AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 29, 1996 FILE NO. 33-70046
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 3 /x/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 4 /x/
ASIA HOUSE FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o ASIA HOUSE INVESTMENTS INC.
1007 CHURCH STREET
SUITE 307B
EVANSTON, IL 60201
(Address of Principal Executive Offices, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (841) 733-2200
JOHN F. VAIL
c/o ASIA HOUSE INVESTMENTS INC.
1007 CHURCH STREET
EVANSTON, IL 60201
(Name and Address of Agent for Service)
Copies to:
CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET, SUITE 2600
CHICAGO, ILLINOIS 60601
- --------------------------------------------------------------------------------
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Post-Effective Amendment.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant (date) to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485.
DECLARATION PURSUANT TO RULE 24F-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number or amount of its shares of
beneficial interest have been registered under the Securities Act of 1933. A
Rule 24f-2 Notice for the fiscal year ended December 31, 1995 was filed on
February 23, 1996.
Asia House Far East Growth Fund
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Securities Amount Being Maximum Maximum
Being Registered Registered Offering Price Per Aggregate Amount of
Unit (2) Offering Price (3) Registration Fee
- -------------------------------------------------------------------------------------------------------------------
Shares of Beneficial
<S> <C> <C> <C> <C>
Interest 46,121 $9.32 $290,000 $100
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares being registered as set forth in this table are in
addition to the indefinite number of shares of beneficial interest
which Registrant has registered under the Securities Act of 1933, as
amended (the "1933 Act"), pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Registrant's
Rule 24f-2 Notice for its fiscal year ended December 31, 1995, was
filed on February 23, 1996.
(2) Based on the Registrant's net asset value of $9.32 on April 22, 1996
pursuant to Rule 457(d) under the 1933 Act and Rule 24e-2(a) under
the 1940 Act.
(3) In response to Rule 24e-2(b) under the 1940 Act: (1) the calculation
of the maximum aggregate offering price is made pursuant to Rule
24e-2; (2) 35,598 shares were redeemed by the Registrant during the
fiscal year ended December 31, 1995; (3) 20,592 shares are being used
for reductions pursuant to Rule 24f-2 during the current fiscal year;
and (4) 15,006 shares are being used for reduction in this amendment
pursuant to Rule 24e-2(a).
Asia House ASEAN Growth Fund
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Securities Amount Being Maximum Maximum
Being Registered Registered Offering Price Per Aggregate Amount of
Unit (2) Offering Price (3) Registration Fee
- -------------------------------------------------------------------------------------------------------------------
Shares of Beneficial
<S> <C> <C> <C> <C>
Interest 35,277 $8.91 $290,000 $100
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares being registered as set forth in this table are in
addition to the indefinite number of shares of beneficial interest
which Registrant has registered under the Securities Act of 1933, as
amended (the "1933 Act"), pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Registrant's
Rule 24f-2 Notice for its fiscal year ended December 31, 1995, was
filed on February 23, 1996.
(2) Based on the Registrant's net asset value of $8.91 on April 22, 1996
pursuant to Rule 457(d) under the 1933 Act and Rule 24e-2(a) under
the 1940 Act.
(3) In response to Rule 24e-2(b) under the 1940 Act: (1) the calculation
of the maximum aggregate offering price is made pursuant to Rule
24e-2; (2) 14,845 shares were redeemed by the Registrant during the
fiscal year ended December 31, 1995; (3) 12,115 shares are being used
for reductions pursuant to Rule 24f-2 during the current fiscal year;
and (4) 2,730 shares are being used for reduction in this amendment
pursuant to Rule 24e-2(a).
ASIA HOUSE FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
PART A -
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Introduction; Summary of
Fees and Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Introduction; Investment
Objectives and Policies;
International Risk Factors;
The Trust and Shareholder
Rights
Item 5. Management of the Fund Management of the Funds
Item 5A. Management's Discussion of Fund Performance *
Item 6. Capital Stock and Other Securities Management of the Funds;
Dividends and
Distributions; Taxes; The
Trust and Shareholder Rights
Item 7. Purchase of Securities Being Offered How to Purchase Shares; Net
Asset Value; The Funds'
Distribution Plan
Item 8. Redemption or Repurchase How to Exchange and Redeem
Shares
Item 9. Pending Legal Proceedings *
PART B -
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History *
Item 13. Investment Objectives and Policies Risk Factors of Foreign
Investing; Investment
Policies
Item 14. Management of the Fund Management of the Funds
Item 15. Control Persons and Principal Holders Management of the
of Securities Funds
Item 16. Investment Advisory and Other Services Adviser
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Shareholder Rights
Item 19. Purchase, Redemption, and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per Share;
Purchase and Redemption of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters *
Item 22. Calculation of Performance Data Investment Performance
Item 23. Financial Statements Financial Statements
PART C -
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration
Statement.
- ------------------
* Not applicable
</TABLE>
Prospectus dated May 1, 1996
ASIA HOUSE FUNDS
1007 Church Street, Suite 307B, Evanston, IL 60201
(841) 733-2200
------------------------
Asia House Funds (the "Trust") is an open-end management
investment company, currently with two diversified funds (the "Funds").
FAR EAST GROWTH FUND seeks capital appreciation through
investments primarily in established companies domiciled, or with significant
operations, in Asia.
ASEAN GROWTH FUND seeks capital appreciation through
investments primarily in companies domiciled, or with significant operations, in
a country that currently is a member of the Association of Southeast Asian
Nations or has applied to become a member.
The Funds are NO LOAD. One hundred percent (100%) of your
investment is credited to your account.
Asia House Investments Inc., founded by John F. Vail, is the
Funds' investment adviser.
-------------------------
This Prospectus contains the information you should know about
the Funds before you invest. PLEASE KEEP IT FOR FUTURE REFERENCE. A Statement of
Additional Information dated May 1, 1996 for the Funds has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus. It is available at no charge by calling 1-800-416-7204.
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the shares of the Funds in any jurisdiction in
which such offer or solicitation may not lawfully be made.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INTRODUCTION ............................................................... 1
SUMMARY OF FEES AND EXPENSES ............................................... 3
FINANCIAL HIGHLIGHTS ....................................................... 4
INVESTMENT OBJECTIVES AND POLICIES .......................................... 6
INTERNATIONAL RISK FACTORS ................................................. 15
HOW TO PURCHASE SHARES ..................................................... 18
NET ASSET VALUE ............................................................ 19
HOW TO EXCHANGE AND REDEEM SHARES .......................................... 19
PERFORMANCE INFORMATION .................................................... 21
MANAGEMENT OF THE FUNDS ..................................................... 22
THE FUNDS' DISTRIBUTION PLAN ............................................... 23
DIVIDENDS AND DISTRIBUTIONS ................................................ 24
TAXES ...................................................................... 24
THE TRUST AND SHAREHOLDER RIGHTS ........................................... 26
APPENDIX A ................................................................. 27
</TABLE>
INTRODUCTION
The following information is qualified in its entirety by reference to
the more detailed information included elsewhere in the Prospectus and Statement
of Additional Information.
TWO FUNDS FOR ASIAN INVESTING. The Trust is an open-end management
investment company (a "mutual fund"), currently with two separate diversified
investment portfolios.
The FAR EAST GROWTH FUND seeks capital appreciation through investments
primarily in established companies domiciled, or with significant operations, in
Asia. Securities in which this Fund invests include common stocks, preferred
stocks, warrants and similar rights, debt securities convertible into common
stocks and non-convertible debt securities.
The ASEAN GROWTH FUND seeks capital appreciation through investments
primarily in companies domiciled, or with significant operations, in a country
that currently is a member of the Association of Southeast Asian Nations or has
applied to become a member. Securities in which this Fund invests include common
stocks, preferred stocks, warrants and similar rights, debt securities
convertible into common stocks and non-convertible debt securities.
POTENTIALLY ATTRACTIVE OPPORTUNITIES IN ASIA. Asia has been one of the
fastest growing regions in the world over the past decade. The International
Monetary Fund ("IMF") of the World Bank has made the following GDP (Gross
Domestic Product) forecasts for Asian countries compared to domestic U.S.
growth:
GDP Growth 1996-1999
U.S. 2.4%
Asia 6.9%
As the figures above show, the IMF expects growth in most Asian countries to
significantly exceed growth in the United States. However there can be no
assurance that this growth will occur.
DIVERSIFICATION BEYOND THE UNITED STATES. Today, nearly two-thirds of
the world's stock market value and over half of the fixed income securities are
traded abroad, with such foreign markets not necessarily paralleling the
performance of U.S. markets. Therefore, diversifying investments with a foreign
component can help reduce the volatility of a personal portfolio otherwise
invested solely in U.S. securities.
BENEFITS OF MUTUAL FUNDS. The reasons for investing in a mutual fund
are even stronger for an individual wishing to invest overseas. Investing
overseas can be very difficult for the individual investor, and transaction
costs are generally high. In addition to the normal benefits of portfolio
diversification, mutual funds allow individuals to invest without having to
evaluate
1
complex foreign tax and legal regulations. Asia House Funds provide an easy,
diversified and cost-effective way to participate in Asia's potential future
growth.
RISK FACTORS. Each Fund's share price will fluctuate with market,
economic and foreign exchange conditions; therefore, your investment may be
worth more or less when redeemed than when purchased. The Funds should not be
relied upon as a complete investment program, nor used to play short-term swings
in the stock or foreign exchange markets. The Funds are subject to risks unique
to international investing, including currency risk. In addition, because the
Funds are primarily invested in specific geographic regions, they may experience
greater volatility than funds that are not so invested. See discussion under
INTERNATIONAL RISK FACTORS, below. Investment in the Funds also entails the
risks involved with the use of options and futures contracts and investments in
private placements. See discussion under INVESTMENT OBJECTIVES AND POLICIES,
below. In connection with the Funds' use of options and futures contracts, the
entire value of a Fund's portfolio could be segregated to cover obligations
under such contracts. In addition, Asia House Investments Inc. is a
recently-formed investment adviser that has not previously advised a mutual
fund. However, its President and the Funds' portfolio manager was previously a
senior analyst and assistant portfolio manager in Hong Kong, Taiwan and Japan
with a top fund management company. Further, there is no assurance that the
trends discussed above will continue, and the Funds cannot guarantee they will
achieve their objectives.
MANAGEMENT FEE. Each Fund pays Asia House Investments Inc. (the
"Adviser") an annual investment advisory fee of 1.20% of its average daily net
assets. Because the investment programs of the Far East Growth and ASEAN Growth
Funds are more costly to implement and maintain, the advisory fee is higher than
that paid by most investment companies.
DIVIDENDS AND DISTRIBUTIONS. It is the Funds' intention to distribute
all net investment income. Dividends from net investment income are paid at
least annually. All net realized long-term and short-term capital gains, if any,
are distributed annually after the close of such Fund's fiscal year.
PURCHASE AND REDEMPTION OF SHARES. Shares may be purchased directly
from the Funds' Transfer Agent without sales load. See HOW TO PURCHASE SHARES,
below. Shares may be redeemed by writing or calling the Funds' Transfer Agent.
Shares are redeemed at net asset value. See HOW TO EXCHANGE AND REDEEM SHARES,
below.
2
SUMMARY OF FEES AND EXPENSES
The following table sets forth certain information regarding annual
operating expenses for each Fund. Examples based on the table are also shown
below.
<TABLE>
<CAPTION>
Far East ASEAN
Growth Growth
------ ------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load on purchases None None
Sales load on reinvested dividends None None
Redemption fees* None None
Exchange fees None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management fee (after waiver) 1.20% 1.20%
12b-1 Distribution fees .12% .11%
Other expenses (after reimbursement) 1.03% 1.04%
----- -----
TOTAL FUND OPERATING EXPENSES
(AFTER REIMBURSEMENT) 2.35% 2.35%
===== =====
* The Funds' bank charges a $7.50 fee for wire redemptions, subject to
change without notice, which charge will be deducted from the redeeming
shareholder's redemption proceeds, if applicable.
</TABLE>
EXAMPLE OF FUND EXPENSES
The following example illustrates the expenses you would incur on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each period shown. THIS IS AN ILLUSTRATION ONLY. IT SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES AND PERFORMANCE
MAY BE MORE OR LESS THAN SHOWN.
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Far East Growth Fund $24 $73 $126 $269
ASEAN Growth Fund $24 $73 $126 $269
</TABLE>
The foregoing table and example are intended to assist investors in
understanding the expenses the Funds will pay. Investors bear these expenses
indirectly since they reduce the amount of income paid by the Funds to investors
as dividends. See "Management of the Funds"
3
and "The Funds' Distribution Plan" for more complete descriptions of the various
expenses referred to above. "Other expenses" and "Total Fund Operating Expenses"
are based on expenses incurred during the fiscal year ended December 31, 1995,
after waiver of fees and reimbursement of expenses undertaken by Asia House
Investments Inc., which has voluntarily agreed to waive its management fees and
reimburse expenses to the extent that the total expenses of a Fund exceed 2.35%
of average daily net assets. In the absence of this expense limitation, "Other
expenses" would have been 8.92% and 15.08% and "Total Fund Operating Expenses"
would have been 10.24% and 16.39% for the Far East Growth Fund and ASEAN Growth
Fund, respectively. In addition, without the expense limitation, the amounts
contained in the example would increase.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. through the 12b-1 distribution fees.
FINANCIAL HIGHLIGHTS
The table below provides financial highlights of income and capital changes for
one share of each Fund outstanding from the commencement of operations, January
25, 1994, through December 31, 1994 and for the fiscal year ended December 31,
1995. This information is supplemented by the audited financial statements and
accompanying notes which are incorporated by reference in the Statement of
Additional Information, in reliance upon the report of Deloitte & Touche, LLP,
independent certified public accountants in accounting and auditing. Additional
Information regarding the performance of each Fund is contained in the Funds'
1995 Annual Report which may be obtained upon request from the Funds' Transfer
Agent without charge.
4
ASIA HOUSE FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
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 expenses 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 periods 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>
5
INVESTMENT OBJECTIVES AND POLICIES
The Trust is an open-end management investment company. The Trust
currently offers two diversified Funds, each representing separate portfolios.
FAR EAST GROWTH FUND seeks capital appreciation through investments
primarily in established companies domiciled, or with significant operations, in
Asia. The Fund invests primarily in equity and debt securities of established
companies within Asia that are deemed by the Adviser to have growth potential.
For these purposes, Asia includes all countries within Asia except Pakistan,
India, Sri Lanka and Bangladesh. Securities in which the Fund invests include
common stocks, preferred stocks, warrants and similar rights, debt securities
convertible into common stocks and non-convertible debt securities. Debt
securities at the time of investment by the Fund are rated investment grade or
better (for example at least BBB by Standard & Poor's Rating Group ("S & P") and
Baa by Moody's Investors Service, Inc. ("Moody's")) or, if not rated, are
determined by the Adviser to be of equivalent quality, except that up to 15% of
the Fund's net assets may be invested in less than investment grade debt
securities. See Debt Securities, below. If portfolio securities are subsequently
downgraded, the Adviser may determine to continue to hold the security, even if
the percentage then held in lower than investment grade investments exceeds 15%
of the Fund's net assets but in no event will such investments exceed 35% of the
Fund's net assets. In addition, the Adviser may determine to continue to hold
securities in a default status if the Adviser assesses that the potential for
the security turning around versus its current market price causes the security
to continue to be an appropriate investment for the Fund. Under normal
circumstances, the Fund will have at least 65% of its total assets invested in
at least three countries within Asia. This includes investments both in
developed and selected emerging countries. However, the Fund may invest 25% or
more of its total assets in a single country, which would cause the Fund to be
more dependent on the investment factors affecting that country. See
International Risk Factors, below.
ASEAN GROWTH FUND seeks capital appreciation through investments
primarily in companies domiciled, or with significant operations, in a country
that currently is a member of the Association of Southeast Asian Nations
("ASEAN") or has applied to become a member of ASEAN. The current members of
ASEAN are Thailand, Malaysia, Indonesia, Singapore, the Philippines, Vietnam and
Brunei. The Fund invests primarily in equity and debt securities of companies
that are deemed by the Adviser to have growth potential. Securities in which the
Fund invests include common stocks, preferred stocks, warrants and similar
rights, debt securities convertible into common stocks and non-convertible debt
securities. Debt securities are rated investment grade or better (for example at
least BBB by S & P and Baa by Moody's) or, if not rated, are deemed by the
Adviser to be of equivalent quality, except that up to 15% of the Fund's net
assets may be invested in less than investment grade debt securities. See Debt
Securities, below. Under normal circumstances, the Fund will have at least 65%
of its total assets invested in at least three ASEAN countries. This includes
investments both in developed and selected emerging countries. However, the Fund
may invest 25% or more of its total assets in a single country, which would
cause the Fund to be more dependent on the investment factors affecting that
country. See International Risk Factors, below.
6
DEBT SECURITIES. Each Fund may seek capital appreciation through
investment in debt securities as well as equity securities. Capital appreciation
in debt securities may arise as a result of a favorable change in relative
foreign exchange rates, in relative interest rate levels, or in the
creditworthiness of issues. The receipt of income from such debt securities is
incidental to a Fund's objective of capital appreciation. Therefore, the Funds
will not seek to benefit from anticipated short-term fluctuations in currency
exchange rates. The Funds may, from time to time, invest in debt securities with
relatively high yields and high risk, notwithstanding that the Fund may not
anticipate that such securities will experience substantial capital
appreciation, in order to use such income to offset the operating expenses of
the Fund. If the strategy of using these securities to offset operating expenses
of the Fund is not successful, the Fund's operating expenses will be higher and
its performance will be lower than they would be if the strategy is successful.
Bonds rated in the lower rating categories (for example BB or below by S & P or
Ba or below by Moody's), while providing higher yields, are subject to greater
market fluctuations, loss of income and principal than higher rated securities.
Bonds in lower rated categories are considered speculative investments and their
market values tend to reflect individual corporate developments to a greater
extent than do those of higher rated securities. Such lower rated securities are
more sensitive to economic conditions than are higher rated securities. Lower
rated securities frequently are issued by corporations in the growth stage of
their development. Companies that issue such lower rated securities often are
highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities is
greater than is the case with higher rated securities. The risk of loss from
default by the issuer is significantly greater for the holders of lower rated
securities because such securities are generally unsecured and often
subordinated to other creditors of the issuer.
A Fund may have difficulty disposing of certain lower rated securities
because they may have a thin trading market. The lack of a liquid secondary
market may have an adverse effect on market price and ability to dispose of
particular issues and may also make it more difficult for the Fund to obtain
accurate market quotations for valuation purposes. Market quotations generally
are available on many lower rated issues only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices for actual
sales. As of December 31, 1995, the ASEAN Growth Fund held 6.95% of its total
assets in securities rated CCC (at the time of investment in such security).
Each Fund may invest in debt securities issued or guaranteed by foreign
governments ("sovereign debt") within their stated geographic region (including
countries, provinces and municipalities) or their agencies or instrumentalities
("governmental entities"), debt securities issued or guaranteed by international
organizations designated or supported by multiple foreign governmental entities
(which are not obligations of foreign governments) to promote economic
reconstruction or development ("supranational entities"), debt securities issued
by corporations or financial institutions or debt securities issued by the U.S.
Government or an agency or instrumentality thereof.
Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples include the International Bank
7
for Reconstruction and Development (the "World Bank") and the Asian Development
Bank. The governmental members or "stockholders" usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings.
OTHER INVESTMENTS. Each Fund may invest in the securities of eligible
issuers in the form of American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs) or other securities convertible into securities of Asian
issuers. The Funds may invest in unsponsored ADRs. The issuers of unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of such ADRs. The Funds may also invest in illiquid privately
placed securities, provided that such investments, together with other illiquid
securities held by the Fund, do not exceed 15% of the Fund's net assets.
CASH RESERVES. The Funds reserve the right, as a temporary defensive
measure or to provide for redemptions or in anticipation of investments, to hold
cash or cash equivalents (in U.S. dollars or foreign currencies) and short-term
securities including money market securities denominated in U.S. dollars or
foreign currencies.
LENDING OF PORTFOLIO SECURITIES. As a fundamental policy, for the
purpose of realizing additional income, each Fund may lend securities with a
value of up to 33-1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. Such lending
could result in delays in receiving additional collateral or in the recovery of
the securities or possible loss of rights in the collateral should the borrower
fail financially.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements
with a well-established domestic securities dealer or a bank which is a member
of the Federal Reserve System. In the event of a bankruptcy or default of
certain sellers of repurchase agreements, the Funds could experience costs and
delays in liquidating the underlying security, which is held as collateral, and
the Funds might incur a loss if the value of the collateral held declines during
this period.
FOREIGN CURRENCY TRANSACTIONS AND CURRENCY FUTURES CONTRACTS. Each Fund
will normally conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies at a future date (i.e. forward foreign currency exchange
contract or forward contracts). Foreign currency futures contracts and options
on currencies may also be used. The Funds will generally not enter into a
forward contract with a term of greater than one year.
The Funds will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when a Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when the Adviser believes that the currency of a particular foreign
country may
8
suffer or enjoy a substantial movement against another currency, it may enter
into a forward contract to sell or buy the former foreign currency (or another
currency which acts as a proxy for that currency) approximating the value of
some or all of a Fund's portfolio securities denominated in such foreign
currency. Under certain circumstances, each Fund may commit a substantial
portion or the entire value of its portfolio to the consummation of these
forward contracts. The Adviser will consider the effect such a commitment of its
portfolio to such contracts would have on the investment program of the Fund and
the flexibility of the Fund to purchase additional securities. Although forward
contracts will be used primarily to protect a Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted and the Fund's total return could be adversely
affected as a result.
FUTURES CONTRACTS AND OPTIONS. The Funds may enter into stock index or
currency futures contracts (or options thereon) to hedge a portion of the Fund's
portfolio, to provide an efficient means of regulating the Fund's exposure to
the equity markets, or as a hedge against changes in prevailing levels of
currency exchange rates. The Funds will not use futures contracts for
speculation. Futures contracts and options can be highly volatile and could
reduce a Fund's total return, and a Fund's attempt to use such investments for
hedging purposes may not be successful. The Funds may write covered put and call
options on foreign currencies, securities and stock indices.
Writing Covered Call Options. Each Fund may write (sell) "covered" call
options and purchase options to close out options previously written by a Fund.
In writing covered call options, a Fund expects to generate premium income which
should serve to enhance the Fund's total return and reduce the effect of any
price decline of the security or currency involved in the option. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
exercise price. If a call option which a Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. Covered call options
will generally be written on securities or currencies which, in the Adviser's
opinion, are not expected to make any major price increases or moves in the near
future but which, over the long term, are deemed to be attractive investments
for a Fund.
A call option gives the holder (buyer) the "right to purchase" a
security or currency at a specified price (the exercise price), at expiration of
the option (European style) or at any time until a certain date (the expiration
date) (American style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security or
currency against payment of the exercise price. This obligation terminates upon
the expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by repurchasing an option identical to
that previously sold. To secure his obligation to deliver the underlying
security or currency in the case of a call option, a writer is required to
deposit in escrow the underlying security or currency or other assets in
accordance with the rules of a clearing corporation. Each Fund will write only
covered call options. This means that a Fund will own the security or
9
currency subject to the option or an option to purchase the same underlying
security or currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and maintain with its
custodian for the term of the option, an account consisting of cash, U.S.
government securities or other liquid high-grade debt obligations having a value
equal to the fluctuating market value of the optioned securities or currencies.
Each Fund will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities or currencies covering call or put
options exceeds 50% of the market value of the Fund's net assets.
Purchasing Put Options. Each Fund may purchase American or European
style put options. As the holder of a put option, a Fund has the right to sell
the underlying security or currency at the exercise price at any time during the
option period. Each Fund may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire. Each Fund may purchase
put options for defensive purposes in order to protect against an anticipated
decline in the value of its securities or currencies. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Fund will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
To the extent required by the laws of certain states, each Fund may not
be permitted to commit more than 5% of its total assets to premiums when
purchasing call and put options. Should these state laws change or should a Fund
obtain a waiver of their application, that Fund may commit more than 5% of its
total assets to premiums when purchasing call and put options.
Purchasing Call Options. Each Fund may purchase American or European
style call options. As the holder of a call option, a Fund has the right to
purchase the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). Each Fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. Each Fund may
purchase call options for the purpose of increasing its current return or
avoiding tax consequences which could reduce its current return. Each Fund may
also purchase call options in order to acquire the underlying securities or
currencies.
To the extent required by the laws of certain states, each Fund may not
be permitted to commit more than 5% of its total assets to premiums when
purchasing call and put options. Should these state laws change or should a Fund
obtain a waiver of their application, that Fund may commit more than 5% of its
total assets to premiums when purchasing call and put options.
Futures Contracts. Each Fund may purchase and sell stock index futures
contracts and financial futures contracts as a hedge against adverse changes in
the market value of its portfolio securities. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a specific financial instrument (e.g., units of a stock index) for a
specified price, date, time and place designated at the time the contract is
made. Brokerage fees
10
are incurred when a futures contract is bought or sold and margin deposits must
be maintained. Entering into a contract to buy is commonly referred to as buying
or purchasing a contract or holding a long position. Entering into a contract to
sell is commonly referred to as selling a contract or holding a short position.
Although certain futures contracts, by their terms, require actual future
delivery of and payment for the underlying instruments, in practice most futures
contracts are usually closed out before the delivery date. Closing out an open
futures contract purchase or sale is effected by entering into an offsetting
futures contract purchase or sale, respectively, for the same aggregate amount
of the identical securities and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Fund realizes a gain; if it
is less, the Fund realizes a loss. The transaction costs must also be included
in these calculations. There can be no assurance, however, that each Fund will
be able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract. The Funds will engage in transactions
in futures contracts and options thereon only for bona fide hedging, yield
enhancement and risk management purposes, in each case in accordance with the
rules and regulations of the Commodity Futures Trading Commission ("CFTC"), and
not for speculation.
The Funds may not enter into futures contracts or options thereon if
immediately thereafter the sum of the amounts of initial margin deposits on the
Fund's existing futures and premiums paid for options on futures would exceed 5%
of the market value of the Fund's total assets; provided, however, that in the
case of an option that is "in-the-money" at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
In instances involving the purchase of futures contracts or the writing
of put or call options thereon by a Fund, an amount of cash, U.S. Government
securities or other liquid, high-grade debt obligations, equal to the market
value of the futures contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
to cover the position, or alternative cover will be employed thereby insuring
that the use of such futures contracts and options is covered. A segregated
account freezes those assets of the Fund that are in the account and renders
such assets unavailable for sale or other disposition. As asset segregation
reaches certain levels, the ability of the Fund to meet current obligations,
honor requests for redemption, and properly manage the investment portfolio may
be impaired.
In addition, CFTC regulations may impose limitations on each Fund's
ability to engage in certain yield enhancement and risk management strategies.
If the CFTC or other regulatory authorities adopt different (including less
stringent) or additional restrictions, the Funds would comply with such new
restrictions.
A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, market or interest rate trends. There are
several risks in connection with the use by the Funds of futures contracts as a
hedging device. One risk arises because of the imperfect
11
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject of
the hedge. The Adviser will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in its judgment, will have a significant
correlation with movements in the prices of the Fund's underlying instruments
sought to be hedged. Successful use of futures contracts by the Funds for
hedging purposes is also subject to the Adviser's ability to correctly predict
movements in the direction of the market. In addition to the possibility that
there might be an imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the portfolio being
hedged, the price movements of futures contracts might not correlate perfectly
with price movements in the underlying instruments due to certain market
distortions.
Options On Futures Contracts. Options on futures are similar to options
on underlying instruments except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by the delivery of
the accumulated balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the futures contract. Alternatively, settlement
may be made totally in cash. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Special Risks of Transactions in Options on Futures Contracts. Each
Fund may seek to close out an option position by writing or buying an offsetting
option covering the same index, underlying instruments, or contract and having
the same exercise price and expiration date. The ability to establish and close
out positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
12
Restrictions on OTC Options. The Fund will engage in OTC options,
including over-the-counter stock index options, over-the-counter foreign
currency options and options on foreign currency futures, only with member banks
of the Federal Reserve System and primary dealers in United States Government
securities or with affiliates of such banks or dealers that have capital of at
least $20 million or whose obligations are guaranteed by an entity having
capital of at least $20 million or any other bank or dealer having capital of at
least $20 million or whose obligations are guaranteed by an entity having
capital of at least $20 million.
The staff of the Securities and Exchange Commission ("SEC") has taken
the position that purchased OTC options and the assets used as cover for written
OTC options are illiquid securities. Therefore, each Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Fund
and margin deposits on the Fund's existing OTC options on future contracts
exceed 15% of the net assets of the Fund, taken at market value, together with
all other assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying security minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money." This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Trustees of the
Fund without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the SEC
staff of its position.
Foreign Futures and Options. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commodity Futures Trading Commission
and arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, funds received from customers for
foreign futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
13
futures exchanges. In addition, the price of any foreign futures or foreign
options contract and, therefore, the potential profit and loss thereon may be
affected by any variance in the foreign exchange rate between the time your
order is placed and the time it is liquidated, offset or exercised.
PRIVATE PLACEMENTS. The Funds may acquire private placements. Because
an active trading market may not exist for such securities, the sale of such
securities may be subject to delay and additional costs and may, therefore, be
considered an illiquid security. In addition, such illiquid securities may be
more difficult to price. A Fund will not purchase a security if more than 15% of
the value of its net assets would be invested in illiquid securities.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
FUNDAMENTAL INVESTMENT POLICIES. Each Fund's investment objective is a
fundamental policy that may not be changed without a vote of the holders of a
majority of such Fund's outstanding shares (as defined in the Investment Company
Act of 1940 ("1940 Act")). Also, as a matter of fundamental policy: (1) the
Funds will not, among other things, purchase a security of any issuer (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result, it would (a) cause the Fund to have 25% or
more of its total assets concentrated in any one industry or group of
industries, provided that, as a matter of operating policy, each Fund will not
invest more than 25% of its total assets in securities issued by any one foreign
government or (b) with respect to 75% of its assets, cause the Fund's holdings
of that issuer to amount to more than 5% of the Fund's total assets or cause the
Fund to own more than 10% of the outstanding voting securities of the issuer
provided that, as an operating policy, none of the Funds will purchase a
security if, as a result, more than 10% of the outstanding voting securities of
any issuer would be held by the Fund; and (2) none of the Funds will (a) borrow
money except temporarily from banks to facilitate redemption requests in amounts
not exceeding 33-1/3% of its total assets valued at market; or (b) in any manner
transfer as collateral for indebtedness any security of the Fund except in
connection with permissible borrowings, which in no event will exceed 33-1/3% of
the Fund's total assets valued at market.
OTHER INVESTMENT POLICIES. As a matter of operating policy, each of the
Funds will not, among other things: (1) purchase a security of any issuer if, as
a result, (a) more than 15% of the value of its net assets would be invested in
illiquid securities, including repurchase agreements which do not provide for
payment within seven days, or other securities which are not readily marketable,
or (b) more than 5% of the value of the Fund's total assets would be invested in
the
14
securities of unseasoned issuers which at the time of purchase have been in
operation for less than three years, including predecessors and unconditional
guarantors; and (2) purchase securities when money borrowed exceeds 5% of the
Fund's total assets. Operating policies are subject to change by the Funds'
Board of Trustees without shareholder approval.
INTERNATIONAL RISK FACTORS
Investors should understand and consider carefully the special risks
involved in foreign investing. These risks are often heightened for investments
in emerging or developing countries.
FOREIGN CURRENCY. Investments in foreign companies will require the
Funds to hold securities and funds denominated in foreign currencies. As a
result, the value of the assets of the Funds as measured in U.S. dollars may be
affected significantly, favorably or unfavorably, by changes in foreign currency
exchange rates, currency restrictions, and exchange control regulations, and the
Funds may incur costs in connection with conversions between various currencies.
Changes in net asset value will occur due to currency fluctuations, irrespective
of the performance of a Fund's underlying investments. Exchange rate movements
can be large and endure for extended periods of time. Generally, when a given
currency appreciates against the dollar (the dollar weakens) the value of the
Fund's securities denominated in that currency will rise. When a given currency
depreciates against the dollar (the dollar strengthens) the value of the Fund's
securities denominated in that currency would be expected to decline.
COSTS. The expenses to individual investors of investing directly in
foreign securities are higher than investing in U.S. securities. While the Funds
offer a more efficient way for individual investors to participate in foreign
markets, their expenses, including custodial fees and transaction costs, are
also higher than the typical domestic equity fund. Transactions will occur when
the Adviser believes that the trade, net of transaction costs, will improve
capital appreciation potential, or will lessen capital loss potential. Whether
these goals will be achieved through trading depends on the Adviser's ability to
evaluate particular securities and anticipate relevant market factors, including
interest rate trends and variations from such trends. If such evaluations and
expectations prove to be incorrect, a Fund's capital appreciation may be reduced
and its capital losses may be increased. The portfolio turnover rates for the
Far East Growth Fund for the fiscal year ended December 31, 1995 and for the
period ended December 31, 1994, respectively, are as follows: 107% and 52%. The
portfolio turnover rates for the ASEAN Growth Fund for the fiscal year ended
December 31, 1995 and for the period ended December 31, 1994, respectively, are
as follows: 81% and 59%. High turnover in any Fund could result in additional
brokerage commissions to be paid by the Fund.
ECONOMIC AND TRADE FACTORS. The economies of the countries in which the
Funds may invest (portfolio countries) may differ favorably or unfavorably from
the U.S. economy and may be less developed and diverse. Certain of these
countries, for example Japan, are heavily dependent upon international trade.
Accordingly, they have been, and may continue to be, adversely affected by trade
barriers and other protectionist or retaliatory measures of, as well as economic
conditions in, the U.S. and other countries with which they trade. Certain
countries
15
may be heavily dependent on a limited number of commodities and thus vulnerable
to weaknesses in world prices for these commodities. The existence of
overburdened infrastructure and obsolete financial systems also present risks in
certain countries, as do environmental problems. Finally, there is no assurance
that the pattern of growth exhibited by certain of the portfolio countries in
the past will continue.
POLITICAL FACTORS. The internal politics of certain of the portfolio
countries are not as stable as in the United States. In addition, significant
external political risks, including war, currently affect some of the countries.
Finally, governments in certain of the countries continue to participate to a
substantial degree, through ownership interests or regulation, in their
respective economies and securities markets. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
assets, or imposition of taxes. Any of these actions could have a significant
effect on market prices of securities, the ability of the Funds to repatriate
capital and income, and the value of the Funds' investments.
MARKET CHARACTERISTICS. Many of the securities markets of the portfolio
countries have substantially less volume than comparable U.S. markets, and the
securities of some companies in these countries are less liquid and more
volatile than securities of comparable U.S. companies. Certain markets, such as
those in China, are only in the earliest stages of development. There is also a
high concentration of market capitalization and trading volume in a small number
of issues representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. In certain markets, for
example in Japan, common stocks may trade at considerably higher valuation
levels than U.S. common stocks. Accordingly, many of these markets may be
subject to greater volatility and may be more influenced by adverse events
generally affecting the market and by large investors trading significant blocks
of securities, than is usual in the United States. The settlement practices of
the portfolio countries may include delays and otherwise differ from those
customary in the U.S. markets.
LEGAL AND REGULATORY. Certain of the portfolio countries lack uniform
accounting, auditing, and financial reporting standards, have less governmental
supervision of securities markets, brokers, and issuers of securities, and less
financial information available to investors than is usual in the United States.
For example, there have been revelations that major broker-dealers in Japan have
engaged in a variety of fraudulent and manipulative practices. Finally, there
may be difficulty in enforcing legal rights outside the United States.
REGIONAL INVESTING. The Funds invest their assets primarily in the
countries of Asia. As a result, these Funds will be more dependent on investment
factors affecting this region than a more geographically diverse fund. In
addition, each Fund may invest 25% or more of its total assets in a single
country, which would cause the Fund to be more dependent on the investment,
political and other factors affecting that particular country.
FOREIGN EXCHANGES AND MARKETS. Each Fund's portfolio securities from
time to time may be listed on foreign exchanges or traded in foreign markets
which are open on days (such as Saturday) when the Funds do not compute their
prices or accept orders for the purchase,
16
redemption or exchange of their shares. As a result, the net asset values of the
Funds may be significantly affected by trading on days when shareholders cannot
make transactions.
SOVEREIGN DEBT. Certain developing Asian countries, such as the
Philippines, owe significant amounts of debt to commercial banks and foreign
governments. Investment in sovereign debt may involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to timely service its debts.
Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which a government entity has defaulted may be collected in whole or in part.
The sovereign debt instruments in which the Fund may invest may be
determined by the Adviser to be the equivalent in terms of quality to the lower
rated securities discussed above under "Debt Securities," and are subject to
many of the same risks as such securities. Similarly, the Fund may have
difficulty disposing of certain sovereign debt obligations because there may be
a thin trading market for such securities.
RESTRICTIONS ON FOREIGN INVESTMENTS. Some developing Asian countries
prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as the
Funds. For example, certain countries may require governmental approval prior to
investments by foreign persons, or limit the amount of investment by foreign
persons in a particular country, or limit the investment by foreign persons to
only a specific class of securities of a company which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain Asian
countries, as well as limitations on such investments, also may have an adverse
impact on the operations of the Funds.
17
A number of publicly traded closed-end investment companies have been
organized to facilitate indirect foreign investment in developing Asian
countries. There are also investment opportunities in certain of such countries
in pooled vehicles that resemble open-end investment companies. In accordance
with the Investment Company Act of 1940 (the "1940 Act"), a Fund may invest up
to 10% of its total assets in securities of investment companies, not more than
5% of which may be invested in any one such company and a Fund may not own more
than 3% of the total outstanding voting stock of any such company. This
restriction on investments may limit opportunities for the Funds to invest
indirectly in certain developing Asian countries. If a Fund acquires shares of
investment companies, shareholders would bear both their proportionate share of
expenses of the Fund and indirectly, the expenses of such investment companies.
HOW TO PURCHASE SHARES
Purchase orders received before 4:00 p.m. Eastern Time on any Business
Day will be executed at the net asset value determined that day. A "Business
Day" is any day on which the New York Stock Exchange ("NYSE") is open for
business. The minimum initial investment per Fund is $3,000 and the minimum for
additional purchases is $500. All purchase orders will be executed at the net
asset value next determined after the purchase order is received by the Transfer
Agent.
PURCHASES BY MAIL. Investors may purchase shares and open an account
through the Transfer Agent by completing and signing the Account Application and
mailing it with a check for the purchase price to the Transfer Agent. Checks
should be made payable to the Asia House Funds and be drawn on a U.S. bank.
Subsequent investments do not need to be accompanied by an application. Send
your purchase order to:
Asia House Funds
c/o Investors Bank & Trust Company
P. O. Box 1537, MFD-23
Boston, MA 02205-1537
PURCHASE BY WIRE. Investors may purchase shares through the Transfer
Agent by bank wire. Bank wire purchases will be treated as received after the
Transfer Agent is notified that the bank wire has been credited to the Fund. To
open an account by wire purchase, you must first call the Transfer Agent at
1-800-416-7204 for an account number. Then wire the money to:
Investors Bank & Trust Company
Attn.: Transfer Agent
Boston, MA 02205-1537
ABA#011001438
DDA#333333321
Fund name(s), account name(s) and account number(s)
18
The completed application should be mailed to the Transfer Agent at the
address above. For subsequent purchases, call to advise the Transfer Agent of
the purchase and use the same wire address. The investor is responsible for
providing prior telephonic notice to the Transfer Agent that a bank wire is
being sent. An investor's bank may charge a service fee for wiring money to the
Funds. The Transfer Agent currently does not charge a service fee for
facilitating wire purchases, but reserves the right to do so in the future.
The Funds reserve the right to reject any purchase order and to suspend
the offering of shares for a period of time. However, shareholders would
generally be given the right to reinvest dividends during a time when sales were
suspended. The Funds also reserve the right to cancel any purchase due to
nonpayment; waive or lower the investment minimums; modify the conditions of
purchase at any time; and reject any check not made directly payable to the Asia
House Funds. If a purchase is canceled because of nonpayment, you will be
responsible for any loss the Funds incur. If you are already a shareholder, each
Fund can redeem shares from any identically registered account as reimbursement
for any loss incurred. Investors may be charged a fee if they effect
transactions through a broker or agent.
NET ASSET VALUE
The net asset value per share (NAV), or share price for each Fund is
determined as of the close of business (currently 4:00 p.m. Eastern Time) on the
New York Stock Exchange on each day it is open for trading. Each Fund's share
price is calculated by subtracting its liabilities from its total assets and
dividing the result by the total number of shares outstanding. Among other
things, each Fund's liabilities include accrued expenses and dividends payable,
and its total assets include portfolio securities valued at market as well as
income accrued but not yet received.
HOW TO EXCHANGE AND REDEEM SHARES
Orders for exchange or redemption received by the Transfer Agent before
4:00 p.m. Eastern Time on any Business Day will be executed at the net asset
value determined that day.
EXCHANGE OR REDEMPTION BY MAIL. Shareholders may exchange or redeem
shares by mail by indicating the account name(s) and numbers, Fund name(s), and
exchange or redemption amounts and mailing the request to:
ASIA HOUSE FUNDS
c/o Investors Bank & Trust Company
P.O. Box 1537, MFD-23
Boston, MA 02205-1537
For exchanges, the request should indicate the Fund you are exchanging and the
Fund you are exchanging into. The signature of all owners exactly as registered
is required and in certain circumstances, a signature guarantee, see Signature
Guarantees below.
19
Redemptions from retirement accounts, including IRAs, must be in
writing. Please call the Transfer Agent to obtain an IRA Distribution Request
Form. For employer sponsored retirement accounts, call the Transfer Agent or
your plan administrator for instructions.
Redemption proceeds are mailed within five business days after an order
is received except that the mailing or wiring of redemption proceeds on shares
purchased by personal, corporate or government checks may be delayed until it
has been determined that collected funds have been received for the purchase of
such shares, which may take up to 15 days from the purchase date. The clearing
period does not apply to purchases made by wire or by cashier's, treasurer's, or
certified checks.
EXCHANGE OR REDEMPTION BY TELEPHONE. Shareholders may exchange or
redeem shares by telephone by calling the Transfer Agent at 1-800-416-7204.
Shareholders are automatically provided such telephone privileges unless such
privilege is specifically rejected on the application form. During periods when
it is difficult to contact the Transfer Agent by telephone, it may be difficult
to implement the telephone exchange or redemption procedures. Redemption
proceeds can be mailed to you or wired to your bank. The Funds' bank charges a
$7.50 fee for wire redemptions, subject to change without notice, which charge
will be deducted from your redemption proceeds, if applicable. Your bank may
also charge you for receiving wires. The Fund and the Transfer Agent will employ
reasonable procedures designed to determine that instructions communicated by
telephone are genuine, including requiring certain identifying information prior
to acting upon instructions, recording all telephone instructions and sending
written confirmations to the address of record. To the extent that the Fund and
its Transfer Agent fail to use reasonable procedures to verify the genuineness
of telephone instructions, they may be liable for such instructions that prove
to be unauthorized and fraudulent.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect you
and the Funds by verifying your signature. You will need one to:
(1) Establish certain services after the account is opened.
(2) Redeem over $50,000 by written request (unless you have
authorized telephone services).
(3) Redeem or exchange shares when proceeds are: (i) being mailed
to an address other than the address of record, (ii) made
payable to other than the registered owner(s), or (iii) being
sent to a bank account other than the bank account listed on
your Fund account.
(4) Transfer shares to another owner.
(5) Send us written instructions asking us to wire redemption
proceeds (unless previously authorized).
These requirements may be waived or modified in certain instances.
20
Acceptable guarantors are all eligible guarantor institutions as
defined by the Securities Exchange Act of 1934 such as: commercial banks which
are FDIC members; trust companies; credit unions, savings associations, firms
which are members of a domestic stock exchange; and foreign branches of any of
the above. We cannot accept guarantees from institutions or individuals who do
not provide reimbursement in the case of fraud, such as notaries public.
REDEMPTIONS IN EXCESS OF $250,000. Redemption proceeds are normally
paid in cash. However, if you redeem more than $250,000, or 1% of a Fund's net
assets, in any 90-day period, the Fund may in its discretion: (1) pay the
difference between the redemption amount and the lesser of these two figures
with securities of the Fund or (2) delay the transmission of your proceeds for
up to five business days after your request is received.
AUTOMATIC REDEMPTION OF SMALL ACCOUNTS. If your account in any Fund
drops as a result of redemptions below $1,000, each Fund has the right to close
your account upon 60 days' written notice, unless you make additional
investments.
LIMITS ON EXCHANGES. To protect each Fund against disruptions in
portfolio management which might occur as a result of too frequent buy and sell
activity and to minimize Fund expenses associated with such transaction
activity, each Fund prohibits excessive trading in any account (or group of
accounts managed by the same person). Within a 120 consecutive-day period,
investors may not exchange between the Funds more than twice if the transactions
involve substantial assets relative to a Fund. In addition, buying and selling a
substantial amount within a 120 consecutive-day period will be considered to be
excessive trading, and the investor may be prohibited from making additional
purchases. The exchange privilege can be modified or terminated at any time upon
60 days' written notice to shareholders.
PERFORMANCE INFORMATION
TOTAL RETURN. The Funds advertise total return figures on both a
cumulative and compound average annual basis and compare them to various
indices, other mutual funds, or other performance measures. (The total return of
a fund consists of the change in its net asset value per share and the net
income it earns.) Cumulative total return compares the amount invested at the
beginning of a period with the amount redeemed at the end of the period,
assuming the reinvestment of all dividends and capital gain distributions. The
compound average annual total return indicates a yearly compound average of a
Fund's performance, derived from the cumulative total return. The total return
for the Funds from the commencement of operations through December 31, 1994 and
for the fiscal year ended December 31, 1995, can be found in the "Financial
Highlights" in this prospectus.
21
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Asia House Investments Inc. is responsible for selection and management
of each Fund's portfolio. In addition, the Adviser provides the Funds with
certain management functions including monitoring the financial, accounting and
administrative transactions of each Fund. The Adviser's office is located at
1007 Church Street, Suite 307B, Evanston, Illinois 60201. The Adviser was
incorporated in 1993 and is 85% owned by John F. Vail. For its services, each
Fund pays the Adviser an annual fee of 1.20% of its average daily net assets.
Because the investment programs of the Far East Growth Fund and the ASEAN Growth
Fund are more costly to implement and maintain, the advisory fee is higher than
that paid by most investment companies. The Adviser has voluntarily agreed to
waive its management fee and reimburse expenses to the extent that the total
operating expenses of a Fund exceed 2.35% of average daily net assets. For the
fiscal year ended December 31, 1995, the Adviser waived its management fees and
reimbursed both Funds for expenses incurred during such fiscal year.
John F. Vail is the portfolio manager for each Fund. Previously, Mr.
Vail was a senior analyst and assistant portfolio manager in Hong Kong, Taiwan
and Japan with a top fund management company. Mr. Vail received a B.A. in
statistics from the University of Chicago, Chicago, Illinois.
BOARD OF TRUSTEES
The management of each Fund's business and affairs is the
responsibility of the Trust's Board of Trustees.
CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT
Investors Bank & Trust Company ("Investors Bank") serves as the Trust's
Custodian and Administrator and in those capacities has custody of the Trust's
securities and maintains certain financial and accounting books and records
pursuant to an agreement with the Trust. It also serves as the Trust's transfer
agent and dividend-paying agent. Its mailing address is 89 South Street, P.O.
Box 1537, Boston, Massachusetts 02205-1537. Investors Bank is not involved in
the investment decisions made with respect to the Funds.
SHAREHOLDER INQUIRIES
Any question or communications regarding a shareholder account should
be directed to: Investors Bank & Trust Company at P.O. Box 1537, MFD-23, Boston,
Massachusetts 02205-1537. Shareholders may also obtain information by calling
1-800-416-7204.
22
FUND EXPENSES
The Trust pays all of its own expenses not specifically paid by the
Adviser. Such expenses include, but are not limited to, the fees and expenses of
independent auditors, counsel, custodian, administrator and transfer agent,
costs of reports and notice to shareholders, stationery, printing, postage,
costs of calculating net asset value, brokerage commissions or transaction
costs, taxes, registration fees, the fees and expenses of qualifying Funds and
their shares for distribution under Federal and state securities laws and
insurance.
THE FUNDS' DISTRIBUTION PLAN
The Board of Trustees has adopted a distribution plan and agreement for
each Fund under Rule 12b-1 of the 1940 Act, which permits the Funds to pay a
monthly distribution fee as a percentage of their average daily net assets to
finance activities primarily intended to result in the sale of the Funds'
shares.
Pursuant to such distribution plan and agreement Asia House Investments
Inc. receives a monthly distribution fee at the annual rate of up to 0.25
percent of each Fund's average daily net assets. These fees pay for promotional
costs including, but not limited to, distribution of advertising and sales
literature to prospective shareholders, the maintenance of equipment and
personnel and the cost of supplies to respond to telephone inquiries and to
process shareholder requests for information, and direct mail, television,
radio, newspaper, magazine and other mass media advertising.
The distribution plan for each Fund was approved by the Board of
Trustees, including a majority of directors who are not interested persons of
the Funds as defined in the 1940 Act. The Board of Trustees shall review at
least quarterly a written report of amounts and purposes of the distribution
expenses incurred on behalf of the Funds and shall annually determine whether
the distribution plan for each Fund should be continued.
In any year Asia House Investments Inc. may incur expenses in
connection with the distribution of shares of a Fund which may be more than the
total of payments made in that year by the Fund pursuant to the distribution
plan. To the extent that expenses incurred by Asia House Investments Inc. exceed
the amount that may be reimbursed during that year, such expenses may be carried
forward for payment in a succeeding year. However, there is no liability on the
part of the Trust to pay any unreimbursed expenses carried forward upon
termination of the plan nor any requirement that the plan be continued from year
to year. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made under the plan, if a plan is terminated, the
Board of Trustees may consider at that time the manner in which to treat such
expenses. Distribution fees which are not specifically identifiable to one Fund
will be allocated to the Funds on a pro-rata basis based on total net assets.
Each year, in evaluating the continued appropriateness of the plan and
determining whether to continue it, the Board of Trustees will consider, among
other things, the direct and indirect expenses that have been incurred in
promoting sales of shares of the Funds, including
23
overhead expenses. The Board of Trustees will review the extent to which such
expenses have been offset through the payment of distribution fees under the
plan by the Funds. Based upon its review of the expenses and other relevant
factors, the Board of Trustees may determine to continue the plan, to recommend
to shareholders that the plan be amended to reduce or increase the level of
payments required to be made, or to terminate the plan in its entirety.
DIVIDENDS AND DISTRIBUTIONS
The Funds normally distribute all net investment income and net capital
gains to shareholders. Dividends from net investment income and distributions
from capital gains, if any, are normally declared in December and paid after the
end of the year or at other times as necessary to meet regulatory requirements.
Dividends and distributions declared by the Funds will be reinvested unless you
choose an alternative payment option on the application form. Dividends not
reinvested are paid by check.
TAXES
GENERAL. Each Fund intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
and, if so qualified, will not be liable for federal income taxes to the extent
its earnings are distributed. Each Fund also intends to continue to qualify for
and make the election under the Code to pass through foreign tax credits to its
shareholders. As a result of this election, all shareholders will include in
gross income (in addition to taxable dividends actually received from a Fund) a
pro rata portion of certain foreign income taxes paid by the Fund, and will be
treated as if they had paid such taxes directly. Shareholders may elect to claim
such foreign taxes on their own returns either as a foreign tax credit (reducing
their federal income tax dollar for dollar, subject to certain limitations
imposed by Section 904 of the Code) or as an itemized deduction.
DIVIDENDS AND DISTRIBUTIONS. In January, the Funds will mail you Form
1099-DIV indicating the federal tax status of your dividend and capital gain
distributions. Generally, dividends and capital gain distributions are taxable
in the year they are paid. However, any dividends or distributions paid in
January but declared during the prior three months are treated as paid on
December 31 of the year in which they are declared. Dividends and distributions
are taxable to you regardless of whether they are taken in cash or reinvested.
Dividends derived from net investment income and net short-term capital gain
distributions are taxable as ordinary income; long-term capital gain
distributions are taxable as long-term capital gains. The capital gain holding
period for distributions is determined by the length of time a Fund has held the
securities, not the length of time you have owned Fund shares.
When you sign your account application, you will be asked to certify
that your social security or taxpayer identification number is correct and that
you are not subject to backup withholding for failing to report income to the
IRS. If you fail to comply with IRS regulations or fail to provide your social
security number, the IRS can require the Funds to withhold 31% of your taxable
dividends, distributions and redemption proceeds.
24
FOREIGN TRANSACTIONS. Gains and losses resulting from fluctuations in
the value of foreign currencies are generally characterized as ordinary income
or loss.
SHARES SOLD. A redemption or exchange of Fund shares is treated as a
sale for tax purposes which will result in a short or long-term capital gain or
loss, depending on how long you have owned the shares. Any loss recognized on
the redemption of a Fund's shares held six months or less will be treated as
long-term capital loss to the extent the shareholder received any long-term
capital gain dividends on such shares. In January, the Funds will mail you Form
1099-B indicating the trade date and proceeds from all sales and exchanges.
UNDISTRIBUTED INCOME AND GAINS. At the time of purchase, the share
price of each Fund may reflect undistributed income, capital gains or unrealized
appreciation of securities. Any income or capital gains from these amounts which
are later distributed to you are fully taxable, even if the net asset value of
the shares is reduced below the price you paid for your shares.
CORPORATE SHAREHOLDERS. The dividends of each Fund will not be eligible
for the deduction for dividends received by corporations if, as expected, none
of the Fund's income consists of dividends paid by U.S.
corporations.
PASSIVE FOREIGN INVESTMENT COMPANIES. Each Fund may purchase the
securities of certain foreign corporations or trusts called passive foreign
investment companies. Although the situation could change at any time, such
corporations or trusts may be the only or primary means by which Funds can
invest in Korea and Taiwan. In addition to bearing their proportionate share of
the Fund's expenses (management fees and operating expenses) shareholders will
also indirectly bear similar expenses of such funds. Capital gains on the sale
of such holdings may constitute ordinary income regardless of how long the Fund
holds its investment. In addition, a Fund may be required to include in income
certain dividends and capital gains earned from these investments, regardless of
whether such income and gains are distributed to shareholders and may be subject
to tax and an interest charge on certain dividends and capital gains from these
funds.
TAX-QUALIFIED RETIREMENT PLANS. Tax-qualified retirement plans
generally will not be subject to federal income tax on either distributions from
a Fund or redemption of shares of a Fund. Rather, participants in such plans
will be taxed as they take distributions from the plans.
TAX CONSEQUENCES OF HEDGING. Hedging may result in the application of
the mark-to-market, straddle and other provisions of the Code, which may
accelerate or defer recognition of certain gains or losses, change the character
of certain gains or losses, or alter the holding period of certain securities
held by the Funds. These provisions could result in an increase (or decrease) in
the amount of taxable dividends paid by the Funds as well as affect whether
dividends paid by the Funds are classified as capital gains or ordinary income.
To comply with requirements contained in the Code for regulated investment
companies, a Fund may be limited in its options, futures and foreign currency
transactions.
25
THE TRUST AND SHAREHOLDER RIGHTS
The Trust was organized as a Delaware business trust on October 4,
1993. The Trust may issue an unlimited number of shares of beneficial interest
in one or more series ("Funds"), all having no par value. While only shares of
two Funds, the Far East Growth Fund and the ASEAN Growth Fund are presently
being offered, the Board of Trustees may authorize the issuance of shares of
additional Funds if deemed desirable, each with its own investment objective,
policies and restrictions. In addition, although the Funds' shares are not
currently divided into classes, pursuant to the Agreement and Declaration of
Trust, the Board of Trustees may divide shares of a Fund into classes. Shares of
a Fund have equal noncumulative voting rights and equal rights with respect to
dividends, assets and liquidation proceeds of such Fund, subject to any
preferences, rights or privileges of any class of shares within the Fund. Shares
are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholders' meetings and does not intend to do so.
However, it will hold special meetings as required or deemed desirable for such
purposes as electing trustees, changing fundamental policies or approving an
investment advisory agreement. Subject to the Agreement and Declaration of
Trust, shareholders may remove trustees. Meetings will be called to consider the
removal of one or more trustees when requested by the holders of record of 10%
or more of the Trust's outstanding shares of common stock. To the extent
required by law and the Trust's undertaking with the Securities and Exchange
Commission, the Trust will assist in shareholder communications in such matters.
Shareholders will vote in the aggregate except when voting by Fund or class is
required under the 1940 Act, the Declaration of Trust, or when deemed desirable
by the Board of Trustees, such as for the approval of advisory agreements.
As of April 1, 1996 the Funds were controlled by John F. Vail and James
D. Vail, III who individually and through other entities together held 41.78% of
the outstanding shares of the Far East Growth Fund and 59.20% of outstanding
shares of the ASEAN Growth Fund.
26
APPENDIX A
DESCRIPTION OF RATINGS
Although the ratings of fixed-income securities by Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's") are a generally accepted
measurement of credit risk, they are subject to certain limitations. For
example, ratings are based primarily upon historical events and do not
necessarily reflect the future. Furthermore, there is a period of time between
the issuance of a rating and the update of the rating, during which time a
published rating may be inaccurate.
The descriptions of the S&P and Moody's bond ratings are set forth below.
S&P describes its four highest ratings for corporate debt as follows:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Moody's describes its four highest corporate bond ratings as follows:
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities
27
or fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat larger
than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
may be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
28
STATEMENT OF ADDITIONAL INFORMATION
ASIA HOUSE FUNDS
FAR EAST GROWTH FUND
ASEAN GROWTH FUND
( THE "FUNDS")
This Statement of Additional Information ("SAI") is not a prospectus
but should be read in conjunction with the Funds' Prospectus dated May 1, 1996,
which may be obtained by writing the Funds at 1007 Church Street, Suite 307B
Evanston, Illinois 60201.
May 1, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RISK FACTORS OF FOREIGN INVESTING .......................................... 1
INVESTMENT POLICIES ........................................................ 3
INVESTMENT RESTRICTIONS .................................................... 15
INVESTMENT PERFORMANCE .................................................... 18
MANAGEMENT OF FUNDS ........................................................ 20
PRINCIPAL HOLDERS OF SECURITIES ............................................ 22
ADVISER .................................................................... 23
CUSTODIAN .................................................................. 25
PORTFOLIO TRANSACTIONS ..................................................... 25
DISTRIBUTION EXPENSES ...................................................... 27
PURCHASE AND REDEMPTION OF SHARES .......................................... 28
PRICING OF SECURITIES ...................................................... 28
NET ASSET VALUE PER SHARE ................................................. 29
DIVIDENDS .................................................................. 29
TAX STATUS ................................................................. 29
SHAREHOLDER RIGHTS ......................................................... 31
FEDERAL AND STATE REGISTRATION OF SHARES.................................... 32
LEGAL COUNSEL .............................................................. 33
INDEPENDENT AUDITORS ....................................................... 33
FINANCIAL STATEMENTS ....................................................... 33
</TABLE>
i
RISK FACTORS OF FOREIGN INVESTING
There are special risks in investing in the Funds. Certain of these
risks are inherent in any international mutual fund while others relate more to
the countries in which the Funds will invest ("Portfolio Companies"). Many of
the risks are more pronounced for investments in developing or emerging
countries. Although there is not a universally accepted definition, a developing
country may be defined as one which is in the initial stages of its
industrialization cycle with a per capita gross national product of less than
$5,000.
GENERAL. Investors should understand that all investments have a risk
factor. There can be no guarantee against loss resulting from an investment in
the Funds, and there can be no assurance that the Funds' investment policies
will be successful, or that its investment objectives will be attained. The
Funds are designed for individual and institutional investors seeking to
diversify beyond the United States in an actively researched and managed
portfolio, and are intended for long-term investors who can accept the risks
entailed in investment in foreign securities.
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. The
internal politics of foreign countries are not as stable as in the United
States. For example, the Philippines' National Assembly was dissolved in 1986
following a period of intense political unrest and the removal of President
Marcos. During the 1960's, the high level of communist insurgency in Malaysia
paralyzed economic activity, but by the 1970's these communist forces were
suppressed and normal economic activity resumed. In 1991, the existing
government in Thailand was overthrown in a military coup. In addition,
significant external political risks currently affect some foreign countries.
For example, there is a demilitarized border between North and South Korea.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect upon the securities
markets of such countries.
CURRENCY FLUCTUATIONS. The Funds will invest in securities denominated
in the local currency of the country of the issuer. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the Funds' assets denominated
in that currency. Such changes will also affect the Funds' income. Generally,
when a given currency appreciates against the dollar (the dollar weakens) the
value of the Fund's securities denominated in that currency will rise. When a
given currency depreciates against the dollar (the dollar strengthens) the value
of the Fund's securities denominated in that currency would be expected to
decline.
1
INVESTMENT AND REPATRIATION OF RESTRICTIONS. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions at times may limit or preclude investment in
certain of such countries and may increase the cost and expenses of the Funds.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional or different restrictions may be imposed at any time by these or
other countries in which the Funds invest. In addition, the repatriation of both
investment income and capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases, the need for
certain government consents. Although these restrictions may in the future make
it undesirable to invest in these countries, the Adviser does not believe that
any current repatriation restrictions would affect its decision to invest in
these countries.
MARKET CHARACTERISTICS. It is contemplated that most foreign securities
will be purchased in over-the-counter markets or on stock exchanges located in
the countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. Foreign
stock markets are generally not as developed or efficient as, and may be more
volatile than, those in the United States. While growing in volume, they usually
have substantially less volume that U.S. markets and the Fund's portfolio
securities may be less liquid and more volatile than securities of comparable
U.S. companies. Equity securities may trade at price/earnings multiples higher
than comparable United States securities and such levels may not be sustainable.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the Funds will
endeavor to achieve the most favorable net results on their portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies in the United States.
Moreover, settlement practices for transactions in foreign markets may differ
from those in United States markets, and may include delays beyond periods
customary in the United States.
INVESTMENT FUNDS. The Funds may invest in investment funds which have
been authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Funds' investments in these funds
are subject to the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act"). If the Funds invest in such investment funds, the Funds'
shareholders will bear not only their proportionate share of the expense of the
Funds (including operating expenses and the fees of the Adviser and
Administrator), but also will indirectly bear similar expenses of the underlying
investment funds. In addition, the securities of these investment funds may
trade at a premium over their net asset value.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies.
2
TAXES. The dividends and interest payable on certain of the Funds'
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Funds'
shareholders. A shareholder otherwise subject to United States federal incomes
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Funds. (See "Tax Status").
COSTS. Investors should understand that the expense ratios of the Funds
can be expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Funds are higher.
GEOGRAPHIC INVESTING. Because the Funds invest primarily in a single
geographic area, the Funds are more dependent on investment factors affecting
this region than a more geographically diverse fund. In addition, the Funds may
invest substantial assets in a single country, which may cause the fund to be
more volatile than a fund which is more broadly invested.
OTHER. With respect to certain foreign countries, especially developing
and emerging ones, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Funds, political or
social instability, or diplomatic developments which could affect investments by
U.S. persons in those countries.
Apart from the matters described herein, the Funds are not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Funds as described in the
Prospectus and this Statement of Additional Information. It should be noted,
however, that this situation could change at any time.
INVESTMENT POLICIES
The description of investment policies contained in the Trust's
Prospectus is supplemented with the following:
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with each Fund's investment objectives. The writing of covered call options is
an investment technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security or currency above the exercise price,
but conversely retains the risk of loss should the price of the security or
currency decline. Unlike one who owns securities or currencies not subject to an
option, a Fund has no control over when it may be required to sell the
underlying securities or currencies, since it may be assigned an exercise notice
at any time prior to the
3
expiration of its obligation as a writer. The Funds do not consider a security
or currency covered by a call to be "pledged" as that term is used in the Funds'
investment policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Adviser, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by a Fund for writing covered call options will be
recorded as a liability of the Fund. This liability will be adjusted daily to
the option's current market value, which will be the latest sale price at the
time at which the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale, the latest asked
price. The option will be terminated upon expiration of the option, the purchase
of an identical option in a closing transaction, or delivery of the underlying
security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price or expiration date or both. If a Fund desires to sell a
particular security or currency from its portfolio on which it has written a
call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Fund will be able to effect
such closing transactions at a favorable price. If the Fund cannot enter into
such a transaction, it may be required to hold a security or currency that it
might otherwise have sold. When a Fund writes a covered call option, it runs the
risk of not being able to participate in the appreciation of the underlying
securities or currencies above the exercise price, as well as the risk of being
required to hold on to securities or currencies that are depreciating in value.
In addition, there are transaction costs in connection with writing covered call
options and costs associated with closing out such positions, therefore, such
transactions could result in higher transaction costs. Such transaction costs
are normally higher than those applicable to purchases and sales of portfolio
securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
each Fund may purchase an underlying security or currency for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
4
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING COVERED PUT OPTIONS
Although the Funds have no current intention in the foreseeable future
of writing American or European style covered put options and purchasing put
options to close out options previously written by each Fund, each Fund reserves
the right to do so. A put option gives the purchaser of the option the right to
sell, and the writer (seller) has the obligation to buy, the underlying security
or currency at the exercise price during the option period (American style) or
at the expiration of the option (European style). So long as the obligation of
the writer continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to make payment of the exercise
price against delivery of the underlying security or currency. The operation of
put options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
Each Fund will write put options only on a covered basis, which means
that the Fund will maintain in a segregated account cash, U.S. Government
securities or other liquid high-grade debt obligations in an amount not less
than the exercise price or each Fund will own an option to sell the underlying
security or currency subject to the option having an exercise price equal to or
greater than the exercise price of the "covered" options at all times while the
put option is outstanding. (The rules of a clearing corporation currently
require that such assets be deposited in escrow to secure payment of the
exercise price.) A Fund would generally write covered put options in
circumstances where the Adviser wishes to purchase the underlying security or
currency. In such event a Fund may write a put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it does not own the
specific security or currencies which it may be required to purchase in exercise
of the put, cannot benefit from appreciation, if any, with respect to such
specific securities or currencies. Each Fund will not write a covered put option
if, as a result, the aggregate market value of all portfolio securities or
currencies covering put or call options exceeds 50% of the market value of the
Fund's net assets. In calculating the 50% limit, the Fund will offset, against
the value of assets covering written puts and calls, the value of purchased puts
and calls on identical securities or currencies with identical maturity dates.
5
PURCHASING PUT OPTIONS
A Fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the Fund as a defensive technique in order to
protect against an anticipated decline in the value of the security or currency.
Such hedge protection is provided only during the life of the put option when a
Fund, as the holder of the put option, is able to sell the underlying security
or currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. For example, a
put option may be purchased in order to protect unrealized appreciation of a
security or currency where the Adviser deems it desirable to continue to hold
the security or currency because of tax considerations. The premium paid for the
put option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is eventually sold.
Each Fund may also purchase put options at a time when the Fund does
not own the underlying security or currency. By purchasing put options on a
security or currency it does not own, a Fund seeks to benefit from a decline in
the market price of the underlying security or currency.
The premium paid by a Fund when purchasing a put option will be
recorded as an asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Fund is computed (close of New
York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be terminated upon expiration of the option, the selling
(writing) of an identical option in a closing transactions, or the delivery of
the underlying security or currency upon the exercise of the option.
PURCHASING CALL OPTIONS
Call options may be purchased by a Fund for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables a Fund to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to a Fund in purchasing a large block of securities
or currencies that would be more difficult to acquire by direct market
purchases. So long as it holds such a call option rather than the underlying
security or currency itself, a Fund is partially protected from any unexpected
decline in the market price of the underlying security or currency and in such
event could allow the call option to expire, incurring a loss only to the extent
of the premium paid for the option.
Each Fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transactions. Call options may also be purchased at times to
avoid realizing losses.
6
OTC OPTIONS
Each Fund may engage in transactions involving OTC options. Certain
risks are specific to OTC options. While a Fund would look to a clearing
corporation to exercise exchange-traded options, if the Fund were to purchase an
OTC option, it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
OTC options have none. Consequently, each Fund will generally be able to realize
the value of an OTC option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when a Fund writes an OTC option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. While each Fund will seek to enter into OTC options
only with dealers who will agree to and which are expected to be capable of
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Until the Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the contra party, the Fund may be
unable to liquidate a dealer option. With respect to options written by a Fund,
the inability to enter into a closing transaction may result in material losses
to the Fund. For example, since a Fund must maintain a secured position with
respect to any call option on a security it writes, a Fund may not sell the
assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.
FUTURES CONTRACTS
TRANSACTIONS IN FUTURES
Each Fund may enter into financial futures contracts, including stock
index, interest rate and currency futures ("futures or futures contracts");
however, the Funds have no current intention of entering into interest rate
futures. The Funds, however, reserve the right to trade in financial futures of
any kind.
Stock index futures contracts may be used to provide a hedge for a
portion of a Fund's portfolio, as a cash management tool, or as an efficient way
for the Adviser to implement either an increase or decrease in portfolio market
exposure in response to changing market conditions. Stock index futures
contracts are currently traded with respect to the S&P 500 Index and other broad
stock market indices, such as the New York Stock Exchange Composite Stock Index
and the Value Line Composite Stock Index. The Funds may, however, purchase or
sell futures contracts with respect to indices or subindices whose movements
will have significant correlation with movements in the prices of the Fund's
portfolio securities.
7
Interest rate or currency futures contracts may be used as a hedge
against changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on securities
or currencies held or intended to be acquired by a Fund. In this regard, a Fund
could sell interest rate or currency futures as an offset against the effect of
expected increases in interest rates or currency exchange rates and purchase
such futures as an offset against the effect of expected declines in interest
rates or currency exchange rates.
The Funds will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal financial futures exchanges
in the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing each Fund's objectives in these
areas.
TRADING IN FUTURES
Unlike when a Fund purchases or sells a security, the purchase price is
not paid or received by the Fund upon the purchase or sale of a futures
contract. Upon entering into a futures contract, and to maintain the Fund's
option positions in futures contracts, the Fund would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, U.S. Government securities, suitable money market instruments,
or liquid, high-grade debt securities, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
the margin requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of favorable price changes
in the futures contract so that the margin deposit exceeds the required margin,
the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Funds expect to
earn interest income on its margin deposits.
8
For example, one contract in the Financial Times Stock Exchange 100
Index future is a contract to buy 25 pounds sterling multiplied by the level of
the UK Financial Times 100 Share Index on a given future date. Settlement of a
stock index futures contract may or may not be in the underlying security. If
not in the underlying security, the settlement will be made in cash, equivalent
over time to the difference between the contract price and the actual price of
the underlying asset at the time the stock index futures contract expires.
In connection with the purchase of futures contracts or the writing of
put or call options thereon by a Fund, an amount of cash, U.S. Government
securities or other liquid, high-grade debt obligations, equal to the market
value of the futures contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
to cover the position, or alternative cover will be employed thereby insuring
that the use of such futures contracts and options is covered.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
VOLATILITY AND LEVERAGE. The price of futures contracts are volatile
and are influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international policies and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. This could result in
losses to the Fund, which would reduce the net asset value.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, a Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying instrument and sold it after the decline. Furthermore, in the
case of a futures contract purchase, in order to
9
be certain that a Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund earmarks to the futures contract money market
instruments equal in value to the current value of the underlying instrument
less the margin deposit and places such assets in a segregated account with its
custodian.
LIQUIDITY. Each Fund may elect to close some or all of its futures
positions at any time prior to their expiration. A Fund would do so to reduce
exposure represented by long futures positions or increase exposure represented
by short futures positions. Each Fund may close its positions by taking opposite
positions which would operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then be made,
additional cash would be required to be paid by or released to the Fund, and the
Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although the Funds intend to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge the underlying instruments, a
Fund would continue to hold the underlying instruments subject to the hedge
until the futures contracts could be terminated. In such circumstances, an
increase in the price of the underlying instruments, if any, might partially or
completely offset losses on the futures contract. However, as described below,
there is no guarantee that the price of the underlying instruments will, in
fact, correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
HEDGING RISK. Successful use of future contracts by the Funds for
hedging purposes is also subject to the Adviser's ability to correctly predict
movements in the direction of the market. It is possible that, when a Fund has
sold futures to hedge its portfolio against a decline in the market, the index,
indices, or underlying instruments on which the futures are written might
advance and the value of the underlying instruments held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money on the futures
and also would experience a decline in value in its underlying instruments.
However, while this might occur to a certain degree, the Adviser believes that
over time the value of a Fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the underlying instruments sought to be hedged. It is also possible
that if a Fund were to hedge against the possibility of a decline in the market
(adversely affecting the underlying instruments held in its portfolio) and
prices instead increased, the Fund would lose part or all of the benefit of
increased value of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In addition, in such
situations, if a Fund had insufficient cash, it might have to sell underlying
instruments to meet daily variation margin requirements. Such sales of
underlying instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). A Fund might have to sell
underlying instruments at a time when it would be disadvantageous to do so.
10
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Adviser might
not result in a successful hedging transaction over a very short time period.
ADDITIONAL FUTURES AND OPTIONS CONTRACTS
Although each Fund has no current intention of engaging in financial
futures or option transactions in the current fiscal year other than those
described above, it reserves the right to do so. Such futures or options trading
might involve risks which differ from those involved in the futures and options
described above.
FOREIGN CURRENCY TRANSACTIONS
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are principally traded in
the interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
A Fund will generally enter into forward foreign currency exchange
contracts under two circumstances. First, when a Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Fund will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
11
Second, when the Adviser believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Fund's portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, a Fund may hedge all or part of its
foreign currency exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective proxy for other
currencies. In such a case, a Fund may enter into a forward contract where the
amount of the foreign currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging technique may be
more efficient and economical than entering into separate forward contracts for
each currency held in the Fund. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Under certain circumstances, each Fund may commit a substantial portion or the
entire value of its assets to the consummation of these contracts. The Adviser
will consider the effect a substantial commitment of its assets to forward
contracts would have on the investment program of the Fund and the flexibility
of the Fund to purchase additional securities. Other than as set forth above,
and immediately below, each Fund will also not enter into such forward contracts
or maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Each Fund, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Fund's portfolio securities or other
assets to which the forward contracts relate (including accrued interest to the
maturity of the forward on such securities) provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any currency, at
least equal at all times to the amount of such excess. For these purposes, "the
securities or other assets to which the forward contracts relate" may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Funds will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund
12
is obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. However, as noted, in order to avoid excessive
transactions and transaction costs, a Fund may use liquid, high grade debt
securities, denominated in any currency, to cover the amount by which the value
of a forward contract exceeds the value of the securities to which it relates.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between a Fund's entering into a forward contract for the sale
of a foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent of the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into certain option and futures contracts,
including options and futures on currencies, which will be treated as Section
1256 contracts or straddles. Transactions which are considered Section 1256
contracts will be considered to have been closed at the end of a Fund's fiscal
year and any gains or losses will be recognized for tax purposes at that time.
Such gains or losses as well as gains and losses from the normal closing or
settlement of such transactions will be characterized as 60% long-term capital
gain or loss and 40% short-term capital gain or loss regardless of the holding
period of the instrument. Each Fund will be required to distribute net gains on
such transactions to shareholders even though it may not have closed the
transaction and received cash to pay such distributions. Options, futures and
forward foreign exchange contracts, including options and futures on currencies,
which offset a foreign dollar denominated bond or currency position may be
considered straddles for tax purposes in which case a loss on any position in a
straddle will be subject to deferral to the extent of unrealized gain in an
offsetting position. The holding period of the securities or currencies
comprising the straddle generally will be deemed not to begin until the straddle
is terminated.
In order for the Funds to continue to qualify for federal income tax
treatment as regulated investment companies, at least 90% of their gross income
for a taxable year must be derived from qualifying income; e.g., dividends,
interest, income derived from loans of securities, and gains from the sale of
stock, securities or foreign currencies or other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies.
Gains realized on the sale or other disposition of securities, including option,
or foreign forward exchange contracts on securities or securities indexes and,
in some cases, currencies, held for less than three months, must be limited to
less
13
than 30% of a Fund's annual gross income. In order to avoid realizing excessive
gains on securities or currencies held less than three months, each Fund may be
required to defer the closing out of option, or foreign forward exchange
contracts beyond the time when it would otherwise be advantageous to do so. It
is anticipated that unrealized gains on Section 1256 options, or foreign forward
exchange contracts, which have been open for less than three months as of the
end of a Fund's fiscal year and which are recognized for tax purposes, will not
be considered gains on securities or currencies held less than three months for
purposes of the 30% test.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing income, each Fund may make secured loans
of portfolio securities amounting to not more than 33-1/3% of its total assets.
This policy is a fundamental policy. Securities loans are made to
broker-dealers, institutional investors, or other persons pursuant to agreements
requiring that the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on a daily basis.
The collateral received will consist of cash, U.S. government securities,
letters of credit or such other collateral as may be permitted under its
investment program. While the securities are being lent, the Fund will continue
to receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. A Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. Each Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements through which an
investor (such as the Fund) purchases a domestic security (known as the
"underlying security") from a securities dealer or a bank and at the same time,
the bank or securities dealer agrees to repurchase the underlying security at
the same price, plus specified interest. Repurchase agreements are generally for
a short period of time, often less than a week. Each Fund 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 evaluation creditworthiness. Each Fund will not enter into a
repurchase agreement which does not provide for payment within seven days if, as
a result, more than 15% of the value of its net assets would then be invested in
such repurchase agreements and other illiquid securities. Each Fund will only
enter into repurchase agreements where (i) the underlying securities are of the
type (excluding maturity limitations) which the Fund's investment guidelines
would allow it to purchase directly, (ii) the market value of the
14
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying security is made only upon physical delivery or evidence of
book-entry transfer to the account of the Fund custodian or a bank acting as
agent. In the event of a bankruptcy or other default of a seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
securities and losses, including (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
ILLIQUID SECURITIES
The Funds may not invest in illiquid securities including repurchase
agreements which do not provide for payment within seven days, if as a result,
they would comprise more than 15% of the value of the Fund's net assets.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
value as determined in accordance with procedures prescribed by the Board of
Trustees. Notwithstanding the above, the Funds may purchase securities which
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Funds, to trade in privately placed securities even though such securities
are not registered under the 1933 Act. The Adviser, under the supervision of the
Funds' Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to each Fund's restriction of investing no
more than 15% of its net assets in illiquid securities. The liquidity of Rule
144A securities would be monitored and, if as a result of changed conditions, it
is determined that a Rule 144A security is no longer liquid, the Fund's holdings
of illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 15% of its net assets
in illiquid securities. Investing in Rule 144A securities could have the effect
of increasing the amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities. This
could reduce the liquidity of the portfolio and adversely affect management of
the portfolio, requiring the adviser to liquidate positions that may otherwise
be desirable to keep in order to meet redemption requests.
INVESTMENT RESTRICTIONS
Fundamental policies of each Fund may not be changed without the
approval of the lesser of (1) 67% of a Fund's shares present at a meeting of
shareholders if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (2) more than 50% of a Fund's outstanding
shares. Other restrictions, in the form of operating policies, are subject to
change by the Funds' Board of Trustees without shareholder approval. Any
investment restriction which
15
involves a maximum percentage of securities or assets shall not be considered to
be violated unless an excess over the percentage occurs immediately after, and
is caused by, an acquisition of securities or assets of, or borrowings by, the
Fund.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Funds may not:
(1) BORROWING. Borrow money, except each Fund may borrow from banks as a
temporary measure for extraordinary or emergency purposes, and then
only in amounts not exceeding 33-1/3% of its net assets valued at
market. Each Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely disposition of portfolio securities.
Interest paid on any such borrowings will reduce net investment income.
Each Fund may enter into futures contracts as set forth in (3) below.
The Funds will not purchase portfolio securities when borrowings exceed
5% of total assets;
(2) COMMODITIES. Purchase or sell commodities or commodity contracts;
except that each Fund may (i) enter into futures contracts and options
on futures contracts, subject to (3) below; (ii) enter into forward
foreign currency exchange contracts (although the Funds do not consider
such contracts to be commodities); and (iii) invest in instruments
which have the characteristics of both futures contracts and
securities;
(3) FUTURES CONTRACTS. Enter into a futures contract or an option thereon,
although each Fund may enter into financial and currency futures
contracts or options on financial and currency futures contracts;
(4) INDUSTRY CONCENTRATION. Purchase the securities of any issuer if, as a
result, 25% or more of the value of a Fund's total assets would be
invested in the securities of issuers having their principal business
activities in the same industry or group of industries other than
obligations issued or guaranteed by the U.S. Government;
(5) LOANS. Make loans, although each Fund may (i) purchase money market
securities and enter into repurchase agreements; (ii) acquire
publicly-distributed bonds, debentures, notes and other debt securities
and purchase debt securities at private placement; and (iii) lend
portfolio securities, provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 33-1/3% of the value
of a Fund's total assets;
(6) MARGIN. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio securities;
except that it may make margin deposits in connection with futures
contracts, subject to (3) above;
16
(7) MORTGAGING. Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by a Fund as security for indebtedness except as may
be necessary in connection with permissible borrowings and then such
mortgaging, pledging or hypothecating may not exceed 30% of the Fund's
total assets valued at market at the time of the borrowing;
(8) PERCENT LIMIT ON ASSETS INVESTED IN ANY ONE ISSUER. Purchase a security
if, as a result, with respect to 75% of the value of a Fund's total
assets, more than 5% of the value of its total assets would be invested
in the securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
(9) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUER. Purchase a security
if, as a result, with respect to 75% of the value of a Fund's total
assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities)
provided that, as an operating policy, the Fund will not purchase a
security if, as a result, more than 10% of the outstanding voting
securities of any issuer would be held by the Fund;
(10) REAL ESTATE. Purchase or sell real estate or real estate limited
partnerships (although it may purchase securities secured by real
estate or interests therein, or issued by companies or investment
trusts which invest in real estate or interests therein);
(11) SENIOR SECURITIES. Issue senior securities;
(12) SHORT SALES. Effect short sales of securities; and
(13) UNDERWRITING. Underwrite securities issued by other persons, except to
the extent that a Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase
and sale of its portfolio securities in the ordinary course of pursuing
its investment program.
OPERATING POLICIES
As a matter of operating policy, which may be changed by vote of the
Board of Trustees, the Funds may not:
(1) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the purpose of
exercising management or control;
(2) ILLIQUID SECURITIES. Purchase a security if, as a result, more than 15%
of a Fund's net assets would be invested in illiquid securities,
including repurchase agreements which do not provide for payment within
seven days;
17
(3) INVESTMENT COMPANIES. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act and
applicable state law;
(4) OIL AND GAS PROGRAMS. Purchase participations or other direct interests
or enter into leases with respect to oil, gas, other mineral
exploration or development programs;
(5) OPTIONS, ETC. Invest in puts, calls, straddles, spreads, or any
combination thereof, except that each Fund may invest in or commit its
assets to purchasing and selling call and put options to the extent
permitted by the Prospectus and Statement of Additional Information;
(6) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Purchase
or retain the securities of any issuer if, to the knowledge of a Fund's
management, those officers and trustees of the Fund, and of its
investment manager, who each owns beneficially more than 1% of the
outstanding securities of such issuer, together own beneficially more
than 5% of such securities; and
(7) UNSEASONED ISSUERS. Purchase a security (other than obligations issued
or guaranteed by the U.S. Government or any foreign government, their
agencies or instrumentalities) if, as a result, more than 5% of the
value of a Fund's total assets would be invested in the securities of
issuers which at the time of purchase had been in operation for less
than three years (for this purpose, the period of operation of any
issuer shall include the period of operation of any predecessor or
unconditional guarantor of such issuer).
In addition to the restrictions described above, some foreign countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment funds to permit indirect foreign investment in such
securities. For tax purposes these funds may be known as Passive Foreign
Investment Companies. Each Fund is subject to certain percentage limitations
under the 1940 Act and certain states relating to the purchase of securities of
investment companies, and is subject to the limitation that no more than 10% of
the value of the Fund's total assets may be invested in such securities.
INVESTMENT PERFORMANCE
TOTAL RETURN PERFORMANCE
Each Fund's calculation of total return performance includes the
reinvestment of all capital gain distributions and income dividends for the
period or periods indicated, without regard to tax consequences to a shareholder
in each Fund. Average annual total return is calculated as the percentage change
between the beginning value of an account in each Fund and the ending value of
that account measured by the then current net asset value, including all shares
acquired through reinvestment of income and capital gains dividends according to
the following formula:
18
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
Results shown are historical and should not be considered indicative of
the future performance of each Fund. Each average annual compound rate of return
is derived from the cumulative performance of each Fund over the time period
specified. The annual compound rate of return for each Fund over any other
period of time will vary from the average.
Set forth below is the average annual total return information for the
Far East Growth Fund and the ASEAN Growth Fund for the one-year and since
inception* periods ended December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1-YEAR PERIOD SINCE INCEPTION*
<S> <C> <C>
Far East Growth Fund - 6.47% - 2.96%
ASEAN Growth Fund - 5.42% - 6.58%
*The Funds commenced operations on January 25, 1994.
</TABLE>
From time to time, in reports and promotional literature: (1) each
Fund's total return performance or P/E ratio may be compared to any one or
combination of the following: (i) Morgan Stanley Capital International Indices,
including the EAFE Index, Japan Index, Combined Far East Free Ex Japan Index and
Combined Far East Free Index which is a widely-recognized series of indices in
international market performance; (ii) the Standard & Poor's 500 Stock Index and
Dow Jones Industrial Average so that you may compare the Fund's results with
those of a group of unmanaged securities widely regarded by investors as
representative of the U.S. stock market in general; (iii) other groups of mutual
funds tracked by: (A) Lipper Analytical Services Inc., a widely used independent
research firm which ranks mutual funds by overall performance, investment
objectives, and assets which includes the Lipper Pacific Region Average which
tracks the average performance of funds which concentrate investments in equity
securities whose primary trading markets or operations are in the West Pacific
basin region, or a single country within this region; (B) Morningstar, Inc.,
another widely used independent research firm which evaluates mutual funds; or
(C) other financial or business publications, such as Business Week, Money
Magazine, Forbes and Barron's, which provide similar information; (iv) The
Financial
19
Times (a London based international financial newspaper) Actuaries World
Indices, including sub indices comprising this Index (a wide range of
comprehensive measure of stock price performance for the major stock markets as
well as for regional areas, broad economic sectors and industry groups); (v) the
International Finance Corporation (an affiliate of the World Bank established to
encourage economic development in less developed countries), World Bank, OECD
(Organization for Economic Cooperation and Development) and IMF (International
Monetary Fund) as a source of economic statistics; (vi) the Nikkei Average, a
generally accepted benchmark for performance of the Japanese stock market; and
(vii) indices of stocks comparable to those in which each Fund invests including
the Topix Index, which reflects the performance of the First Section of the
Tokyo Stock Exchange (The purpose of these comparisons would be to illustrate
historical trends in different investment strategies.); (2) other U.S. or
foreign government statistics such as GNP, and net import and export figures
derived from governmental publications, e.g., The Survey of Current Business,
may be used to illustrate investment attributes of the Fund or the general
economic, business, investment, or financial environment in which the Fund
operates; (3) the effect of tax-deferred compounding on each Fund's investment
returns, or on returns in general, may be illustrated by graphs, charts, etc.
where such graphs or charts would compare, at various points in time, the return
from an investment in each Fund (or returns in general) on a tax-deferred basis
(assuming reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis; and (4) the sectors or industries
in which each Fund invests may be compared to relevant indices or surveys (e.g.,
S&P Industry Surveys) in order to evaluate each Fund's historical performance or
current or potential value with respect to the particular industry or sector.
MANAGEMENT OF FUNDS
The names of the Trust's trustees and executive officers, their
addresses, ages, principal occupations during the past five years and other
affiliations are set forth below. Trustees who are considered "interested
persons" as defined under Section 2(a)(19) of the Investment Company Act of 1940
(the "1940 Act") are noted with an asterisk (*).
*JOHN F. VAIL, CHAIRMAN OF THE BOARD, TRUSTEE AND PRESIDENT
Age: 35
1007 Church Street, Suite 307B, Evanston, Illinois 60201; Director, President,
Secretary and Treasurer of Asia House Investments Inc., March 1993 to present;
Senior Analyst, Fidelity Investments, 1988-1992. Mr. John Vail is the son of Mr.
James Vail, III.
RICHARD A. GIESEN, TRUSTEE
Age: 66
841 W. Cermak Road, Chicago, Illinois 60608; Chairman of the Board, Continental
Glass and Plastic; Chief Executive Officer and Chairman of the Board, American
Appraisal, Inc. until 1993.
20
LESTER E. HAMMAR, TRUSTEE
Age: 68
831 Knightsbridge Court, Lake Forest, Illinois 60045; Retired; Vice President
and Controller, Abbott Laboratories until 1988.
*RICHARD C. ROMANO, TRUSTEE
Age: 63
One Rotary Center, Evanston, Illinois 60201; Director, Asia House Investments
Inc., October 1994 to present; President, Romano Brothers and Company.
*JAMES D. VAIL, III, TRUSTEE, VICE PRESIDENT AND TREASURER
Age: 67
341 N. Sheridan Road, Lake Forest, Illinois 60045; Retired; Chairman of the
Board, Vail Family Foundation; Chairman of the Board, Foster G. McGaw
Educational Foundation. Mr. James Vail, III, is the father of Mr. John Vail.
CATHY G. O'KELLY, SECRETARY
Age: 42
222 N. LaSalle Street, Chicago, Illinois 60601; Partner, Vedder, Price, Kaufman
& Kammholz (law firm); Counsel to the Trust.
GEORGE M. BOYD, ASSISTANT SECRETARY
Age: 51
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111;
Director, Mutual Fund Administration - Legal and Regulatory, Investors Bank &
Trust Company since July 1995; Counsel, The Shareholder Services Group, First
Data Corporation March - July 1995; Vice President and Counsel, 440 Financial
Group of Worcester, Inc., Allmerica Financial January 1992 - March 1995; Vice
President, Secretary and General Counsel, Carnegie Capital Management Company
1986 - January 1992.
Trustees and officers of the Trust will receive no compensation from
the Trust for acting in those capacities. Vedder, Price, Kaufman & Kammholz, of
which Ms. O'Kelly is a partner, receives legal fees as counsel to the Trust.
Regular meetings of the Board of Trustees are held quarterly and the Audit
Committee holds at least one regular meeting during each year. The Trust has
also purchased a liability policy that indemnifies the Trust's Trustees and
officers against loss arising from claims by reason of their legal liability for
acts as trustees and officers.
21
PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1996, the officers and Trustees of the Funds, as a
group, were holders of record of 13.69% and 31.23% of the shares of the Far East
Growth Fund and ASEAN Growth Fund, respectively. In addition, the group
beneficially owned 39.41% and 27.97% of the shares, respectively, of each of
these Funds.
Those shareholders who held 25% or more of the outstanding shares of the
Far East Growth Fund as of April 1, 1996 are listed below.
<TABLE>
<CAPTION>
% OF BENEFICIAL
OWNERSHIP AND INDIVIDUAL
% OWNERSHIP OF RECORD OR ENTITY THROUGH WHICH
NAME AND ADDRESS IT IS HELD TOTAL
<S> <C> <C> <C>
James D. Vail, III 13.69% (20.10%) 33.79%
341 N. Sheridan Road Margaret C. Vail (wife)
Lake Forest, IL 60045 341 No. Sheridan Road
Lake Forest, IL 60045
</TABLE>
Those shareholders who held 25% or more of the outstanding shares of
the ASEAN Growth Fund as of April 1, 1996 are listed below.
<TABLE>
<CAPTION>
% OF BENEFICIAL
% OWNERSHIP OF RECORD OWNERSHIP AND INDIVIDUAL
NAME AND ADDRESS OR ENTITY THROUGH WHICH
IT IS HELD TOTAL
<S> <C> <C> <C>
James D. Vail, III 12.12% (18.65%) 30.77%
341 N. Sheridan Road Margaret C. Vail (wife)
Lake Forest, IL 60045 341 N. Sheridan Road
Lake Forest, IL 60045
John F. Vail 19.11% (9.32%) 28.43%
2310 Central Park Ave Asia House Investments
Evanston, IL 60201 c/o John F. Vail
Shand Morahan Plaza
Suite 307B
1007 Church Street
Evanston, IL 60201
</TABLE>
22
Those shareholders who held at least 5% but less than 25% of the outstanding
shares of the Far East Growth Fund as of April 1, 1996 are listed below.
<TABLE>
<CAPTION>
% OF BENEFICIAL
OWNERSHIP AND INDIVIDUAL
% OWNERSHIP OF OR ENTITY THROUGH WHICH
NAME AND ADDRESS RECORD IT IS HELD TOTAL
<S> <C> <C> <C>
Richard C. Romano 0% (5.66%) 11.32%
One Rotary Center Richard C. Romano Trustee
Evanston, Illinois 60201 U/A DTD 9/21/93
Richard C. Romano Trust
C/O Romano Brothers & Co.
P.O. Box 5152
Evanston, Illinois 60204
(5.66%)
Romano Brothers & Co.
A/C 11-13460-11
P.O. Box 5152
Evanston, Illinois 60204
John F. Vail 0% (7.99%) 7.99%
2310 Central Park Ave. John F. Vail &
Evanston, IL 60201 Hiroko Vail JT TEN
2310 Central Park Ave.
Evanston, IL 60201
</TABLE>
As of April 1, 1996, there were no shareholders who held at least 5% but
less than 25% of the outstanding shares of the ASEAN Growth Fund.
ADVISER
Under the Advisory Agreement, the Adviser provides each Fund with
discretionary investment services. Specifically, the Adviser is responsible for
supervising and directing the investments of each Fund in accordance with the
Fund's investment objective and restrictions as provided in its Prospectus and
this Statement of Additional Information. The Adviser is also responsible for
effecting all security transactions on behalf of each Fund, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. In addition to these services, the Adviser provides the
Funds with certain services, including monitoring the financial, accounting, and
administrative functions of each Fund; maintaining liaison with the agents
employed by each Fund such as the Trust's custodian and transfer agent;
assisting each Fund in the coordination of such agents' activities; and
permitting the Adviser's employees to serve as officers, directors, and
committee members of the Trust without cost to the Trust.
23
Expenses that will be borne directly by the Funds include, but are not
limited to, the following: the fees and expenses of independent auditors,
counsel, custodian, administrator and transfer agent, costs of reports and
notices to shareholders, stationery, printing, postage, costs of calculating net
asset value, brokerage commissions or transaction costs, taxes, registration
fees, the fees and expenses of qualifying Funds and their shares for
distribution under Federal and state securities laws, fidelity and errors and
omissions insurance and membership dues in the Investment Company Institute or
any similar organization.
Under the Advisory Agreement, the Adviser is permitted to utilize the
services or facilities of others to provide it or the Funds with statistical and
other factual information, advice regarding economic factors and trends, advice
as to occasional transactions in specific securities, and such other
information, advice or assistance as the Adviser may deem necessary,
appropriate, or convenient for the discharge of its obligations under the
Advisory agreement or otherwise helpful to the Funds.
The Advisory Agreement continues in effect as to each Fund from year to
year for so long as its continuation is approved at least annually (a) by a
majority of the Trustees who are not parties to such agreement or interested
persons of any such party except in their capacity as Trustees of the Trust and
(b) by the shareholders of the Fund or the Board of Trustees. The agreement may
be terminated at any time upon 60 days notice by either party; the Fund may so
terminate the agreement either by vote of the Board of Trustees or a majority
vote of the outstanding shares of the Fund. The agreement may also be terminated
at any time either by vote of the Board of Trustees or a majority of the
outstanding voting shares of the Fund if the Adviser were determined to have
breached the agreement. The agreement would terminate automatically upon
assignment. The agreement provides that the Adviser shall not be liable for any
error of judgment or of law, or for any loss suffered by the Portfolio in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
Upon termination of the agreement and when so requested by the Adviser,
the Trust will refrain from using the name "Asia House" in its name or in its
business in any form or combination.
For the services furnished to each Fund, each Fund pays the Adviser a
monthly advisory fee at an annual rate of 1.20%. The advisory fee is accrued
daily and paid monthly.
The Advisory Agreement between each Fund and the Adviser provides that
each Fund will bear all expenses of its operations not specifically assumed by
the Adviser. However, in compliance with certain state regulations, the Adviser
will reimburse each Fund for certain expenses which in any year exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. Presently, the most restrictive expense ratio limitation imposed by any
state is 2.5% of the first $30 million of a Fund's average daily net assets, 2%
of the next $70 million of the average daily net assets, and 1.5% of net assets
in excess of $100 million. For the purpose of determining whether a Fund is
entitled to reimbursements, the subject expenses of each Fund are
24
calculated on a monthly basis. If the Fund is entitled to reimbursement, that
month's advisory fee will be reduced or postponed, with any adjustment made
after the end of the year based on annual expenses and assets.
In addition, the Adviser has voluntarily agreed to reimburse a Fund
should all operating expenses of that Fund, including the compensation of the
Adviser but excluding taxes, interest, extraordinary expenses and brokerage
commissions or transaction costs, exceed 2.35% of average daily net assets of
the Fund. Subject to readjustment based on annual expenses and assets, for the
year ended December 31, 1995 and for the period January 25, 1994 through
December 31, 1994, respectively, $21,527 and $19,540 in advisory fees were
accrued by the Far East Growth Fund and $12,641 and $12,843 in advisory fees
were accrued by the ASEAN Growth Fund. These fees were waived by the Advisor for
both periods.
Mr. John Vail, who is a Trustee and officer of the Trust, is also a
director, officer and controlling shareholder of the Adviser.
CUSTODIAN
Investors Bank & Trust Company ("Investors Bank") is the custodian for
the Funds' securities and cash, but it does not participate in the Funds'
investment decisions. Portfolio securities purchased in the U.S. are maintained
in the custody of Investors Bank and may be entered into the Federal Reserve
Book Entry System, or the security depository system of the Depository Trust
Corporation. Investors Bank has entered into sub-custodian agreements with
various foreign banks pursuant to which portfolio securities which are purchased
outside the United States are maintained in the custody of various foreign banks
and foreign securities depositories in accordance with regulations under the
1940 Act. Investors Bank's main office is at 89 South Street, Boston,
Massachusetts 02111.
PORTFOLIO TRANSACTIONS
INVESTMENT OR BROKERAGE DISCRETION
Decisions with respect to the purchase and sale of portfolio securities
on behalf of the Funds are made by the Adviser. The Adviser is also responsible
for implementing these decisions, including the allocation of portfolio
brokerage and principal business and the negotiation of commissions.
Portfolio transactions may increase or decrease the return of a Fund
depending upon the Adviser's ability to correctly time and execute such
transactions. The portfolio turnover rate for any year is determined by dividing
the lesser of sales or purchases by the Fund's monthly average net assets, and
multiplying by 100 (with all securities with maturities and expiration dates at
the time of acquisition of one year or less excluded from the computation). The
portfolio turnover rate will also vary from year to year depending upon market
conditions.
25
HOW BROKERS AND DEALERS ARE SELECTED
EQUITY SECURITIES
In purchasing and selling each Fund's portfolio securities, the Adviser
seeks to obtain the most favorable overall results. In selecting broker-dealers
to execute a Fund's portfolio transactions, consideration is given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing brokers and dealers,
their expertise in particular markets and the brokerage and research services
they provide to the Adviser or the Funds. It is not the policy of the Adviser to
seek the lowest possible commission rate where it is believed that a broker or
dealer charging a higher commission rate would offer greater reliability or
provide better price or execution. In addition, the Adviser may cause a Fund to
pay a broker-dealer who furnishes brokerage and/or research services a
commission for executing a transaction that is in excess of the commission
another broker-dealer would have received for executing the transaction if it is
determined that such commission is reasonable in relation to the value of the
brokerage and/or research services which have been provided. For the fiscal year
ended December 31, 1995, the Far East Growth Fund and the ASEAN Growth Fund paid
brokerage commissions in the amount of $20,533 and $9,219, respectively. During
the period from January 25, 1994 through December 31, 1994, the Far East Growth
Fund and ASEAN Growth Fund paid brokerage commissions in the amount of $12,953
and $8,948, respectively.
Transactions on stock exchanges involve the payment of brokerage
commissions. In transactions on stock exchanges in the United States, these
commissions are negotiated. Traditionally, commission rates have generally not
been negotiated on stock markets outside the United States. In recent years,
however, an increasing number of overseas stock markets have adopted a system of
negotiated rates, although a number of markets continue to be subject to an
established schedule of minimum commission rates. It is expected that equity
securities will ordinarily be purchased in the primary markets, whether
over-the-counter or listed, and that listed securities may be purchased in the
over-the-counter market if such market is deemed the primary market. In the case
of securities traded on the over-the-counter markets, there is generally no
stated commission, but the price usually includes an undisclosed commission or
markup. In underwritten offerings, the price includes a disclosed, fixed
commission or discount.
FIXED INCOME SECURITIES
For fixed income securities, it is expected that purchases and sales
will ordinarily be transacted with the issuer, the issuer's underwriter, or with
a primary market maker acting as principal on a net basis, with no brokerage
commission being paid by the Fund. However, the price of the securities
generally includes compensation which is not disclosed separately. Transactions
placed through dealers who are serving as primary market makers reflect the
spread between the bid and asked prices.
With respect to equity and fixed income securities, the Adviser may
effect principal transactions on behalf of the Funds with a broker or dealer who
furnishes brokerage and/or
26
research services, designate any such broker or dealer to receive selling
concessions, discounts or other allowances or otherwise deal with any such
broker or dealer in connection with the acquisition of securities in
underwritings. The Adviser will seek the best price for the Funds in such
principal transactions. The prices the Fund pays to underwriters of newly-issued
securities usually include a concession paid by the issuer to the underwriter.
The Adviser may cause a Fund to pay a broker-dealer who furnishes
brokerage and/or research services a commission for executing a transaction that
is in excess of the commission another broker-dealer would have received for
executing the transaction if it is determined that such commission is reasonable
in relation to the value of the brokerage and/or research services which have
been provided.
DESCRIPTIONS OF RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
The Adviser receives a wide range of research services from brokers and
dealers covering investment opportunities throughout the world, including
information on the economies, industries, groups of securities, individual
companies, statistics, political developments, technical market action, pricing
and appraisal services and performance analyses of all the countries in which a
Fund's portfolio is likely to be invested. The Adviser cannot readily determine
the extent of which commissions charged by brokers reflect the value of their
research services, but brokers occasionally suggest a level of business they
would like to receive in return for the brokerage and research services they
provide. To the extent that research services of value are provided by brokers,
the Adviser may be relieved of expenses which it might otherwise bear. In some
cases, research services are generated by third parties but are provided to the
Adviser by or through brokers.
MISCELLANEOUS
Research services furnished by brokers through which the Adviser
effects securities transactions may be used in servicing all accounts managed by
the Adviser. None of the Funds allocates business to any broker-dealer on the
basis of its sales of the Fund's shares. However, this does not mean that
broker-dealers who purchase Fund shares for their clients will not receive
business from the Fund.
DISTRIBUTION EXPENSES
The Board of Trustees has adopted a distribution plan and agreement for
each Fund under Rule 12b-1 of the 1940 Act, which permits the Funds to pay a
monthly distribution fee as a percentage of their average daily net assets to
finance activities primarily intended to result in the sale of the Funds'
shares. Please refer to the section of the Funds' Prospectus entitled "The
Funds' Distribution Plan" for a detailed description of the aforementioned plan.
During the fiscal year ended December 31, 1995 the Funds reimbursed the
Adviser for distribution expenses in the amount of $4,316. The distribution
expenses were incurred as result of advertising efforts, including the mailing
of the prospectuses to prospective shareholders.
27
PURCHASE AND REDEMPTION OF SHARES
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving issuance of a Fund's shares for securities or
assets other than cash will be limited to (1) bona fide reorganizations; (2)
statutory mergers; or (3) other acquisitions of portfolio securities that: (a)
meet the investment objectives and policies of the Fund; (b) are acquired for
investment and not for resale except in accordance with applicable law; (c) have
a value that is readily ascertainable via listing on or trading in a recognized
United States or international exchange or market; and (d) are not illiquid.
PRICING OF SECURITIES
Equity securities listed or regularly traded on a securities exchange
(including NASDAQ) 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. 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 by the Board of Trustees or by persons
delegated by the Board, best to reflect fair value.
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 in sixty days or less are valued at
amortized cost as calculated in the base currency and translated into U.S.
dollars at the current exchange rate.
For purposes of determining each Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at the mean of the bid and offer prices of such currencies
against U.S. dollars quoted by a major bank.
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.
Trading in the portfolio securities of each Fund may take place in
various foreign markets on certain days (such as Saturday) when the Funds are
not open for business and do not calculate their net asset values. In addition,
trading in a Fund's portfolio securities may not occur on days when the Fund is
open. The calculation of each Fund's net asset value normally will not take
place contemporaneously with the determination of the value of the Fund's
portfolio securities. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the time each Fund's net
asset value is calculated will not be reflected in the
28
Fund's net asset value unless the Adviser under the supervision of the Trust's
Board of Trustees determines that the particular event should be taken into
account in computing the Fund's net asset value.
NET ASSET VALUE PER SHARE
The purchase and redemption price of each Fund's shares is equal to
that Fund's net asset value per share or share price. Each Fund determines its
net asset value per share by subtracting its liabilities (including accrued
expenses and dividends payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including income accrued
but not yet received) and dividing the result by the total number of shares
outstanding. The net asset value per share of each Fund is calculated as of the
close of trading on the New York Stock Exchange ("NYSE") every day the NYSE is
open for trading. The NYSE is closed on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
Determination of net asset value (and the offering, sale, redemption
and repurchase of shares) for a Fund may be suspended at times (a) during which
the NYSE is closed, other than customary weekend and holiday closings, (b)
during which trading in the markets the Fund normally utilizes is restricted,
(c) during which an emergency exists as a result of which disposal of a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund fairly to determine the value of its net assets, or (d)
during which a governmental body having jurisdiction over the Fund may by order
permit such a suspension for the protection of the Fund's shareholders; provided
that applicable rules and regulations of the Securities and Exchange Commission
(or any succeeding governmental authority) shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
DIVIDENDS
Unless you elect otherwise, dividends and capital gain distributions
will be reinvested on the reinvestment date using the NAV per share at the close
of business as of that date. The reinvestment date normally precedes the payment
date by about 5 days although the exact timing is subject to change.
TAX STATUS
Each Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
("Code").
Dividends and distributions paid by the Funds are not eligible for the
dividends received deduction available to corporate shareholders if, as
expected, none of the Funds' income consists of dividends paid by United States
corporations. Capital gain distributions paid from these Funds are never
eligible for this deduction. For federal income tax purposes, it does not make
any difference whether dividends and capital gain distributions are paid in cash
or in additional shares.
29
Each Fund must declare dividends equal to at least 98% of its net investment
income (for the 12 month period ended December 31) and 98% of its capital gain
net income (for the 12 month period ended October 31) in order to avoid a
nondeductible federal excise tax and generally must distribute all its net
investment income and net capital gains for the taxable year to avoid federal
income tax. For federal income tax purposes, each Fund is permitted to carry
forward its net realized capital losses, if any, for eight years, and realize
net capital gains up to the amount of such losses without being required to pay
taxes on, or distribute, such gains.
Foreign currency gains and losses, including the portion of gain or
loss on the sale of debt securities attributable to foreign exchange rate
fluctuations, are generally characterized as ordinary income or loss. If the net
effect of these transactions is a gain, the income dividend by the Fund will be
increased, if the result is a loss, the income dividend paid by the Fund will be
decreased.
At the time of your purchase, each Fund's net asset value may reflect
undistributed income, capital gains or net unrealized appreciation or
depreciation of securities held by such Fund. A subsequent distribution to you
of such amounts, although constituting a return of your investment, would be
taxable either as dividends or capital gain distributions.
Income received by each Fund from sources within various foreign
countries may be subject to foreign income taxes withheld at the source. Under
the Code, if more than 50% of the value of a Fund's total assets at the close of
its taxable year are comprised of securities issued by foreign corporations, the
Fund may file an election with the Internal Revenue Service to "pass through" to
the Fund's shareholders the amount of any foreign income taxes paid by the Fund.
Pursuant to this election, shareholders will be required to: (i) include in
gross income, even though not actually received, their respective pro rata share
of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign
taxes as paid by them; and (iii) either deduct their pro rata share of foreign
taxes in computing their taxable income or use it as a foreign tax credit
against federal income taxes (but not both). No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions.
Each Fund intends to continue to meet the requirements of the Code to
"pass through" to its shareholders foreign income taxes paid, but there can be
no assurance that a Fund will be able to do so. Each shareholder will be
notified within 60 days after the close of each taxable year of a Fund whether
that Fund will "pass through" foreign taxes paid for that year, and if so, the
amount of each shareholder's pro rata share (by country) of (i) the foreign
taxes paid, and (ii) the Fund's gross income from foreign sources. Of course,
shareholders who are not liable for federal income taxes, such as retirement
plans qualified under Section 401 of the Code, will not benefit by any such
"pass through" of foreign tax credits.
If, in any taxable year, a Fund should not qualify as a regulated
investment company under the Code: (i) the Fund would be taxed at normal
corporate rates on the entire amount of its taxable income without deduction for
dividends or other distributions to shareholders; (ii) profits distributed to
shareholders would be taxable to shareholders as ordinary dividends (regardless
of
30
whether they would otherwise have been considered capital gain dividends); and
(iii) foreign tax credits would not "pass through" to shareholders.
TAXATION OF FOREIGN SHAREHOLDERS
Ordinary income dividends of each Fund (which are deemed to include for
this purpose each shareholder's pro rata share of foreign taxes paid by each
Fund - see discussion of "pass through" of the foreign tax credit to U.S.
shareholders) are subject to federal income tax. For non-resident, alien
shareholders who are not engaged in a business in the U.S., this tax is imposed
at the rate of 30% upon the gross amount of the dividend unless a tax treaty
providing for a reduced rate or exemption from U.S. taxation applies.
Distributions to such shareholders of net capital gains realized by each Fund
are not subject to federal income tax.
SHAREHOLDER RIGHTS
The Trust generally is not required to hold meetings of its
shareholders. Under the Agreement and Declaration of Trust of the Trust
("Declaration of Trust"), however, shareholder meetings will be held in
connection with the following matters: (1) the election or removal of trustees
if a meeting is called for such purpose; (2) the adoption of any investment
advisory contract; (3) any termination of the Funds to the extent and as
provided in the Declaration of Trust; (4) any amendment of the Declaration of
Trust (other than amendments changing the name of the Trust, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); and (5) such additional matters as
may be required by law, the Declaration of Trust, the By-laws of the Trust or
any registration of the Trust with the Securities and Exchange Commission or any
state, or as the trustees may consider necessary or desirable. The shareholders
also would vote upon changes in fundamental investment objectives, policies or
restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his successor or until such trustee sooner dies, resigns or is
removed by a vote of two-thirds of the shares entitled to vote, or a majority of
the trustees. In accordance with the 1940 Act (i) the Trust will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the Trustees have been elected by shareholders, and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders. A shareholders' meeting shall be held for the
purposes of voting upon the removal of a trustee upon the written request of the
holders of not less than 10% of the outstanding shares. Upon the written request
of ten or more shareholders who have been such for at least six months and who
hold shares constituting at least 1% of the outstanding shares of a Fund stating
that such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a trustee, the Trust has undertaken to disseminate appropriate
materials at the expense of the requesting shareholders.
31
The Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy or at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of the Trust
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of the Trust and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Trust (or any series Fund thereof) by notice to the
shareholders without shareholder approval/ Declaration of Trust authorizes the
Board of Trustees to divide the shares into any number of classes or series,
each class or series having such designations, such powers, preferences, rights,
qualifications, limitations and restrictions, as shall be determined by the
Board subject to the 1940 Act and other applicable law. The shares of any such
additional classes or series might therefore differ from the shares of the
present class and series of capital stock and from each other as to preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the other classes or
series in various characteristics. The Board of Trustees may by amendment to the
Declaration of Trust add to, delete, replace or otherwise modify any provisions
relating to any series or class, provided that before adopting any such
amendment without shareholder approval, the Board of Trustees determined that it
was consistent with the fair and equitable treatment of all shareholders and, if
shares have been issued, shareholder approval shall be required to adopt any
amendments which would adversely affect to a material degree the rights and
preferences of the shares of any series or class.
Each share of each series (Fund) has equal voting rights with ever
other share of every other series, and all shares of all series vote as a single
group except where a separate vote of any class or series is required by the
1940 Act, the laws of the State of Delaware, the Declaration of Trust or the
By-Laws, or as the Board may determine in its sole discretion. Where a separate
vote is required with respect to one or more classes or series, then the shares
of all other classes or series vote as a single class or series, provided that,
as to any matter which does not affect the interest of a particular class or
series, only the holders of shares of the one or more affected classes or series
is entitled to vote. The preferences, rights, and other characteristics
attaching to any series of shares, including the present series of shares might
be altered or eliminated, or the series might be combined with another series,
by action approved by the vote of the holders of a majority of all the shares of
all series entitled to be voted on the proposal, without any additional right to
vote as a series by the holders of the shares or of another affected series.
FEDERAL AND STATE REGISTRATION OF SHARES
Each Fund's shares are registered for sale under the Securities Act of
1933, and the Funds or their shares are registered under the laws of certain
states. No offer to seek, or a solicitation of
32
any offer to buy the share of any Fund may be made in a jurisdiction where such
may not lawfully be made.
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz, whose address is 222 North LaSalle
Street, Chicago, IL 60601, is legal counsel to the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche, LLP, 125 Summer Street, Boston, Massachusetts 02110,
are independent accountants to the Trust. They audit and report on the Funds'
annual financial statements, review certain regulatory reports, review each
Fund's federal income tax return and perform other professional accounting,
auditing and advisory services when engaged to do so by the Trust.
FINANCIAL STATEMENTS
Financial Statements for the Funds, which are contained in the Asia
House Funds 1995 Annual Report to Shareholders, are incorporated herein by
reference.
33
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A:
Financial Highlights*
Part B :
Portfolio of Investments at December 31, 1995**
Statements of Assets and Liabilities at December 31, 1995**
Statements of Operations for the year ended December 31,
1995**
Statements of Changes in Net Assets for the year ended
December 31, 1995 and for the period from January 25, 1994
(Commencement of Operations) through December 31, 1994**
Financial Highlights for the year ended December 31, 1995 and
for the period from January 25, 1994 (Commencement of
Operations) through December 31, 1994**
Notes to the Financial Statements**
Report of Independent Accountants**
(b) Additional Exhibits
(1) Agreement and Declaration of Trust1/
(2) By-Laws1/
(3) Not applicable
(4) Not applicable
(5) Form of Investment Advisory Agreement2/
(6) Not applicable
(7) Not applicable
(8) Form of Custodian Agreement2/
(9)(a) Form of Administration Agreement2/
(9)(b) Form of Transfer Agency Agreement2/
(10) Opinion of Vedder, Price, Kaufman & Kammholz*
(11) Consent of Deloitte & Touche, LLP*
(12) Not applicable
(13) Form of Subscription Agreement2/
(14) Not applicable
(15) Rule 12b-1 Plan and Agreement2/
(16) Not applicable
(17) Financial Data Schedule*
(18) Not applicable
(19) Account Applications3/
(20) Powers of Attorney*
1/ Incorporated herein by reference to the corresponding exhibit
filed in the Registration Statement on Form N-1A filed on
October 7, 1993.
2/ Incorporated herein by reference to the corresponding exhibit
filed in Pre-Effective Amendment No. 1 to the Registration
Statement filed on December 17, 1993.
3/ Incorporated herein by reference to the corresponding exhibit
filed in Post-Effective Amendment No. 2 to the Registration
Statement filed on April 28, 1995.
* Filed herewith.
** Incorporated herein by reference to the Funds' Annual Report
dated December 31, 1995.
Item 25. Persons Controlled by or Under Common Control With Registrant
Asia House Investments Inc., the Adviser, an Illinois corporation 85% owned by
John F. Vail is under common control with the Registrant.
Item 26. Number of Holders of Securities
As of April 1, 1996:
<TABLE>
<CAPTION>
Title of Class;
Units of beneficial interest Number of
without par value Record Holders
<S> <C>
Far East Growth Fund 48
ASEAN Growth Fund 26
</TABLE>
Item 27. Indemnification
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1 to the
Registration Statement is incorporated by reference. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the Registrant is aware that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of the Adviser is or has been, at any
time during the last two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee are as follows:
<TABLE>
<CAPTION>
Name and
Position With Name of Connection With
Investment Adviser Other Company Other Company
<S> <C> <C>
Richard C. Romano, Director Asia House Romano Brothers and Company President
Investments Inc.
</TABLE>
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
(1) Asia House Investments Inc.
1007 Church Street
Evanston, Illinois 60201
(Agreement and Declaration of Trust and Bylaws and with respect to its
services as investment adviser)
(2) Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(with respect to its services as administrator, custodian, transfer
agent and shareholder services agent)
(3) Vedder, Price, Kaufman and Kammholz
222 North LaSalle Street
Chicago, IL 60601
(with respect to its services as counsel to Registrant)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(1) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report
to shareholders, upon request and without charge.
(2) Registrant hereby undertakes, if requested to do so by holders of at
least 10% of the registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of
a trustee or trustees and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933, as amended, and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Evanston, State of Illinois, on the 26th day of
April , 1996.
Asia House Funds
(Registrant)
By /s/ John F. Vail
-----------------
John F. Vail
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Trustee and Chairman of the Board, April 26, 1996
/s/ John F. Vail President and Chief Executive Officer
- ----------------------------------------------
John F. Vail
* Trustee April 26, 1996
- ----------------------------------------------
Richard A. Giesen
* Trustee April 26, 1996
- ----------------------------------------------
Lester E. Hammar
* Trustee April 26, 1996
- ----------------------------------------------
Richard C. Romano
Trustee and Vice President, April 26, 1996
Treasurer and Chief Financial and
* Accounting Officer
- ----------------------------------------------
James D. Vail, III
* By: /s/ John F. Vail
-----------------
John F. Vail
Attorney-in-Fact
</TABLE>
ASIA HOUSE FUNDS
INDEX TO EXHIBITS
Exhibit Number
10 Opinion of Vedder, Price, Kaufman & Kammholz
11 Consent of Deloitte & Touche, LLP
20 Powers of Attorney
27 Financial Data Schedule dated December 31, 1995
EXHIBIT 10
[VEDDER PRICE Letterhead]
April 24, 1996
Asia House Funds
1007 Church Street
Evanston, Illinois 60201
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A under the Securities Act of 1933 being filed by Asia
House Funds (the "Fund") in connection with the proposed public offering of
units of beneficial interest, no par value ("Shares"), in the Asia House Far
East Growth Fund and the Asia House ASEAN Growth Fund (the "Portfolios").
We have acted as counsel to the Fund since its inception and in such
capacity are familiar with the Fund's organization and have counseled the Fund
regarding various legal matters. We have examined such Fund records and other
documents and certificates as we have considered necessary or appropriate for
the purposes of this opinion. In our examination of such materials, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us.
Based upon the foregoing, and assuming that the Fund's Agreement and
Declaration of Trust dated October 1, 1993 and the By-Laws of the Fund adopted
November 29, 1993 are presently in full force and effect and have not been
amended in any respect and that the resolutions adopted by the Board of Trustees
of the Fund on November 29, 1993 relating to organizational matters, securities
matters and the issuance of shares are presently in full force and effect and
have not been amended in any respect, we advise you and opine that (a) the Fund
is a duly authorized and validly existing business trust under the laws of the
State of Delaware and is authorized to issue an unlimited number of Shares in
the Portfolios; and (b) upon the issuance of the Shares in accordance with the
Fund's Agreement and Declaration of Trust and the receipt by the Fund of a
purchase price not less than the net asset value per Share, the Shares will be
legally issued and outstanding, fully paid and nonassessable.
This opinion is solely for the benefit of the Fund, the Fund's Board of
Trustees and the Fund's officers and may not be relied upon by any other person
without our prior written consent.
VEDDER PRICE
Asia House Funds
April 24, 1996
Page 2
We hereby consent to the use of this opinion in connection with said
Post-Effective Amendment.
Very truly yours,
/S/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to Registration Statement No. 33-70046 of Far East Growth Fund and ASEAN
Growth Fund (Series of Asia House Funds) of our report dated February 1, 1996,
appearing in the annual report to shareholders for the year ended December 31,
1995 and to the references to us under the headings "Financial Highlights" in
the Prospectus and "Independent Auditors" in the Statement of Additional
Information, both of which are part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
April 25, 1996
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Cathy G.
O'Kelly, Esq., as his attorney-in-fact to sign and file on his behalf
individually and in the capacity stated below, such registration statements,
amendments, post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any other regulatory
authority as may be desirable or necessary in connection with the public
offering of shares of Asia House Funds.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John F. Vail Trustee and Chairman of the 11/14/95
- ---------------- Board, President and Chief
John F. Vail Executive Officer
</TABLE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints John F. Vail
and Cathy G. O'Kelly, Esq., either of whom may act without the joinder of the
other, as his attorney- in-fact to sign and file on his behalf individually and
in the capacity stated below, such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of Asia
House Funds.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard A. Giesen Trustee 11/14/95
- ---------------------
Richard A. Giesen
</TABLE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints John F. Vail
and Cathy G. O'Kelly, Esq., either of whom may act without the joinder of the
other, as his attorney- in-fact to sign and file on his behalf individually and
in the capacity stated below, such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of Asia
House Funds.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Lester E. Hammar Trustee 11/14/95
- --------------------
Lester E. Hammar
</TABLE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints John F. Vail
and Cathy G. O'Kelly, Esq., either of whom may act without the joinder of the
other, as his attorney- in-fact to sign and file on his behalf individually and
in the capacity stated below, such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of Asia
House Funds.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard C. Romano Trustee 11/14/95
- ---------------------
Richard C. Romano
</TABLE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints John F. Vail
and Cathy G. O'Kelly, Esq., either of whom may act without the joinder of the
other, as his attorney- in-fact to sign and file on his behalf individually and
in the capacity stated below, such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of Asia
House Funds.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James D. Vail, III Trustee, Vice President, Treasurer and 11/14/95
- ---------------------- Chief Financial and Accounting
James D. Vail, III Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Far East Fund
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Far East Growth Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1661194
<INVESTMENTS-AT-VALUE> 1531120
<RECEIVABLES> 5968
<ASSETS-OTHER> 157213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1694301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28712
<TOTAL-LIABILITIES> 28712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192799
<SHARES-COMMON-STOCK> 187582
<SHARES-COMMON-PRIOR> 202588
<ACCUMULATED-NII-CURRENT> 31755
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (126391)
<ACCUM-APPREC-OR-DEPREC> (132574)
<NET-ASSETS> 1665589
<DIVIDEND-INCOME> 26436
<INTEREST-INCOME> 33829
<OTHER-INCOME> 0
<EXPENSES-NET> 42156
<NET-INVESTMENT-INCOME> 18109
<REALIZED-GAINS-CURRENT> (112530)
<APPREC-INCREASE-CURRENT> (33193)
<NET-CHANGE-FROM-OPS> (127614)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (304)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (55346)
<NUMBER-OF-SHARES-SOLD> 14510
<NUMBER-OF-SHARES-REDEEMED> 35598
<SHARES-REINVESTED> 6082
<NET-CHANGE-IN-ASSETS> (321832)
<ACCUMULATED-NII-PRIOR> 103
<ACCUMULATED-GAINS-PRIOR> 55332
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21527
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205097
<AVERAGE-NET-ASSETS> 1793046
<PER-SHARE-NAV-BEGIN> 9.81
<PER-SHARE-NII> .097
<PER-SHARE-GAIN-APPREC> (.734)
<PER-SHARE-DIVIDEND> (.001)
<PER-SHARE-DISTRIBUTIONS> (.292)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.88
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Asean Fund
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> ASEAN Growth Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 832906
<INVESTMENTS-AT-VALUE> 734365
<RECEIVABLES> 5895
<ASSETS-OTHER> 298493
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1038753
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26511
<TOTAL-LIABILITIES> 26511
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1197372
<SHARES-COMMON-STOCK> 119565
<SHARES-COMMON-PRIOR> 122295
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (271)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (85172)
<ACCUM-APPREC-OR-DEPREC> (99687)
<NET-ASSETS> 1012242
<DIVIDEND-INCOME> 11710
<INTEREST-INCOME> 24019
<OTHER-INCOME> 0
<EXPENSES-NET> 24755
<NET-INVESTMENT-INCOME> 10974
<REALIZED-GAINS-CURRENT> (79860)
<APPREC-INCREASE-CURRENT> 7521
<NET-CHANGE-FROM-OPS> (61365)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10974)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6231)
<NUMBER-OF-SHARES-SOLD> 10324
<NUMBER-OF-SHARES-REDEEMED> 14845
<SHARES-REINVESTED> 1791
<NET-CHANGE-IN-ASSETS> (101452)
<ACCUMULATED-NII-PRIOR> 268
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2263)
<GROSS-ADVISORY-FEES> 12641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 185280
<AVERAGE-NET-ASSETS> 1053166
<PER-SHARE-NAV-BEGIN> 9.11
<PER-SHARE-NII> .091
<PER-SHARE-GAIN-APPREC> (.588)
<PER-SHARE-DIVIDEND> (.143)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.47
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
