ASIA HOUSE FUNDS
ANNUAL REPORT
DECEMBER 31, 1995
INVESTMENT ADVISER:
Asia House Investments, Inc.
Shand Morahan Plaza, Suite 307-B
1007 Church Street
Evanston, IL 60201
(708) 733-2200
<PAGE>
President's Letter
A Review of 1995 and
Outlook for Asian Investments in 1996
Dear Valued Shareholder, February 6 , 1996
1995 was the second year of consolidation for Asian stock markets. The year
began poorly with the Mexican crisis affecting all emerging markets and
deflation occurring in the Japanese economy. The remainder of the year was spent
digesting these ills. Although the Japanese stock market did improve in the
second half of 1995, when measured in U.S. dollars, the return was minimal
because the Yen weakened so much. One of the main reasons for the Far East
Growth Fund's relative success in 1994 was the same reason why it lagged in 1995
- -- Korea. After a strong year in 1994, the Korean market, in which this fund is
heavily weighted, fell by 13% (mostly in the first and fourth quarters) in 1995,
when measured in U.S. dollars. Also, both funds avoided the Hong Kong stock
market in 1995 which, despite the potential for problems in 1997, performed very
well, and was a main reason why we underperformed. Meanwhile, fears of economic
overheating caused retracements in the ASEAN stock markets, which on average
rose very slightly in 1995 when measured in US$.
As of December 31, 1995, the Far East Growth Fund's NAV/share was $8.88, which
after adding back the required distribution of $0.293, is lower than the $9.81
level at the end of 1994. In 1994 a distribution of $0.278 was made.The ASEAN
Growth Fund's NAV/share decreased to $8.47 (partly due to $0.143 worth of
distributions) from $9.11 at the end of the 1994. In 1994 a $0.160 distribution
was made.
JAPAN: OVERALL VALUATIONS REMAIN HIGH
The Japanese equity position of the Far East Growth Fund increased to 27% in the
second half of 1995. The rebound (when measured in Yen) of the stock market has
mostly come from three sources: 1) the weakening of the Yen, which will help
exporters' sales and profits; 2) continued lower interest rates-- short term
interest rates are less than 1% now, but since inflation is near zero, real
interest rates are still positive. Lower interest rates will help profits as
Japanese companies have significant debt levels; 3) increased confidence that
the Government will use strong means to clean up the banking mess. All of the
above factors will increase economic liquidity and help stimulate economic
growth in 1996. The stocks purchased were a mixture of export-oriented and
domestic consumption-related industries, most of whose p/e ratios should decline
to Western levels based on a few years of profit growth. The overall market is
still too expensive and the fund's weighting in this market will likely vary
through the year.
KOREA: OUR OVERWEIGHT STANCE HURT IN 1995, ESPECIALLY IN DECEMBER
The Korean market succumbed to pressure from higher interest rates in the first
half and then rebounded in July as the foreign investment limit was increased to
15% from 12% and a large amount of foreign assets flowed into the country.
Interest rates finally began to decline significantly in the third quarter, but
then the political crisis hit, culminating in the arrest of the
<PAGE>
two previous Presidents on corruption and other charges relating to the quashing
of student unrest in 1979. Nearly 10% of the Korean position was sold before the
market fell sharply in December, but as most of these stocks are already so
cheap on a p/e basis, it was hard to sell more. There remain several positives,
however: the market should benefit from an increase in the foreign limit to 20%,
which should occur in 1996, and corporate earnings growth remains quite strong.
As for LG ELECTRONICS (formerly Goldstar), it retained its value in the second
half and remains at 4 TIMES ESTIMATED 1995 CONSOLIDATED EARNINGS. Its competing
semiconductor stocks in the U.S. did not fare so well, but it still remains
cheaper than all of them.
GREATER CHINA: HONG KONG PERFORMS VERY WELL, BUT IS IT MUSICAL CHAIRS?
We continue to believe that exposure to Hong Kong is very risky. Its stock
market rose 23% in 1995 despite the uncertain future. There are only 500 days
before Hong Kong reverts to communist control and we believe many problems will
arise in the colony. Office prices and rents continue to fall, but residential
property prices have stabilized. The political situation remains very sticky,
with recently elected Democrats squaring off against "the Party line".
Meanwhile, Taiwan's stock market has stabilized since the earlier Chinese
military maneuvers in the South China Sea, but unwelcome pressure from China
will continue until the Taiwanese Presidential election in March. Since most
competing South East Asia Funds and the MSCI Index to which we compare the ASEAN
Growth Fund have heavy weightings in Hong Kong, it is not surprising that we
underperformed both the competition and our MSCI index in 1995 (see graphs
overleaf).
ASEAN
1995 was not a prosperous year for ASEAN stock markets, and even less so for the
stocks of small to medium sized companies. Most of the stock markets ended at
the same level as they began the year, but larger stocks outperformed most
smaller stocks, in which both funds are heavily weighted. All of these markets
continue to underperform the US stock market. Currencies in the region have
remained relatively stable, but excluding Singapore, trade deficits have
expanded and inflation has begun to creep up. The high Yen and flooding were
greatly to blame for these respective problems, but there is also the factor
that several of these economies were (and still are) growing a bit too fast,
especially Thailand and Malaysia. Thus, interest rates have risen, which is
usually negative for stock markets. For this reason, the Funds sold most of
their Malaysian holdings and are waiting for better value before re-investing.
Overall, ASEAN countries should see a reversal of the negative factors which
plagued them in 1995 as the Yen has weakened and as flood induced prices recede
to normal levels.
Meanwhile, the Singaporean economy, which does not suffer from inflation or
trade problems, has held steady. Property prices, especially commercial space,
received good news in November, which reversed the third quarter weakness in
property stocks. We continue to believe that many more companies will be
switching headquarters from Hong Kong to Singapore as 1997 approaches, which
should continue be a strong positive for Singaporean property stocks.
<PAGE>
Vietnam officially joined ASEAN in the third quarter and has announced that it
will organize its stock exchange by the end of 1996, to which we look forward.
Myanmar (Burma), Laos and Kampuchea (Cambodia) have been granted observer status
in ASEAN, but there will be many years to wait before the Funds will consider
investing there.
UPDATE ON MAJOR HOLDINGS
CROWN SEAL - THAILAND
Third quarter profits rose over 40% year on year and over 100% year to date and
still sells on 5 TIMES BROKERS' 1995 ESTIMATED EARNINGS. RETURN ON EQUITY IS
ABOVE 20% AND THE PRICE TO 1995 BOOK VALUE IS ONLY 1.1. Consensus brokers'
forecasts call for at least 10% earnings growth in 1996. Beverage production is
still booming in Thailand as several new beer companies are starting production,
much of which will be exported to neighboring Indochinese countries.
ANWAR SIERAD - INDONESIA
This producer of poultry products increased profits by 29% in the first three
quarters of 1995, but the stock's performance continues to be weak. It sells on
5 TIMES BROKERS' 1995 ESTIMATED EARNINGS. PRICE TO BOOK RATIO IS ONLY 0.9 TIMES
AND RETURN ON EQUITY IS 16%. Consumption of chicken is rising rapidly in
Indonesia and per-capita consumption of such remains far below even Thailand's
levels.
ACOM AND PROMISE - JAPAN
These consumer finance companies can borrow at less than 4% and lend to
individuals (often through ATM machines) at over 25%. Even during the recession,
consumer loan growth remained very good and yet the default rate was very low.
An improving economy should only improve conditions for these companies. Large
banks have traditionally ignored this business as their primary interest is in
lending to industry and, unfortunately, real estate. Both stocks have done well
versus the market since they were purchased. Earnings growth for ACOM has
exceeded 20% per annum for the past three years and should continue at double
digit rates, and yet the stock sells at 19 times this year's earnings estimates-
a bargain in Japan!
TEN ALLIED-JAPAN
This operator of low-cost pubs, primarily in Tokyo, is poised to benefit from
the upturn in Japanese consumer and business entertainment spending. The
excesses of the bubble years have forced a shift of spending habits towards
thrift, but unit spending is bound to increase. This company will greatly
benefit from these trends. Profits have grown 20% per annum over the past five
years and should continue at this rate and yet the stock is reasonably (for
Japan) priced at 21 times fiscal 1996 earnings.
HUA THAI- THAILAND
Here is an example of how patience pays off. This garment producer, which has
significant operations in Vietnam, was trading below 3 times 1995 earnings for
most of the year, but recently moved up 40%. It now sells on less than 5 times
1995 earnings (which should grow over 100% from 1994) and yet earnings should
grow at least 10% in 1996 and the stock yields over 7%, so the stock remains a
great value in Asia House's view.
<PAGE>
CONCLUSION
The "value +growth" style of investing sometimes requires a great deal of
patience. Brokers often tire of hearing me talk about value, but eventually
cheap stocks are discovered and good profits are made. The US stock market has
been tough to compete against and if it slows down, there is a good chance that
assets will be switched to Asian markets as: 1) valuations in most markets have
returned to pre-1993 bubble level; 2) relative stock index performances compared
to the Dow Jones have also returned to pre-1993 bubble levels; and 3) economic
growth remains strong throughout the region (chart below), excluding Japan,
which itself is now clearly creeping out of recession. Thus, we look forward to
improvement in 1996 and beyond.
[PICTURED HERE IS A BAR GRAPH SHOWING ASIAN GDP GROWTH WITH THE PLOT POINTS AS
FOLLOWS]
94 95E 96E
HK 5.4% 5.0% 5.1%
INDO 7.3% 7.2% 7.2%
JAPAN 0.5% 0.8% 1.7%
KOREA 8.4% 9.2% 7.5%
SING 10.0% 8.4% 7.7%
THAI 8.6% 8.7% 8.2%
MALAYSIA 9.2% 9.3% 8.3%
TAIWAN 6.5% 6.3% 6.4%
PHILIPPINE 4.3% 5.3% 6.0%
CHINA 11.8% 9.7% 9.0%
Source: ING Baring Securities
Thank you for your support.
Sincerely yours,
/s/ John F. Vail
- -------------------------
John F. Vail
President, Asia House Funds
<PAGE>
COMPARISON OF A $10,000 INVESTMENT
UNANNUALIZED TOTAL RETURN USING MONTH-END VALUES
[PICTURED HERE ARE TWO LINE GRAPHS COMPARING THE MSCI COMBINED FAR EAST INDEX
WITH THE FAR EAST GROWTH FUND AND THE MSCI COMBINED FAR EAST FREE EX JAPAN INDEX
WITH THE ASEAN GROWTH FUND USING THE PLOT POINTS AS FOLLOWS]
COMPETITORS NAV PER SHARE
<TABLE>
<CAPTION>
1/94 2 3 4 5 6 7 8 9 10 11 12/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31 MARCH 31 MAY 31 JUL 29 SEPT 30 NOV 30
FAR EAST GROWTH FEB 28 APRIL 29 JUN 30 AUG 31 OCT 31 DEC 31
FUND 10000 10030 10050 10110 10120 10110 10470 10260 10210 10290 10280 10090
MSCI COMBINED FAR
EAST FREE INDEX 10000 10291 9683 10104 10361 10707 10479 10685 10440 10711 10084 10135
ASEAN GROWTH FUND 10000 10010 10010 10050 10100 9960 10120 10120 9940 9780 9490 9271.06
COMBINED FAR EAST
EX JPN FREE 10000 9426 8400 8796 9171 8764 9263 10007 9845 10038 9080 8857
</TABLE>
<TABLE>
<CAPTION>
1/95 2 3 4 5 6 7 8 9 10 11 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31 MARCH 31 MAY 31 JUL 29 SEPT 30 NOV 30
FAR EAST GROWTH FEB 28 APRIL 29 JUN 30 AUG 31 OCT 31 DEC 31
FUND 9400.87 9328.88 9791.72 9421.44 9565.44 9514.01 9740.29 9287.73 9585.61 9596.24 9404.95 9436.83
MSCI COMBINED FAR
EAST FREE INDEX 9458 9239 9938 10322 10003 9590 10231 9805 9908 9432 9861 10435
ASEAN GROWTH FUND 8600 8729 8650 8355.15 8945.41 9006.47 9118.40 8802.93 8768.38 8564.70 8554.52 8768.53
COMBINED FAR EAST
EX JPN FREE 7907 8706 8748 8665 9721 9574 9726 9263 9424 9280 9183 9993
</TABLE>
January 31,1994 through December 31,1995 Total Unannualized Returns
MSCI Combined Far East Free 4.3% vs. Far East Growth Fund -5.6%
MSCI Combined Far East Free ex Japan -0.1% vs ASEAN Growth Fund -12.3%
These charts compare the funds' total unannualized return with that of a
comparable index. For the Far East Growth Fund and the ASEAN Growth Fund, the
comparable index is Morgan Stanley Capital International's (MSCI) Combined Far
East Free Index and MSCI's Combined Far East Free ex Japan Index, respectively.
The lines of the chart represent the total return of a $10,000 hypothetical
investment in each of the funds. Total return assumes the reinvestment of
income, dividends and capital gains distributions. Please note that past
performance is not indicative of future results. Share value and return may vary
so that shares, when redeemed, may be worth more or less than their original
cost. Fund inception was January 25th, 1994 and closest month-end was January
31, 1994.
<PAGE>
ASIA HOUSE FUNDS - FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
<S> <C> <C> <C>
STOCKS AND EQUIVALENTS
INDONESIA
Anwar Sierad (Foreign)........................................................... 115,000 $ 54,067
Barito Pacific Timber............................................................ 59,500 43,587
Pt Berlian Laju Tanker (Foreign)................................................. 60,000 18,369
Pt Sumalindo Lestari Jaya (Foreign).............................................. 28,500 23,059
139,082 8.3%
JAPAN
Acom Company Ltd................................................................. 2,000 83,685
Denyo Company Ltd................................................................ 4,000 45,716
Hitachi AIC...................................................................... 15,000 92,256
Kuraya Corp...................................................................... 3,000 44,748
Mikuni Coca-Cola Bottling Ltd.................................................... 3,000 40,971
Okinawa Electric Power........................................................... 808 21,835
Promise Company Ltd.............................................................. 1,000 48,138
Ten Allied....................................................................... 5,000 74,580
451,929 27.1%
KOREA
Daedong Industrial............................................................... 3,000 46,020
Daesung Consolidated............................................................. 500 12,375
Daewoo Heavy Industries Preferred Stock.......................................... 2,780 23,294
Global Enterprise Preferred Stock................................................ 2,600 78,762
Hanil Cement Manufacturing Ltd................................................... 800 46,407
Kohap Company Ltd................................................................ 262 3,411
Korea Cast Iron Pipe Industry.................................................... 800 42,282
Korea Reinsurance................................................................ 1,400 54,141
LG Information & Communication *................................................. 440 40,271
L.G. Electronics................................................................. 1,434 49,910
Sam Yang Company Ltd Preferred Stock............................................. 88 1,418
Shinyoung Securities Company Preferred Stock..................................... 2,675 31,379
429,670 25.8%
THAILAND
Crown Seal Ltd.................................................................. 8,200 19,043
Crown Seal Ltd (Foreign)......................................................... 46,300 121,310
Hua Thai Manufacturing Ltd (Foreign)............................................. 8,000 23,819
164,172 9.9%
TOTAL STOCKS AND EQUIVALENTS (Cost $1,314,530) 1,184,853 71.1%
CORPORATE CONVERTIBLE DEBT
HONG KONG
Hon Kwok Land............................................. 4.875% 12/15/00 USD 50,000 43,125 2.6%
JAPAN
Matsushita Electric....................................... 1.400% 09/30/96 JPY 3,000,000 33,706
Snow Brand Milk........................................... 1.700% 03/31/03 JPY 2,000,000 18,306
52,012 3.1%
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
ASIA HOUSE FUNDS - FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 - CONTINUED
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
<S> <C> <C> <C>
THAILAND
Union Asia Finance Public Company ........................ 3.375% 12/22/03 USD 75,000 $ 52,313 3.1%
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $147,847) 147,450 8.8%
SHORT-TERM INVESTMENTS
Prudential-Bache Repurchase Agreement, dated 12/29/95,
due 01/02/96, with a maturity value of $198,936 and an
effective yield of 5.39%, collateralized by
Federal National Mortgage Association, 9%, 9/01/22
with an aggregate market value of $202,793, at amortized cost $ 198,817 198,817 12.0%
TOTAL INVESTMENTS (Cost $1,661,194)** 1,531,120 91.9%
Excess of Other Assets over Liabilities 134,469 8.1%
NET ASSETS $ 1,665,589 100.0%
NOTES TO THE PORTFOLIO OF INVESTMENTS:
The principal amount of each debt security is stated in the currency in which
the security is denominated.
JPY Japanese Yen
USD United States Dollar
* Non-income producing security.
** The aggregate identified cost for federal income tax purposes is $1,661,194
resulting in gross unrealized appreciation and depreciation of $100,971
and $231,045, respectively, and net unrealized depreciation of $130,074.
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
ASIA HOUSE FUNDS - FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 - CONTINUED
At December 31, 1995, industry sector diversification of the Fund's
Port of Investments, excluding short-term investments, was as
follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Financial Services 13.0 %
Packaging 8.5
Food And Beverage 8.0
Machinery 6.9
Transportation 5.8
Electrical Equipment 5.5
Electronics 5.0
Forestry 4.0
Insurance 3.3
Chemicals 3.2
Manufacturing 2.8
Health Care 2.7
Real Estate 2.6
Metals And Mining 2.5
Communication 2.4
Textiles 1.7
Utilities 1.3
Diversified 0.7
79.9 %
See accompanying notes to the financial statements.
3
<PAGE>
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
<S> <C> <C> <C>
STOCKS AND EQUIVALENTS
INDONESIA
Anwar Sierad (Foreign).......................................................... 80,000 $ 37,611
Bank International Indonesia (Foreign).......................................... 2,500 8,282
Pt Argha Karya Prima Industry (Foreign)......................................... 25,000 22,141
Pt Berlian Laju Tanker (Foreign)................................................ 35,000 10,715
78,749 7.8%
MALAYSIA
Kelang Container Terminal....................................................... 16,000 40,646 4.0%
SINGAPORE
First Capital Corp of Singapore................................................. 14,000 38,812
Liang Court Holdings Ltd Warrants*.............................................. 6,250 2,321
Liang Court Holdings Ltd........................................................ 25,000 24,929
Straits Steamship Land.......................................................... 11,000 37,185
United Overseas Bank Warrants*.................................................. 5,000 20,156
United Overseas Land Ltd........................................................ 19,000 36,146
159,549 15.7%
THAILAND
Ayudhya Insurance Company Ltd................................................... 4,000 26,042
Crown Seal Ltd ................................................................. 10,000 23,224
Crown Seal Ltd (Foreign)........................................................ 20,000 52,402
Hua Thai Manufacturing Ltd (Foreign)............................................ 11,500 34,240
International Cosmetics (Foreign)............................................... 3,600 32,870
Pacific Insurance Company Ltd................................................... 7,000 16,256
185,034 18.3%
TOTAL STOCKS AND EQUIVALENTS (Cost $565,008) 463,978 45.8%
CORPORATE CONVERTIBLE DEBT
THAILAND
Tanayong Public Company................................. 3.500% 03/01/04 USD 100,000 72,250
Union Asia Finance Public Company ...................... 3.375% 12/22/03 USD 75,000 52,313
124,563 12.3%
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $122,074) 124,563 12.3%
SHORT-TERM INVESTMENTS
Prudential-Bache Repurchase Agreement, dated 12/29/95,
due 01/02/96, with a maturity value of $145,912 and an
effective yield of 5.39%, collateralized by
Federal National Mortgage Association, 9%, 9/01/22,
with an aggregate market value of $148,741, at amortized cost $ 145,824 145,824 14.4%
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 - CONTINUED
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
<S> <C> <C> <C>
TOTAL INVESTMENTS (Cost $832,906)** $ 734,365 72.5%
Excess of Other Assets over Liabilities 277,877 27.5%
NET ASSETS $ 1,012,242 100.0%
NOTES TO THE PORTFOLIO OF INVESTMENTS:
The principal amount of each debt security is stated in the currency in which
the security is denominated.
USD United States Dollar
* Non-income producing security.
** The aggregate identified cost for federal income tax purposes is $832,906
resulting in gross unrealized appreciation and depreciation of $20,509
and $119,050, respectively, and net unrealized depreciation of $98,541.
</TABLE>
At December 31, 1995, industry sector diversification of the Fund's
Portfolio of Investments, excluding short-term investments, was as
follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Real Estate 20.8 %
Packaging 9.6
Chemicals 7.0
Financial Services 5.2
Transportation 5.1
Insurance 4.2
Textiles 3.4
Banking 2.8
58.1 %
See accompanying notes to financial statements.
5
<PAGE>
ASIA HOUSE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
<S> <C> <C>
ASSETS:
Investments, at value (Note 1) $ 1,531,120 $ 734,365
Foreign currency, at value (Note 1) 143,328 284,260
Receivable from Investment Adviser 4,933 2,612
Deferred organization expenses (Note 1) 12,764 12,764
Prepaid insurance 1,121 1,469
Dividends and interest receivable 1,035 3,283
Total assets 1,694,301 1,038,753
LIABILITIES:
Payable to affiliate -
Distribution fees (Note 2) 2,722 1,594
Accrued expenses and other liabilities 25,990 24,917
Total liabilities 28,712 26,511
NET ASSETS $ 1,665,589 $ 1,012,242
Net asset value per share based upon respective
capital stock shares outstanding $ 8.88 $ 8.47
NET ASSETS CONSIST OF:
Paid-in capital $ 1,892,799 $ 1,197,372
Accumulated undistributed (distributions in excess of)
net investment income 31,755 (271)
Accumulated net realized loss on investments (126,391) (85,172)
Net unrealized depreciation on investments
and foreign currency denominated assets and liabilities (132,574) (99,687)
NET ASSETS $ 1,665,589 $ 1,012,242
Cost basis of investments $ 1,661,194 $ 832,906
Cost basis of foreign currency $ 145,828 $ 285,406
Capital stock shares outstanding 187,582 119,565
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
ASIA HOUSE FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $4,124 and $2,854,
respectively) $ 26,436 $ 11,710
Interest 33,829 24,019
Total income 60,265 35,729
EXPENSES:
Custodian, administrative and transfer agent fees 142,679 140,961
Management fee (Note 2) 21,527 12,641
Auditing fees 13,477 13,362
Insurance 8,917 5,341
Legal fees 10,106 6,040
Distribution fees (Note 2) 2,111 1,204
Amortization of organization expenses (Note 1) 4,161 4,161
Miscellaneous 2,119 1,570
Total expenses 205,097 185,280
Less: Fees waived and expenses reimbursed
by the Adviser (Note 2) (162,941) (160,525)
Net expenses 42,156 24,755
Net investment income 18,109 10,974
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments (95,647) (82,909)
Foreign currency transactions (16,883) 3,049
Net realized loss on investments and foreign currency
related transactions (112,530) (79,860)
Change in net unrealized appreciation (depreciation) on investments
and foreign currency denominated assets and liabilities (33,193) 7,521
Net realized and unrealized loss on investments and
foreign currency related transactions (145,723) (72,339)
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (127,614)$ (61,365)
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
ASIA HOUSE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FAR EAST GROWTH FUND ASEAN GROWTH FUND
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994* 1995 1994*
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 18,109 $ 3,141 $ 10,974 $ 10,396
Net realized gain (loss) on investments
and foreign currency related transactions (112,530) 107,104 (79,860) 6,873
Net unrealized appreciation (depreciation) on
investments and foreign currency
denominated assets and liabilities (33,193) (99,381) 7,521 (107,208)
Net increase (decrease) in net assets
resulting from operations (127,614) 10,864 (61,365) (89,939)
Distributions declared to shareholders from:
Net investment income (304) (2,563) (10,974) (9,150)
In excess of net investments income - - (6,231) -
Net realized gain on investments and foreign
currency related transactions - (52,247) - (7,851)
In excess of net realized gain on investments
and foreign currency related transactions (55,346) - - (2,263)
Total distributions declared to shareholders (55,650) (54,810) (17,205) (19,264)
Fund share transactions: (Note 4)
Proceeds from sale of shares 132,325 2,038,500 88,047 1,202,500
Net asset value of shares issued to shareholders
in payment of distributions declared 53,707 52,867 14,847 17,136
Cost of shares repurchased (324,600) (60,000) (125,776) (96,739)
Net increase (decrease) in net assets
resulting from Fund share transactions (138,568) 2,031,367 (22,882) 1,122,897
Total increase (decrease) in net assets (321,832) 1,987,421 (101,452) 1,013,694
NET ASSETS:
Beginning of period 1,987,421 - 1,113,694 100,000
End of period (including undistributed
(distributions in excess of) net
investment income of $31,755, $103,
($271) and $268, respectively) $ 1,665,589 $ 1,987,421 $ 1,012,242 $ 1,113,694
* For the period from January 25, 1994 (commencement of operations) to December 31, 1994.
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
ASIA HOUSE FUNDS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FAR EAST GROWTH FUND ASEAN GROWTH FUND
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994** 1995 1994**
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.81 $ 10.00 $ 9.11 $ 10.00
Income (loss) from investment operations:***
Net investment income (a) 0.097 0.014 0.091 0.078
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions (0.734) 0.074 (0.588) (0.808)
Total from investment operations (0.637) 0.088 (0.497) (0.730)
Less distributions declared to shareholders:
From net investment income (0.001) (0.013) (0.091) (0.076)
In excess of net investment income - - (0.052) -
From net realized gain on investments and foreign
currency related transactions - (0.265) - (0.065)
In excess of net realized gain on investments and
foreign currency related transactions (0.292) - - (0.019)
Total distributions declared to shareholders (0.293) (0.278) (0.143) (0.160)
NET ASSET VALUE, END OF PERIOD $ 8.88 $ 9.81 $ 8.47 $ 9.11
TOTAL RETURN (B) (6.47%) 0.90% (5.42%) (7.29%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,666 $ 1,987 $ 1,012 $ 1,114
Net expenses to average
daily net assets (a) 2.35% 2.35%* 2.35% 2.35%*
Net investment income to average
daily net assets (a) 1.01% 0.19%* 1.04% 0.97%*
Portfolio turnover rate 107% 52% 81% 59%
(a) The investment adviser waived its management fee and reimbursed the Funds for certain other expenses for the periods
indicated. Had the waiver and reimbursement of expenses been limited to that as required by state securities law,
the net investment income per share and the ratios would have been:
Net investment loss $ (0.660) $ (0.558) $ (1.138) $ (0.902)
Net expenses to average
daily net assets 10.24% 10.11%* 16.39% 14.54%*
Net investment loss
to average daily net assets (6.88%) (7.57%)* (13.00%) (11.22%)*
(b) The total returns would have been lower had certain expenses not been waived during the
period shown. Amount is not annualized.
* Annualized.
** For the period from January 25, 1994 (commencement of operations) to December 31, 1994.
*** Per share amounts for the year ended December 31, 1994 have been calculated using the monthly
average share method which more approximately presents the per share data for the period, since
the use of the undistributed method does not accord with the results of operations.
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Asia House Funds (the "Trust") is a Delaware Business Trust registered under
the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Trust currently consists of two diversified
portfolios, the Far East Growth Fund and the ASEAN Growth Fund, (individually
"a Fund" and collectively "the Funds"), which commenced operations on January
25, 1994. The Declaration of Trust permits the Trustees to create an
unlimited number of funds, each of which issues a separate series of shares.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
PORTFOLIO VALUATION
Equity securities listed or regularly traded on a securities exchange are
valued at the last quoted sales price on the day the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security. Equity securities identified as "foreign shares" may be valued at
the value assigned to "local shares" of the same companies on days where
there are no valuations available for the foreign shares. Other equity
securities and those listed securities that are not traded on a particular
day are valued at a price within the limits of the latest bid and asked
prices deemed best to reflect fair value by the Board of Trustees or by
persons delegated by the Board. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in these securities or by an
independent pricing service. Short-term debt obligations and money market
securities maturing in sixty days or less are valued at amortized cost which
approximates value. Non-U.S. dollar denominated short-term obligations
maturing sixty days or less are valued at amortized cost as calculated in the
base currency and translated into United States (U.S.) dollars at the current
exchange rate. Assets and liabilities for which the above valuation
procedures are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by or under the supervision
of the officers of the Trust as authorized by the Board of Trustees.
FOREIGN CURRENCY TRANSLATION
The books and records of the Funds are maintained in U.S. dollars. Investment
valuations and other assets and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investments and income
and expenses are converted into U.S. dollars based upon currency exchange
rates prevailing on the respective dates of such transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment security transactions, foreign currency transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Funds and the amount actually received. The portion of foreign
currency gains and losses related to fluctuation in exchange rates between
the initial purchase trade date and subsequent sale trade date is included in
realized gains and losses on investment securities sold. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
10
<PAGE>
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FORWARD CURRENCY CONTRACTS
The Funds may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the value of some or all
of a Fund's portfolio securities. A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of a forward currency contract fluctuates with changes
in forward currency exchange rates. Forward currency contracts are marked to
market daily and the change in value is recorded by the Fund as an unrealized
gain or loss. When a forward currency contract is extinguished, through
delivery or offset by entering into another forward currency contract, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value of the contract
at the time it was extinguished or offset. The Funds could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if the
value of the currency changes unfavorably relative to the U.S. dollar.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with certain banks and
broker/dealers whereby a Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes possession
of securities collateralizing the repurchase agreement. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Fund's holding period. The collateral is marked to market daily to
ensure that the market value including accrued interest of the underlying
assets remains sufficient to protect the Fund in the event of default by the
seller. In connection with transactions in repurchase agreements, if the
seller defaults and the value of the collateral declines or if the seller
enters insolvency proceedings, realization of collateral by the Fund may be
delayed or limited. The Funds will enter into repurchase agreements only with
dealers or banks determined by the Adviser to present minimal credit risks
pursuant to procedures established by the Board of Trustees to evaluate
creditworthiness.
FEDERAL TAXES
The Funds' policy is to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies and to distribute to
shareholders each year all of its net investment income, and any net realized
capital gains. Accordingly, no provision for federal income or excise tax is
necessary. Withholding taxes on foreign dividends have been provided for in
accordance with the Trust's understanding of the applicable country's tax
rules and rates. At December 31, 1995, the Far East Growth Fund and ASEAN
Growth Fund, for federal income tax purposes, had a capital loss carryover of
$126,391 and $72,507, respectively, which will reduce the taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal income or excise tax. Such capital loss
carryover will expire on December 31, 2003. Additionally, at December 31,
1995, net losses of $547 and $12,936 attributable to transactions incurred
after October 31, 1995 by the Far East Growth Fund and ASEAN Growth Fund,
respectively, are treated as arising on the first day of the Fund's next
taxable year.
11
<PAGE>
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS
The Funds intend to declare distributions from net investment income and net
realized short-term and long-term capital gains, if any, annually. All
distributions will be paid in shares of the Funds, at net asset value, unless
the shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions, losses deferred due
to wash sales, excise tax regulations and utilization of capital loss
carryovers. Permanent differences relating to shareholder distributions will
result in reclassifications to paid-in capital. For the period ended December
31, 1995, amounts resulting from differences in book and tax accounting have
been reclassified at year-end to undistributed net investment income,
accumulated net realized loss, and paid-in capital as follows:
<TABLE>
<CAPTION>
INCREASE IN
UNDISTRIBUTED DECREASE IN
NET INVESTMENT ACCUMULATED DECREASE IN
INCOME REALIZED LOSS PAID-IN CAPITAL
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Far East Growth Fund $ 13,847 $ 13,847 $ -
ASEAN Growth Fund 5,692 3,049 2,643
</TABLE>
INVESTMENT TRANSACTIONS AND INCOME
Security transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
However, if the ex-dividend date has passed, certain dividends from foreign
securities are recorded when the Fund is informed of the ex-date. Interest
income is recorded on the accrual basis. In determining the net realized gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds.
DEFERRED ORGANIZATION EXPENSES
Costs incurred by the Funds in connection with its organization have been
deferred and are being amortized on a straight-line basis over a five year
period beginning on the commencement of operations. In the event that any of
the initial shares of the Funds are redeemed during such amortization period,
the Funds will be reimbursed for any unamortized costs in the same proportion
as the number of shares redeemed bears to the number of initial shares
outstanding at the time of redemption.
12
<PAGE>
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally accepted
accounting policies requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities. These
risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and U.S.
securities markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds pay Asia House Investments Inc., the Funds' adviser (the
"Adviser"), for management and investment advisory services at an annual rate
of 1.20% of average daily net assets. The Adviser has currently agreed to
waive its fee and additionally reimburse each Fund to the extent each Fund's
annual expenses (including management fee but excluding taxes, interest,
extraordinary expenses and brokerage commissions or transaction costs) exceed
2.35% of average daily net assets.
The Trustees have adopted a Distribution Plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940, which provides that the Funds will pay the
Adviser a monthly distribution fee at the annual rate of up to 0.25% of the
Funds' average daily net assets. This fee is used by the Adviser to cover
costs associated with servicing shareholder accounts, marketing and
distribution. The effective rate of the distribution fee charged to the Far
East Growth Fund and ASEAN Growth Fund for the year ended December 31, 1995
was 0.12% and 0.11%, respectively.
Certain officers and trustees of the Funds are also officers or trustees of
the Adviser. No officer or trustee of the Adviser receives any compensation
from the Funds for serving as Trustee or officer of the Funds.
13
<PAGE>
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1995 were as follows:
Purchases Sales
--------------- ---------------
Far East Growth Fund $1,672,737 $1,588,696
ASEAN Growth Fund $ 562,742 $ 647,705
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Funds' shares were as follows:
<TABLE>
<CAPTION>
Far East Growth Fund Year ASEAN Growth Fund
Ended December 31, Year Ended December 31,
1995 1994* 1995 1994*
=================================== ===================================
<S> <C> <C> <C> <C>
Shares sold 14,510 202,869 10,324 120,360
Shares issued to shareholders in
reinvestment of distributions 6,082 5,428 1791 1,893
Shares repurchased (35,598) (5,709) (14,845) (9,958)
---------------- --------------- ------------------ --------------
Net increase/decrease (15,006) 202,588 (2,730) 112,295
Fund shares:
Beginning of period 202588 --- 122,295 10,000
---------------- --------------- ------------------ --------------
End of period 187,582 202,588 119,565 122,295
================ =============== ================== ==============
Percentage of shares held by Asia
House Investments Inc. and
interested directors of the Fund
(or affiliates thereof) at the end of
the period 62.82% 71.50% 60.88% 64.47%
=============== ================ ================= ==============
Percentage of shares held by other
individuals in excess of 10% of
outstanding shares at the end of
the period 19.95% 15.23% 17.31% 16.64%
=============== ================ ================= ==============
* For the period from January 25, 1994 (commencement of operations) to December 31, 1994.
</TABLE>
14
<PAGE>
Independent Auditors' Report
To the Trustees of Asia House Funds and Shareholders of Far East Growth Fund and
ASEAN Growth Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Asia House Funds (comprising, respectively,
Far East Growth Fund and ASEAN Growth Fund) as of December 31, 1995 and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the years ended
December 31, 1995 and 1994. 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.
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, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective funds constituting Asia House Funds at December 31, 1995, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 1, 1996
