<PAGE>
March 31, 1997
Dear Shareholder:
As a new mutual fund, the America Asia Allocation Growth Fund ("AAAGF") is
in the forefront of a developing investment trend; the flexibility to invest in
the best economies, and the fastest growing companies in those economies.
America and Asia are now and we expect will be the best economies going into the
21st Century. The companies that are fastest growing in these economies are in
the early stages of their growth cycle. Many are not yet discovered by Wall
Street. Others are going through a transitional period that requires patience.
Our Fund's multi-capitalization approach attempts to moderate risk, and our
focus on small capitalization companies with excellent growth potential helps us
to achieve our objective of maximum capital appreciation (Aggressive Growth).
During the first six months of our Funds' new life, the small-cap markets in
the United States have gone through a major correction. In many cases, former
favorite emerging growth companies are down 25-50% in their stock price when
compared to their highs of 1996. Other domestic aggressive growth mutual funds
with similar objectives as AAAGF are down as much as 20-30% in net asset value
during this time frame (October 1996 - March 1997).
The Asia stock markets have also gone through a correction since October
1996 ranging from small corrections in Malaysia, Singapore and Korea, to
corrections of more than 10% in Hong Kong and Japan. We do not currently own
shares of Asia based companies except those traded on U.S. exchanges. Contrary
to Asia stock market corrections, our Asia allocation and selections, traded on
U.S. exchanges, have given us solid gains during these last six months.
Likewise, our U.S. large-cap selections have also been mostly profitable. As a
result, we were able to offset some losses on our U.S. small-cap holdings.
In light of these stock market scenarios, our performance for these first
six months is encouraging, though certainly not satisfactory. Given the early
stages of their growth cycle, many of our portfolio companies' stocks are
reflecting a high degree of volatility.
Our combined America-Asia theme is reflected in most of our portfolio
holdings. This is consistent with our funds' long-term goals.
As an investment, mutual funds are bought for the long-term, especially
those that are growth oriented. While we are unable to predict what the short-
term prospects for the stock markets in Asia and the U.S. may be, we continue to
believe in the future of the companies in which we invest.
The adage that one should own more shares of good companies, especially when
their stock prices go down holds even more true for mutual funds. What others
may view as caution, investors see them as buying opportunities. We thank you
for your trust and look forward to serving you in the future.
Sincerely,
/s/James C. Tso
---------------
James C. Tso
THERE ARE SPECIAL RISKS ASSOCIATED WITH INTERNATIONAL INVESTING, THESE INCLUDE
RISKS RELATED TO SOCIAL AND POLITICAL INSTABILITY, MARKET ILLIQUIDITY AND
CURRENCY VOLATILITY.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS - 94.73%
ENERGY - 3.46%
3,500 AES China Generating Co. Ltd., Class A*.................. $ 57,750
----------
FINANCIAL SERVICES - 1.74%
2,000 CU Bancorp............................................... 29,000
----------
MANUFACTURING - 17.80%
20,000 CML Group, Inc. ......................................... 37,500
50,000 Decora Industries, Inc.*................................. 39,060
3,500 Deswell Industries, Inc. ................................ 63,000
5,000 Deswell Industries, Inc. Warrants*....................... 22,500
10,000 ITEQ, Inc.*.............................................. 65,000
1,800 Polk Audio, Inc.*........................................ 17,100
1,500 Technology Research Corp. ............................... 6,187
5,000 Zindart Ltd., ADR*....................................... 46,250
----------
296,597
----------
MEDICAL & HEALTH - 17.40%
5,000 Biosource International, Inc.*........................... 35,938
100,000 Cryomedical Sciences, Inc.*.............................. 50,000
14,000 Cyanotech Corp.*......................................... 77,875
10,000 Genelabs Technologies, Inc.*............................. 43,750
40,000 Vasomedical, Inc.*....................................... 82,500
----------
290,063
----------
NATURAL RESOURCES - 1.46%
8,000 Yamana Resources, Inc.*.................................. 24,323
----------
TECHNOLOGY, COMPUTERS & SOFTWARE - 12.88%
500 Computer Associates International, Inc. ................. 19,437
500 Crystal Systems Solutions*............................... 6,000
5,000 InteliData Technologies Corp.*........................... 25,000
2,000 Level 8 Systems, Inc.*................................... 26,500
6,000 Netrix Corp.*............................................ 15,750
3,000 Octel Communications Corp.*.............................. 47,625
5,000 PSINet, Inc.*............................................ 36,875
15,000 Syquest Technology, Inc.*................................ 37,500
----------
214,687
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS - CONTINUED
TELECOMMUNICATIONS SERVICES & EQUIPMENT - 26.22%
25,000 Amnex, Inc.*........................................... $ 65,625
3,000 Celeritek, Inc.*....................................... 33,000
3,000 Digital Transmission Systems, Inc.*.................... 32,250
12,000 Digital Transmission Systems, Inc. Warrants*........... 34,500
2,200 Ericsson (LM) Telefonaktiebolaget, ADR................. 74,388
1,000 Hong Kong Telecommunications, Ltd., ADR................ 16,375
11,200 InterDigital Communications Corp.*..................... 58,800
2,000 LCI International, Inc.*............................... 33,500
500 Lucent Technologies, Inc. ............................. 26,375
3,500 Westinghouse Electric Corp. ........................... 62,125
----------
436,938
----------
TRANSPORTATION - 13.77%
10,000 Brilliance China Automotive Holdings, Ltd. ............ 55,000
8,000 Ek Chor China Motorcycle Co., Ltd. .................... 48,000
8,000 Fritz Companies, Inc.*................................. 77,500
5,000 World Airways, Inc.*................................... 37,500
4,000 WorldCorp, Inc.*....................................... 11,500
----------
229,500
----------
TOTAL COMMON STOCKS (COST $1,816,615).................. 1,578,858
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 8.25%
$137,591 The Bank of New York Cash Reserve Fund, 4.40%.......... 137,591
----------
TOTAL SHORT TERM INVESTMENTS (COST $137,591)........... 137,591
----------
TOTAL INVESTMENTS (COST $1,954,206**) - 102.98%........ 1,716,449
OTHER LIABILITIES, LESS OTHER ASSETS - (2.98%)......... (49,748)
----------
NET ASSETS - 100.00%................................... $1,666,701
==========
* Non-income producing security
** Cost for Federal income tax purposes is $1,954,206 and net unrealized
depreciation consists of:
Gross unrealized appreciation.......................... $ 89,671
Gross unrealized depreciation.......................... (327,428)
----------
Net unrealized depreciation............................ $ (237,757)
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at market value (Cost $1,954,206) (Note
1)............................................................... $1,716,449
Dividends and interest receivable................................. 594
Deferred unamortized organization costs (Note 1).................. 58,556
Other assets...................................................... 18,885
----------
TOTAL ASSETS................................................... 1,794,484
----------
LIABILITIES
Investment securities purchased................................... 59,337
Due to Advisor (Note 3)........................................... 67,517
Accrued distribution fees......................................... 929
----------
TOTAL LIABILITIES.............................................. 127,783
----------
NET ASSETS......................................................... $1,666,701
==========
CLASS A SHARES:
Net assets applicable to 53,230 shares; unlimited number of shares
of beneficial interest authorized with no par value.............. $ 240,103
==========
Net asset value and redemption price per Class A Share ($240,103 /
53,230 shares)................................................... $ 4.51
==========
Offering price per share ($4.51 / 0.95)........................... $ 4.75
==========
CLASS D SHARES:
Net assets applicable to 316,011 shares; unlimited number of
shares of beneficial interest authorized with no par value....... $1,426,598
==========
Net asset value, offering and redemption price per Class D Share
($1,426,598 / 316,011 shares).................................... $ 4.51
==========
NET ASSETS CONSIST OF:
Paid-in capital................................................... $1,861,454
Accumulated net investment loss................................... (7,174)
Accumulated net realized gain on investments...................... 50,178
Net unrealized depreciation on investments........................ (237,757)
----------
NET ASSETS..................................................... $1,666,701
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1996*
THROUGH
MARCH 31, 1997
(UNAUDITED)
----------------
<S> <C>
INVESTMENT INCOME
Dividends..................................................... $ 5,437
Interest...................................................... 5,313
---------
TOTAL INCOME............................................... 10,750
---------
EXPENSES
Investment advisory fees (Note 3)............................. 13,036
Administration fees........................................... 25,648
Registration fees............................................. 18,275
Transfer agent fees........................................... 15,449
Accounting fees............................................... 15,000
Amortization of organization costs (Note 1)................... 6,444
Custodian fees................................................ 5,120
Directors' fees............................................... 3,000
Distribution fees - Class D (Note 3).......................... 2,179
Distribution fees - Class A (Note 3)**........................ 102
Miscellaneous expenses........................................ 736
---------
TOTAL EXPENSES............................................. 104,989
Expenses reimbursed by Advisor (Note 3)................... (87,065)
---------
NET EXPENSES............................................... 17,924
---------
NET INVESTMENT LOSS............................................ (7,174)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions.................. 50,178
Net change in unrealized depreciation of investments.......... (237,757)
---------
Net realized and unrealized loss on investments............... (187,579)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $(194,753)
=========
</TABLE>
* Class D Shares commenced investment operations October 2, 1996.
** Class A Shares commenced investment operations December 18, 1996.
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1996*
THROUGH
MARCH 31, 1997
(UNAUDITED)
----------------
<S> <C>
OPERATIONS
Net investment loss.......................................... $ (7,174)
Net realized gain on investments............................. 50,178
Net change in unrealized depreciation of investments......... (237,757)
----------
Net decrease in net assets resulting from operations........ (194,753)
----------
CAPITAL SHARE TRANSACTIONS
Shares sold:
Class A Shares**........................................... 264,006
Class D Shares............................................. 1,560,856
Shares redeemed:
Class A Shares............................................. 0
Class D Shares............................................. (63,408)
----------
Increase in net assets derived from capital share
transactions (a)............................................ 1,761,454
----------
Total increase in net assets............................... 1,566,701
----------
NET ASSETS
Beginning of period.......................................... 100,000
----------
End of period................................................ $1,666,701
==========
(a)Transactions in capital stock were:
Shares sold:
Class A Shares............................................. 53,230
Class D Shares............................................. 308,754
Shares redeemed:
Class A Shares............................................. 0
Class D Shares............................................. (12,743)
----------
Increase in shares outstanding................................ 349,241
==========
</TABLE>
* Class D Shares commenced investment operations October 2, 1996.
** Class A Shares commenced investment operations December 18, 1996.
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
------------------ ----------------
FOR THE PERIOD FOR THE PERIOD
DECEMBER 18, 1996* OCTOBER 2, 1996*
THROUGH THROUGH
MARCH 31, 1997 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
------------------ ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 4.75 $ 5.00
------- -------
Loss From Investment Operations:
Net investment loss....................... (0.02) (0.02)
Net losses on securities (both realized
and unrealized).......................... (0.22) (0.47)
------- -------
Total from investment operations......... (0.24) (0.49)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 4.51 $ 4.51
======= =======
TOTAL RETURN + ............................ (5.05%)/1/ (9.80%)/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s)....... $ 240 $ 1,427
Ratio of expenses to average net assets:
Before expense reimbursement............. 16.09% /2/ 16.09% /2/
After expense reimbursement.............. 2.75% /2/ 2.75% /2/
Ratio of net investment income to average
net assets:
Before expense reimbursement............. (14.45%)/2/ (14.45%)/2/
After expense reimbursement.............. (1.11%)/2/ (1.11%)/2/
Portfolio turnover rate................... 52.50% /1/ 52.50% /1/
Average commission rate paid.............. $0.0478 $0.0478
</TABLE>
* Commencement of investment operations.
+ Total return calculation does not reflect sales load.
/1/ Not Annualized.
/2/ Annualized.
See accompanying notes to financial statements.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
NOTES TO FINANCIAL STATEMENTS MARCH 31,1997 (UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
SAGE/TSO Trust (the "Trust") is an open-end, diversified management investment
company organized as a series business trust under the laws of the State of
Delaware. The Trust is currently comprised of one series called America Asia
Allocation Growth Fund (the "Fund"). The Fund currently offers two separate
classes of shares: Class A Shares and Class D Shares. Both classes of shares
are identical except as to the sales charge, minimum initial investment and
dividends. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles for investment companies. In preparing financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
A. SECURITY VALUATION. Foreign securities are valued as of the close of
trading on the primary exchange on which they trade. The value is then
converted to U.S. dollars using current exchange rates. Securities listed on
any national securities exchange are valued at their last sale price on the
exchange where the securities are principally traded or, if there has been no
sale on that date, at the mean between the last reported bid and asked prices.
When market quotations are not readily available, securities and other assets
are valued at fair value as determined in good faith by the Board of Trustees.
Short-term obligations having a maturity of 60 days or less are valued at
amortized cost, which the Board of Trustees believes represents fair value.
B. INVESTMENT INCOME AND SECURITIES TRANSACTIONS. Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Cost is determined and gains and losses are based on the identified cost basis
for both financial statement and federal income tax purposes. Dividend income
is reported on the ex-dividend date. Interest income and expenses are accrued
daily.
C. RISKS ASSOCIATED WITH FOREIGN SECURITIES. Foreign securities investments
involve special risks and considerations not typically associated with those
of U.S. origin. These risks include, but are not limited to re-evaluation of
currencies, adverse political, social and economic developments and less
reliable information about issuers. Moreover, securities of many foreign
companies and markets may be less liquid and their prices more volatile than
those of U.S. companies and markets.
D. ORGANIZATION COSTS. Organization costs are being amortized on a straight
line basis over five years from commencement of operations.
E. FEDERAL INCOME TAXES. It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
F. DISTRIBUTIONS TO SHAREHOLDERS. The Fund will distribute substantially all
of its net investment income in December, and capital gains, if any, annually.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
G. INCOME AND EXPENSE ALLOCATION. All income earned and expenses incurred by
the Fund will be borne on a pro rata basis by each of the classes.
<PAGE>
AMERICA ASIA ALLOCATION GROWTH FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED MARCH 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, totaled
$2,309,322 and $542,885, respectively, for the period ended March 31, 1997.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
SAGE/TSO Investment Management L.P. (the "Adviser"), a registered investment
adviser, provides the Fund with investment advisory services. For providing
investment advisory services, the Fund pays the Adviser a monthly fee which is
calculated daily by applying an annual rate of 2.00% of the average daily net
assets of the Fund. The Adviser has voluntarily agreed to waive all or a
portion of its fee, and/or reimburse expenses of the Fund to the extent
necessary in order to limit net operating expenses for the first year of
operations to an annual rate of not more than 2.75% of the Fund's average
daily net assets. For the period ended March 31, 1997, advisory fees of
$13,036 were waived by the Adviser and the Adviser reimbursed the Fund
$87,065. The Board of Trustees of the Fund has adopted separate distribution
plans for each class of shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended. As provided in each distribution plan, each
class of shares will pay an annual fee up to 0.35% of the respective classes'
average daily net assets to FPS Broker Services, Inc., the Fund's distributor,
as compensation for its services. For the period ended March 31, 1997, the
Fund reimbursed the Distributor $2,281 for distribution costs incurred.
Certain officers and trustees of the Fund are affiliated persons of the
Adviser.
<PAGE>
[This page intentionally left blank]
<PAGE>
[LOGO APPEARS HERE]
The financial information included in this report has been taken from the
books and records of the Fund without examination by the Fund's independent
accountants, who express no opinion thereon. This report is submitted for
general information of the shareholders of the Fund. It is not authorized for
distribution to prospective investors in the Fund unless preceded or
accompanied by an effective Prospectus which includes details regarding the
Fund's objective, policies, expenses and other information.
<PAGE>
SEMI-ANNUAL REPORT
BOARD OF TRUSTEES
James C. Tso
William L. Fang [LOGO APPEARS HERE]
Dr. Stuart S. Malawer
Dr. John N. Paden
Patricia A. Shelton
OFFICERS
James C. Tso, President
William L. Fang, Secretary and Treasurer
INVESTMENT ADVISER
Sage/Tso Investment Management L.P.
8027 Leesburg Pike, Suite 610
Vienna, Virginia 22182
UNDERWRITER
FPS Broker Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406
(888) 289-4769
(610) 239-4600
CUSTODIAN MARCH 31
The Bank of New York 1 . 9 . 9 . 7
48 Wall Street
New York, New York 10286
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, District of Columbia 20036-1800
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
30 South Seventeenth Street
Philadelphia, Pennsylvania 19103 SAGE/TSO
INVESTMENT
For Additional Information about America
MANAGEMENT LP
Asia Allocation Growth Fund call:
888.AAA.5876
