
Fund fell 27.42% over the same period, due in part to the fact that the Fund can
hold no more than 25% of its assets in HSBC Holdings, which represents 29% of
the Hang Seng Index. HSBC outperformed the market by 19.5% over the period,
making the benchmark heavily skewed. At the same time, there was some
substantial under-performance of key holdings such as Citic Pacific, Hong Kong
and China Gas, Cheung Kong Holdings and the property stocks.

The portfolio continues to be underweighted in the property and banking
sectors. Non-performing loans in the banking sector are expected to pick up
sharply with the risks of bad debt charges lying mainly in the corporate and
consumer sectors. The aggregate level of bad and doubtful debt is expected to
peak around 7 or 8% in 1999 while the level for the listed banks is more likely
to be between 5 and 6%. The risks of a banking sector crisis are low given the
high capital adequacy and liquidity ratios. The Fund continues to be
overweighted in utilities and neutrally weighted in the commercial and
industrial sectors.

25
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND (CONTINUED)

THE OUTLOOK

The remainder of the year is expected to continue to be volatile. Further
weakness should be expected as companies report their half-year results. GDP
growth in the second quarter is widely expected to be negative, pushing the
economy officially into recession. Recovery is unlikely to be clearly visible
until 1999. The factors that will determine the timing of this recovery include
a stabilization in regional currencies and signs that benefits from the stimulus
measures being employed in the Chinese economy are finally starting to come
through.

- -- Richard Farrell, Lynda Johnstone in London and Edmund Harriss in Hong Kong,
24 July 1998.

26
<PAGE>
CHINA & HONG KONG FUND
- --------------------------------------------------------------------------------

FUND HIGHLIGHTS
- --------------------------------------------------------------------------------

KEY PORTFOLIO STATISTICS

AS OF 6/30/98

<TABLE>
<S> <C>
# of Stocks in the Portfolio: 51
Portfolio Turnover: 39.24%
% of Stocks in Top 10: 74.66%
</TABLE>

FUND MANAGERS:
Richard Farrell & Lynda Johnstone,
London;
Edmund Harriss,
Hong Kong

<TABLE>
<CAPTION>
TOP 10 HOLDINGS (%)
---------------------------------------
<S> <C>
HSBC Holdings 18.04%
Hong Kong Telecom 11.22%
China Telecom 10.50%
Hutchison Whampoa 9.71%
CLP Holdings 5.01%
Cheung Kong Holdings 4.73%
Hang Seng Bank 4.17%
Sun Hung Kai Properties 4.05%
Hong Kong Electric 3.98%
Varitronix Intl. 3.25%
TOP 5 SECTORS (%)
---------------------------------------
Telecommunications 23.85%
Banking 23.70%
Diversified 13.66%
Real Estate 11.74%
Electric Power 9.93%
COUNTRY ALLOCATION (%)
---------------------------------------
Hong Kong 95.59%
China 3.49%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
GUINNESS FLIGHT CHINA & HONG KONG FUND AND THE HANG SENG INDEX
GUINNESS FLIGHT CHINA HANG SENG
& HONG KONG FUND INDEX
6/30/94* $10,000 $10,000
<S> <C> <C>
9/30/94 10,616 10,871
12/31/94 9,226 9,352
3/31/95 9,274 9,805
6/30/95 10,040 10,512
9/30/95 10,680 11,014
12/30/95 11,112 11,501
3/31/96 12,066 12,510
6/30/96 12,254 12,582
9/30/96 13,054 13,589
12/31/96 14,933 15,358
3/31/97 13,828 14,311
6/30/97 17,080 17,351
9/30/97 16,595 17,183
12/31/97 11,896 12,243
3/31/98 11,803 13,151
6/30/98 8,634 9,754
*Inception date.
Average Annual Total Return
One Year Three Years Since Inception
- -49.45% -4.91% -3.60%
Past performance is not predictive of future performance
</TABLE>

27
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES COMMON STOCK: 99.10% VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE MANUFACTURER: 0.62%
4,826,000 Qingling Motors Company Ltd............................ $ 1,339,344
-------------
BANKS: 23.70%
2,236,500 Dao Heng Bank Group Ltd................................ 3,175,616
1,587,500 Hang Seng Bank......................................... 8,975,410
1,586,308 HSBC Holding PLC....................................... 38,802,810
-------------
Total Banks............................................ 50,953,836
-------------
CONGLOMERATES & DIVERSIFIED OPERATIONS: 13.66%
901,000 China Resources Enterprises............................ 930,425
2,000,000 Citic Pacific Ltd...................................... 3,536,853
3,955,000 Hutchison Whampoa...................................... 20,880,276
356,000 Shanghai Industrial Holding Ltd........................ 838,647
845,000 Swire Pacific Ltd. A................................... 3,190,429
-------------
Total Conglomerates & Diversified Operations........... 29,376,630
-------------
ELECTRICAL CONSUMER GOODS: 2.81%
2,600,000 Founder Hong Kong Ltd.................................. 1,107,525
1,396,000 Gold Peak Industrial................................... 477,527
289,200 Gold Peak Industries................................... 5,973
1,496,000 Guangdong Kelon Electric............................... 1,177,953
580,000 Johnson Electric Holdings.............................. 2,148,703
200,000 Vtech Holdings Ltd..................................... 744,804
430,000 Wuxi Little Swan....................................... 382,432
-------------
Total Electrical Consumer Goods........................ 6,044,917
-------------
ELECTRIC POWER: 9.93%
4,328,000 Beijing Datang Power................................... 1,215,103
2,363,500 CLP Holdings Ltd....................................... 10,769,530
2,764,000 Hong Kong Electric..................................... 8,562,799
60,000 Huaneng Power International Inc. ADR................... 806,250
-------------
Total Electric Power................................... 21,353,682
-------------
ENGINEERING & INFRASTRUCTURE: 2.57%
1,825,000 Cheung Kong Infrastructure............................. 3,451,175
88,000 GZI Transportation Ltd................................. 19,879
17,600 GZI Transportation Ltd. Wts............................ 45
1,177,733 New World Infrastructure............................... 1,353,016
</TABLE>

28
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
ENGINEERING & INFRASTRUCTURE: (CONTINUED)
7,350,000 Sichuan Expressway..................................... $ 702,078
-------------
Total Engineering & Infrastructure..................... 5,526,193
-------------
FOOD & BEVERAGE: 0.49%
1,002,000 Four Seas Mercantile Holdings.......................... 400,955
320,400 Four Seas Mercantile Holdings Wts...................... 4,963
1,767,662 Guangdong Brewery Holdings Ltd......................... 134,623
750,000 Ng Fung Hong Ltd....................................... 517,942
-------------
Total Food & Beverage.................................. 1,058,483
-------------
GAS PRODUCTION & DISTRIBUTION: 3.26%
6,161,793 Hong Kong & China Gas.................................. 6,999,325
266,308 Hong Kong & China Gas Wts.............................. 18,219
-------------
Total Gas Production & Distribution.................... 7,017,544
-------------
MANUFACTURERS/MACHINERY: 1.14%
1,220,000 Varitronix Intl Ltd.................................... 2,440,945
-------------
MEDIA: 0.66%
540,000 Television Broadcasts Ltd.............................. 1,428,940
-------------
MINING SERVICES: 0.19%
2,088,000 Yanzhou Coal Mining Co................................. 398,895
-------------
REAL ESTATE: 11.74%
5,500,000 Beijing North Star..................................... 1,490,900
2,069,000 Cheung Kong............................................ 10,175,410
1,900,000 HKR International Ltd.................................. 674,455
833,000 Hysan Development Company.............................. 688,163
84,300 Hysan Development Wts-98............................... 696
1,810,000 New World Development.................................. 3,504,582
2,050,000 Sun Hung Kai Properties Ltd............................ 8,705,951
-------------
Total Real Estate...................................... 25,240,157
-------------
RETAIL TRADE & APP & ACC STORE: 2.68%
4,619,000 Dairy Farm International Holdings...................... 4,942,330
2,700,000 Esprit Asia Holdings Ltd............................... 819,027
-------------
Total Retail Trade & App & Acc Store................... 5,761,357
-------------
</TABLE>

29
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY: 0.26%
698,000 Legend Holdings Ltd.................................... $ 209,481
1,800,000 QPL International Holdings............................. 348,522
-------------
Total Technology....................................... 558,003
-------------
TELECOMMUNICATIONS: 23.85%
13,016,000 China Telecom.......................................... 22,597,806
12,850,400 Hong Kong Telecom...................................... 24,134,932
1,868,500 Smartone Telecommunications............................ 4,558,494
-------------
Total Telecommunications............................... 51,291,232
-------------
TRANSPORT: 0.40%
2,373,000 Cosco Pacific Ltd...................................... 850,016
-------------
WHOLESALE TRADE - MISC. WHOLESALERS: 1.14%
2,000,000 Guangnan Holdings Ltd.................................. 671,228
1,100,000 Li & Fung Ltd.......................................... 1,774,881
-------------
Total Wholesale Trade - Misc. Wholesalers.............. 2,446,109
-------------
TOTAL INVESTMENTS IN SECURITIES
(Identified cost $275,772,487+): 99.10%.............. $ 213,086,283
-------------
OTHER ASSETS LESS LIABILITIES: 0.90%................... 1,934,306
-------------
NET ASSETS: 100.00%.................................... $ 215,020,589
-------------
-------------
</TABLE>

<TABLE>
<C><S> <C>
+ Cost for federal income tax purposes is the same.
Net Unrealized depreciation consists of:
Gross unrealized appreciation.................... $ 1,549,929
Gross unrealized depreciation.................... (64,236,133)
-----------
$(62,686,204)
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

30
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $275,772,487).............. $ 213,086,283
Cash................................................................. 7,339,119
Receivables:
Securities sold.................................................. 443,348
Fund shares sold................................................. 162,681
Dividends and interests.......................................... 804,772
Prepaid expenses..................................................... 98,062
Deferred organizational costs, net................................... 11,992
-------------
Total assets..................................................... $ 221,946,257
-------------

LIABILITIES
Payables:
Securities purchased............................................. 1,596,530
Dividends to shareholders........................................ 215,887
Fund shares redeemed............................................. 4,882,291
Due to Advisor (Note 3).............................................. 177,209
Accrued expenses..................................................... 53,751
-------------
Total liabilities................................................ 6,925,668
-------------
NET ASSETS........................................................... $ 215,020,589
-------------
-------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($215,020,589/23,236,706) shares outstanding; unlimited number of
shares authorized without par value)............................. $9.25
-----
-----
SOURCE OF NET ASSETS
Paid-in capital.................................................. $ 323,359,239
Undistributed net investment income.............................. 174,389
Undistributed net realized loss on investments................... (45,827,182)
Net unrealized (depreciation) appreciation on:
Investments.................................................. (62,686,204)
Foreign currency............................................. 347
-------------
NET ASSETS............................................... $ 215,020,589
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

31
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED
JUNE 30, 1998
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends....................................................... $ 4,638,654
Interests....................................................... 240,987
------------------
Total investment income..................................... 4,879,641

EXPENSES
Advisory fees (Note 3).......................................... 1,175,762
Administration fee (Note 3)..................................... 293,941
Custodian....................................................... 165,260
Accounting...................................................... 25,014
Transfer agent fees............................................. 173,525
Audit fees...................................................... 15,372
Legal fees...................................................... 32,233
Trustee's fees.................................................. 6,639
Registration fees............................................... 14,259
Reports to shareholders......................................... 14,480
Deferred organization costs amortization........................ 5,778
Miscellaneous................................................... 14,484
------------------
Total expenses.............................................. 1,936,747
Interest expense............................................ 16,291
Commitment fee on credit line............................... 15,875
------------------
Net expenses................................................ 1,968,913
------------------
NET INVESTMENT INCOME................................... $ 2,910,728
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments.............................. (39,045,219)
Net realized loss from futures contract......................... (1,306,679)
Net realized loss from foreign currency......................... (14,352)
Net change in unrealized appreciation (depreciation) on:
Investments................................................. (27,562,383)
Foreign currency............................................ 297
------------------
Net realized and unrealized loss on investments............. (67,928,336)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ (65,017,608)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

32
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

STATEMENT OF CHANGES IN NET ASSETS

DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income... (2,756,724) (3,513,166)
Dividends from taxable realized gains....... -- (19,375,592)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (2,756,724) (22,888,758)
------------------ ------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................... 205,842,995 344,146,466
Net asset value of shares issued on
reinvestment of distributions............. 2,541,784 21,519,617
Cost of shares redeemed..................... (167,398,028) (346,773,295)
------------------ ------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS.............................. 40,986,751 18,892,788
------------------ ------------------
TOTAL DECREASE IN NET ASSETS............ (26,787,581) (69,712,692)
------------------ ------------------

NET ASSETS
Beginning of period......................... 241,808,170 311,520,862
------------------ ------------------
End of period (including undistributed net
investment income of $174,389 and $20,385,
respectively) $ 215,020,589 $ 241,808,170
------------------ ------------------
------------------ ------------------

CHANGES IN SHARES
Shares sold................................. 19,295,593 20,126,852
Shares reinvested from distributions........ 274,707 1,537,579
Shares redeemed............................. (15,067,292) (20,520,112)
------------------ ------------------

Net Increase............................ 4,503,008 1,144,319
------------------ ------------------
------------------ ------------------
</TABLE>

See accompanying notes to financial statements.

33
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

FINANCIAL HIGHLIGHTS

FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FOR THE FOR THE YEARS ENDED FROM JUNE 30,*
SIX MONTHS DECEMBER 31, THROUGH
ENDED --------------------------- DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 12.91 $ 17.71 $ 13.64 $ 11.47 $12.50
Income from investment operations:
Net investment income........................... 0.12 0.20 0.19 0.14 0.04
Net realized and unrealized gain (loss) on
investments................................... (3.66) (3.71) 4.43 2.20 (0.96)
------------- -------- -------- ------- -------
Total from investment operations.................. (3.54) (3.51) 4.62 2.34 (0.92)
------------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income............ (0.12) (0.20) (0.19) (0.14) (0.04)
Distributions from taxable net capital gains.... 0.00 (1.09) (0.36) (0.03) (0.07)
------------- -------- -------- ------- -------
Total distributions............................... (0.12) (1.29) (0.55) (0.17) (0.11)
------------- -------- -------- ------- -------
Net asset value, end of period.................... $ 9.25 $ 12.91 $ 17.71 $ 13.64 $11.47
------------- -------- -------- ------- -------
------------- -------- -------- ------- -------
Total return...................................... (27.42)%** (20.34)% 34.38% 20.45% (7.74)%**
Ratios/supplemental data:
Net assets, end of period (thousands)............. $215,021 $241,808 $311,521 $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement (recoupment)....... 1.68%+ 1.70% 1.78% 3.02%++ 19.92%+
After expense reimbursement (recoupment)........ 1.68%+ 1.70% 1.96% 1.98% 2.00%+
Ratio of net investment income to average net
assets:
Before expense reimbursement (recoupment)....... 2.48%+ 1.18% 1.57% 0.49% (17.15)%+
After expense reimbursement (recoupment)........ 2.48%+ 1.18% 1.39% 1.52% 0.78%+
Portfolio turnover rate........................... 39.24% 53.62% 30.40% 10.89% 27.25%
Average Commission Rate Paid#..................... $ 0.0029 $ 0.0052 $ 0.0070 -- --
BANK LOANS
Amount outstanding at end of period (000)......... $ 0 $ 0 $ 0 -- --
Average amount of bank loans outstanding during
the period (monthly average) (000).............. $ 2,958 $ 2,305 $ 1,413 -- --
Average number of shares outstanding during the
period (monthly average) (000).................. 20,788 16,944 11,419 -- --
Average amount of debt per share during the
period.......................................... $ 0.14 $ 0.14 $ 0.12 -- --
</TABLE>

<TABLE>
<S> <C>
* Commencement of operations.
** Not annualized.
+ Annualized.
++ Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended December 31,
1995, the ratio of expenses to average net assets before "expense reimbursement" would have been 3.04%.
# For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average
commissions rate per share for security trades on which commissions are charged. 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.
</TABLE>

See accompanying notes to financial statements.

34
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

THE BACKDROP

The structural reforms outlined by Premier Zhu Rongji in his "new deal"
program, which was announced at the end of the first quarter, pointed in the
right direction and underscored the potential for China to make a major leap
forward. Unfortunately, the implementation of these reforms will now be delayed
in order for China to achieve its economic objective of 8% growth this year. GDP
increased by 6.8% in the second quarter and by 7.2% in the first quarter. Export
trade figures for May showed a decline--of 1.6% for the year--for the first
time. Although export figures have since reversed to show an increase of 1.6%
for the year, export growth is likely to continue to be under pressure from not
only increased export competition, but also weakening external demand, namely
from the Asia region. Foreign direct investment fell sharply over the period and
will likely continue to do so.

On the domestic consumer front, demand remains weak even after the interest
rate cut in the first quarter. Given the slowdown in both domestic and external
demand, investors have already begun to discount the ability of the government
to achieve its 8% targeted growth for the year. Looking forward, we believe that
the government will continue to reflate the economy through infrastructure
spending. Compared to the beginning of the year, fixed asset investments in May
and June have already shown signs of stronger growth, up 13.8% and 16.3%,
respectively for those months.

THE FUND

During the semi-annual period, the Mainland Fund fell 23.49% and the MSCI
China Free Index fell 36.39%. The Fund's outperformance of the Index is due to
its underweighted position in Red Chip companies, which were the worst
performers of the China-related shares. Over the six-month period, the Fund
reduced its cash position but remained cautiously invested given the market's
increased volatility and shrinking volumes. In the early part of the second
quarter, the Fund built up positions in a number of toll road companies,
including Anhui Expressway and Shenzhen Expressway, as well as the more
defensive food-related stocks, Ng Fung Hong and China Foods. By mid-May, the
sharp decline in the Japanese Yen and renewed worries over the Chinese economy
and currency took their toll on the Chinese markets. Yet, it will likely be
another several months before the Yen's full effect is realized.

Over the period under review, the Fund accumulated positions in both H
shares and Red Chips. In particular, infrastructure-related plays were favored.
Not only are they more defensive but also they are most likely to benefit from
China's fiscal policy that aims to stimulate growth through increased
infrastructure spending. In the B share markets, accumulation of quality
positions was difficult with fundamentals relatively weak and trading
particularly volatile due to thin volume on the Shenzhen and Shanghai exchanges.

35
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND (CONTINUED)

THE OUTLOOK

In the next three months, we expect a continued high level of volatility in
the China region. Downward revision of full year earnings forecasts have already
begun to take place and are likely to increase especially after the
announcements of first-half performance in August. Although valuations are
already approaching attractive historical levels, we believe that with the
downgrades that are likely in the coming months, it is still too soon to start
bargain hunting

Going forward, we look to maintain competitive exposure in order to capture
China's long-term growth while minimizing increased near-term risk. We remain
overweight in the infrastructure-related sectors since we believe this sector
will show the strongest growth while offering a relatively steady earnings
stream.

The outlook for Red Chips remains the most uncertain. Despite having fallen
43% during the second quarter, the prospects for Red Chip stocks remain bleak.
Although downside risk is dropping, the upside potential has not yet become
apparent. H shares too have fallen significantly, down 38% during the second
quarter. Given the recent drops, value has emerged in selective stocks. In
particular, expressways, many of which are trading at a discount, offer good
value. We will look to accumulate positions in this area.

- -- Lisa Chow and Adrian Fu in Hong Kong, 24 July 1998

36
<PAGE>
MAINLAND CHINA FUND
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
KEY PORTFOLIO STATISTICS
AS OF 6/30/98

<TABLE>
<S> <C>
# of Stocks in the Portfolio: 56
Portfolio Turnover: 48.62%
% of Stocks in Top 10: 36.14%
</TABLE>

FUND MANAGERS:
Lisa Chow & Adrian Fu,
Hong Kong

<TABLE>
<CAPTION>
TOP 10 HOLDINGS (%)
---------------------------------------
<S> <C>
China Telecom 5.68%
Zhejuang Southeast Electricity 5.33%
China Merchants Hai Hong 3.71%
Ng Fung Hong 3.52%
Hutchison Whampoa 3.22%
Tianjin Development 3.21%
Cheung Kong Infrastructure 3.14%
Shanghai Industrail Holdings 2.98%
Jiangsu Expressway 2.82%
Qingling Motors Co. 2.53%
TOP 5 SECTORS (%)
---------------------------------------
Diversified & Conglomerates 16.96%
Engineering & Infrastructure 15.16%
Electric Power 10.95%
Telecommunications 6.29%
Automotive Manufacturing 6.19%
TOP SHARE TYPES (%)
---------------------------------------
Red chips 25.92%
H Shares 21.73%
Hong Kong 19.31%
Shanghai "B" Shares 11.35%
Shenzhen "B" Shares 8.04%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
MAINLAND CHINA FUND AND THE MSCI CHINA FREE INDEX
GUINNESS FLIGHT MSCI CHINA
MAINLAND CHINA FUND FREE INDEX
11/3/97* $10,000 $10,000
12/31/97 9,450 7,947
<S> <C> <C>
3/31/98 10,267 7,806
6/30/98 7,230 5,055
*Inception date.
Average Annual Total Return
Since Inception
- -27.71%
Past performance is not predictive of future performance
</TABLE>

37
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES COMMON STOCK: 89.50% VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE MANUFACTURER: 6.19%
29,800 Brilliance China Automotive............................. $ 301,725
983,081 Chongqing Changan Automobile............................ 177,658
1,200,000 Qingling Motors Company Ltd............................. 333,032
------------
Total Automotive Manufacturer........................... 812,415
------------
BANKS: 1.81%
300,000 Ka Wah Bank............................................. 122,951
181,000 Union Bank of Hong Kong................................. 115,067
------------
Total Banks............................................. 238,018
------------
CONGLOMERATES & DIVERSIFIED OPERATIONS: 16.96%
800,000 China Merchants Hai Hong Holdings....................... 487,931
150,000 China Resources Enterprises............................. 154,899
80,000 Citic Pacific Ltd....................................... 141,474
1,000,000 Guangzhou Investment.................................... 113,592
1,040,000 Harbin Power............................................ 93,972
80,000 Hutchison Whampoa....................................... 422,357
166,000 Shanghai Industrial Holdings Ltd........................ 391,055
494,000 Tianjin Development Holdings............................ 420,860
------------
Total Conglomerates & Diversified Operations............ 2,226,140
------------
ELECTRICAL CONSUMER GOODS: 3.02%
345,600 Founder Hong Kong Ltd................................... 147,216
200,000 Guangdong Kelon Electric................................ 157,480
103,300 Wuxi Little Swan........................................ 91,873
------------
Total Electrical Consumer Goods......................... 396,569
------------
ELECTRIC POWER: 10.95%
1,070,000 Beijing Datang Power.................................... 300,407
344,500 Guangdong Electric Power................................ 128,070
375,000 Heilongjiang Electric Power Co.......................... 142,500
500,000 Huaneng Power International............................. 166,193
2,500,000 Zhejiang Southeast Electricity.......................... 700,000
------------
Total Electric Power.................................... 1,437,170
------------
ENGINEERING & INFRASTRUCTURE: 15.16%
2,000,000 Anhui Expressway Co..................................... 201,368
</TABLE>

38
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
ENGINEERING & INFRASTRUCTURE: (CONTINUED)
218,000 Cheung Kong Infrastructure.............................. $ 412,250
1,956,000 Jiangsu Expressway...................................... 371,153
233,000 New World Infrastructure................................ 267,678
184,000 Road King Infrastructure................................ 144,882
1,614,000 Shenzhen Expressway..................................... 297,924
1,500,000 Sichuan Expressway...................................... 143,281
902,000 Zhejiang Expressway Holdings............................ 151,362
------------
Total Engineering & Infrastructure...................... 1,989,898
------------
FOOD & BEVERAGE: 5.77%
1,357,600 Guangdong Brewery Holdings Ltd.......................... 103,393
378,000 Guang Nan Holdings Ltd.................................. 126,862
670,000 Ng Fung Hong Ltd........................................ 462,695
180,000 Yantai Changyu Pioneer Wine Co.......................... 65,057
------------
Total Food & Beverage................................... 758,007
------------
MANUFACTURERS/MACHINERY: 3.22%
500,000 First Tractor Co........................................ 132,309
1,000,000 Shanghai Diesel Engineering - B......................... 168,000
34,000 Shanghai Zhenhua Port Machinery Co...................... 12,648
700,000 Wuhan Boiler............................................ 109,333
------------
Total Manufacturers/Machinery........................... 422,290
------------
MATERIALS: 4.48%
384,953 China International Marine Containers................... 198,762
420,000 Shandong Chenmimg Paper................................. 173,758
840,000 Shanghai Worldbest Co. Ltd.............................. 215,880
------------
Total Materials......................................... 588,400
------------
OIL REFINING: 0.74%
750,000 Zhenhai Refining & Chemical Co.......................... 96,812
------------
PHARMACEUTICALS: 2.11%
1,500,000 China Pharmaceutical Enterprises........................ 118,110
1,236,000 Guangzhou Pharmaceutical................................ 159,546
------------
Total Pharmaceuticals................................... 277,656
------------
</TABLE>

39
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE: 3.40%
577,000 Beijing North Star...................................... $ 156,409
64,000 New World Development................................... 123,919
668,000 Shum Yip Investment Ltd................................. 166,418
------------
Total Real Estate....................................... 446,746
------------
STEEL MANUFACTURER: 1.69%
300,000 Shanzhen Fangda Co. Ltd................................. 221,505
------------
TECHNOLOGY: 1.32%
400,000 Legend Holdings Ltd..................................... 120,046
298,000 Vanda Systems & Communications.......................... 53,853
------------
Total Technology........................................ 173,899
------------
TELECOMMUNICATIONS: 6.29%
430,000 China Telecom........................................... 746,547
134,000 Eastern Communications.................................. 78,792
------------
Total Telecommunications................................ 825,339
------------
TRANSPORT: 5.65%
697,000 Cosco Pacific Ltd....................................... 249,668
490,000 Dazhong Taxi............................................ 267,540
800,000 Inner Mongolia Yitai Coal - B........................... 224,000
------------
Total Transport......................................... 741,208
------------
TRAVEL SERVICES: 0.75%
253,000 Huangshan Tourism Dvlp. Co.............................. 97,910
------------
TOTAL COMMON STOCKS
(Identified cost $15,895,821): 89.50%................. 11,749,982
------------
</TABLE>

40
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

PORTFOLIO OF INVESTMENTS BY INDUSTRY

JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

PAR VALUE CORPORATE BONDS: 0.90% VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
150,000 New World Infrastructure $ 118,245
5.00% due 07/15/01....................................
------------
TOTAL CORPORATE BONDS
(Identified cost $157,500): 0.90% $ 118,245
------------
TOTAL INVESTMENTS IN SECURITIES
(Identified cost $16,053,321+): 90.40%................ $ 11,868,227
------------
OTHER ASSETS LESS LIABILITIES: 9.60%.................... 1,260,008
------------
NET ASSETS: 100.00%..................................... $ 13,128,235
------------
------------
</TABLE>

<TABLE>
<C><S> <C>
+ Cost for federal income tax purposes is the same.
Net Unrealized depreciation consists of:
Gross unrealized appreciation.................... $ 174,043
Gross unrealized depreciation.................... (4,359,137)
-----------
$(4,185,094)
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

41
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $16,053,321)................ $ 11,868,227
Cash.................................................................. 1,104,541
Receivables:
Fund shares sold.................................................. 21,500
Dividends and interests........................................... 74,361
Due from Advisor (Note 3)......................................... 7,033
Prepaid expenses...................................................... 62,639
Deferred organizational costs, net.................................... 20,942
------------
Total assets...................................................... $ 13,159,243
------------

LIABILITIES
Payables:
Securities purchased.............................................. 12,931
Dividends to shareholders......................................... 7,509
Accrued expenses...................................................... 10,568
------------
Total liabilities................................................. 31,008
------------
NET ASSETS............................................................ $ 13,128,235
------------
------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($13,128,235/1,469,752 shares outstanding; unlimited number of
shares authorized without par value).............................. $8.93
-----
-----
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 17,557,616
Undistributed net investment income............................... 26,201
Undistributed net realized loss on investments.................... (270,492)
Net unrealized appreciation (depreciation) on:
Investments................................................... (4,185,094)
Foreign currency.............................................. 4
------------
NET ASSETS................................................ $ 13,128,235
------------
------------
</TABLE>

See accompanying notes to financial statements.

42
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED
JUNE 30, 1998
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld $175).................. $ 213,561
Interests....................................................... 111,265
------------------
Total investment income..................................... 324,826

EXPENSES
Advisory fees (Note 3).......................................... 84,629
Administration fee (Note 3)..................................... 21,157
Custodian....................................................... 20,387
Accounting...................................................... 14,876
Transfer agent fees............................................. 17,356
Audit fees...................................................... 7,935
Legal fees...................................................... 4,959
Trustee's fees.................................................. 6,617
Registration fees............................................... 8,679
Reports to shareholders......................................... 8,480
Deferred organization costs amortization........................ 2,396
Miscellaneous................................................... 1,488
------------------
Total expenses.............................................. 198,959
Commitment fee on credit line............................... 1,149
------------------
Less: Expenses reimbursed (Note 3).......................... (32,544)
------------------
Net expenses................................................ 167,564
------------------
NET INVESTMENT INCOME................................... $ 157,262
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investments.............................. (269,697)
Net realized loss from foreign currency......................... (1,116)
Net change in unrealized depreciation on:
Investments................................................. (4,128,392)
Foreign currency............................................ (19)
------------------
Net realized and unrealized loss on investments......... (4,399,224)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ (4,241,962)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

43
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED NOVEMBER 3, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income....................... $ 157,262 $ 30,408
Net realized loss from investments.......... (269,697) --
Net realized loss on foreign currency....... (1,116) 321
Net unrealized depreciation on investments
and foreign currency...................... (4,128,411) (56,679)
------------------ ------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... (4,241,962) (25,950)
------------------ ------------------

DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income... (131,078) (30,391)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (131,078) (30,391)
------------------ ------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................... 5,944,958 16,693,563
Net asset value of shares issued on
reinvestment of distributions............. 123,576 28,708
Cost of shares redeemed..................... (4,968,929) (314,260)
------------------ ------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS.............................. 1,099,605 16,408,011
------------------ ------------------
TOTAL (DECREASE) INCREASE IN NET
ASSETS................................ (3,273,435) 16,351,670

NET ASSETS
Beginning of period......................... 16,401,670 50,000
------------------ ------------------
End of period (including undistributed net
investment income of $26,201 and $17,
respectively)............................. $ 13,128,235 $ 16,401,670
------------------ ------------------
------------------ ------------------

CHANGES IN SHARES
Shares sold................................. 509,454 1,411,291
Shares issued from dividend distributions... 13,838 2,435
Shares redeemed............................. (444,790) (26,476)
------------------ ------------------

Net Increase............................ 78,502 1,387,250
------------------ ------------------
------------------ ------------------
</TABLE>

* Commencement of operations

See accompanying notes to financial statements.

44
<PAGE>
GUINNESS FLIGHT MAINLAND CHINA FUND

FINANCIAL HIGHLIGHTS

FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED NOVEMBER 3, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period....... $ 11.79 $ 12.50
-------- --------
Income from investment operations:
Net investment income.................... 0.11 0.02
Net realized and unrealized loss on
investments............................ (2.88) (0.71)
-------- --------
Total from investment operations (2.77) (0.69)
-------- --------

Less distributions:
Dividends from net investment income (0.09) (0.02)
-------- --------
Total distributions........................ (0.09) (0.02)
-------- --------
Net asset value, end of period............. $ 8.93 $ 11.79
-------- --------
-------- --------
Total return............................... (23.49)%** (5.50)%**

Ratios/supplemental data:
Net assets, end of period (thousands)...... $ 13,128 $ 16,402
Ratio of expenses to average net assets:
Before expense reimbursement............. 2.18%+ 2.69%+
After expense reimbursement.............. 1.98%+ 1.98%+
Ratio of net investment income to average
net assets:
Before expense reimbursement............. 1.66%+ 1.17%+
After expense reimbursement.............. 1.86%+ 1.88%+
Portfolio turnover rate.................... 48.62% 0.00%
Average Commission Rate Paid#.............. $ 0.0014 $ 0.0021
</TABLE>

<TABLE>
<S> <C>
* Commencement of operations.
** Not annualized.
+ 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.
</TABLE>

See accompanying notes to financial statements.

45
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

THE BACKDROP

The disequilibrium in the global economy widened during the first half of
1998. Economic activity in the U.S., the U.K. and (more recently) Continental
Europe has expanded. However, activity in Asia has contracted. In the former
group of countries, monetary policy has been tightened (or become less loose),
while in the latter, monetary policy has been loosened. The result has been a
portfolio shift of capital into the West and out of Asia.

Within this environment, the U.S. Dollar and Sterling were particular
beneficiaries from a collapse in the Yen. The Deutschemark and related
currencies only did well in the period up to and just after the multilateral
fixing of exchange rates between the 11 countries that will participate in the
first round of the European single currency, the Euro. At the same time, while
long-bond markets in the West performed quite well in response to external
disinflation, associated short-dated bonds struggled because of high domestic
growth.

THE FUND

Over the semi-annual period, the Global Government Bond Fund gained 3.72%,
compared with a gain of 2.78% for the Salomon Brothers' World Government Bond
Index. The performance of the Fund was helped by avoiding Japanese Yen exposure,
although a reinvestment into New Zealand Dollars proved too early. Bond
positions on balance provided positive returns with overweighted positions in
U.S. Treasuries, German Bonds and Gilts.

The bond markets have reached lofty levels that should suggest a period of
reflection. In the U.S., where demand for U.S. Treasuries has come from a
variety of sources seeking a safe haven, further declines in yields can only
come about by the market discounting a cut in short-term rates. The strength of
the U.S. domestic economy makes this idea unlikely until the end of the year. A
similar situation exists in the U.K. As a result the Fund's U.S. and U.K. bond
positions have been pared back awaiting a better opportunity to invest.

THE OUTLOOK

The Japanese economic solution appears elusive for now but will ultimately
involve issuing bonds. This increase in supply will undoubtedly raise yields in
Japan and the Fund will continue to avoid Yen bonds. European bonds should fare
relatively well as the economic recovery broadens but inflation remains benign.

There are increasing signs that the cyclical factors that have also been
supporting the U.S. Dollar are waning. In particular, strong growth in the U.S.
and a collapse of demand in Asia are contributing to a rapid widening of the
current account deficit. In addition, growth in Europe appears to be moving on
to a firmer footing, suggesting that some narrowing of growth and interest rate
differentials should be expected. Given the high valuation of the U.S. Dollar,
this argues for an increasingly pro-Deutschemark stance, although the
uncertainties in Asia and in Russia caution against adopting this position too
aggressively at the current time.

- -- Michael Daley in London, 24 July 1998.

46
<PAGE>
GLOBAL GOVT BOND FUND
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
KEY PORTFOLIO STATISTICS
AS OF 6/30/98

<TABLE>
<S> <C>
Number of Holdings in the
Portfolio: 11
Portfolio Turnover: 66.32%
% of Portfolio in Top 5: 70.44%
</TABLE>

FUND MANAGER:
Michael Daley,
London

<TABLE>
<CAPTION>
TOP 5 HOLDINGS (%)
---------------------------------------
<S> <C>
U.S. Treasury Note 6.250%
02/15/07 23.42%
Deutschland Republic 5.250%
01/04/08 20.12%
U.S. Treasury Note 6.375%
08/15/27 11.34%
U.S. Treasury Bond 7.875%
11/15/04 9.26%
United Kingdom Gilts 7.250%
12/07/07 6.30%
CURRENCY ALLOCATION (%)
---------------------------------------
U.S.$ 53.71%
Deutsche Mark 41.26%
French Franc 2.47%
TOP 5 COUNTRIES (%)
---------------------------------------
United States 54.03%
Germany 20.12%
United Kingdom 11.50%
Japan 5.10%
France 4.96%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND AND THE SALOMON BROTHERS'
WORLD GOVERNMENT BOND INDEX
SALOMON BROTHERS'
GUINNESS FLIGHT GLOBAL WORLD GOVERNMENT
GOVERNMENT BOND FUND BOND INDEX
6/30/94* $10,000 $10,000
<S> <C> <C>
9/30/94 9,754 10,117
12/31/94 9,767 10,166
3/31/95 10,093 11,278
6/30/95 10,638 11,879
9/30/95 10,809 11,755
12/30/95 11,183 12,102
3/31/96 11,083 11,875
6/30/96 11,197 11,923
9/30/96 11,378 12,248
12/31/96 11,877 12,540
3/31/97 11,485 12,021
6/30/97 11,732 12,386
9/30/97 12,055 12,543
12/31/97 12,218 12,569
3/31/98 12,298 12,668
6/30/98 12,672 12,919
*Inception date.
Average Annual Total Return
One Year Three Years Since Inception
8.02% 6.01% 6.10%
Past performance is not predictive of future performance
</TABLE>

47
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

PORTFOLIO OF INVESTMENTS

JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PRINCIPAL AMOUNT GOVERNMENT BONDS: 96.07% VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
BRITISH POUND: 11.50%
300,000 United Kingdom Gilts $ 513,367
8.000% 12/07/00.................................
340,000 United Kingdom Gilts 624,408
7.250% 12/07/07.................................
------------
Total British Pound............................... 1,137,775
------------
FRENCH FRANC: 4.96%
2,880,000 French OAT 490,993
5.250% 04/25/08.................................
------------
GERMAN DEUTSCHE MARK: 20.12%
3,470,000 Deutschland Republic 1,991,378
5.250% 01/04/08.................................
------------
JAPANESE YEN: 5.10%
67,600,000 Intl. Bank Recon. & Develop. 504,825
2.000% 02/18/08.................................
------------
UNITED STATES DOLLAR: 54.03%
495,000 Tokyo Metro 495,990
6.125% 03/27/06.................................
816,000 U.S. Treasury Bond 916,725
7.875% 11/15/04.................................
490,000 U.S. Treasury Note 494,900
5.750% 04/30/03.................................
1,021,000 U.S. Treasury Note 1,121,824
6.375% 08/15/27.................................
2,212,000 U.S. Treasury Note 2,317,759
6.250% 02/15/07.................................
------------
Total United States Dollar........................ 5,347,198
------------
Total Government Bonds: 95.71%
(Identified Cost $9,256,949+)................... 9,472,169
------------
Other Assets Less Liabilities: 4.29%.............. 424,017
------------
Net Assets: 100.00%............................... $ 9,896,186
------------
------------
</TABLE>

<TABLE>
<C><S> <C>
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation.................... $ 215,220
Gross unrealized depreciation.................... 0
-----------
$ 215,220
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

48
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $9,256,949)................. $ 9,472,169
Cash.................................................................. 390,283
Receivables:
Interests......................................................... 162,164
Prepaid expenses...................................................... 3,982
Deferred organizational costs, net.................................... 11,992
------------
Total assets...................................................... 10,040,590
------------

LIABILITIES
Payables:
Dividends to shareholders......................................... 1,311
Unrealized loss on forward currency contracts open (Note 6)....... 75,074
Due to Affiliates (Note 3)............................................ 27,453
Accrued expenses...................................................... 40,566
------------
Total liabilities................................................. 144,404
------------
NET ASSETS............................................................ $ 9,896,186
------------
------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($9,896,186/789,010 shares outstanding; unlimited
number of shares authorized without par value).................... $12.54
------
------
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 9,732,365
Overdistributed net investment income (including equalization
credits of -$3,381)............................................. (20,171)
Undistributed net realized gain on investments.................... 43,273
Net unrealized appreciation (depreciation) on:
Investments................................................... 215,220
Foreign currency.............................................. (74,501)
------------
NET ASSETS................................................ $ 9,896,186
------------
------------
</TABLE>

See accompanying notes to financial statements.

49
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

STATEMENT OF OPERATIONS (UNAUDITED)

EXPENSES
Advisory fees (Note 3).......................................... 37,261
Administration fee (Note 3)..................................... 12,420
Custodian....................................................... 9,302
Accounting...................................................... 19,579
Transfer agent fees............................................. 18,684
Audit fees...................................................... 10,647
Legal fees...................................................... 5,481
Insurance fees.................................................. 81
Trustee's fees.................................................. 6,639
Registration fees............................................... 9,095
Reports to shareholders......................................... 4,509
Deferred organization costs amortization........................ 5,778
Miscellaneous................................................... 2,984
------------------
Total expenses.............................................. 142,460
Commitment fee on credit line............................... 677
Less: Expenses reimbursed (Note 3).......................... (105,875)
------------------
Net expenses................................................ 37,262
------------------
NET INVESTMENT INCOME................................... $ 239,203
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS..............
Net realized gain from investments.............................. 93,186
Net realized loss from foreign currency......................... (46,391)
Net change in unrealized appreciation on investments............ 127,225
Net change in unrealized loss on foreign currency............... (49,018)
------------------
Net realized and unrealized gain on investments............. 125,002
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ 364,205
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

50
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEAR
JUNE 30, 1998 ENDED
(UNAUDITED) DECEMBER 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income...................... $ 239,203 $ 392,624
Net realized gain from investments......... 93,186 14,042
Net realized loss on foreign currency...... (46,391) (173,367)
Net change in unrealized appreciation on
investments.............................. 127,225 33,057
Net change in unrealized depreciation on
foreign currency......................... (49,018) (9,398)
------------------ ------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... 364,205 256,958
------------------ ------------------
NET EQUALIZATION CREDITS................... (3,381) 17,583
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.. (227,538) (287,093)
Dividends paid from net taxable gains...... -- (61,125)
Return of Capital.......................... -- (73,796)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (227,538) (422,014)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 1,736,656 5,720,641
Net asset value of shares issued on
reinvestment of distributions............ 217,931 401,038
Cost of shares redeemed.................... (2,207,605) (2,522,578)
------------------ ------------------
NET (DECREASE) INCREASE FROM CAPITAL SHARE
TRANSACTIONS............................. (253,018) 3,599,101
------------------ ------------------
TOTAL (DECREASE) INCREASE IN NET
ASSETS............................... (119,732) 3,451,628
------------------ ------------------
NET ASSETS
Beginning of period........................ 10,015,918 6,564,290
------------------ ------------------
End of period (including overdistributed
net investment income of $20,171 and
$28,455, respectively)................... $ 9,896,186 $ 10,015,918
------------------ ------------------
------------------ ------------------
CHANGES IN SHARES
Shares sold................................ 140,329 467,488
Shares issued from dividend
distributions............................ 17,637 32,950
Shares redeemed............................ (178,637) (206,794)
------------------ ------------------
Net (decrease) increase................ (20,671) 293,644
------------------ ------------------
------------------ ------------------
</TABLE>

See accompanying notes to financial statements.

51
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

FINANCIAL HIGHLIGHTS

FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE YEAR ENDED FROM JUNE 30,*
ENDED DECEMBER 31, THROUGH
JUNE 30, 1998 ------------------------------ DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $12.37 $ 12.72 $ 12.77 $ 12.00 $ 12.50
------------- -------- -------- -------- --------------
Income from investment operations:
Net investment income........................... 0.24 0.63 0.63 0.69 0.29
Net realized and unrealized gain (loss) on
investments................................... 0.22 (0.29) 0.13 1.01 (0.58)
------------- -------- -------- -------- --------------
Total from investment operations.................. 0.46 0.34 0.76 1.70 (0.29)

Less distributions:
Dividends paid from net investment income....... (0.29) (0.49) (0.69) (0.65) (0.21)
Dividends paid from net taxable
gains......................................... -- (0.11) (0.12) (0.28) --
Return of capital............................... -- (0.09) -- -- --
------------- -------- -------- -------- --------------
Total distributions............................... (0.29) (0.69) (0.81) (0.93) (0.21)
------------- -------- -------- -------- --------------
Net asset value, end of period.................... $12.54 $ 12.37 $ 12.72 $ 12.77 $ 12.00
------------- -------- -------- -------- --------------
------------- -------- -------- -------- --------------
Total return...................................... 3.72%+ 2.87% 6.21% 14.49% (2.33%)+

Ratios/supplemental data:
Net assets, end of period (thousands)............. $9,896 $10,016 $ 6,564 $ 1,153 $ 751
Ratio of expenses to average net assets:
Before expense reimbursement.................... 2.86%++ 3.15% 8.21% 21.52%** 40.78%++
After expense reimbursement..................... 0.75%++ 0.75% 1.31% 1.73% 1.75%++
Ratio of net investment income to average net
assets:
Before expense reimbursement.................... 2.69%++ 2.67% (1.76%) (14.26%) (34.18%)++
After expense reimbursement..................... 4.80%++ 5.07% 5.14% 5.53% 4.86%++
Portfolio turnover rate........................... 66.32% 185.55% 296.51% 202.54% 46.15%
</TABLE>

<TABLE>
<S> <C>
* Commencement of operations
+ Not annualized
++ Annualized
** Includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended
December 31, 1995, the ratio of expenses to average net assets before expense
reimbursement would have been 21.68%
</TABLE>

See accompanying notes to financial statements.

52
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION

The Guinness Flight Investment Funds (the "Guinness Flight Funds") is a Delaware
business trust that was organized on April 28, 1997 and registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, open-end
management investment company. Currently, the Guinness Flight Funds offer five
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 & Hong
Kong Fund") whose objective is long-term capital appreciation, Guinness Flight
Mainland China Fund (the "Mainland China Fund") whose objective is long-term
capital appreciation and the Guinness Flight Global Government Bond Fund (the
"Global Government Bond Fund") whose objective is to provide current income and
capital appreciation (collectively, the "Funds"). The China & Hong Kong and
Global Government Bond Funds began operations on June 30, 1994, the Asia Blue
Chip and Asia Small Cap Funds began operations on April 29, 1996 and the
Mainland China Fund began operations on November 3, 1997.

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.

53
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

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.

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

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

C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS. As is common in the
industry, security transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.

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

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

F. DEFERRED ORGANIZATION COSTS. The China & Hong Kong Fund and the Global
Government Bond Fund have each incurred expenses of $58,785 in connection with
their organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have
each incurred expenses of

54
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$8,745 in connection with their organization. The Mainland China Fund has
incurred an expense of $23,338 in connection with its organization. These costs
have been deferred and are being amortized on a straight line basis over a
period of sixty months from the date the Funds commenced investment operations.
In the event that any of the initial shares of either Fund are redeemed by the
holder during the period of amortization of the Funds' organization costs, the
redemption proceeds will be reduced by any such unamortized organization costs
in the same proportion as the number of initial shares being redeemed bears to
the number of those shares outstanding at the time of redemption.

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

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

I. INDIRECTLY PAID EXPENSES. Under terms of the Custodial Agreement, the
Funds may earn credits, based on custody cash balances, to applied to custodian
fees. For the six months ended June 30, 1998, the Asia Small Cap Fund earned
custody credits of $21,564.

J. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Funds account and report for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountant's Statement of Position 93-2: DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT OF PRESENTATION OF INCOME, CAPITAL GAIN AND
RETURN OF CAPITAL DISTRIBUTION BY INVESTMENT COMPANIES. Net investment income
distributions and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items such as
deferral of wash sales, net operating losses, capital loss carryforwards and net
realized loss on foreign currency. In the

55
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
event that distributions exceed the aggregate amount of undistributed net
investment income and net realized capital gains, the excess distribution is
reclassified as a reduction of paid-in capital, thus reducing the tax basis of
shareholders' interests in the Funds.

NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Guinness Flight Funds, on behalf of the Funds, entered into an Investment
Advisory Agreement with Guinness Flight Investment Management Limited (the
"Advisor"), to provide the Funds with investment management services. The
Advisor furnished all investment advice, office space and certain administrative
services, and provides certain personnel needed by the Funds. As compensation
for its services, the Advisor was entitled to a monthly fee equal to the
following annual percentages of daily average net assets:

<TABLE>
<S> <C>
Asia Blue Chip Fund 1.00%
Asia Small Cap Fund 1.00%
China & Hong Kong Fund 1.00%
Mainland China Fund 1.00%
Global Government Bond Fund 0.75%
</TABLE>

The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to reimburse each Fund to the extent necessary so that
its ratio of operating expenses to average daily net assets will not exceed the
following levels. Expenses reimbursed from the Adviser for the six months ended
June 30, 1998 are stated in the Funds' Statement of Operations:

<TABLE>
<S> <C>
Asia Blue Chip Fund 1.98%
Asia Small Cap Fund 1.98%
China & Hong Kong Fund 1.98%
Mainland China Fund 1.98%
Global Government Bond Fund 0.75%
</TABLE>

The cumulative unreimbursed amounts paid by the Advisor on behalf of the
Funds, during the period from inception (respectively) to June 30, 1998, are as
follows:

<TABLE>
<S> <C>
Asia Blue Chip Fund $ 303,599
Mainland China Fund 44,031
Global Government Bond Fund 777,389
</TABLE>

56
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Effective December 31, 1997, the Advisor agreed to amend the expense
reimbursement agreement to limit the period within which the Advisor may recoup
the above amounts from the Funds, to no later than December 31, 2002, and
subject to the Funds' ability to effect such reimbursement and remain in
compliance with applicable expense limitations. In addition, the possible
recoupement period of any expense reimbursements in each year subsequent to
1997, will be limited to five years from the year of the reimbursement, and
subject to the Funds' ability to effect such reimbursement and remain in
compliance with applicable expense limitations.

Investment Company Administration Corporation (the "Administrator") acts as
the Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, prepares reports and
materials to be supplied to the Trustees; monitors the activities of the Funds'
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Funds' expense accruals. For its
services, the Administrator receives an annual fee equal to 0.25% of the Funds'
average daily net assets, subject to a $40,000 annual minimum for the China &
Hong Kong Fund and $80,000 or 0.25% of the aggregate average daily net assets of
the Asia Blue Chip Fund, Asia Small Cap Fund, Mainland China Fund, and Global
Government Bond Fund.

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

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

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

57
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA 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 period ended June 30,
1998 were:

<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ------------------------------------------------------ ------------- ------------
<S> <C> <C>
Asia Blue Chip Fund $ 3,948,742 $ 1,452,822
Asia Small Cap Fund $ 9,107,731 $ 41,214,062
China & Hong Kong Fund $ 136,588,291 $ 88,288,369
Mainland China Fund $ 16,658,235 $ 6,008,838
Global Government Bond Fund $ 5,036,756 $ 5,061,233
</TABLE>

Purchases and sales of U.S. Government obligations by the Global Government
Bond Fund were $1,960,603 and $1,022,735, respectively.

NOTE 5 - LINE OF CREDIT

The Funds have a $50 million committed line of credit with a bank that expires
on June 15, 1999. The interest rate on the line of credit is the bank's base
rate, as revised from time to time. At June 30, 1998, there were no outstanding
balances under the line of credit for any of the Funds.

NOTE 6 - FORWARD FOREIGN CURRENCY CONTRACTS

At June 30, 1998 the Funds had entered into forward foreign currency contracts
which obligated the Funds to exchange currencies at specified future dates. At
the maturity of a forward contract, the Funds may either make delivery of the
foreign currency from currency held, if any, or from the proceeds of the
portfolio securities sold, or it may terminate its obligation to deliver the
foreign currency at any time by purchasing an offsetting contract. The forward
value of amounts due to netted against the forward value of the currency to be
delivered by the Funds and the remaining amount is shown as receivable (payable)
for forward currency contracts in the financial statements. Open forward foreign
currency exchange contracts outstanding at June 30, 1998 were as follows:

58
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

<TABLE>
<CAPTION>
UNREALIZED
DELIVERY GAIN/
CURRENCY RECEIVABLE CURRENCY DELIVERABLE DATE (LOSS)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US$ 255,000 Canadian Dollar 364,000 08/27/98 (6,799)
US$ 2,127,445 Deutsche Mark 3,741,954 08/27/98 (45,241)
US$ 1,497,042 British Pound Sterling 922,437 08/27/98 (38,693)
US$ 370,036 British Pound Sterling 228,699 12/01/98 8,606
US$ 253,397 French Franc 1,497,576 12/01/98 2,740
US$ 529,480 Japanese Yen 70,783,178 12/01/98 4,312
-----------
Total Forward Contracts $ (75,075)
-----------
-----------
</TABLE>

NOTE 7 - YEAR 2000 ISSUE

Like other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by the advisor/ administrator and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 issue." The
advisor/administrator is taking steps that it believes are reasonably designed
to address the Year 2000 issue with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by each
Fund's other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
funds.

NOTE 8 - FUTURES CONTRACTS

Each Fund may enter into futures contracts to the extent permitted by its
investment policies and objectives. Upon entering into a futures contract, a
Fund is required to make a deposit of an initial margin with its custodian in a
segregated account. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying instrument, are made or received by
a Fund each day (daily variation margin) and are recorded as unrealized gains or
losses until the contracts are closed. When the contract is closed, a Fund
records a realized

59
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and a Fund's basis in the contract. Risks of entering into
futures contracts include the possibility that a change in the value of the
contract may not correlate with the changes in the value of the underlying
instruments. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market, resulting in a inability to close
a futures position prior to its maturity date. Third, the purchase of a futures
contract involves the risk that a Fund could lose more than the original margin
deposit required to initiate a futures transaction. During the six months ended
June 30, 1997 the China & Hong Kong Fund entered in to futures contracts which
resulted in net realized losses of $1,306,679. At June 30, 1998, there were no
open futures contracts.