GUINNESS FLIGHT INVESTMENT FUNDS, N-30D, 1998-03-06

GUINNESS FLIGHT INVESTMENT FUNDS
N-30D, 1998-03-06

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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

January 26, 1998

Dear Guinness Flight Shareholder:

One year ago, in our letter to shareholders in the 1996 annual report, we
had the luxury to report that 1996 had been a year of growth for our investors
and our Funds. At that time, the entire world was anticipating Hong Kong's
transfer of sovereignty in July of 1997. With foresight, the handover was to be
the story of the year for the region. In hindsight, the handover turned out to
be a non-event, complete with fireworks. As the year progressed and with the
handover a success, it became clear that the real story in Asia was the "Asian
economic crisis." While 1997 did represent "interesting times," it just was not
what our shareholders, or we, had hoped for.

However difficult the latter half of 1997 was, neither our confidence in nor
commitment to Asia has changed. As part of this commitment, we launched the
Mainland China Fund on November 3. Why are we confident given recent events in
Asia? Clearly, the Asian crisis has ailed many Asian economies and we recognize
that many of these economies will take time to recover and begin to grow again.
However, the long-term prospects for the region have not changed. We have in
previous annual report letters to shareholders cautioned that these markets are
volatile. We would note now that this volatility can work both ways; it is not
uncommon for the Asian markets to recover rapidly.

Looking back, for the 12 months ended December 31, 1997, stock funds
investing in Asia outside of Japan had total returns on average of -35.14%,
according to Lipper Analytical Services. This figure contrasts sharply with
general equity funds investing in U.S. stocks, which had total returns of 24.36%
on average for the same time period. The dismal market performance across the
Asian region began with the devaluation of the Thai baht in mid-1997 after
concern of the country's current account and debt service problems arose.

Devaluation in Thailand triggered massive sell-off across nearly all Asian
currencies and stock markets in the following months. Problems spread to
Malaysia, Indonesia and the Philippines and then on to the major Northeast Asian
economy of Korea and even threatened the key Hong Kong-US dollar peg. The
region's problems were intensified by the failure of a number of high profile
financial institutions in Japan. The International Monetary Fund (IMF) and a
number of major countries have provided support for Thailand, Indonesia and
Korea with mixed results to date.

While all markets across Asia ended the year negatively, results were mixed.
Among Southeast Asian nations, Taiwan was the best performer in the region,
ending the year with a -4.73% total return, while Thailand proved to be the
worst performer, ending the year with a -75.83% total return in U.S. dollar
terms. Total returns for other Asian markets are as
<PAGE>
follows for the calendar year: Hong Kong's Hang Seng Index, -19.5%; South Korea,
- -68.68%; the Philippines, -62.36%; Malaysia, -70.03%; Singapore, -37.83%;
Indonesia, -63.25%.; China's Shanghai B-Share Index, -17%; and China's Shenzen
B-Share Index, -32%. While some markets in the Asian region, including the
Philippines and Thailand, are not expected to rebound by much in 1998, we expect
to see an upswing in Hong Kong, China, Taiwan and Singapore.

Performance for the six-month and 12-month periods ended December 31, 1997,
for the five Guinness Flight Funds was as follows:

<TABLE>
<CAPTION>
Guinness Flight Funds 6-Month Return 12-Month Return
<S> <C> <C>
Asia Blue Chip Fund -37.85% -37.68%
Asia Small Cap Fund -41.60% -30.77%
China & Hong Kong Fund -30.35% -20.34%
Mainland China Fund * N/A N/A
Global Govt. Bond Fund 4.15% 2.87%
THE 12-MONTH RETURNS LISTED ABOVE REPRESENT AVERAGE ANNUALIZED
TOTAL RETURNS. SHARE PRICES AND RETURNS FLUCTUATE AND INVESTORS
MAY HAVE A GAIN OR A LOSS WHEN THEY REDEEM SHARES. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RETURNS.
* From its inception on November 3, 1997 through December 31, the
Mainland China Fund had a -5.5% total return.
</TABLE>

In closing, we realize the last six-month period has been an uncertain and
doubtful time for investors in Asia; however, we want to assure you that we
continue to be quite optimistic about the long-term future. We would like to
point you to specific comments from the fund managers for each fund inside this
report. Your fund managers discuss in detail the last six months and provide
their thoughts for what's ahead.

We appreciate your continued commitment to Guinness Flight and look forward
to our continued relationship with you.

Sincerely,

[SIGNATURE] [SIGNATURE]

Timothy Guinness Howard Flight

2
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND

After suffering in the early stages of the Asian crisis, the relative
performance of the Fund picked up in the last quarter of 1997 and allowed the
Fund to move ahead of its benchmark, the MSCI Asia Free ex-Japan Index. The Fund
ended the year down 37.68%, while the MSCI Asia Free ex-Japan Index was down
41.5% for the year. For the last six months of the year, the Fund had a total
return of -37.85% and the Index, -43.03%.

Over the last six months, we have made purchases that fell mainly into these
groups with the following rationale:

- First, we added to the Fund's India exposure with purchases of Tuta Eng
and State Bank of India. We are finding some attractive opportunities in
India because companies there have not been heavy users of US dollar debt
and multiples are relatively modest.

- Second, we purchased shares of companies with significant hard currency
revenues and expenses in local currencies as these types of stocks are
clear beneficiaries of the currency crisis. Purchases in this category
included Johnson Electric, Gulf Indonesia, Dairy Farm International, CDL
Hotels and Asia Pulp and Paper.

- Third, we purchased utility stocks since this sector tends to be the most
defensive. In this category, stocks purchased included Petronas Gas,
Huaneng Power, PLDT, Hong Kong Electric, Hong Kong & China Gas, and Manila
Electric.

Sales during the period were motivated by profit-taking and strategic
decision to reduce Hong Kong property exposure.

Early in the period, exposure to Korea and Malaysia was reduced.
Specifically, Cho Hung Bank in Korea was sold in view of the mounting banking
crisis in that country. Selling EON, IO Corporation and Malayan Banking reduced
our exposure to Malaysia. The property crisis in the Philippines prompted the
sale of Metro Pacific.

There are however stocks in Malaysia that have been unduly harshly treated
and which offer exceptional value even if one cannot give the wider market a
clean bill of health. The plantation sector is an example. In both Malaysia and
Singapore, the policy will be to emphasize the defensive utilities and
manufacturing sectors.

The current turbulence in Asia markets suggests that the wheels have begun
to turn, setting the stage for a fundamental turnaround. We believe that some
currencies have fallen to levels well below fair value and that there will be a
bounce that will provide an added boost

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

to an equity recovery. Already, value is beginning to emerge on a selective
basis. Because the timing of the turnaround will be extremely difficult to
judge, we will maintain a defensive stance ready to position the Fund for
long-term growth.

Richard Farrell -- London, January 20, 1998

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 MSCI
Asia Free Ex-Japan Index
Guinness Flight Asia MSCI Asia Free
Dates 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
3/29/97 $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
* Inception date.
Average Annual Total Return
One Year Since Inception
- -37.68% -22.90%
Past performance is not predictive of future performance
</TABLE>

4
<PAGE>
Guinness Flight Asia Blue Chip Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997

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

Shares COMMON STOCKS: 85.58% Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
China: 3.35%
10,000 Huaneng Power International Inc. ADR...................... $ 231,875
------------
Hong Kong: 39.34%
200,000 Amoy Properties Ltd....................................... 175,507
500,000 CDL Hotel International................................... 151,632
25,000 Cheung Kong............................................... 163,731
40,000 Cosco Pacific Ltd......................................... 32,520
8,400 Dah Sing Financial Holdings............................... 20,217
174,000 First Pacific Co.......................................... 84,204
15,600 HSBC Holdings Plc......................................... 384,514
11,500 Hang Seng Bank............................................ 110,934
125,000 Hong Kong & China Gas..................................... 241,967
75,000 Hong Kong Electric........................................ 285,037
34,800 Hong Kong Telecom......................................... 71,630
50,000 Hutchison Whampoa......................................... 313,588
45,000 Johnson Electric Holdings................................. 129,501
46,000 New World Development..................................... 159,092
30,000 Shangri - La Asia Ltd..................................... 25,358
74,000 South China Morning Post.................................. 52,045
30,000 Swire Pacific Ltd. A...................................... 164,537
20,000 Television Broadcasts Ltd................................. 57,040
750,000 Tingyi (Cayman Island) Holding Co.*....................... 97,755
------------
Total Hong Kong........................................... 2,720,809
------------
India: 5.47%
3,400 Hindalco Industries Ltd. ADR.............................. 64,429
12,000 State Bank of India GDR................................... 208,500
14,000 Tata Engineering & Locomotion............................. 105,778
------------
Total India............................................... 378,707
------------
Indonesia: 5.21%
10,000 Gulf Indonesia Resources Ltd.*............................ 220,000
179,683 Pt Bank International Indonesia........................... 10,618
15,972 Pt Bank International Indonesia - Wts..................... 218
30,000 Pt Indocement Tunggal Prakarsa............................ 9,818
67,650 Pt Indofood Sukses Makmur-F............................... 22,140
</TABLE>

5
<PAGE>
Guinness Flight Asia Blue Chip Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

Shares Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
Indonesia: (continued)
5,000 Pt Indonesia Satellite ADR................................ $ 96,563
------------
Total Indonesia........................................... 359,357
------------
Malaysia: 5.43%
50,000 Hicom Holdings Berhad..................................... 28,795
150,000 Kumpulan Guthrie Berhad................................... 96,413
150,000 Metroplex Berhad.......................................... 38,373
60,000 Petronas Gas Berhad....................................... 136,520
20,000 RHB Capital Berhad........................................ 9,667
1,000 RHB Sakura Merchant Bankers*.............................. 337
20,000 Systems Telekom Malaysia*................................. 59,134
8,000 United Engineers.......................................... 6,664
------------
Total Malaysia............................................ 375,903
------------
Philippines: 4.24%
125,000 Ayala Corp................................................ 48,611
33,000 Manila Electric........................................... 109,185
107 Metropolitan Bank & Trust................................. 719
6,000 Philippine Long Distance Telephone ADR.................... 135,000
------------
Total Philippines......................................... 293,515
------------
Singapore: 18.36%
15,000 Asia Pulp & Paper ADR..................................... 150,938
250,000 Dairy Farm International Holdings*........................ 270,000
61,750 Keppel Corp. Ltd.......................................... 177,318
50,000 Keppel Land Ltd........................................... 68,822
18,120 Overseas Chinese Banking Corp. For. Reg................... 105,355
15,000 Singapore Airlines Ltd. Foreign........................... 97,894
130,000 Singapore Telecom Ltd..................................... 242,183
15,000 United Overseas Bank*..................................... 83,210
54,000 Want Want Holdings*....................................... 74,280
------------
Total Singapore........................................... 1,270,000
------------
South Korea: 0.07%
813 Samsung Electronics....................................... 4,682
------------
Taiwan: 3.54%
8,225 China Steel Corp. GDS..................................... 121,319
</TABLE>

6
<PAGE>
Guinness Flight Asia Blue Chip Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY
December 31, 1997 continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------

Shares Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
Taiwan: (continued)
2,640 President Enterprise GDS*................................. $ 31,680
5,000 Taiwan Semiconductor...................................... 92,188
------------
Total Taiwan.............................................. 245,187
------------
Thailand: 0.57%
9,600 Banpu Public Co Ltd. For. Reg.*........................... 39,696
------------
Total Common Stocks
(Identified cost $7,532,819): 85.58%.................... $ 5,919,731
------------

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

Par Value CORPORATE BONDS: 3.50% Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
$ 100,000 Formosa Chemical & Fiber $ 105,500
1.75% due 07/19/2001....................................
100,000 Nan Ya Plastics Convertible Bond 114,500
1.75% due 07/19/2001....................................
30,000 Ssangyong Oil Refining 22,349
3.75% due 12/31/2008....................................
------------
Total Corporate Bonds
(Identified cost $271,337): 3.50%....................... 242,349
------------
Total Investments in Securities
(cost $7,804,156+): 89.08%.............................. $ 6,162,080
------------
Other Assets Less Liabilities: 10.92%..................... 755,356
------------
Net Assets: 100.00%....................................... $ 6,917,436
------------
------------
</TABLE>

<TABLE>
<C> <S> <C>
* Non-income producing security.
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation.............................................. $ 197,183
Gross unrealized depreciation.............................................. (1,839,259)
------------
Net unrealized depreciation................................................ $ (1,642,076)
------------
------------
</TABLE>

See accompanying notes to financial statements.

7
<PAGE>
Guinness Flight Asia Blue Chip Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY (Unaudited)

<TABLE>
<CAPTION>
December 31, 1997

- -------------------------------------------------------------------------------------

<S> <C>
% of
Industry Net Assets
- -------------------------------------------------------------------------------------

Airline................................................................. 1.43%
Automobile.............................................................. 1.55
Banking................................................................. 15.88
Chemical................................................................ 3.16
Construction............................................................ 1.00
Commercial Services..................................................... 0.48
Diversified Minerals.................................................... 0.58
Diversified Operations.................................................. 8.57
Electric Utilities...................................................... 9.10
Electronics............................................................. 3.04
Finance................................................................. 1.43
Food and Beverage....................................................... 1.87
Gas..................................................................... 5.50
Hotels.................................................................. 2.57
Iron and Steel.......................................................... 2.70
Media................................................................... 0.76
Oil/Petroleum Refining.................................................. 3.52
Real-Estate............................................................. 5.49
Retail.................................................................. 3.92
Shipbuilding............................................................ 2.58
Telecommunications...................................................... 8.56
Television.............................................................. 0.83
Wholesale............................................................... 4.56
-----------
Total Investments in Securities......................................... 89.08
Other assets less liabilities........................................... 10.92
-----------
Net Assets.............................................................. 100.00%
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

8
<PAGE>
Guinness Flight Asia Blue Chip Fund

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $7,804,156)................. $ 6,162,080
Cash.................................................................. 850,501
Receivables:
Fund shares sold.................................................. 111,700
Dividends and interest............................................ 12,824
Unrealized gain on forward currency contracts open (Note 6)....... 20
Prepaid expenses...................................................... 6,005
Deferred organization costs, net...................................... 5,813
------------
Total assets...................................................... $ 7,148,943
------------

LIABILITIES
Payables:
Securities purchased.............................................. 155,048
Fund shares redeemed.............................................. 43,523
Due to Affiliates (Note 3)............................................ 15,158
Accrued expenses...................................................... 17,778
------------
Total liabilities................................................. 231,507
------------
NET ASSETS............................................................ $ 6,917,436
------------
------------
Net asset value and redemption price per share
($6,917,436/856,183 shares outstanding; unlimited
number of shares authorized without par value).................... $8.08
-----
-----
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 9,108,623
Undistributed net investment income............................... 10,520
Accumulated net realized loss on investments...................... (559,815)
Net unrealized appreciation (depreciation) on:
Investments................................................... (1,642,076)
Foreign Currency.............................................. 184
------------
Net assets................................................ $ 6,917,436
------------
------------
</TABLE>

See accompanying notes to financial statements.

9
<PAGE>
Guinness Flight Asia Blue Chip Fund

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
For the Year
Ended
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld $6,571)................ $ 92,482
Interest........................................................ 28,751
------------------
Total Investment Income..................................... 121,233

Expenses
Advisory fees (Note 3).......................................... 53,636
Administration fee (Note 3)..................................... 13,425
Custodian....................................................... 32,961
Accounting...................................................... 36,500
Transfer agent fees............................................. 27,553
Audit fees...................................................... 20,001
Legal fees...................................................... 11,793
Insurance....................................................... 500
Trustees' fees.................................................. 13,389
Registration fees............................................... 12,999
Reports to shareholders......................................... 6,400
Deferred organization costs amortization........................ 1,748
Miscellaneous................................................... 5,932
------------------
Total expenses.............................................. 236,837
Interest on loans........................................... 16
Commitment fee on credit line............................... 250
Less: Expenses reimbursed (Note 3).......................... (130,732)
------------------
Net expenses................................................ 106,371
------------------
Net investment income................................... $ 14,862
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net realized loss from investments.............................. (548,153)
Net realized loss from foreign currency......................... (11,995)
Net change in unrealized (depreciation) appreciation on:
Investments................................................. (1,809,229)
Foreign currency............................................ 255
------------------
Net Realized and Unrealized Loss on Investments............. (2,369,122)
------------------
Net Decrease in Net Assets Resulting from Operations.... $ (2,354,260)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

10
<PAGE>
Guinness Flight Asia Blue Chip Fund

STATEMENTS OF CHANGES IN NET ASSETS

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

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 10,083,304 3,961,160
Net asset value of shares issued on
reinvestment of distributions............ 6,157 --
Cost of shares redeemed.................... (4,498,343) (843,655)
------------------ ------------------
Net increase from capital share
transactions............................. 5,591,118 3,117,505
------------------ ------------------
Total Increase in Net Assets........... 3,230,271 3,287,165
------------------ ------------------

NET ASSETS
Beginning of period........................ 3,687,165 400,000
------------------ ------------------
End of period (including undistributed net
investment income of $10,520 and $838,
respectively)............................ $ 6,917,436 $ 3,687,165
------------------ ------------------
------------------ ------------------

CHANGES IN SHARES
Shares sold................................ 982,882 320,248
Shares reinvested from distributions....... 474 --
Shares redeemed............................ (411,241) (68,180)
------------------ ------------------

Net Increase........................... 572,115 252,068
------------------ ------------------
------------------ ------------------
</TABLE>

*Commencement of operations.

See accompanying notes to financial statements.

11
<PAGE>
Guinness Flight Asia Blue Chip Fund

FINANCIAL HIGHLIGHTS

for a capital share outstanding throughout the period

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
For the Year April 29, 1996*
Ended through
December 31, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period..................... $ 12.98 $ 12.50
-------- --------
Income (loss) from investment operations:
Net investment income.................................. 0.02 0.00
Net realized and unrealized (loss) gain on
investments.......................................... (4.91) 0.48
-------- --------
Total from investment operations......................... (4.89) 0.48
-------- --------

Less distributions:
Dividends from net investment income................... (0.01) --
Distributions from taxable net capital gains........... (0.00) --
-------- --------
Total distributions...................................... (0.01) --
-------- --------
Net asset value, end of period........................... $ 8.08 $ 12.98
-------- --------
-------- --------
Total return............................................. (37.68)% 3.84 %++

Ratios/supplemental data:
Net assets, end of period (thousands).................... $ 6,917 $ 3,687
Ratio of expenses to average net assets:
Before expense reimbursement........................... 4.41 % 9.14 %+
After expense reimbursement............................ 1.98 % 1.98 %+
Ratio of net investment (loss) income to average net
assets:
Before expense reimbursement........................... (2.16)% (7.10)%+
After expense reimbursement............................ 0.28 % 0.06 %+
Portfolio turnover rate.................................. 34.69 % 10.97 %
Average Commission Rate Paid............................. $ 0.0078 $ 0.0190
BANK LOANS
Amount outstanding at end of period (000)................ $ 0 --
Average amount of bank loans oustanding 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.
+ Annualized
++ Not Annualized
</TABLE>

See accompanying notes to financial statements.

12
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND

For the last six months and the year, the Asia Small Cap Fund outperformed
its relative benchmark, the HSBC James Capel Southeast Asia Smaller Companies
Index. For the year, the Fund had a total return of -30.77% and the Index,
- -56.17%. For the last six months of the year, the Fund had a -41.60% return and
the Index a -55.21% return.

Over the last few months, we have been restructuring the portfolio to
minimize interest-rate sensitive stocks and add defensive securities. The
defensive stocks in which we are investing are exporters that receive revenue in
hard currencies and utilities with strong domestic revenue streams. Generally,
we are seeking stocks that are cash rich and/or have strong balance sheets with
very low gearing.

We are convinced that by applying this strategy we are moving the Fund to a
stronger position. Specifically, our belief is that the Fund should be better
able to weather any volatility that may be ahead and should be poised to recover
as the outlook across the region improves.

Any stock selling minimized interest-rate sensitive stocks. A reduction in
the Fund's exposure to real estate and finance companies was executed by selling
Bank Niaga, JCG Holdings, Dah Sing Financial, Midland Realty, Kwong On Bank,
HKCB Bank and Lai Sun Development. We sold construction-related stocks,
including Tipeo Asphalt, Semen Cibinong, Companion Building Materials and China
Southern Glass. Heavy chemical stocks, Jilin Chemical 'H', Shanghai
Petrochemical and Yizheng Chemical Fibre, were sold as were consumer-related
stocks Delifrance and Multipolar.

Most purchases during the last quarter of 1997 were aimed at increasing the
Fund's position in Singapore. We view Singapore as a relative safe haven,
boasting a strong electronics sector with a strong export slant. Such purchases
included: Venture Manufacturing, Advanced Systems Auto, GPE Industries, Elec &
Eltek, and Singapore Technology Engineering. Other purchases of stocks with hard
currency revenues included: KCE Electronics in Thailand and Astra Agro Lestari
in Indonesia.

The strategy for the beginning of 1998 will be to:

1. Reduce the exposure to very small companies. There are approximately 18
stocks in the portfolio with a market capitalization of less than US $50
million and a further 21 stocks with a capitalization of between US $50 and
$100 million.

2. Concentrate on stocks with sound balance sheets and strong revenues in hard
currencies.

3. Achieve a wider geographical diversification, particularly towards Singapore
and Malaysia in stocks with the above attributes.

4. Reduce the total number of stocks in the portfolio by eliminating the
smaller, less liquid positions.

13
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND (CONTINUED)

While we believe that certain markets across Asia will take longer to
recover than Hong Kong and China might take, we feel the Fund is well-stationed
for a rebound when the environment allows. We hope investors in the Fund remain
patient while certain countries work out their economic troubles. Small cap
securities in Asia still have the potential to provide very good returns over
the longer term.

Richard Farrell -- London, January 20, 1998

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
Dates 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
3/29/97 $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
* Inception date.
Average Annual Total Return
One Year Since Inception
- -30.77% -13.60%
Past performance is not predictive of future performance
</TABLE>

14
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997

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

Shares COMMON STOCK 95.50% Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
China: 23.81%
6,059,000 Anhui Expressway Co Ltd - H........................... $ 1,016,480
1,415,000 Beijing Datang Power - H*............................. 648,245
900,000 Bengang Steel Plates - B*............................. 199,768
1,174,190 Changchai Co. Ltd. - B*............................... 760,670
1,000,000 China First Pencil - B................................ 190,000
615,175 China Southern Glass Co. - B.......................... 173,065
2,397,979 Dazhong Taxi - B...................................... 1,793,688
1,500,000 Eastern Communications - B............................ 1,818,000
4,054,000 First Tractor Co. - H*................................ 2,445,793
1,608,000 Guandong Kelon Elec Hld - H........................... 1,649,710
716,000 Guangdong Brewery Holdings Ltd*....................... 101,639
1,425,000 Guangdong Provincial Expr - B......................... 584,785
1,661,600 Heilongjiang Electric Power Co........................ 1,272,786
30,000 Huaneng Power International Inc. - N*................. 695,625
2,544,000 Huangshan TourismDVLP Co - B.......................... 2,019,936
2,712,000 Inner Mongolia Erdos Cashmere......................... 922,080
5,000,000 Inner Mongolia Yitai Coal - B*........................ 1,950,000
3,000,000 Nanjing Panda Electronics - H......................... 391,018
1,470,645 Shanghai Dajiang Group - B............................ 220,597
646,000 Shanghai Diesel Engineering - B*...................... 81,396
2,366,000 Shanghai Haixin Co. Ltd. - B.......................... 1,041,040
1,296,600 Shanghai Kaikai Industrial Co.*....................... 355,268
157,917 Shanghai Lujiazui Finance & Trade*.................... 123,175
1,000,000 Shanghai Worldbest Co. Ltd. - B....................... 506,000
3,255,660 Shenzhen Fangda Co Ltd - B............................ 3,739,240
400,000 Wuxi Little Swan - B.................................. 416,054
1,700,000 Zhenhai Refining & Chem Co. - H....................... 707,511
-------------
Total China........................................... 25,823,569
-------------
Hong Kong: 49.15%
1,166,000 ASM Pacific Technology................................ 737,308
200,000 Anex International Holdings Ltd....................... 12,744
207,000 CIG Wh Intl Holdings Ltd.............................. 49,954
6,263,000 CNPC Hong Kong Limited*............................... 1,757,907
1,432,800 China Aerospace Intl. Holdings........................ 443,763
4,150,000 China Eastern Airlines*............................... 669,441
</TABLE>

15
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong: (continued)
3,000,000 China Everbright - Ihd................................ $ 2,419,667
2,470,000 China Resources Beijing Land.......................... 1,179,378
1,376,400 Companion Building Material........................... 40,143
1,765,160 Concord Land Dev Co Ltd............................... 694,766
9,256,800 Continental Mariner Investment........................ 3,434,417
18,220,000 Denway Investment Ltd................................. 1,951,554
3,644,000 Denway Investment Ltd. Wts............................ 79,944
135,000 Dickson Concept International - New................... 196,864
4,402,000 Espirit Holdings Limited.............................. 1,434,385
1,614,000 Founder Hong Kong Ltd................................. 999,768
4,182,000 Four Seas Mercantile Hldg............................. 2,023,810
500,000 GZI Transportation Ltd................................ 167,764
6,816,000 Glorious Sun Enterprises Ltd.......................... 1,781,185
4,800,000 Gold Lion Holdings Ltd................................ 1,595,045
5,000,000 Guangnan Holdings Ltd................................. 4,097,303
331,714 Guangnan Ltd. Wts..................................... 38,527
2,767,000 Guangshen Railway Co. Ltd............................. 732,011
1,400,000 Guangzhou Investment.................................. 290,876
548,000 High Fashion International*........................... 41,724
597,000 HKCB Bank Holdings Co. Ltd............................ 323,577
20,534,000 Interform Ceramics.................................... 2,861,881
2,750,000 Jilin Chemical Ind.................................... 319,396
911,500 Kwong On Bank Ltd..................................... 817,515
1,604,000 Leading Spirit Holding Co............................. 167,663
960,000 Leading Spirit Conrowa................................ 203,175
972,000 Lung Kee (Bermuda) Holdings........................... 263,415
1,534,400 Min Xin Holdings...................................... 376,224
2,664,000 NG Fung Hong Ltd...................................... 2,801,858
3,305,000 Northeast Electric - H................................ 375,326
3,900,000 Pacific Concord Holdings.............................. 921,022
2,957,000 Pico Far East Holdings Ltd............................ 791,815
1,268,000 QPL Intl Holdings Limited............................. 564,537
8,000,000 Qingling Motors Company Ltd. - H...................... 3,923,087
3,160,000 Semi - Tech Ltd....................................... 517,899
79,000 Semi - Tech Ltd. Wts.................................. 2,855
85,000 Shanghai Industrail Holding Ltd....................... 315,912
</TABLE>

16
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong: (continued)
2,415,000 Shanghai Zhenhua Port Mach. - B*...................... $ 1,661,520
1,091,100 Shangdong Chenmimg Paper Ind. - B*.................... 770,205
7,113,000 Shougang Concord International. Ent. Co.*............. 780,236
7,000,000 Silver Grant International Ltd.*...................... 1,472,448
942,000 Sinocan Holdings Ltd.................................. 261,363
1,050,000 Stelux Holdings International Ltd..................... 81,301
240,000 Stelux Holdings International Ltd. Wts................ 310
118,000 Ta Fu International Ltd............................... 14,619
7,508,000 Texwinca Holdings Ltd................................. 1,143,301
1,601,000 Tsingtao Brewery Co. Ltd.*............................ 373,959
2,598,870 Tyre and Rubber....................................... 649,718
1,639,000 Tysan Holdings Ltd.................................... 253,813
2,490,000 USI Holdings Ltd...................................... 565,544
794,000 Vanda Systems & Communications........................ 163,944
800,000 Varitronix International Ltd.......................... 1,373,080
514,000 Vitasoy International Holdings Ltd.................... 217,234
2,050,000 Wongs International................................... 502,646
200,000 Wongs International Wts............................... 7,227
931,000 YGM Trading........................................... 606,730
-------------
Total Hong Kong....................................... 53,316,603
-------------
Indonesia: 1.29%
2,582,500 Astra Agro*........................................... 950,830
1,397,000 Kalbe Farma........................................... 247,650
32,500 Lautan Laus........................................... 5,318
1,718,500 Pt Alumindo Light Metal Industrial.................... 109,359
3,000,000 Pt Multipolar Corporation............................. 81,818
-------------
Total Indonesia....................................... 1,394,975
-------------
Malaysia: 2.24%
1,011,000 Cahya Mata Sarawak Berhad............................. 621,234
199,200 Cahya Mata Sarawak Berhad Wts......................... 19,974
675,000 Hap Seng Consolidated Berhad.......................... 833,012
1,280,000 IJM Corp Berhad - A................................... 424,528
261,000 MBM Resources Berhad.................................. 100,656
</TABLE>

17
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Malaysia: (continued)
209,000 Malakoff Berhad....................................... $ 435,249
-------------
Total Malaysia........................................ 2,434,653
-------------
Philippines: 0.12%
2,724,000 Alaska Milk Corporation*.............................. 104,924
180,000 CN Solid Group Inc.................................... 7,111
890,465 Davao Union Cement Corp. - B.......................... 21,547
123,000 Universal Rightfield Property*........................ 2,004
-------------
Total Philippines..................................... 135,586
-------------
Singapore: 13.89%
850,000 Advanced Systems Automation........................... 685,850
585,000 Avimo Group Ltd....................................... 735,805
138,000 Clipsal Industries Ltd................................ 176,640
80,000 Comfort Group Ltd..................................... 34,648
500,000 Datacraft Asia Limited................................ 1,290,000
1,177,000 Elec & Eltek Int Co Ltd............................... 5,390,660
640,000 Flextech Holdings Ltd*................................ 383,506
3,455,000 GPE Industries Ltd.................................... 2,193,925
226,000 Informatics Ltd....................................... 100,564
51,840 Osprey Maritime Ltd. Pfd.............................. 23,682
192,000 Osprey Maritime Ltd................................... 153,782
600,000 Roly International Holdings........................... 228,000
1,438,360 Singapore Tech Automotive For Reg*.................... 1,083,784
1,996,000 Teledata Ltd.......................................... 343,423
262,500 Uraco Holdings Ltd.................................... 17,131
680,000 Venture Manufacturing................................. 1,896,173
509,000 Wong's Circuits Holdings Ltd.*........................ 333,395
-------------
Total Singapore....................................... 15,070,968
-------------
Thailand: 5.00%
352,000 Central Pattana....................................... 103,319
524,000 Eastern Water Resources............................... 561,328
861,400 Kce Electronics....................................... 2,362,275
2,133,400 Mah Boon Krong Properties............................. 1,039,847
526,200 Phatra Thanakit Co. - Foreign......................... 301,572
99,900 Pizza Co. Ltd. - Foreign.............................. 181,928
</TABLE>

18
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY COUNTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Thailand: (continued)
588,200 Robinson Department Store............................. $ 20,793
617,390 Siam City Cement...................................... 661,371
53,000 Shinawatra Computer Co. - Foreign*.................... 181,682
50,000 Thai Rung Union Car - Foreign......................... 14,194
-------------
Total Thailand........................................ 5,428,309
-------------
Total Investments in Securities:
(Indentified cost $147,056,226+): 95.50%............ $ 103,604,663
-------------
Other Assets Less Liabilities: 4.50%.................. 4,873,438
-------------
Net Assets: 100.00%................................... $ 108,478,101
-------------
-------------
</TABLE>

<TABLE>
<C> <S> <C>
* Non-incoming producing security
+ Cost for federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation............................................ $ 4,517,184
Gross unrealized depreciation............................................ (47,968,747)
-------------
Net unrealized depreciation.............................................. $ (43,451,563)
-------------
-------------
</TABLE>

See accompaying notes to financial statements.

19
<PAGE>
Guinness Flight Asia Small Cap Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY (Unaudited)

December 31, 1997

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

% of
Industry Net Assets
<S> <C>
- -------------------------------------------------------------------------------------
Airline................................................................. 0.61%
Agriculture............................................................. 2.01
Automobile.............................................................. 9.65
Banking................................................................. 1.05
Chemical................................................................ 1.59
Coal.................................................................... 1.78
Computer Services....................................................... 1.17
Construction............................................................ 5.28
Consumer Related........................................................ 10.59
Diversified Operations.................................................. 0.59
Electric Utilities...................................................... 2.39
Electronics............................................................. 11.72
Finance................................................................. 4.73
Forestry................................................................ 0.01
Food and Beverage....................................................... 3.29
Iron and Steel.......................................................... 0.30
Machinery............................................................... 4.39
Manufacturing........................................................... 3.90
Oil/Petroleum Refining.................................................. 2.26
Pharmaceutical.......................................................... 0.23
Real-Estate............................................................. 4.83
Retail.................................................................. 7.36
Technology.............................................................. 2.32
Telecommunications...................................................... 1.49
Textile................................................................. 1.99
Transportation.......................................................... 1.27
Travel Services......................................................... 1.85
Utilities............................................................... 0.51
Wholesale............................................................... 6.34
-----------
Total Investments in Securities......................................... 95.50
Other assets less liabilities........................................... 4.50
-----------
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 December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $147,056,226).............. $ 103,604,663
Cash................................................................. 5,933,076
Receivables:
Fund shares sold................................................. 431,283
Securities sold.................................................. 144,227
Dividends and interest........................................... 75,380
Prepaid expenses..................................................... 81,339
Deferred organization costs, net..................................... 5,813
-------------
Total assets..................................................... $ 110,275,781
-------------

LIABILITIES
Payables:
Fund shares redeemed............................................. 1,574,300
Unrealized loss on forward currency contracts open (Note 6)...... 76
Due to Affiliates (Note 3)........................................... 110,058
Accrued expenses..................................................... 113,246
-------------
Total liabilities................................................ 1,797,680
-------------
NET ASSETS........................................................... $ 108,478,101
-------------
-------------
Net asset value and redemption price per share
($108,478,101/11,154,820 shares outstanding; unlimited
number of shares authorized without par value)................... $9.73
-----
-----
SOURCE OF NET ASSETS
Paid-in capital.................................................. $ 172,128,565
Overdistributed net investment income............................ (617,246)
Undistributed net realized loss on investments................... (19,036,384)
Net unrealized depreciation on:
Investments.................................................. (43,451,563)
Foreign currency............................................. (545,271)
-------------
Net assets............................................... $ 108,478,101
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

21
<PAGE>
Guinness Flight Asia Small Cap Fund

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
For the Year
Ended
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $139,539)........... $ 2,422,967
Interest........................................................ 1,455,102
------------------
Total Investment Income..................................... 3,878,069

Expenses
Advisory fees (Note 3).......................................... 1,692,574
Administration fee (Note 3)..................................... 424,336
Custodian....................................................... 327,357
Accounting...................................................... 50,999
Transfer agent fees............................................. 240,333
Audit fees...................................................... 26,148
Legal fees...................................................... 68,698
Insurance....................................................... 2,986
Trustees' fees.................................................. 13,389
Registration fees............................................... 20,998
Reports to shareholders......................................... 60,113
Deferred organization costs amortization........................ 1,748
Miscellaneous................................................... 40,078
------------------
Total expenses.............................................. 2,969,757
------------------
Commitment fee on credit line............................... 6,326
Expenses recouped (Note 3).................................. 71,583
------------------
Net expenses................................................ 3,047,666
------------------
Net investment income................................... $ 830,403
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net realized loss from investments.............................. (19,050,729)
Net realized loss from foreign currency......................... (1,432,409)
Net change in unrealized depreciation on investments............ (45,336,624)
Net change in unrealized loss on foreign currency............... (541,388)
------------------
Net realized and unrealized loss on investments............. (66,361,150)
------------------
Net Decrease in Net Assets Resulting from Operations.... $ (65,530,747)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

22
<PAGE>
Guinness Flight Asia Small Cap Fund

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
For the Year April 29, 1996*
Ended through
December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income...................... $ 830,403 $ 23,001
Net realized (loss) gain from
investments.............................. (19,050,729) 73,470
Net realized loss on foreign currency...... (1,432,409) (7,229)
Net change in unrealized (depreciation)
appreciation on investments.............. (45,336,624) 1,885,061
Net change in unrealized loss on foreign
currency................................. (541,388) (3,883)
------------------ ------------------
Net (Decrease) Increase in Net Assets
Resulting from Operations............ (65,530,747) 1,970,420
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.. -- (38,241)
Distributions from taxable realized
gains.................................... (23,059) (28,837)
Return of Capital.......................... (719,699) --
------------------ ------------------
Total Distributions to Shareholders.... (742,758) (67,078)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 247,467,409 49,952,419
Net asset value of shares issued on
reinvestment of distributions............ 683,578 60,299
Cost of shares redeemed.................... (124,267,665) (1,447,776)
------------------ ------------------
Net Increase from Capital Share
Transactions............................. 123,883,322 48,564,942
------------------ ------------------
Total Increase in Net Assets........... 57,609,817 50,468,284
------------------ ------------------
NET ASSETS
Beginning of period........................ 50,868,284 400,000
------------------ ------------------
End of period [including overdistributed
net investment income of $617,246 and
$15,240 respectively].................... $ 108,478,101 $ 50,868,284
------------------ ------------------
------------------ ------------------
CHANGES IN SHARES
Shares sold................................ 16,468,454 3,681,439
Shares reinvested from distributions....... 41,030 4,288
Shares redeemed............................ (8,963,387) (109,004)
------------------ ------------------

Net Increase........................... 7,546,097 3,576,723
------------------ ------------------
------------------ ------------------
</TABLE>

*Commencement of operations.

See accompanying notes to financial statements.

23
<PAGE>
Guinness Flight Asia Small Cap Fund

FINANCIAL HIGHLIGHTS

for a capital share outstanding throughout the period

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............. $ 9.73 $ 14.10
---------- --------
---------- --------
Total return............................... (30.77)% 13.08%++
Ratios/supplemental data:
Net assets, end of period (thousands)...... $ 108,478 $ 50,868
Ratio of expenses to average net assets:
Before expense reimbursement/
recoupment............................. 1.76 % 3.09%+
After expense reimbursement/recoupment... 1.80 % 1.98%+
Ratio of net investment income to average
net assets:
Before expense reimbursement/
recoupment............................. 0.53 % (0.76)%+
After expense reimbursement/recoupment... 0.49 % 0.36%+
Portfolio turnover rate.................... 52.33 % 21.91%
Average Commission Rate Paid............... $ 0.0029 $ 0.0029
</TABLE>

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

See accompanying notes to financial statements.

24
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND

The China & Hong Kong Fund performed in line with its benchmark Hang Seng
Index for the semi-annual period under review and for the year-ended December
31, 1997. For the 12-month period, the Fund had a -20.34% return and the Index a
- -19.5% return. And for the six-month period, the Fund had a -30.35% return and
the Index, a -29.4% return.

Early in the second half of the year, the Hong Kong market was still on a
bullish run. The market had a good run up to a peak of 16,673 on the Hang Seng
Index on August 7, having at that time shrugged off problems of the Thai baht
devaluation. The market was, however, unable to avoid the fallout from
Malaysia's heavy-handed intervention in its own stock market at the end of
August, which subsequently triggered the slide in most regional currencies.

The currency turmoil finally caught up with Hong Kong in October.
Speculative attacks against the Hong Kong Dollar forced overnight rates up to
300% at one point, while the three-month interbank rate hit 37%. The currency
held and pressure has eased but at the time of this writing, the three-month
interbank rate is still above 13% while the Prime lending rate is 10.25% after
two increases totaling 1.5%. The effect of higher interest rates on a market
that derives over 60% of earnings from real estate and banking has been
predictable.

Currently, we are focusing on stocks that have strong recurrent earnings and
offer good yields. In the present high interest-rate environment, companies with
net cash or low net debt are also preferred.

In the banking sector, the larger institutions have been reasonably
protected since they carry high levels of liquidity on the balance sheet. These
larger banks, such as HSBC and Hang Seng Bank, are net lenders in the interbank
market and have managed to see some limited benefit. The smaller banks, however,
have been badly squeezed by negative interest rate spreads. However, the system
has remained stable in spite of a mini-run on deposits suffered by the
International Bank of Asia. Hong Kong banks have often been criticized of being
overly conservative because of their underutilized capital levels. This is now
proving to be something of a virtue.

Exposure to property developers in the Fund has been steadily pared back
while the weighting in utilities has been increased. The portfolio is now more
heavily weighted toward blue chip utility stocks and away from the more
interest-rate sensitive stocks. Exposure to industrials has been maintained as
good value is found amongst these reasonably defensive stocks.

Economic fundamentals in Hong Kong are still some of the best in the region.
Real GDP growth in the fourth quarter was 5% while inflation in November was
subdued at 5.1%, which compared to 6.1% for the third quarter. Foreign reserves
have risen by US $5 billion in October to US $92.1 billion at the end of the
year, representing 5.1 months' import cover. Exports held steady in November,
rising 5.3% above the long-term trend of 3.8%, while imports grew 1.5%. However,
there are now clear signs of weakening domestic demand as

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

retail sales contracted 1.6% in October and new loans declined 45.6% month on
month in November. The most positive news from the currency standpoint is that
the proportion of deposits held in Hong Kong dollars still stood at 57% in the 3
months prior to November.

Outlook and Current Strategy

The economic position of Hong Kong is still sound. With high interest rates
likely to continue well into 1998, economic activity is likely to slow, however
GDP growth of 3.5% is forecast this year, compared to an estimated 5.5% for
1997. Market forces are already making the adjustments needed to take the
pressure off the Hong Kong dollar. As property prices come down, the
competitiveness issue for the SAR is gradually resolved. The Hong Kong Monetary
Authority does not intend to remove the peg to the US dollar and given the
resources at their disposal, they are unlikely to be forced into it.

In the longer term, Hong Kong and China still offer substantially better
prospects than the rest of the region. China's asset bubble burst some three
years ago and that economy is now emerging from that painful adjustment. Hong
Kong's asset bubble has only just gone. As a liquid and more efficient market,
the adjustment will be much faster. The first half of 1998 is still going to be
difficult; however, with the rest of the region expected to stabilize later in
the year, we believe that the second half of 1998 should be brighter.

Richard Farrell and Edmund Harriss -- London, January 19, 1998

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
Dates & Hong Kong Fund Index
<S> <C> <C>
6/30/94* $10,000 $10,000
9/30/94 10,616 10,871
12/31/94 9,226 9,352
3/31/95 9,274 9,805
6/30/95 10,040 10,512
9/30/95 10,680 11,014
12/31/95 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
* Inception date.
Average Annual Total Return
One Year Three Years Since Inception
- -20.34% 8.84% 5.07%
Past performance is not predictive of future performance
</TABLE>

26
<PAGE>
Guinness Flight China & Hong Kong Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY

December 31, 1997

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

Shares COMMON STOCKS: 95.84% Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Air Transport, Sched, & Air Courier Services: 0.01%
88,000 GZI Transportation Ltd................................. $ 29,526
17,600 GZI Transportation Ltd. Wts............................ 522
-------------
Total Air Transport, Sched, & Air Courier Services..... 30,048
-------------
Automotive Manufactuer: 1.08%
5,326,000 Qingling Motors Company Ltd............................ 2,611,795
-------------
Banks: 20.66%
362,000 Bank of East Asia Hong Kong............................ 847,890
1,284,500 Dao Heng Bank Group Ltd................................ 3,207,520
1,375,500 Hang Seng Bank......................................... 13,268,632
1,245,600 HSBC Holding Plc....................................... 30,701,975
873,000 Union Bank of Hong Kong................................ 1,070,267
300,200 Wing Hang Bank Limited................................. 848,417
-------------
Total Banks............................................ 49,944,701
-------------
Boot & Shoe Cut Stock & Binding: 0.51%
586,800 Yue Yuen Industrial Holdings........................... 1,241,905
-------------
Conglomerates & Diversified Operations: 21.95%
1,400,000 China Resources Enterprises............................ 3,125,565
2,289,000 Citic Pacific Ltd...................................... 9,098,103
3,035,000 First Pacific Co....................................... 1,468,738
4,367,300 Guangdong Investment Ltd............................... 2,902,516
3,872,000 Hutchison Whampoa...................................... 24,284,322
1,299,000 Swire Pacific Ltd. A................................... 7,124,468
2,300 Wharf (Holdings) Ltd................................... 5,045,812
-------------
Total Conglomerates & Diversified Operations........... 53,049,524
-------------
Consumer Goods: 0.27%
200,000 Dickson Concept International.......................... 291,651
1,326,000 Shanghai Refrigerator Comp - B......................... 368,628
-------------
Total Consumer Goods................................... 660,279
-------------
Electrical Consumer Goods: 1.76%
1,496,000 Guangdong Kelon Electric Holdings - H.................. 1,534,805
1,446,000 Gold Peak Industrial................................... 802,400
289,200 Gold Peak Industries................................... 27,244
</TABLE>

27
<PAGE>
Guinness Flight China & Hong Kong Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Electrical Consumer Goods: (continued)
500,000 Johnson Electric Holdings.............................. $ 1,438,895
430,000 Wuxi Little Swan....................................... 447,258
-------------
Total Electrical Consumer Goods........................ 4,250,602
-------------
Electric Power: 11.92%
4,678,000 Beijing Datang Power................................... 2,143,102
2,316,500 China Light & Power Co................................. 12,854,497
3,275,000 Hong Kong Electric..................................... 12,446,606
60,000 Huaneng Power International Inc. ADR*.................. 1,391,250
-------------
Total Electric Power................................... 28,835,455
-------------
Engineering & Infrastructure: 1.66%
1,777,733 New World Infrastructure*.............................. 4,003,283
-------------
Finance: 0.56%
2,028,000 China Overseas Land & Investment....................... 621,564
300,000 Dah Sing Financial Holdings............................ 722,029
35,000 Peregrine Investment Holdings Wts.*.................... 45
-------------
Total Finance.......................................... 1,343,638
-------------
Financial Services: 0.73%
2,000,000 QPL International Holdings............................. 890,437
238,000 Shanghai Industrial Holding Ltd........................ 884,553
-------------
Total Financial Services............................... 1,774,990
-------------
Food & Beverage: 0.52%
1,002,000 Four Seas Mercantile Holdings.......................... 484,901
320,400 Four Seas Mercantile Holdings Wts...................... 10,295
767,662 Guangdong Brewery Holdings Ltd.*....................... 108,973
5,000,000 Tingyi (Cayman Island) Holding Co.*.................... 651,697
-------------
Total Food & Beverage.................................. 1,255,866
-------------
</TABLE>

28
<PAGE>
Guinness Flight China & Hong Kong Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Gas Production & Distribution: 4.93%
6,158,176 Hong Kong & China Gas.................................. $ 11,920,588
-------------
Household Appliance Stores: 0.27%
800,000 Guangnan Holdings Ltd.................................. 655,568
-------------
Insurance: 0.53%
1,300,000 National Mutual Ltd.................................... 1,291,780
-------------
Manufacturer: 0.17%
245,000 Varitronix International Ltd.*......................... 420,506
-------------
Media: 1.02%
1,870,000 South China Morning Post............................... 1,315,202
400,000 Television Broadcasts Ltd.............................. 1,140,792
-------------
Total Media............................................ 2,455,994
-------------
Petroleum Refining: 0.88%
5,140,000 Zhenhai Refining & Chemical Co......................... 2,139,179
-------------
Real Estate: 16.88%
4,152,000 Amoy Properties Ltd. Ord............................... 3,643,515
2,000,000 Cheung Kong............................................ 13,098,464
194,960 HKR International Ltd.................................. 143,408
843,000 Hysan Development Company.............................. 1,680,778
38,850 Hysan Development Wts-98............................... 251
2,500,000 New World Development.................................. 8,646,277
1,953,000 Sun Hung Kai Properties Ltd............................ 13,609,756
-------------
Total Real Estate...................................... 40,822,449
-------------
Retailer: 0.50%
3,700,000 Esprit Asia Holdings Ltd............................... 1,205,639
-------------
Telecommunications: 6.09%
7,151,200 Hong Kong Telecom...................................... 14,719,530
-------------
Transportation: 1.22%
3,623,000 Cosco Pacific Ltd...................................... 2,945,528
-------------
Wholesale Trade - Misc. Wholesalers: 1.72%
3,100,000 Dairy Farm International Holdings...................... 3,348,000
</TABLE>

29
<PAGE>
Guinness Flight China & Hong Kong Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Wholesale Trade - Misc. Wholesalers: (continued)
584,000 Li & Fung Ltd.......................................... $ 817,707
-------------
Total Wholesale Trade - Misc. Wholesalers.............. 4,165,707
-------------
Total Investments in Securities
(Identified cost $266,868,375+): 95.84%.............. $ 231,744,554
-------------
Other Assets Less Liabilities: 4.16%................... 10,063,616
-------------
Net Assets: 100.00%.................................... $ 241,808,170
-------------
-------------
</TABLE>

<TABLE>
<C> <S> <C>
* Non-income producing.
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................................ $ 12,415,490
Gross unrealized depreciation............................................ (47,539,311)
-------------
Net unrealized depreciation.............................................. $ (35,123,821)
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

30
<PAGE>
Guinness Flight China & Hong Kong Fund

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $266,868,375).............. $ 231,744,554
Cash................................................................. 8,436,072
Receivables:
Securities sold.................................................. 4,150,346
Fund shares sold................................................. 1,266,488
Dividends and interest........................................... 351,800
Prepaid expenses..................................................... 66,837
Deferred organizational costs, net................................... 17,769
-------------
Total assets..................................................... $ 246,033,866
-------------

LIABILITIES
Payables:
Dividends to shareholders........................................ 90,504
Fund shares redeemed............................................. 3,754,526
Due to Affiliate (Note 3)............................................ 226,712
Other accrued expenses............................................... 153,954
-------------
Total liabilities................................................ 4,225,696
-------------
NET ASSETS........................................................... $ 241,808,170
-------------
-------------
Net asset value and redemption price per share
($241,808,170/18,733,698 shares outstanding; unlimited
number of shares authorized without par value)................... $12.91
------
------
SOURCE OF NET ASSETS
Paid-in capital.................................................. $ 282,372,488
Undistributed net investment income.............................. 20,385
Undistributed net realized loss on investments................... (5,460,932)
Net unrealized depreciation on:
Investments.................................................. (35,123,821)
Foreign currency............................................. 50
-------------
Net assets............................................... $ 241,808,170
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

31
<PAGE>
Guinness Flight China & Hong Kong Fund

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
For the Year
Ended
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends....................................................... $ 8,112,500
Interest........................................................ 393,117
------------------
Total investment income..................................... 8,505,617

Expenses
Advisory fees (Note 3).......................................... 2,958,500
Administration fee (Note 3)..................................... 739,625
Custodian....................................................... 409,285
Accounting...................................................... 50,443
Transfer agent fees............................................. 432,460
Audit fees...................................................... 35,144
Legal fees...................................................... 107,223
Insurance fees.................................................. 16,807
Trustee's fees.................................................. 13,388
Registration fees............................................... 105,755
Reports to shareholders......................................... 83,330
Deferred organization costs amortization........................ 11,651
Miscellaneous................................................... 20,482
------------------
Total expenses.............................................. 4,984,093
Interest on loans........................................... 22,681
Commitment fee on credit lines.............................. 11,852
------------------
Net expenses................................................ 5,018,626
------------------
Net investment income................................... $ 3,486,991
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net realized gain from investments.............................. 13,389,274
Net realized loss from foreign currency......................... (30,242)
Net change in unrealized depreciation on:
Investments................................................. (82,563,803)
Foreign currency............................................ 1,058
------------------
Net realized and unrealized loss on investments............. (69,203,713)
------------------
Net Decrease in Net Assets Resulting from Operations.... $ (65,716,722)
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

32
<PAGE>
Guinness Flight China & Hong Kong Fund

STATEMENTS OF CHANGES IN NET ASSETS

DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.. (3,513,166) (2,426,162)
Dividends from taxable realized gains...... (19,375,592) (4,883,242)
------------------ ------------------
Total distributions to shareholders.... (22,888,758) (7,309,404)
------------------ ------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 344,146,466 344,443,893
Net asset value of shares issued on
reinvestment of distributions............ 21,519,617 6,537,646
Cost of shares redeemed.................... (346,773,295) (139,736,255)
------------------ ------------------
Net increase from capital share
transactions............................. 18,892,788 211,245,284
------------------ ------------------
Total (Decrease) Increase in Net
Assets............................... (69,712,692) 255,780,622
------------------ ------------------

NET ASSETS
Beginning of period........................ 311,520,862 55,740,240
------------------ ------------------
End of period (including undistributed net
investment income of $20,385 and $46,560,
respectively)............................ $ 241,808,170 $ 311,520,862
------------------ ------------------
------------------ ------------------

CHANGES IN SHARES
Shares sold................................ 20,126,852 22,049,194
Shares reinvested from distributions....... 1,537,579 453,347
Shares redeemed............................ (20,520,112) (8,999,261)
------------------ ------------------

Net Increase........................... 1,144,319 13,503,280
------------------ ------------------
------------------ ------------------
</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 Years Ended December 31, From June 30,*
---------------------------------------- through
1997 1996 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 17.71 $ 13.64 $ 11.47 $ 12.50
------------ ------------ ------------ -------
Income from investment operations:
Net investment income..................... 0.20 0.19 0.14 0.04
Net realized and unrealized gain (loss) on
investments............................. (3.71) 4.43 2.20 (0.96)
------------ ------------ ------------ -------
Total from investment operations............ (3.51) 4.62 2.34 (0.92)
------------ ------------ ------------ -------
Less distributions:
Dividends from net investment income...... (0.20) (0.19) (0.14) (0.04)
Distributions from taxable net capital
gains................................... (1.09) (0.36) (0.03) (0.07)
------------ ------------ ------------ -------
Total distributions......................... (1.29) (0.55) (0.17) (0.11)
------------ ------------ ------------ -------
Net asset value, end of period.............. $ 12.91 $ 17.71 $ 13.64 $ 11.47
------------ ------------ ------------ -------
------------ ------------ ------------ -------
Total return................................ (20.34)% 34.38% 20.45% (7.74)%**
Ratios/supplemental data:
Net assets, end of period (thousands)....... $ 241,808 $ 311,521 $ 55,740 $ 2,287
Ratio of expenses to average net assets:
Before expense reimbursement
(recoupment)............................ 1.70% 1.78% 3.02%++ 19.92 %+
After expense reimbursement
(recoupment)............................ 1.70% 1.96% 1.98% 2.00 %+
Ratio of net investment income to average
net assets:
Before expense reimbursement
(recoupment)............................ 1.18% 1.57% 0.49% (17.15)%+
After expense reimbursement
(recoupment)............................ 1.18% 1.39% 1.52% 0.78 %+
Portfolio turnover rate..................... 53.62% 30.40% 10.89% 27.25 %
Average Commission Rate Paid#............... $ 0.0052 $ 0.0070 -- --
BANK LOANS
Amount outstanding at end of period (000)... $ 0 $ 0 -- --
Average amount of bank loans
oustanding during the period
(monthly average) (000)................... $ 2,305 $ 1,413 -- --
Average number of shares
outstanding during the period
(monthly average) (000)................... 16,944 11,419 -- --
Average amount of debt per share during the
period.................................... $ 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 Mainland China Fund was launched on November 3, shortly after downturns
hit the China and Hong Kong markets. In some cases, shares of Chinese companies
fell sharply after their impressive gains to record highs during the months
preceding and following the successful sovereignty transition of Hong Kong.

Due to the current environment, we have thus far taken a cautious stance in
investing the Fund. At the end of December, 63.64% of the Fund remained in cash
and equity positions were mainly in defensive securities. Our strategy allowed
the Fund to outperform its benchmark over the short period since its inception.
From the period between November 3 and December 31, 1997, the Fund had a -5.50%
return and its benchmark, the M.S.C.I. China Free Index had a return of -20.53%.
Performance during this short-term period is by no means an indication of how
the Fund will perform over the longer term.

Even though Red Chips and H shares dropped in value over the last half of
the year, compared to other Asian markets, these companies produced the greatest
number of stocks in Asia with positive US dollar returns in 1997. Chinese shares
fared better amidst the Asia market turmoil because China, in fact, has for some
three to four years been addressing some of the problems that caused the recent
currency devaluation across the region. For instance, China's real estate market
is no longer highly overvalued, the country boasts a huge current account
surplus - rather than a deficit, wage growth has fallen sharply and banks have
already started to take appropriate measures to rein in their non-performing
debt problems. While there is a risk that the Chinese yuan may devalue, we can
also support the case that the currency is strengthening.

Outlook and Strategy

Undoubtedly, 1998 will prove to be another challenging year for China both
externally and domestically. Like any other emerging economy, China will need to
go through its share of growing pains. We continue to view China as an important
force in the world economy with significant upside potential. The only way to
capitalize on the potential is to be well attuned to the problems so as to be
ready to identify investment opportunities when they become available.

In the first half of 1998, China-related markets will remain volatile;
therefore we will continue to adopt a cautious investment approach. We believe,
however, the volatility in the near term likely will present good buying
opportunities for the medium and longer term. Past experience in this market has
shown that a stock market rally in China can come unexpectedly. Our strategy in
the near term will be to focus mainly on defensive sectors such as
infrastructure and food, given their strong recurrent earnings base and growth
prospects.

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

Taking a bottoms-up approach to stock picking, we believe strong management
with proven track record is crucial to tapping China's growth given the
challenging environment. We look forward to watching this new fund and your
investment grow.

Lisa M. Chow -- Hong Kong, January 22, 1998

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 M.S.C.I. China Free Index
Guinness Flight M.S.C.I. China
Mainland China Fund Free Index
<S> <C> <C>
11/3/97* $10,000 $10,000
12/31/97 9,450 7,947
* Inception date.
Average Annual Total Return
Since Inception
- -5.50%
Past performance is not predictive of future performance
</TABLE>

36
<PAGE>
Guinness Flight Mainland China Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY,

December 31, 1997

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

Shares COMMON STOCK: 36.10% Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Automotive Manufactuer: 1.99%
70,000 Denway Investment Ltd................................... $ 7,498
650,000 Quingling Motors Company Ltd............................ 318,751
------------
Total Automotive Manufacturer........................... 326,249
------------
Chemical: 0.20%
80,000 Hubei Sanonda Co. Ltd.*................................. 32,211
------------
Conglomerates & Diversified Operations: 8.77%
50,000 Beijing Enterprises*.................................... 128,404
148,000 Tianjin Development Holdings*........................... 137,515
100,000 Citic Pacific Limited*.................................. 397,471
80,000 Hutchison Whampoa*...................................... 501,742
74,000 Shanghai Industrial Holdings Ltd.*...................... 275,029
------------
Total Conglomerates & Diversified Operations............ 1,440,161
------------
Electrical Consumer Goods: 2.75%
90,000 Guangdong Kelon Electric*............................... 92,334
580,000 Founder Hong Kong Ltd................................... 359,272
------------
Total Electrical Consumer Goods......................... 451,606
------------
Electric Power: 2.60%
700,000 Beijing Datang Power*................................... 320,687
180,000 Guangdong Electric Power*............................... 106,388
------------
Total Electric Power.................................... 427,075
------------
Engineering & Infrastructure: 4.35%
50,000 Cheung Kong Infrastructure*............................. 141,309
40,000 New World Infrastructure*............................... 90,076
200,000 Road King Infrastructure................................ 183,249
180,000 Shenzhen Expressway*.................................... 34,843
1,300,000 Zhejiang Expressway Holdings*........................... 263,389
------------
Total Engineering & Infrastructure...................... 712,866
------------
Food & Beverage: 2.50%
1,106,000 Guangdong Brewery Holdings Ltd.*........................ 157,000
130,000 Ng Fung Hong Ltd.*...................................... 136,727
58,000 Guangnan Holdings Ltd.*................................. 47,529
</TABLE>

37
<PAGE>
Guinness Flight Mainland China Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY,

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Food & Beverage: (continued)
180,000 Yantai Changyu Pioneer Wine Co.*........................ $ 68,293
------------
Total Food & Beverage................................... 409,549
------------
Machinery: 1.27%
60,000 First Tractor Co.*...................................... 36,198
250,000 Shanghai Zhenhua Port. Mach.*........................... 172,000
------------
Total Machinery......................................... 208,198
------------
Materials: 0.22%
40,000 China International Marine Containers*.................. 36,082
------------
Petroleum Refining: 1.19%
500,000 CNPC Hong Kong Ltd.*.................................... 140,341
130,000 Zhenhai Refining & Chemical Co.*........................ 54,104
------------
Total Petroleum Refining................................ 194,445
------------
Real Estate: 3.05%
300,000 China Resources Beijing Land*........................... 143,244
160,000 China Resources Enterprises*............................ 357,206
------------
Total Real Estate....................................... 500,450
------------
Steel Manufacturer: 1.05%
150,200 Shanzhen Fangda Co. Ltd.*............................... 172,510
------------
Telecommunications: 2.39%
120,000 China Telecom*.......................................... 205,962
90,000 Hong Kong Telecom....................................... 185,250
------------
Total Telecommunications................................ 391,212
------------
Transportation: 0.42%
328,000 China National Aviation*................................ 69,418
------------
Transport/Manufacturing: 0.99%
200,000 Cosco Pacific Ltd.*..................................... 162,602
------------
Transportation & Air Courier Services: 1.39%
160,000 China Eastern Airlines *................................ 25,810
270,000 Dazhong Taxi*........................................... 201,960
------------
Total Transport & Air Courier Services.................. 227,770
------------
</TABLE>

38
<PAGE>
Guinness Flight Mainland China Fund

PORTFOLIO OF INVESTMENTS BY INDUSTRY,

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Shares Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
Travel Services: 0.97%
200,000 Huangshan Tourism Dvlp. Co.*............................ $ 158,800
------------
Total Investments in Securities
(Identified cost $5,977,906+): 36.10%................. 5,921,204
------------
Other Assets Less Liabilities: 63.90%................... 10,480,466
------------
Net assets: 100.00%..................................... $ 16,401,670
------------
------------
</TABLE>

<TABLE>
<C> <S> <C>
* Non-incoming producing securities.
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................................. $ 172,420
Gross unrealized depreciation............................................. (229,122)
------------
Net unrealized depreciation............................................... $ (56,702)
------------
------------
</TABLE>

See accompanying notes to financial statements.

39
<PAGE>
Guinness Flight Mainland China Fund

STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $5,977,906)................. $ 5,921,204
Cash.................................................................. 10,716,747
Receivables:
Fund shares sold.................................................. 271,012
Dividends and interest............................................ 49,590
Prepaid expenses...................................................... 18,397
Deferred organizational costs, net.................................... 23,338
------------
Total assets...................................................... $ 17,000,288
------------

LIABILITIES
Payables:
Securities purchased.............................................. 540,994
Dividends to shareholders......................................... 1,682
Fund shares redeemed.............................................. 9,599
Due to Affiliate (Note 3)............................................. 27,752
Other accrued expenses................................................ 18,591
------------
Total liabilities................................................. 598,618
------------
NET ASSETS............................................................ $ 16,401,670
------------
------------
Net asset value and redemption price per share
($16,401,670/1,391,250 shares outstanding; unlimited
number of shares authorized without par value).................... $11.79
------
------
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 16,458,011
Undistributed net investment income............................... 17
Undistributed net realized gain on investments.................... 321
Net unrealized appreciation (depreciation) on:
Investments................................................... (56,702)
Foreign currency.............................................. 23
------------
Net assets................................................ $ 16,401,670
------------
------------
</TABLE>

See accompanying notes to financial statements.

40
<PAGE>
Guinness Flight Mainland China Fund

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
November 3, 1997*
through
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends....................................................... $ 2,309
Interest........................................................ 60,079
----------
Total investment income..................................... 62,388

Expenses
Advisory fees (Note 3).......................................... 15,705
Administration fee (Note 3)..................................... 3,926
Custodian....................................................... 2,670
Accounting...................................................... 4,849
Transfer agent fees............................................. 5,658
Audit fees...................................................... 2,586
Legal fees...................................................... 1,617
Insurance....................................................... 81
Trustee's fees.................................................. 1,326
Registration fees............................................... 2,829
Reports to shareholders......................................... 808
Deferred organization costs amortization........................ 1,008
Miscellaneous................................................... 404
----------
Total expenses.............................................. 43,467
Less: Expense reimbursed (Note 3)........................... (11,487)
----------
Net expenses................................................ 31,980
----------
Net investment income................................... $ 30,408
----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net realized gain from foreign currency......................... 321
Net change in unrealized appreciation (depreciation) on:
Investments................................................. (56,702)
Foreign currency............................................ 23
----------
Net realized and unrealized loss on investments......... (56,358)
----------
Net Decrease in Net Assets Resulting from Operations.... $ (25,950)
----------
----------
</TABLE>

* Commencement of operations

See accompanying notes to financial statements.

41
<PAGE>
Guinness Flight Mainland China Fund

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
November 3, 1997*
through
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income........................................... $ 30,408
Net realized gain on foreign currency........................... 321
Net unrealized depreciation on investments and foreign
currency...................................................... (56,679)
------------------
Net Decrease in Net Assets Resulting from Operations........ (25,950)
------------------

DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income....................... (30,391)
------------------
Total distributions to shareholders......................... (30,391)
------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold....................................... 16,693,563
Net asset value of shares issued on reinvestment of
distributions................................................. 28,708
Cost of shares redeemed......................................... (314,260)
------------------
Net increase from capital share transactions.................... 16,408,011
------------------
Total increase in net assets................................ 16,351,670

NET ASSETS
Beginning of period............................................. 50,000
------------------
End of period (including undistributed net investment income of
$17).......................................................... $ 16,401,670
------------------
------------------

CHANGES IN SHARES
Shares sold..................................................... 1,411,291
Shares issued from dividend distributions....................... 2,435
Shares redeemed................................................. (26,476)
------------------

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

*Commencement of operations.

See accompanying notes to financial statements.

42
<PAGE>
Guinness Flight Mainland China Fund

FINANCIAL HIGHLIGHTS

for a capital share outstanding throughout the period

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
November 3, 1997*
through
December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period............................ $ 12.50
Income from investment operations:
Net investment income......................................... 0.02
Net realized and unrealized loss on investments............... (0.71)
--------
Total from investment operations................................ (0.69)
--------

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

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

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

43
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND

1997 was a year of mixed fortunes for the major global economies. Robust
economic growth in the U.S. and the U.K. contrasted with the varied performance
of continental Europe and Japan. Economic strength in the U.K. was met with
significantly higher short-term interest rates while a gradual recovery in
Europe allowed the Bundesbank to play the role of European Central Bank and
raise core rates by 30 basis points. The Federal Reserve in the U.S. chose to
watch the "new" U.S. economy from the sidelines after nudging rates higher in
early 1997. The Japanese authorities were caught off guard by a fall in consumer
sentiment following a rise in consumption tax in the first part of the year and
left rates at their low levels.

Despite this economic variety, global bonds performed well in 1997. Over the
six-month and 12-month periods, the Fund outperformed its benchmark, the Salomon
Brothers' World Government Bond Index. The Index had a 1.48% total return over
the last six-month period and a 0.23% return over the 12-month period. And the
Fund produced a 4.15% return over the last six months and a 2.87% return for the
calendar year.

The early laggards (the U.S. and the U.K.) caught up fast in the second half
of the year once the prospects for tighter monetary policies subsided. European
interest rate convergence dominated the markets in the first half of the year
(as it had done since 1994). The U.K. ended the year as the best-performing
market with a 14.9% return, closely followed by Italy with its 14.5% return.
Core European markets did not perform quite as well, clogged by EMU uncertainty
and the prospect of higher inflation.

In the second half of the year, a growing economic crisis in Asia created an
imbalance between East and West. The overall result has been persistent strength
both in Sterling and in the U.S. Dollar.

The Fund's bond allocation proved successful in 1997. We took advantage of
the European interest rate convergence by holding significant positions in Italy
and Spain. A high Gilt position initially failed to add value as the strength of
the U.K. economy warranted higher rates. But moves to create a more independent
U.K. Central Bank and anticipation of lower inflation allowed the Gilt market to
eventually outperform and the Fund's position here proved warranted.

Currency allocation was less successful. Although we were able to avoid the
decline of the Yen, an unexpected recovery in the Deutschemark proved
short-lived and our Deutschemark weighting was too high.

The situation in Asia and its effects will continue to dominate policy
makers in the first half of 1998, although a default crisis looks to have been
avoided and the emergency now moves into its second phase of economic weakness,
regional current account surplus and lower global inflation.

44
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND (CONTINUED)

Increased global competition, together with lower global growth, will
combine to reduce inflationary expectations in the major economies. This trend
should enable the bond rally to continue, although temporary moments of doubt
will surface. The strength of the U.S. consumer may be the catalyst for these
periods of reflection but ultimately the U.S. central bank will need to maintain
growth by lowering rates to ensure the Asian crisis does not develop into
something more serious.

The Fund's bond exposure will remain high, allowing it to benefit from these
trends. The U.S. Dollar and Sterling should remain strong in the short term as
capital continues to avoid the uncertain environments of Asia and Europe but
they will not avoid the economic fundamentals indefinitely. The Fund's currency
stance will begin the year with a bias towards the U.S. Dollar and, as the Asian
situation stabilizes, we will increase exposure to the 'Euro' group of
currencies.

Michael Daley -- London, January 20, 1998

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
Dates Government Bond Fund Index
<S> <C> <C>
6/30/94* $10,000 $10,000
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
12/31/95 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
* Inception date.
Average Annual Total Return
One Year Three Years Since Inception
2.87% 7.75% 5.88%
Past performance is not predictive of future performance
</TABLE>

45
<PAGE>
Guinness Flight Global Government Bond Fund

PORTFOLIO OF INVESTMENTS

December 31, 1997

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

Principal Amount GOVERNMENT BONDS: 83.44% Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
British Pound: 16.84%
40,000 Italy Sterling NCL $ 89,541
10.500% 04/28/14................................
390,000 United Kingdom Gilts 685,154
7.250% 12/07/07.................................
436,000 United Kingdom Gilts 912,309
8.750% 08/25/17.................................
------------
Total British Pound............................... 1,687,004
------------
Danish Kroner: 1.57%
970,000 Kingdom of Denmark 157,714
7.000% 11/10/24.................................
------------
EuroBond: 4.89%
495,000 Tokyo Metro 489,803
6.125% 03/27/06.................................
------------
Irish Punt: 4.71%
315,000 Irish Gilts 471,653
6.500% 10/18/01.................................
------------
Italian Lira: 4.93%
800,000,000 Italy BTPS 493,838
7.750% 09/15/01.................................
------------
German Deutsche Mark: 7.08%
1,160,000 Deutschland Republic 708,593
6.875% 05/12/05.................................
------------
Spanish Peseta: 4.99%
75,600,000 Spanish Government 499,203
5.000% 01/31/01.................................
------------
United States Dollar: 38.43%
951,000 U.S. Treasury Note 1,003,007
6.375% 08/15/27.................................
706,000 U.S. Treasury Bond 789,396
7.875% 11/15/04.................................
</TABLE>

46
<PAGE>
Guinness Flight Global Government Bond Fund

PORTFOLIO OF INVESTMENTS

December 31, 1997 continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------

Principal Amount Value
- -----------------------------------------------------------------------------------
<C> <S> <C>
United States Dollar: (continued)
1,992,000 U.S. Treasury Note $ 2,056,740
6.250% 02/15/07.................................
------------
Total United States Dollar........................ 3,849,143
------------
Total Government Bonds: 83.44%
(Identified cost $8,268,955+)................... 8,356,951
------------
Other Assets Less Liabilities: 16.56%............. 1,658,967
------------
Net Assets: 100.00%............................... $ 10,015,918
------------
------------
</TABLE>

<TABLE>
<C> <S> <C>
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................................. $ 134,717
Gross unrealized depreciation............................................. (46,721)
------------
$ 87,996
------------
------------
</TABLE>

See accompanying notes to financial statements.

47
<PAGE>
Guinness Flight Global Government Bond Fund

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $8,268,955)................. $ 8,356,951
Cash.................................................................. 1,544,936
Receivables:
Fund shares sold.................................................. 10,778
Interest.......................................................... 180,708
Prepaid expenses...................................................... 504
Deferred organizational costs, net.................................... 17,769
------------
Total assets...................................................... $ 10,111,646
------------

LIABILITIES
Payables:
Fund shares redeemed.............................................. 3,920
Unrealized loss on forward currency contracts open (Note 6)....... 23,842
Due to Affiliate (Note 3)............................................. 36,731
Accrued expenses...................................................... 31,235
------------
Total liabilities................................................. 95,728
------------
NET ASSETS............................................................ $ 10,015,918
------------
------------
Net asset value and redemption price per share
($10,015,918/809,681 shares outstanding; unlimited
number of shares authorized without par value).................... $12.37
------
------
SOURCE OF NET ASSETS
Paid-in capital................................................... $ 9,985,382
Overdistributed net investment income (including equalization
credits of $17,583)............................................. (28,455)
Undistributed net realized loss on investments.................... (3,522)
Net unrealized appreciation (depreciation) on:
Investments................................................... 87,996
Foreign currency.............................................. (25,483)
------------
Net assets................................................ $ 10,015,918
------------
------------
</TABLE>

See accompanying notes to financial statements.

48
<PAGE>
Guinness Flight Global Government Bond Fund

STATEMENT OF OPERATIONS

Expenses
Advisory fees (Note 3).......................................... 58,063
Administration fee (Note 3)..................................... 19,733
Custodian....................................................... 17,745
Accounting...................................................... 39,482
Transfer agent fees............................................. 33,729
Audit fees...................................................... 20,774
Legal fees...................................................... 9,052
Insurance fees.................................................. 165
Trustee's fees.................................................. 13,388
Registration fees............................................... 6,341
Reports to shareholders......................................... 2,726
Deferred organization costs amortization........................ 17,650
Miscellaneous................................................... 4,533
------------------
Total expenses.............................................. 243,381
Commitment fee on credit line............................... 413
Less: Expenses reimbursed (Note 3).......................... (185,733)
------------------
Net expenses................................................ 58,061
------------------
Net investment income................................... $ 392,624
------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net realized gain from investments.............................. 14,042
Net realized loss from foreign currency......................... (173,367)
Net change in unrealized appreciation on investments............ 33,057
Net change in unrealized loss on foreign currency............... (9,398)
------------------
Net realized and unrealized loss on investments............. (135,666)
------------------
Net Increase in Net Assets Resulting from Operations.... $ 256,958
------------------
------------------
</TABLE>

See accompanying notes to financial statements.

49
<PAGE>
Guinness Flight Global Government Bond Fund

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
For the Year For the Year
Ended Ended
December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income...................... $ 392,624 $ 131,457
Net realized gain from investments......... 14,042 75,867
Net realized (loss) gain on foreign
currency................................. (173,367) 575
Net change in unrealized appreciation on
investments.............................. 33,057 21,387
Net change in unrealized depreciation on
foreign currency......................... (9,398) (16,057)
------------------ ------------------
Net Increase in Net Assets Resulting
from Operations...................... 256,958 213,229
------------------ ------------------
NET EQUALIZATION CREDITS................... 17,583 44,071
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.. (287,093) (162,397)
Dividends paid from net taxable gains...... (61,125) (22,795)
Return of Capital.......................... (73,796) --
------------------ ------------------
Total distributions to shareholders.... (422,014) (185,192)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................. 5,720,641 6,348,475
Net asset value of shares issued on
reinvestment of distributions............ 401,038 175,240
Cost of shares redeemed.................... (2,522,578) (1,184,883)
------------------ ------------------
Net increase from capital share
transactions............................. 3,599,101 5,338,832
------------------ ------------------
Total Increase in Net Assets........... 3,451,628 5,410,940
------------------ ------------------
NET ASSETS
Beginning of period........................ 6,564,290 1,153,350
------------------ ------------------
End of period (including (overdistributed)
undistributed net investment income of
(28,455) and $21,798, respectively)...... $ 10,015,918 $ 6,564,290
------------------ ------------------
------------------ ------------------
CHANGES IN SHARES
Shares sold................................ 467,488 507,485
Shares issued from dividend
distributions............................ 32,950 13,939
Shares redeemed............................ (206,794) (95,726)
------------------ ------------------
Net increase........................... 293,644 425,698
------------------ ------------------
------------------ ------------------
</TABLE>

See accompanying notes to financial statements.

50
<PAGE>
Guinness Flight Global Government Bond Fund

FINANCIAL HIGHLIGHTS

for a capital share outstanding throughout the period

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
From June 30,*
For the year ended December 31, through
------------------------------------- December 31,
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 12.72 $ 12.77 $ 12.00 $ 12.50
----------- ----------- ----------- -------
Income from investment operations:
Net investment income................ 0.63 0.63 0.69 0.29
Net realized and unrealized gain
(loss) on investments.............. (0.29) 0.13 1.01 (0.58)
----------- ----------- ----------- -------
Total from investment operations....... 0.34 0.76 1.70 (0.29)
----------- ----------- ----------- -------

Less distributions:
Dividends paid from net investment
income............................. (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.................... (0.69) (0.81) (0.93) (0.21)
----------- ----------- ----------- -------
Net asset value, end of period......... $ 12.37 $ 12.72 $ 12.77 $ 12.00
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Total return........................... 2.87% 6.21% 14.49% (2.33)%+

Ratios/supplemental data:
Net assets, end of period
(thousands).......................... $ 10,016 $ 6,564 $ 1,153 $ 751
Ratio of expenses to average net
assets:
Before expense reimbursement......... 3.15% 8.21% 21.52%*** 40.78 %**
After expense reimbursement.......... 0.75% 1.31% 1.73% 1.75 %**
Ratio of net investment income to
average net assets:
Before expense reimbursement......... 2.67% (1.76)% (14.26)% (34.18)%**
After expense reimbursement.......... 5.07% 5.14% 5.53% 4.86 %**
Portfolio turnover rate................ 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.

51
<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 Funds") is a Delaware
business trust 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. Prior to April 28, 1997, the Guinness Funds constituted four
series of portfolios of Guinness Flight Investment Funds, Inc., a Maryland
corporation. Currently, the Guinness 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 Fund") whose
objective is long-term capital appreciation, Guinness Flight Global Government
Bond Fund (the "Global Government Fund") whose objective is to provide current
income and capital appreciation and the Guinness Flight Mainland China Fund
("Mainland China Fund") whose objective is long-term capital appreciation
(collectively, the "Funds"). The China and Global Government 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. Realized gains and losses from securities
transactions are calculated using the identified cost method.

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.

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
- --------------------------------------------------------------------------------

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.

For Federal income tax purposes, the Asia Blue Chip Fund and Asia Small Cap
Fund have capital loss carryforwards of $532,335 and $18,243,636, respectively
as of December 31, 1997 available to offset future realized capital gains. To
the extent that such carryforwards are used, no capital gains distributions will
be made. The carryforwards expire October December 31, 2005.

E. EQUALIZATION. The Global Government Fund follows the accounting practice
known as equalization, by which a portion of the proceeds from sales and costs
of redemptions of capital shares, equivalent on a per share basis to the amount
of undistributed net investment

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
- --------------------------------------------------------------------------------
income on the date of the transaction, is credited or charged to undistributed
net investment income. As a result, undistributed net investment income per
share is unaffected by sales or redemptions of the Fund's shares.

F. DEFERRED ORGANIZATION COSTS. The China Fund and the Global Government
Fund have each incurred expenses of $58,785 in connection with their
organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have each
incurred expenses of $8,745 in connection with their organization. The Mainland
China Fund has incurred expenses 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 Asian markets. The China 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 Fund invests
substantially in bonds issued by various European governments. The consequences
of political, social or economic changes in the countries in which the
securities are offered or the issuers conduct their operations may affect the
market prices of the Funds' investments and any income generated, as well as
foreign currency fluctuation and the Funds' ability to repatriate such amounts.

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

I. OTHER. Under terms of the Custodial Agreement, the Funds may earn
credits, based on custody cash balances, to be applied to custodian fees. For
the year ended December 31, 1997, there were no such credits.

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

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
- --------------------------------------------------------------------------------
Statement of Position 93-2: DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
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 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. For the year ended December 31, 1997,
reclassification among the components of net assets are as follows:

<TABLE>
<CAPTION>
Undistributed Net Undistributed Net Paid-in
Investment Income Realized Gains Capital
----------------- ----------------- --------------
<S> <C> <C> <C>
Asia Small Cap Fund $ 688,719 $ 30,980 $ (719,699)
Global Government Fund 73,796 -- (73,796)
</TABLE>

NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to reimburse each Fund to the extent necessary so that
its ratio of

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
- --------------------------------------------------------------------------------
operating expenses to average daily net assets will not exceed the following
levels. Expenses reimbursed from the Advisor for the year ended December 31,
1997 are stated in the Funds' Statement of Operations:

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

The cumulative unreimbursed amounts paid by the Advisor on behalf of the
Funds, during the period from inception (respectively) to December 31, 1997, are
as follows:

<TABLE>
<S> <C>
Asia Blue Chip Fund $ 223,588
Mainland China Fund 11,487
Global Government Fund 671,514
</TABLE>

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
recoupment 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 1% of the
Funds' average daily net assets, subject to a $40,000 annual minimum for the
China Fund and $80,000 allocated based on average daily net assets of the Asia
Blue Chip Fund, Asia Small Cap Fund, Mainland China Fund and Global Government
Fund.

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
- --------------------------------------------------------------------------------

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.

NOTE 4 - PURCHASES AND SALES OF SECURITIES

The cost of purchases and the proceeds from sales of securities, excluding U.S.
Government obligations and short-term investments, for the year ended December
31, 1997 were:

<TABLE>
<CAPTION>
Fund Purchases Sales
- ----------------------------------------------------- ------------- -------------
<S> <C> <C>
Asia Blue Chip Fund $ 6,609,020 $ 1,728,934
Asia Small Cap Fund $ 195,147,522 $ 70,457,062
China Fund $ 152,791,062 $ 156,147,386
Mainland China Fund $ 5,977,906 $ 0
Global Government Fund $ 7,195,274 $ 6,975,992
</TABLE>

Purchases and sales of U.S. Government obligations by the Global Government
Fund were $7,027,583 and $4,135,591, respectively.

NOTE 5 - LINE OF CREDIT

The Funds have a $50 million committed line of credit with a bank that expires
on June 18, 1998. The interest rate on the line of credit is the bank's base
rate, as revised from time to time.

NOTE 6 - FORWARD FOREIGN CURRENCY CONTRACTS

At December 31, 1997 the Funds had entered into forward foreign currency
contracts which obligated the Funds to exchange currencies at specified future
dates. At the maturity of a forward contract, the Funds may either make delivery
of the foreign currency from currency held, if any, or from the proceeds of the
portfolio securities sold, or it may terminate its obligation to deliver the
foreign currency at any time by purchasing an offsetting contract. The forward
value of amounts due to netted against the forward value of the currency to be

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
- --------------------------------------------------------------------------------
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 December 31, 1997 were as follows:

Guinness Flight Asia Blue Chip Fund

<TABLE>
<CAPTION>
Delivery Unrealized
Currency Receivable Currency Deliverable Date Gain
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US$ 46,619 Singapore Dollar 27,618 01/05/98 20
-----
Total Forward Contracts $ 20
-----
-----
</TABLE>

Guinness Flight Asia Small Cap Fund

<TABLE>
<CAPTION>
Delivery Unrealized
Currency Receivable Currency Deliverable Date Loss
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US$ 26,880 Malaysian Ringgit 6,889 01/05/98 (21)
US$ 128,400 Singapore Dollar 76,066 01/05/98 (55)
-----
Total Forward Contracts $ (76)
-----
-----
</TABLE>

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
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Guinness Flight Global Government Bond Fund

<TABLE>
<CAPTION>
Delivery Unrealized
Currency Receivable Currency Deliverable Date Gain/(Loss)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US$ 493,950 Canadian Dollar 691,000 02/25/98 (9,547)
US$ 344,438 Swiss Franc 250,000 02/25/98 (12,713)
US$ 5,760,495 Deutsche Mark 10,022,657 02/25/98 (151,920)
US$ 156,008 Danish Krone 1,023,738 02/25/98 6,170
US$ 192,321 Spanish Peseta 71,916,313 02/25/98 19,583
US$ 2,385,789 British Pound Sterling 1,456,563 02/25/98 15,594
US$ 503,085 Irish Pound 337,982 02/25/98 22,333
US$ 497,412 Italian Lira 846,487,917 02/25/98 19,070
US$ 1,127,503 Japanese Yen 35,882,178 02/25/98 57,397
US$ 1,020,069 Deutsche Mark 1,793,626 05/28/98 6,209
US$ 267,117 British Pound Sterling 161,000 05/28/98 3,587
US$ 476,060 Japanese Yen 60,840,503 05/28/98 395
-----------
Total Forward Contracts $ (23,842)
-----------
-----------
</TABLE>

NOTE 7 - YEAR 2000 ISSUE (Unaudited)

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.

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REPORT OF INDEPENDENT AUDITORS
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To the Shareholders and Board of Directors of
Guinness Flight Investment Funds

We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Guinness Flight Investment Funds,
comprising respectively, the Guinness Flight Asia Blue Chip Fund (the "Asia Blue
Chip Fund"), Guinness Flight Asia Small Cap Fund (the "Asia Small Cap Fund"),
Guinness Flight China & Hong Kong Fund (the "China Fund"), Guinness Flight
Mainland China Fund (the "Mainland China Fund"), and Guinness Flight Global
Government Bond Fund (the "Global Government Fund") (collectively, the "Funds"),
as of December 31, 1997, and the related statements of operations for the fiscal
year then ended, the statements of changes in net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the three fiscal years in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the China
Fund and Global Government Fund for the period from June 30, 1994 (commencement
of operations) through December 31, 1994, were audited by other auditors whose
report dated February 8, 1995 expressed an unqualified opinion on those
financial highlights.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective series constituting Guinness Flight Investment Funds as
of December 31, 1997, the results of their operations for the fiscal year then
ended, the changes in their net assets for each of the two fiscal years in the
period then ended, and the financial highlights for each of the three fiscal
years in the period then ended in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP
Los Angeles, California
February 6, 1998

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