ASIA HOUSE FUNDS
ANNUAL REPORT
DECEMBER 31, 1996
INVESTMENT ADVISER:
Asia House Investments, Inc.
Shand Morahan Plaza, Suite 307-B
1007 Church Street
Evanston, IL 60201
(847) 733-2200
President's Letter
A Review of 1996 and
Outlook for Asian Investments in 1997
January 28, 1997
Dear Valued Shareholder,
We believe 1996 was an extremely successful year for Asia House Funds, with
double digit gains in both funds' total returns during a period of very mixed
performances of Asian stock markets. Given the huge drop in major markets like
Japan- down 16% in US$, Korea -down 30% in US$ and Thailand - also down 30% in
US$, it was clearly our concentration on "value+growth" stock picking that
yielded Asia House's performance. The Far East Growth Fund outperformed its
index by a wide margin in 1996 and also was #3 of 24 Pan Asia funds in the
country despite the fact that it had zero exposure to the Hong Kong market which
was the top performing Asian market last year. It ranks #6 of 22 Pan Asian funds
since inception and only slipped below a few other funds recently partly due the
strength in the Hong Kong stocks in our competitors' funds. Both of the stated
rankings use Morningstar data.
The ASEAN Growth Fund benefitted from the same stock picking techniques.
Furthermore, at the beginning of the year it sold most of its Singaporean
property stocks before that market tumbled and kept a heavy cash position during
a period of consolidation in this market and in Thailand. The fund retained most
of its investments in Indonesia and increased its weightings in the Philippines
market in the second half of 1996. These small stock markets had good
performances in 1996 and are our favorite markets for 1997. The Malaysian market
has been problematic for us. It is a large ASEAN market and performed well last
year, but it always seems expensive to us, with a market p/e of over 20 times.
We hold a few stocks here which are on single digit p/e's and are always looking
for good values.
As of December 31, 1996, the Far East Growth Fund's NAV/share was $9.65, which
after adding back the required distribution of $0.186, yielded a return of 10.8%
for 1996. The total return since inception is 4.6%.The ASEAN Growth Fund's
NAV/share increased to $9.22 from $8.47 at the end of 1995, which after adding
back the required distribution of $0.162, yielded a return of 10.8% for 1996.
The total return since inception is -2.9 %.
Also during the year we have expanded our marketing and public relations
efforts. Asia House has appreared in Forbes, Barron's, the Chicago Tribune and
Mutual Funds Magazine. We have also constructed a Web Site, asiahousefunds.com,
which we encourage you to visit. The funds have entered the Jack White fund
network, the third largest such network in the U.S.. Finally we have created a
new logo as can be seen on the cover: an Asian gate to the dawn of the 21st
century -- what many are calling "The Asian Century". All of the above points
should, along with our performance, support us in our quest to raise the asset
size of the funds.
JAPAN
Prospects for the overall market remain poor, but stocks with solid earnings and
low p/e's do exist and should perform well, especially exporters, with the Yen
at such low levels. The top reasons for the recent sell off and poor prospects
are:
1) The overall p/e ratio is still above 35 times 1997 earnings with single digit
earnings growth at most. To us, it doesn't matter how low the bond yield is
(currently 2.4%), this p/e level is too high. The market seems to be finally
agreeing.
2) Sentiment about the government's economic management has deteriorated as
bribery scandals abound, corporate tax cuts have been shelved and there is no
major reform -- still wasting tremendous amounts on public works.
3) The economic outlook is poor after April 1997 as a 2% increase sales tax
kicks in - housing, auto, appliances demand are all expected to decline.
4)Corporate earnings --- many companies are too slow to cut costs and dedicate
themselves to returning value to shareholders.
5) Fear of the loss of a Government sponsored safety net for the stock market as
financial liberalization is promoted and virtually bankrupt companies are
allowed to fail.
DESPITE ALL THESE FACTS, A FEW TRUISMS EXIST FOR US. 1) The Japanese still
produce excellent cars and with the Yen at 115 or higher are going to make great
profits in international markets. Honda and Suzuki with p/e's below 20 are our
top picks. 2) The Japanese consumer is still underleveraged. Installment credit
is a young and growing business- we hold four stocks in this area, all with
p/e's in the teens with earnings growth expected in the teens or above.
Historical earnings growth for these companies have been excellent.
KOREA
Everything is going wrong these days for Korea. The weak Yen has made
international competition with Japan very difficult and Korea's overexpansion in
petrochemicals, DRAM semiconductors, synthetic fibers and steel are haunting the
country as these industries are in massive downturns with little light ahead.
Couple that with the political risk -- former heads of state arrested, labor
unions agitating, North Korea with its back against the wall-- and we are happy
to have a negligible (zero as of this writing) weighting.
THAILAND
This former darling of international investors is now suffering similar problems
as Korea, but it is at an earlier point in its economic development, so after
further correction this year, it should be able to grow out of overcapacity
problems. The property market is suffering a large correction and banks are
understating problem loans, but there remain a few companies that we hold that
are so cheap we just cannot sell them. All are on single digit p/e's with double
digit earnings growth likely this year. We also own a convertible bond in Union
Asia Finance which yields 14% despite being an affiliate of Bangkok Bank, one of
the largest and soundest banks in Asia. We are hopeful that the Government will
cut back on all state spending, especially in supporting heavy industries, and
reduce incentives for capital intensive investment in order to lower the trade
deficit, which has reached unacceptable levels.
MALAYSIA
Because we are value investors it has been hard for us to buy Malaysia. Its
market p/e ratios are above 20 times and only a few stocks sell in the single
digits or even in the low teens. The market has performed well as the economy
relies greatly on multinational investment and has not concentrated on heavy
industry. The property market remains strong and banks rely greatly on this
segment for their earnings. Brokers forecast earning growth in the teens this
year and while the overall market valuation is not cheap, although not much more
than the U.S. with higher '97 EPS growth, we own two stocks on single digit
multiples, with significant earnings growth ahead.
GREATER CHINA: THE PRC, HONG KONG AND TAIWAN
We believe the entire Greater China region will suffer when confidence in Hong
Kong declines and we have no weightings in any of these countries. We shall send
any investor a copy of our HK Alert paper, which describes why we are negative
on Hong Kong.
INDONESIA
We are greatly optimistic about this market. Earnings growth should remain in
the teens and the market p/e is 15 times. Interest rates are high at above 20%
for lending rates, but inflation has slowed to 6% and the prospect for lower
interest rates is very real.We have had great success in a few names in 1996 and
are greatly excited about our holdings for 1997, especially in KOMATSU INDONESIA
- --against which I challenge anyone in the world to find a better value. A
subsidiary of the Japanese construction equipment giant, the company has a p/e
of 4 with earnings growth of 40% in 1996 and 20% expected for 1997. Although
somewhat illiquid, the company has higher earnings than all but about 50 listed
companies, has negligible capitalized expenses, is audited by Arthur Andersen's
local affiliate and will benefit from the rapid growth in housing, highway,
mining, infrastructure and plantation demand for construction equipment. This
stock is the largest equity holding in both funds.
THE PHILIPPINES
The country has made tremendous strides since 1995 in the improvement of its
economic structure. Most important has been the increase in foreign direct
investment, most of which is targeted for the electronics factories on former
U.S. military bases. Although the country is experiencing a trade deficit due to
the import of machinery for such factories, funds from overseas workers and
corporations are covering the financial gap. Employment and wages are spurring
strong consumption growth and the real estate market in the Philippines has
grown quickly, especially in the area of low-cost housing. The Government offers
very low interest rates for tiny houses on massive estates outside of Manila,
many of which cost less than $20,000. Our exposure to the Philippines is
concentrated outside the real estate sector in low p/e companies in the utility,
consumption and consumer electronics areas. We also have exposure to the cement
industry on the less developed Mindanao island, which should avoid the coming
cement oversupply problem looming for the rest of the country.
Overall, the market is selling on 15 times 1997 estimated earnings with earnings
growth estimated at 17%. Interest rates are now down to 10% on short term paper
and could well head lower.
SINGAPORE
As we are clearly bears on Hong Kong, we tend to be positive on the outlook for
Singaporean property. Singapore has become the Switzerland of Asia for ethnic
Chinese as it is the only majority Chinese populated country outside of Greater
China. It has an extremely sound banking system, a solid currency and it
consistently records large trade surpluses. Real estate is expensive there, but
much lower than in Hong Kong. The Government instituted measures to curtail the
growth of property prices in early 1996 and the stock market has suffered from
this, but the future is bright. First of all, many Hong Kong residents have
Singaporean passports and many more will want such when China exercises its
dominance over Hong Kong. Also many corporations have already shifted their
regional headquarters out of HK to Singapore and more should do so as Singapore
is the true hub of South East Asia.
The overall market is rather expensive on more than 20 times earnings with 1997
EPS growth of 10%, but we hold a few stocks that either have a high yield or low
p/e and have exposure to the potential dramatic increase in property prices
there when Hong Kong falters.
SUMMARY
As a whole, while the prospects for Asian markets is somewhat mixed, we are
extremely happy with most of our holdings and with our "value+growth"
stockpicking methods. We have the expectation of the greatest growth coming from
Indonesia, Singapore and the Philippines.
We would like to thank you for your support of Asia House and hope that you will
continue investing with us. Asia will undoubtably be an economic powerhouse in
the coming century and as our new company logo depicts, we hope to be your
"Gateway to the Asian Century."
Sincerely,
/s/ John F. Vail
- ------------------
John F. Vail
President, Asia House Investments Inc.
COMPARISON OF A $10,000 INVESTMENT
UNANNUALIZED TOTAL RETURN USING MONTH-END VALUES
[PICTURED HERE ARE TWO LINE GRAPHS COMPARING THE MSCI COMBINED FAR EAST INDEX
WITH THE FAR EAST GROWTH FUND AND THE MSCI COMBINED FAR EAST FREE EX JAPAN INDEX
WITH THE ASEAN GROWTH FUND USING THE PLOT POINTS AS FOLLOWS]
COMPETITORS NAV PER SHARE
<TABLE>
<CAPTION>
1/94 2 3 4 5 6 7 8 9 10 11 12/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31 MARCH 31 MAY 31 JUL 29 SEPT 30 NOV 30
FAR EAST GROWTH FEB 28 APRIL 29 JUN 30 AUG 31 OCT 31 DEC 31
FUND 10000 10030 10050 10110 10120 10110 10470 10260 10210 10290 10280 10090
MSCI COMBINED FAR
EAST FREE INDEX 10000 10291 9683 10104 10361 10707 10479 10685 10440 10711 10084 10135
ASEAN GROWTH FUND 10000 10010 10010 10050 10100 9960 10120 10120 9940 9780 9490 9271.06
COMBINED FAR EAST
EX JPN FREE 10000 9426 8400 8796 9171 8764 9263 10007 9845 10038 9080 8857
</TABLE>
<TABLE>
<CAPTION>
1/95 2 3 4 5 6 7 8 9 10 11 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31 MARCH 31 MAY 31 JUL 29 SEPT 30 NOV 30
FAR EAST GROWTH FEB 28 APRIL 29 JUN 30 AUG 31 OCT 31 DEC 31
FUND 9400.87 9328.88 9791.72 9421.44 9565.44 9514.01 9740.29 9287.73 9585.61 9596.24 9404.95 9436.83
MSCI COMBINED FAR
EAST FREE INDEX 9458 9239 9938 10322 10003 9590 10231 9805 9908 9432 9861 10435
ASEAN GROWTH FUND 8600 8729 8650 8355.15 8945.41 9006.47 9118.40 8802.93 8768.38 8564.70 8554.52 8768.53
COMBINED FAR EAST
EX JPN FREE 7907 8706 8748 8665 9721 9574 9726 9263 9424 9280 9183 9640
</TABLE>
<TABLE>
<CAPTION>
1/96 2 3 4 5 6 7 8 9 10 11 12/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31 MARCH 31 MAY 31 JUL 29 SEPT 30 NOV 30
FAR EAST GROWTH FEB 28 APRIL 29 JUN 30 AUG 31 OCT 31 DEC 31
FUND 9489.96 9553.7 10063.89 10031.94 10010.7 10095.7 10031.9 10069.8 10318.9 10297 10611.6 10460
MSCI COMBINED FAR
EAST FREE INDEX 10281 10587 11126 10648 10363 10304 10112 10364 9670 9587 9865 9438
ASEAN GROWTH FUND 9130.86 9192.98 9172.27 9234.39 9389.67 9524.25 9400.02 9441.43 9534.61 9389.67 9679.54 9691.44
COMBINED FAR EAST
EX JPN FREE 10523 10487 10572 10867 10762 10508 9785 10055 10137 10198 10236 10713
</TABLE>
January 31,1994 through December 31,1995 Total Unannualized Returns
- -------------------------------------------------------------------
MSCI Combined Far East Free -6.5% vs. Far East Growth Fund 4.6%
MSCI Combined Far East Free ex Japan 7.1% vs ASEAN Growth Fund -2.9%
These charts compare the funds' total unannualized return with that of a
comparable index. For the Far East Growth Fund and the ASEAN Growth Fund, the
comparable index is Morgan Stanley Capital International's (MSCI) Combined Far
East Free Index and MSCI's Combined Far East Free ex Japan Index, respectively.
The lines of the chart represent the total return of a $10,000 hypothetical
investment in each of the funds. Total return assumes the reinvestment of
income, dividends and capital gains distributions. Please note that past
performance is not indicative of future results. Share prices and return may
vary, and you may have a gain or loss when you sell your shares. Fund inception
was January 25th, 1994 and closest month-end was January 31, 1994.
ASIA HOUSE FUNDS - FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS AND EQUIVALENTS
INDONESIA
Pt Berlian Laju Tanker (Foreign) 17,000 $ 31,841
Pt Citra Marga Nusaphala Persada 100,000 78,306
Pt Komatsu Indonesia (Foreign) 93,000 62,000
Pt Komatsu Indonesia 50,000 33,333
Pt Panin Bank (Foreign) 48,000 54,857
------------------
260,337 14.6%
------------------
JAPAN
Acom Company Ltd 2,000 85,191
Denyo Co Ltd 4,000 50,701
Honda Motor Co Ltd 3,000 85,622
Nissin Company Ltd 2,100 45,449
Okinawa Electric Power 808 20,553
Shinki Co Ltd 2,800 64,704
Suzuki Motor Corp 8,000 73,119
Takefuji Corporation * 1,000 71,998
Yurtec Corp 3,000 40,612
------------------
537,949 30.2%
------------------
KOREA
Chosun Brewery Company * 792 20,151
Korea Reinsurance Co Ltd New 342 9,916
Korea Reinsurance 56 1,624
Sam Yang Co. Ltd Preferred Stock 8 77
------------------
31,768 1.8%
------------------
MALAYSIA
Westmont Inds Berhad 20,000 32,940 1.9%
------------------
PHILIPPINES
Alaska Milk Corporation * 560,000 72,395
Alson's Cement Corp 125,000 48,717
First Philippine Holdings Class B. 23,000 52,471
Solid Group Inc. * 238,000 48,867
------------------
222,450 12.6%
------------------
SINGAPORE
United Overseas Land Ltd 5,000 7,613
Van Der Horst Ltd1 12,000 50,179
------------------
57,792 3.2%
------------------
THAILAND
Crown Seal Co. Ltd (Local) 8,200 20,780
Crown Seal Ltd (Foreign) 28,300 71,715
Hua Thai Manufacturing Ltd (Foreign) 15,000 39,766
------------------
132,261 7.4%
-------------------------------
TOTAL STOCKS AND EQUIVALENTS (Cost $1,270,238) 1,275,497 71.7%
-------------------------------
CORPORATE CONVERTIBLE DEBT
THAILAND
Union Asia Finance Public Company 3.375% 12/22/03 $ 125,000 66,563 3.7%
-------------------------------
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $84,661) 66,563 3.7%
</TABLE>
1 See accompanying notes to the financial statements
ASIA HOUSE FUNDS - FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAR/SHARE PERCENT OF
DESCRIPTION AMOUNT MARKET VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT
Prudential-Bache Repurchase Agreement, dated 12/31/96,
due 01/02/97, with a maturity value of $422,201 and an
effective yield of 5.72%, collateralized by a Federal
National Mortgage Association, 6.084%, 12/31/2035
with a market value of $430,508, at cost. $ 422,067 $ 422,067 23.7%
-------------------------------
TOTAL INVESTMENTS (Cost $1,776,966)** 1,764,127 99.1%
Excess of Other Assets over Liabilities 15,133 0.9%
-------------------------------
NET ASSETS $ 1,779,260 100.0%
===============================
</TABLE>
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
** The aggregate identified cost for federal income tax purposes is $1,808,289,
resulting in gross unrealized appreciation and depreciation of $77,909
and $122,071, respectively, and net unrealized depreciation of $44,162.
At December 31, 1996, industry sector diversification of the
Fund's Portfolio of Investments, excluding short-term
investments, was as follows (unaudited):
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Financial Services 21.8%
Automotive 8.9
Machinery 8.2
Industrial 7.1
Food & Beverage 5.2
Packaging 5.2
Textiles 4.1
Conglomerates 2.9
Mining 2.8
Electronics 2.7
Commercial Services 2.3
Transportation 1.8
Utilities 1.2
Insurance 0.6
Real Estate 0.6
==============
75.4%
==============
See accompanying notes to the financial statements 2
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Par/Share Percent of
Description Amount Market Value Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS AND EQUIVALENTS
INDONESIA
Pt Argha Karya Prima Industry (Foreign) 400 $ 576
Pt Berlian Laju Tanker (Foreign) 8,000 14,984
Pt Citra Marga Nusaphala Persada 48,000 37,587
Pt Komatsu Indonesia (Foreign) 93,000 62,000
Pt Panin Bank (Foreign) 49,000 56,000
---------------------
171,147 15.0%
---------------------
MALAYSIA
Island & Peninsular Berhad 10,000 33,455
Westmont Inds Berhad 29,000 47,763
---------------------
81,218 7.1%
---------------------
PHILIPPINES
Alaska Milk Corporation * 360,000 46,540
Alson's Cement Corp. 125,000 48,717
First Philippine Holdings Class B 22,000 50,190
Solid Group Inc. * 238,000 48,867
---------------------
194,314 17.1%
---------------------
SINGAPORE
Straits Steamship Warrants 2,750 2,968
United Overseas Land Ltd. 27,000 41,108
Van Der Horst Ltd. 12,000 50,179
---------------------
94,255 8.3%
---------------------
THAILAND
Crown Seal Co. Ltd (Local) 10,000 25,341
Crown Seal Ltd (Foreign) 20,000 50,682
Hua Thai Manufacturing Ltd (Foreign) 11,500 30,487
International Cosmetics (Foreign) 3,600 16,561
Pacific Insurance Co Ltd. 7,000 10,916
---------------------
133,987 11.8%
---------------------------------------
TOTAL STOCKS AND EQUIVALENTS (Cost $678,933) 674,921 59.3%
---------------------------------------
CORPORATE CONVERTIBLE DEBT
THAILAND
Union Asia Finance Public Company 3.375% 12/22/03 $ 175,000 93,188 8.2%
-------------------------------------
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $112,661) 93,188 8.2%
-------------------------------------
REPURCHASE AGREEMENT
Prudential-Bache Repurchase Agreement, dated 12/31/96,
due 01/02/97, with a maturity value of $330,559 and an
effective yield of 5.72%, collateralized by a Federal
National Mortgage Association, 6.084%, 12/31/2035
with a market value of $337,065, at cost. $ 330,454 330,454 29.0%
-------------------------------------
TOTAL INVESTMENTS (Cost $1,122,048) 1,098,563 96.5%
Excess of Other Assets over Liabilities 39,621 3.5%
-------------------------------------
NET ASSETS $ 1,138,184 100.0%
=====================================
</TABLE>
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
** The aggregate identified cost for federal income tax purposes is $1,124,470,
resulting in gross unrealized appreciation and depreciation of $52,317
and $78,224, respectively, and net unrealized depreciation of $25,907.
At December 31, 1996, industry sector diversification of the
Fund's Portfolio of Investments, excluding short-term
investments, was as follows (unaudited):
Percentage of
Industry Sector Net Assets
Financial Services 13.1%
Industrial 7.6
Textiles 6.9
Real Estate 6.8
Packaging 6.7
Machinery 5.4
Conglomerates 4.4
Mining 4.4
Electronics 4.3
Food & Beverage 4.1
Chemicals 1.5
Transportation 1.3
Insurance 1.0
================
67.5%
================
See accompanying notes to the financial statements 4
ASIA HOUSE FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
------------------- --------------------
ASSETS:
Investments, at value (cost $1,354,899 and $791,594,
respectively) (Note 1) $ 1,342,060 $ 768,109
Repurchase agreements, at cost and value 422,067 330,454
Foreign currency, at value (cost $18,297 and $38,740,
respectively) (Note 1) 18,297 38,708
Deferred organization expenses (Note 1) 8,599 8,599
Prepaid insurance 1,604 985
Dividends and interest receivable 4,695 6,283
------------------- --------------------
Total assets 1,797,322 1,153,138
------------------- --------------------
LIABILITIES:
Payable to affiliate -
Distribution fees (Note 2) 1,072 699
Accrued expenses and other liabilities 16,990 14,255
------------------- --------------------
Total liabilities 18,062 14,954
------------------- --------------------
NET ASSETS $ 1,779,260 $ 1,138,184
=================== ====================
Net asset value per share based upon respective
capital stock shares outstanding $ 9.65 $ 9.22
=================== ====================
NET ASSETS CONSIST OF:
Paid-in capital $ 1,862,113 $ 1,236,365
Accumulated undistributed (distributions in excess of) net
net investment income 11,735 (1,147)
Accumulated net realized loss on investments (81,731) (73,507)
Net unrealized depreciation on investments
and foreign currency denominated assets and liabilities (12,857) (23,527)
------------------- --------------------
NET ASSETS $ 1,779,260 $ 1,138,184
=================== ====================
Capital stock shares outstanding 184,395 123,390
=================== ====================
</TABLE>
5 See accompanying notes to the financial statements
ASIA HOUSE FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
---------------- ----------------
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $3,555 and $1,473,
respectively) (Note 1) $ 23,673 $ 12,899
Interest 38,005 33,209
---------------- ----------------
Total income 61,678 46,108
---------------- ----------------
EXPENSES:
Custodian, administrative and transfer agent fees 134,164 131,741
Management fee (Note 2) 20,437 12,269
Auditing fees 14,050 14,050
Legal fees 10,030 6,109
Insurance 8,180 5,785
Distribution fee (Note 2) 1,072 699
Amortization of organization expenses (Note 1) 4,165 4,165
Miscellaneous 5,481 4,742
---------------- ----------------
Total expenses 197,579 179,560
Less: Fees waived and expenses reimbursed
by the Adviser (Note 2) (158,538) (156,189)
---------------- ----------------
Net expenses 39,041 23,371
---------------- ----------------
Net investment income 22,637 22,737
---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments 44,660 11,665
Foreign currency related transactions (10,031) (3,996)
---------------- ----------------
Net realized gain on investments and foreign currency
related transactions 34,629 7,669
Change in net unrealized appreciation (depreciation) on investments
and foreign currency denominated assets and liabilities 119,717 76,160
---------------- ----------------
Net realized and unrealized gain on investments and
foreign currency related transactions 154,346 83,829
---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 176,983 $ 106,566
================ ================
</TABLE>
See accompanying notes to the financial statements 6
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FAR EAST GROWTH FUND ASEAN GROWTH FUND
------------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
------------------------------------- --------------------------------
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 22,637 $ 18,109 $ 22,737 $ 10,974
Net realized gain (loss) on investments
and foreign currency related transactions 34,629 (112,530) 7,669 (79,860)
Net unrealized appreciation (depreciation) on
investments and foreign currency
denominated assets and liabilities 119,717 (33,193) 76,160 7,521
------------ -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations 176,983 (127,614) 106,566 (61,365)
------------ -------------- ------------ ------------
Distributions declared to shareholders from:
Net investment income (32,626) (304) (19,617) (10,974)
In excess of net investment income - - - (6,231)
In excess of net realized gain on investments
and foreign currency related transactions - (55,346) - -
------------ -------------- ------------ ------------
Total distributions declared to shareholders (32,626) (55,650) (19,617) (17,205)
------------ -------------- ------------ ------------
Fund share transactions: (Note 4)
Proceeds from sale of shares 249,939 132,325 186,000 88,047
Net asset value of shares issued to shareholders
in payment of distributions declared 29,302 53,707 16,314 14,847
Cost of shares repurchased (309,927) (324,600) (163,321) (125,776)
------------ -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from Fund share transactions (30,686) (138,568) 38,993 (22,882)
------------ -------------- ------------ ------------
Total increase (decrease) in net assets 113,671 (321,832) 125,942 (101,452)
NET ASSETS:
Beginning of period 1,665,589 1,987,421 1,012,242 1,113,694
------------ -------------- ------------ ------------
End of period (including undistributed
(distributions in excess of) net
investment income of $11,735, $31,755
($1,147) and ($271), respectively) $ 1,779,260 $ 1,665,589 $ 1,138,184 $ 1,012,242
============ ============== ============ ============
</TABLE>
7 See Accompanying notes to the financial statements
<TABLE>
<CAPTION>
FAR EAST GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31,
1996 1995 1994**
---------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.88 $ 9.81 $ 10.00
------------ ------------ ------------
Income (loss) from investment operations:***
Net investment income (a) 0.134 0.097 0.014
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 0.822 (0.734) 0.074
------------ ------------ ------------
Total from investment operations 0.956 (0.637) 0.088
------------ ------------ ------------
Less distributions declared to shareholders:
From net investment income (0.186) (0.001) (0.013)
From net realized gain on investments and foreign
currency related transactions - - (0.265)
In excess of net realized gain on investments and
foreign currency related transactions - (0.292) -
------------ ------------ ------------
Total distributions declared to shareholders (0.186) (0.293) (0.278)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.65 $ 8.88 $ 9.81
============ ============ ============
TOTAL RETURN (B) 10.84% (6.47%) 0.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,779 $ 1,666 $ 1,987
Net expenses to average
daily net assets (a) 2.29% 2.35% 2.35%*
Net investment income to average
daily net assets (a) 1.33% 1.01% 0.19%*
Portfolio turnover rate 130% 107% 52%
Average commission rate (c) $ 0.0028 N/A N/A
(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 ratios would have been:
Net investment loss $ (0.639) $ (0.660) $ (0.558)
Net expenses to average
daily net assets 10.67% 10.24% 10.11%*
Net investment loss
to average daily net assets (7.05%) (6.88%) (7.57%)*
(b) The total returns would have been lower had certain expenses not been waived during the
period shown. Amount is not annualized.
(c) Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the fiscal year by
the total number of shares purchased and sold during the fiscal year for which commissions were charged. For fiscal years
beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate per share for security
trades on which commissions are charged.
* Annualized.
** For the period from January 25, 1994 (commencement of operations) to December 31, 1994.
*** Per share amounts for the year ended December 31, 1994 have been calculated using the monthly
average share method which more approximately presents the per share data for the period, since
the use of the undistributed method does not accord with the results of operations.
</TABLE>
See accompanying notes to the financial statements 8
<TABLE>
<CAPTION>
ASEAN GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996 1995 1994**
-------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.47 $ 9.11 $ 10.00
------------ ------------- ----------
Income (loss) from investment operations:***
Net investment income (a) 0.187 0.091 0.078
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 0.725 (0.588) (0.808)
------------ ------------- ----------
Total from investment operations 0.912 (0.497) (0.730)
------------ ------------- ----------
Less distributions declared to shareholders:
From net investment income (0.162) (0.091) (0.076)
In excess of net investment income - (0.052) -
From net realized gain on investments and foreign
currency related transactions - - (0.065)
In excess of net realized gain on investments and
foreign currency related transactions - - (0.019)
------------ ------------- ----------
Total distributions declared to shareholders (0.162) (0.143) (0.160)
------------ ------------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.22 $ 8.47 $ 9.11
============ ============= ==========
TOTAL RETURN (B) 10.77% (5.42%) (7.29%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,138 $ 1,012 $ 1,114
Net expenses to average
daily net assets (a) 2.29% 2.35% 2.35%*
Net investment income to average
daily net assets (a) 2.22% 1.04% 0.97%*
Portfolio turnover rate 126% 81% 59%
Average commission rate (c) $ 0.0065 N/A N/A
(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 ratios would have been:
Net investment loss $ (1.004) $ (1.138) $ (0.902)
Net expenses to average
daily net assets 16.65% 16.39% 14.54%*
Net investment loss
to average daily net assets (12.14%) (13.00%) (11.22%)*
(b) The total returns would have been lower had certain expenses not been waived during the
period shown. Amount is not annualized.
(c) Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the fiscal year by
the total number of shares purchased and sold during the fiscal year for which commissions were charged. For fiscal years
beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate per share for security
trades on which commissions are charged.
* 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>
9 See accompanying notes to the financial statements.
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Asia House Funds (the "Trust") is a Delaware Business Trust registered under
the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Trust currently consists of two diversified
portfolios, the Far East Growth Fund and the ASEAN Growth Fund, (individually
"a Fund" and collectively "the Funds"), which commenced operations on January
25, 1994. The Declaration of Trust permits the Trustees to create an
unlimited number of funds, each of which issues a separate series of shares.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
PORTFOLIO VALUATION
Equity securities listed or regularly traded on a securities exchange are
valued at the last quoted sales price on the day the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security. Equity securities identified as "foreign shares" may be valued at
the value assigned to "local shares" of the same companies on days where
there are no valuations available for the foreign shares. Other equity
securities and those listed securities that are not traded on a particular
day are valued at a price within the limits of the latest bid and asked
prices deemed best to reflect fair value by the Board of Trustees or by
persons delegated by the Board. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in these securities or by an
independent pricing service. Short-term debt obligations and money market
securities maturing in sixty days or less are valued at amortized cost which
approximates value. Non-U.S. dollar denominated short-term obligations
maturing sixty days or less are valued at amortized cost as calculated in the
base currency and translated into United States (U.S.) dollars at the current
exchange rate. Assets and liabilities for which the above valuation
procedures are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by or under the supervision
of the officers of the Trust as authorized by the Board of Trustees.
FOREIGN CURRENCY TRANSLATION
The books and records of the Funds are maintained in U.S. dollars. Investment
valuations and other assets and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investments and income
and expenses are converted into U.S. dollars based upon currency exchange
rates prevailing on the respective dates of such transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment security transactions, foreign currency transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Funds and the amount actually received. The portion of foreign
currency gains and losses related to fluctuation in exchange rates between
the initial purchase trade date and subsequent sale trade date is included in
realized gains and losses on investment securities sold. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
10
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS
The Funds may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the value of some or all
of a Fund's portfolio securities. A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of a forward currency contract fluctuates with changes
in forward currency exchange rates. Forward currency contracts are marked to
market daily and the change in value is recorded by the Fund as an unrealized
gain or loss. When a forward currency contract is extinguished, through
delivery or offset by entering into another forward currency contract, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value of the contract
at the time it was extinguished or offset. The Funds could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if the
value of the currency changes unfavorably relative to the U.S. dollar.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with certain banks and
broker/dealers whereby a Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes possession
of securities collateralizing the repurchase agreement. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Fund's holding period. The collateral is marked to market daily to
ensure that the market value including accrued interest of the underlying
assets remains sufficient to protect the Fund in the event of default by the
seller. In connection with transactions in repurchase agreements, if the
seller defaults and the value of the collateral declines or if the seller
enters insolvency proceedings, realization of collateral by the Fund may be
delayed or limited. The Funds will enter into repurchase agreements only with
dealers or banks determined by the Adviser to present minimal credit risks
pursuant to procedures established by the Board of Trustees to evaluate
creditworthiness.
FEDERAL TAXES
The Funds' policy is to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies and to distribute to
shareholders each year all of its net investment income, and any net realized
capital gains. Accordingly, no provision for federal income or excise tax is
necessary. Withholding taxes on foreign dividends have been provided for in
accordance with the Trust's understanding of the applicable country's tax
rules and rates. At December 31, 1996, the Far East Growth Fund and ASEAN
Growth Fund, for federal income tax purposes, had capital loss carryovers of
$60,062 and $73,507, respectively, which will reduce the taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal income or excise tax. Such capital loss
carryover will expire on December 31, 2003, except for $1,000 of the ASEAN
Growth Fund carryover which will expire on December 31, 2004. Additionally,
at December 31, 1996, net losses of $21,668 attributable to transactions
incurred after October 31, 1996 by the Far East Growth Fund are treated as
arising on the first day of the Fund's next taxable year.
11
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
The Funds intend to declare distributions from net investment income and net
realized short-term and long-term capital gains, if any, annually. All
distributions will be paid in shares of the Funds, at net asset value, unless
the shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions, losses deferred due
to wash sales, excise tax regulations and utilization of capital loss
carryovers. Permanent differences relating to shareholder distributions will
result in reclassifications to paid-in capital. For the year ended December
31, 1996, amounts resulting from differences in book and tax accounting have
been reclassified at year-end to undistributed net investment income and
accumulated net realized loss as follows:
DECREASE IN INCREASE IN
UNDISTRIBUTED NET ACCUMULATED NET
INVESTMENT INCOME REALIZED LOSS
--------------------- --------------------
Far East Growth Fund $ 10,031 $ 10,031
ASEAN Growth Fund 3,996 3,996
INVESTMENT TRANSACTIONS AND INCOME
Security transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
However, if the ex-dividend date has passed, certain dividends from foreign
securities are recorded when the Fund is informed of the ex-date. Interest
income is recorded on the accrual basis. In determining the net realized gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds.
DEFERRED ORGANIZATION EXPENSES
Costs incurred by the Funds in connection with its organization have been
deferred and are being amortized on a straight-line basis over a five year
period beginning on the commencement of operations. In the event that any of
the initial shares of the Funds are redeemed during such amortization period,
the Funds will be reimbursed for any unamortized costs in the same proportion
as the number of shares redeemed bears to the number of initial shares
outstanding at the time of redemption.
12
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting policies requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities. These
risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and U.S.
securities markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds pay Asia House Investments Inc., the Funds' adviser (the
"Adviser"), for management and investment advisory services at an annual rate
of 1.20% of average daily net assets. The Adviser has currently agreed to
waive its fee and additionally reimburse each Fund to the extent each Fund's
annual expenses (including management fee but excluding taxes, interest,
extraordinary expenses and brokerage commissions or transaction costs) exceed
1.95% of average daily net assets. Prior to November 1, 1996, this limitation
was 2.35%.
The Trustees have adopted a Distribution Plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940, which provides that the Funds will pay the
Adviser a monthly distribution fee at the annual rate of up to 0.25% of the
Funds' average daily net assets in reimbursement for costs incurred in
servicing shareholder accounts, marketing and distribution. The effective
rate of the distribution fee charged to the Far East Growth Fund and ASEAN
Growth Fund for the year ended December 31, 1996 was 0.06% and 0.07%,
respectively.
Certain officers and trustees of the Funds are also officers or trustees of
the Adviser. No officer or trustee of the Adviser receives any compensation
from the Funds for serving as Trustee or officer of the Funds.
13
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1996 were as follows:
PURCHASES SALES
--------------- ---------------
Far East Growth Fund $ 1,287,622 $ 1,442,349
ASEAN Growth Fund $ 693,858 $ 605,345
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Funds' shares were as follows:
<TABLE>
<CAPTION>
Far East Growth Fund Year ASEAN Growth Fund
Ended December 31, Year Ended December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
==========================================================================
Shares sold 26,390 14,510 20,322 10,324
Shares issued to shareholders in
reinvestment of distributions 3,154 6,082 1773 1,791
Shares repurchased (32,731) (35,598) (18,270) (14,845)
---------------- --------------- ------------------ --------------
Net increase/decrease (3,187) (15,006) 3,825 (2,730)
Fund shares:
Beginning of period 187,582 202,588 119,565 122,295
---------------- --------------- ------------------ --------------
End of period 184,395 187,582 123,390 119,565
================ =============== ================== ==============
Percentage of shares held by Asia
House Investments Inc. and
interested directors of the Fund
(or affiliates thereof) at the end of
the period 34.24% 62.82% 47.42% 60.88%
================ =============== ================= ==============
Percentage of shares held by other
individuals in excess of 10% of
outstanding shares at the end of
the period 20.70% 19.95% 17.07% 17.31%
================ =============== ================= ==============
</TABLE>
14
Independent Auditors' Report
To the Trustees of Asia House Funds and Shareholders of Far East Growth Fund and
ASEAN Growth Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Asia House Funds (comprising, respectively,
Far East Growth Fund and ASEAN Growth Fund) as of December 31, 1996 and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years ended December 31, 1995 and 1996,
and financial highlights for each of the years ended December 31, 1996, 1995 and
1994. These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective funds constituting Asia House Funds at December 31, 1996, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 14, 1997
