ASIA HOUSE FUNDS
SEMI-ANNUAL REPORT
JUNE 30, 1997
INVESTMENT ADVISER:
Asia House Investments, Inc.
Shand Morahan Plaza, Suite 307-B
1007 Church Street
Evanston, IL 60201
(847) 733-2200
PRESIDENT'S LETTER
Dear Valued Shareholder, August 8, 1997
As you are probably aware, South East Asia, excluding Hong Kong, had a very
difficult first half of 1997. The main culprit was Thailand, whose economic
fortunes have been badly mismanaged, and its pall has spread to its neighboring
ASEAN countries. THE ASEAN REGION OVERALL FELL ABOUT 12% IN US$ TERMS IN THE
FIRST HALF OF 1997. Meanwhile, Japan regained its losses from the first quarter
and ended up slightly higher in US$ terms than where it started the year. Korea
stabilized and was also up slightly during the half after a horrendous 1996, and
finally the Hong Kong transfer became reality (perhaps not truly yet however!).
Unannualized total return to June 30, 1997
Far East Growth MSCI ACFEF * ASEAN Growth MSCI ACFEF-exJ**
6 Months -1.35% +6.97% -10.20% 1.21%
12 Months +3.08% -6.09% -8.42% 2.03%
Since Inception + 3.19% +0.01% -12.78% 8.43 %
* Morgan Stanley AC Far East Free index
** Morgan Stanley AC Far East Free ex-Japan index
The under performance of the ASEAN Growth Fund was primarily in the second
quarter, when Hong Kong, which is the largest portion of the comparison MSCI
index, continued to rally strongly, while ASEAN plummeted. Since inception, Hong
Kong is up over 30%, while most SE Asian markets are down significantly. On a
more optimistic note, MICROPAL, THE AUTHORITY IN FUNDS LAUNCHED OUTSIDE OF THE
US, RANKED THE ASEAN GROWTH FUND AS THE NUMBER ONE ASEAN FUND IN THE WORLD (OUT
OF 20 OPEN ENDED FUNDS) FOR THE YEAR THROUGH APRIL 30TH, 1997.
The Far East Growth Fund under performed its index in the second quarter as
Japan rallied, but its longer term out performance remains intact. Through May
31, 1997 (the latest data available to us), it RANKED #4 OF 24 OF "DIVERSIFIED
PACIFIC" FUNDS FOR THE PAST TWELVE MONTHS, #13 OF 21 FOR THE 3 YEAR PERIOD AND
#4 OF 20 SINCE INCEPTION.
OUTLOOK FOR THE SECOND HALF
While none of Thailand's neighbors have quite the problems that Thailand does,
there are a few similarities and a "competitive devaluation" trend has
developed. This trend, which we believe has mostly run its course, begins when
one country lowers the value of its currency, and its neighbors, fearing a loss
of export competitiveness, also allow the currency market to depreciate their
currencies. Trouble would really begin if Thailand's currency is forced down
again, the neighbors follow and a spiral begins; but, while Thailand may have
further troubles, it is highly unlikely that its neighbors will see much further
currency trouble. MOST IMPORTANTLY, WE
ANTICIPATED CURRENCY WEAKNESS NOT ONLY IN THAILAND, BUT ALSO IN THE PHILIPPINES
AND INDONESIA AND HEDGED OUR CURRENCY EXPOSURE QUITE SUCCESSFULLY. WE HAVE NOW A
LARGE CASH POSITION IN BOTH FUNDS DUE TO OUR FEAR OF THE SHORT TERM IMPACT OF
CURRENCY PROBLEMS ON THE REGION'S STOCK MARKETS, BUT ONCE THE CURRENCIES SETTLE
DOWN, WE EXPECT TO INVEST MORE IN EQUITIES.
JAPAN
- -----
Meanwhile, Japan, to our surprise, has managed to regain some strength. Its
stock market improved in lock-step with its currency. The Yen bottomed at 126 to
the US$ in early May as the trend in trade surpluses began to accelerate.
Japan's financial year ends in March and many Japanese exporting companies
produced solid results during May, which also helped the market. Despite the
currency strengthening to Y115:US$, electronics stocks have continued strong,
partially due to the rally in US electronic stocks. Auto stocks, however,
corrected along with the currency.
Domestically oriented stocks, even banks, also began to rally as the economy
seemed to expand. Much of this expansion, however, occurred in the first
quarter, as consumers rushed to purchase houses, cars and other expensive items
prior to the sales tax increase from 3% to 5%. The March economic data was
released in May, which, despite the obvious slowdown that would occur (and has),
encouraged some investors. Furthermore, the Japanese Government encouraged the
national pension funds to buy stocks while the foreigners were underweight and
in many cases short-selling the market, so foreigners, especially index funds
and what we call "closet indexers," came rushing in with no concern for
fundamentals.
Fortunately, several of our stocks performed quite well. The remaining consumer
finance holding, Shinki (on 15 times 97 earnings estimates), appreciated nearly
30%, and although Honda declined 10%, we sold Suzuki at a profit when the Yen
strengthened. In US$ terms the returns were higher by nearly 10%. We also added
a convertible bond of Ito En, a large and stable producer of beverages. This
bond gives us good downside protection as well as upside potential as the
premium is very low. We shall, however, remain underweight in Japan, as
valuations are mostly too high for our discipline and we are entering fund
raising season, where a massive amount of issuances sap buying power.
Furthermore, we expect a final round of bankruptcies in the construction sector.
Already the convertible bonds of several of the largest contractors are
plummeting with yields above 20%. Fujita, Haseko, Aoki and Sato Kogyo owe nearly
$5 billion each to banks with nearly $2 billion more in bonds combined and a
large amount of off-balance sheet guarantees. During the bubble, contractors
would often guarantee the debt of a real estate developer so that a bank would
feel safe lending for the construction. Banks have kept most of the troubled
contractors afloat since the bubble, but the recent jettison of one of the worst
offenders, Tokai Kogyo with its $5 billion of bank debt, is the beginning of the
end for many others. There are a few other skeletons in the retail sector, most
likely Yaohan and perhaps the $10BB Daiei chain, but after that, most of the
major problems will be behind Japan.
KOREA
- -----
We continue to avoid Korea. The Far East Growth Fund did make some profits by
buying stocks when the foreign limit was raised and subsequently selling them at
a premium, but this was very short term in nature. Political scandals have
expanded with the indictment of President Kim's son and the economy still is not
improving much. Many large companies have been allowed to go bankrupt and this
is greatly eroding confidence in the banking system and overall economy. Prices
of semiconductors, steel and plastic rebounded somewhat in the second quarter,
but most analysts expect this to be reversed in the second half as large amounts
of capacity come onstream in Asia. The Northern situation could implode any day
with massive numbers of refugees and large economic burdens placed upon the
South, which would likely make the currency fall sharply. One cannot feel
anything else than sadly conflicted when seeing the poor children of North
Korea.
THAILAND
- --------
Our funds were not unscathed by the meltdown. Good stocks were sold along with
the bad as the whole economy seemed to be in despair. After several months of
trying to solve the problems, the Government decided in early July to devalue
their currency. The years of large trade deficits and a loss in confidence in
the financial system due to bad loans to the property sector and cyclical
industries finally came back to haunt the country. Many finance companies have
been shut down and more are likely to follow. The Government is hoping that the
lower currency will allow exports to grow quickly, but interest rates will need
to remain high for a few months to prevent further attacks on the currency and
corporate profits will sink as much of the debt is in US$, which will now cost
more to service in Baht. The equities we still own are less than 2% of assets
while the Union Asia Finance convertible still yields 15% despite being an
affiliate of Bangkok Bank, one of the largest and soundest banks in Asia. The
Government has begun to cut back on all state spending and hopefully will
conform to IMF guidelines by stopping support of failing heavy industries and
loss making companies. The stock market rallied sharply after the devaluation,
but only made up what it lost in the currency.
MALAYSIA
- --------
Although the market p/e ratio has now fallen below 20 times, there remain only a
few stocks which sell in the single digits or even in the low teens. Technology
Resource Industries, a large cellular phone network company stock continues to
be sold down despite good earnings growth, while our other two single digit
multiple stocks also faired poorly and have been subsequently sold. Overall the
economy seems due for a slow period as it adjusts to a new competitive
environment and since many of the listed companies are in the consumer and
property sectors, we cannot expect solid performance.
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. A good
summary of our view on Hong Kong is in the June issue of MUTUAL FUNDS MAGAZINE.
INDONESIA
- ---------
We continue to be optimistic about this market, although recent currency
troubles will shave some earnings growth off of our estimates. Many of the
larger Indonesian companies borrow heavily in US$ and although some of them have
large US$ revenues, translation losses and higher interest expenses are
inevitable. Inflation and interest rates, which had declined sharply, may turn
upwards, but not alarmingly so. KOMATSU INDONESIA -the subsidiary of the
Japanese construction equipment giant-- has performed well. The stock is up
nearly 200% SO FAR THIS YEAR and yet due to good earnings announcements (FIRST
QUARTER PROFITS WERE UP 25%) THE COMPANY REMAINS ON A P/E OF 11.5 TIMES OUR 1997
ESTIMATES OF 25%+ EARNINGS GROWTH. The stock is now covered by several brokers
and liquidity has greatly increased, but we have slightly reduced our position
just because it had become so large.
THE PHILIPPINES
- ---------------
This country has been hurt most by Thailand's problems partly because they are
close competitors and partly because investors became more cautious on the more
aggressive Asian growth stories. However, there are no signs that foreign
investment is slowing and export growth is still strong. Imports of machinery
for factories are still high and funds from overseas workers and corporations
are covering much of the financial gap. There remain concerns about the
commercial and luxury residential real estate sectors, but our exposure to the
Philippines is concentrated in low p/e companies in the utility, cement,
consumption and consumer electronics areas. We have reduced our positions in a
few stocks, but retain our interest in the country due to the relatively high
earnings growth.
SINGAPORE
- ---------
Overall, Singapore is still worried that it is losing competitiveness. Its main
exports are electronic products made by multinational corporations which can
relatively easily move their production to other countries. The higher the cost
of living, the more wages cost and since housing is a large part of the cost of
living, the Government wants housing prices to stabilize, if not fall. This
caused most property stocks (an important sector in the market) to be mixed
during the period. Overall, the market fell 10% in the first half led by
Singapore Telecom, which forms a large portion of the stock index, falling 20%
as long-distance price wars continued.
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. 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 17 times earnings with 1997
EPS growth of 8%, 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. We believe we will have a window of opportunity to
buy more property stocks when this occurs.
SUMMARY
- -------
While the prospects for Asian markets are somewhat mixed, we are satisfied with
most of our holdings and confident in our "value+growth" stock picking methods.
Although we raised our cash weightings in May and June, we expect to invest more
in equities once the impact of the currency crisis in ASEAN settles down. We
anticipate the strongest countries in the region will be 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 undoubtedly 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.
ASIA HOUSE FUNDS -- FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Par/Share Percent of
Description Amount Market Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKS AND EQUIVALENTS
<S> <C> <C> <C>
INDONESIA
Pt Komatsu Indonesia (Foreign)...................................................137,500 $ 214,888
Pt Panin Bank (Foreign) Rights *..................................................48,000 7,896
Pt Panin Bank (Foreign)...........................................................96,000 63,171
-------
285,955 15.5%
-------
JAPAN
Honda Motor Co Ltd.................................................................2,000 60,325
Okinawa Electric Power...............................................................808 16,106
Shinki Co Ltd......................................................................3,360 83,427
Yurtec Corp........................................................................3,000 34,884
-------
194,742 10.5%
-------
PHILIPPINES
Alaska Milk Corporation..........................................................560,000 54,140
Alson's Cement Corp...............................................................87,500 13,104
First Philippine Holdings Class B..................................................8,750 12,109
Solid Group Inc..................................................................188,000 30,649
-------
110,002 6.0%
-------
SINGAPORE
Noble Group Ltd *.................................................................20,000 15,600
Singapore Land Warrants *........................................................320,000 1,119
United Overseas Land Ltd..........................................................35,000 47,473
Van Der Horst Ltd.................................................................12,000 22,065
------
86,257 4.7%
------
MALAYSIA
Technology Resources Industries...................................................20,000 34,381
Westmont Inds Berhad..............................................................40,000 38,342
------
72,723 3.9%
------
THAILAND
Crown Seal Co. Ltd (Local).........................................................8,200 3,952
Crown Seal Ltd (Foreign)..........................................................28,300 13,639
Hua Thai Manufacturing Ltd (Foreign)...............................................2,000 3,534
------
21,125 1.1%
-----------------
TOTAL STOCKS AND EQUIVALENTS (Cost $812,411) 770,804 41.7%
-----------------
CORPORATE CONVERTIBLE DEBT
JAPAN
Ito En, Ltd..............................................0.250% 10/31/98 CHF 250,000 183,207 9.9%
-------
THAILAND
Union Asia Finance Public Company .......................3.375% 12/22/03 $ 125,000 54,062 2.9%
--------------------
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $254,534) $237,269 12.8%
--------------------
</TABLE>
See accompanying notes to the financial statements.
1
ASIA HOUSE FUNDS -- FAR EAST GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Par Percent of
Description Amount Market Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT
Prudential-Bache Repurchase Agreement, dated 06/30/97, due 07/01/97, with a
maturity value of $616,123 and an effective yield of 5.27%, collateralized by a
Federal National Mortgage Association Obligation, with a rate of 6.012%, a
maturity date of 01/01/34, and
a market value of $628,355 (at cost) $ 616,033 $ 616,033 33.3%
---------------------
TOTAL INVESTMENTS (Cost $1,682,978)** 1,624,106 87.8%
Excess of Other Assets over Liabilities 223,890 12.2%
---------------------
NET ASSETS $1,847,996 100.0%
=====================
</TABLE>
NOTES TO THE PORTFOLIO OF INVESTMENTS:
The principal amount of each debt security is stated in the currency in which
the security is denominated.
CHF Swiss Franc
* Non-income producing security.
** The aggregate identified cost for federal income tax purposes
is $1,682,978 resulting in gross unrealized appreciation and
depreciation of $184,654 and $243,526 respectively, and net
unrealized depreciation of $58,872.
At June 30, 1997, industry sector diversification of the
Fund's Portfolio of Investments, excluding short-term
investments, was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Food and Beverage 12.8%
Heavy Machinery 11.6
Financial Services 7.4
Banking 3.8
Commercial Service 3.7
Automotive 3.3
Real Estate 2.6
Textiles 2.3
Mining 2.1
Computers and Information 1.7
Packaging 1.0
Utilities 0.9
Industrial 0.7
Conglomerates 0.6
=========
54.5%
=========
See accompanying notes to the financial statements.
2
ASIA HOUSE FUNDS
FAR EAST GROWTH FUND
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
JUNE 30, 1997 (UNAUDITED)
FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
<TABLE>
<CAPTION>
Contracts to Deliver
--------------------
Expiration Local Value in In Exchange Net Unrealized
Date Currency USD For USD (Depreciation)
- --------------------- -------------------------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
8/28/97 IDR 584,139,500 240,237 234,500 $ (5,737)
8/25/97 PHP 3,687,750 139,767 137,500 (2,267)
7/14/97 THB 3,917,250 157,300 150,000 (7,300)
================
Net unrealized depreciation of forward foreign exchange contracts $ (15,304)
================
</TABLE>
-----------------------------------------------------------------------------
GLOSSARY OF CURRENCIES
IDR - Indonesia Rupiah
PHP - Philippine Peso
THB - Thai Baht
USD - United States Dollar
-----------------------------------------------------------------------------
See accompanying notes to the financial statements.
3
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Par/Share Percent of
Description Amount Market Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKS AND EQUIVALENTS
<S> <C> <C> <C>
INDONESIA
Pt Argha Karya Prima Industry (Foreign)...........................................1,066 $ 625
Pt Komatsu Indonesia (Foreign)...................................................79,000 123,463
Pt Panin Bank (Foreign) Rights *.................................................12,500 2,056
Pt Panin Bank (Foreign)..........................................................23,000 15,135
---------------
141,279 13.3%
---------------
PHILIPPINES
Alaska Milk Corporation.........................................................360,000 34,804
Alson's Cement Corp..............................................................87,500 13,103
First Philippine Holdings Class B.................................................7,500 10,379
Solid Group Inc.................................................................188,000 30,649
---------------
88,935 8.3%
---------------
MALAYSIA
Island & Peninsular Berhad........................................................5,000 16,042
Technology Resources Industries..................................................20,000 34,381
Westmont Inds Berhad.............................................................29,000 27,798
---------------
78,221 7.3%
---------------
SINGAPORE
Noble Group Ltd *................................................................12,000 9,360
Singapore Land Warrants *.......................................................320,000 1,119
Straits Steamship Warrants *......................................................2,750 2,499
United Overseas Land Ltd.........................................................27,000 36,622
Van Der Horst Ltd................................................................12,000 22,065
---------------
71,665 6.7%
---------------
THAILAND
Crown Seal Co. Ltd (Local).......................................................10,000 4,819
Crown Seal Ltd (Foreign).........................................................20,000 9,639
Hua Thai Manufacturing Ltd (Foreign)..............................................5,500 9,719
---------------
24,177 2.3%
------------------------------
TOTAL STOCKS AND EQUIVALENTS (Cost $494,079) 404,277 37.9%
------------------------------
CORPORATE CONVERTIBLE DEBT
THAILAND
Union Asia Finance Public Company ............3.375% 12/22/03 $ 175,000 75,688 7.1%
------------------------------
TOTAL CORPORATE CONVERTIBLE DEBT (Cost $116,040) 75,688 7.1%
------------------------------
SHORT-TERM INVESTMENT
Prudential-Bache Repurchase Agreement, dated 6/30/97, due 07/01/97, with a
maturity value of $566,152 and an effective yield of 5.27%, collateralized
by a Federal National Mortgage Association Obligation, with a rate of
6.012%, a maturity date of 01/01/34, and a market
value of $577,393 (at cost) $ 566,070 566,070 53.0%
-----------------------------
TOTAL INVESTMENTS (Cost $1,176,189)** 1,046,035 98.0%
Excess of Other Assets over Liabilities 21,540 2.0%
-----------------------------
NET ASSETS $ 1,067,575 100.0%
=============================
</TABLE>
See accompanying notes to the financial statements.
4
ASIA HOUSE FUNDS - ASEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 -- (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
Notes to the Portfolio of Investments:
* Non-income producing security.
** The aggregate identified cost for federal income tax
purposes is $1,176,189 resulting in gross unrealized
appreciation and depreciation of $84,549 and $214,703
respectively, and net unrealized depreciation of $130,154.
At June 30, 1997, industry sector diversification of the
Fund's Portfolio of Investments, excluding short-term
investments, was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Heavy Machinery 11.5%
Financial Services 7.2
Real Estate 5.0
Textiles 3.5
Food and Beverage 3.2
Commercial Services 3.2
Mining 3.0
Computers and Information 2.9
Banking 1.7
Packaging 1.4
Conglomerates 1.2
Industrial 1.2
------------
45.0%
------------
See accompanying notes to the financial statements.
5
ASIA HOUSE FUNDS
ASEAN GROWTH FUND
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
JUNE 30, 1997 (UNAUDITED)
FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
<TABLE>
<CAPTION>
Contracts to Deliver
--------------------
Expiration Local Value in In Exchange Net Unrealized
Date Currency USD For USD (Depreciation)
- --------------------- --------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
8/28/97 IDR 287,710,500 118,327 115,500 (2,827)
8/25/97 PHP 3,017,250 114,354 112,500 (1,854)
7/14/97 THB 3,917,250 157,300 150,000 (7,300)
=====================
Net unrealized depreciation of forward foreign exchange contracts (11,981)
=====================
</TABLE>
-------------------------------------------------------------------------------
Glossary of Currencies
IDR - Indonesia Rupiah
PHP - Philippine Peso
THB - Thai Baht
USD - United States Dollar
-------------------------------------------------------------------------------
See accompanying notes to the financial statements.
6
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES - JUNE 30, 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
------------------- --------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost $1,066,945 and $610,119,
respectively) (Note 1) $ 1,008,073 $ 479,965
Repurchase agreements, at cost and value 616,033 566,070
Cash and foreign currency, at value (cost $219,341 and
$55,539, respectively) (Note 1) 223,712 55,059
Receivable for investment securities sold 39,016 --
Deferred organization expenses (Note 1) 6,536 6,536
Prepaid insurance 5,606 4,037
Dividends and interest receivable 4,118 3,946
----------- -----------
Total assets 1,903,094 1,115,613
----------- -----------
LIABILITIES:
Unrealized depreciation of foreign forward
exchange contracts 15,304 11,981
Payable to affiliate-
Distribution fees (Note 2) 3,320 2,180
Payable for Fund shares redeemed 2,954 2,690
Accrued expenses and other liabilities 33,520 31,187
----------- -----------
Total liabilities 55,098 48,038
----------- -----------
NET ASSETS $ 1,847,996 $ 1,067,575
=========== ===========
Net asset value per share based upon respective
capital stock shares outstanding $ 9.52 $ 8.28
=========== ===========
Net assets consist of:
Paid-in capital $ 1,955,500 $ 1,293,037
Accumulated undistributed net investment income 18,501 8,807
Accumulated net realized loss on investments (56,221) (91,677)
Net unrealized depreciation on investments
and foreign currency denominated assets and liabilities (69,784) (142,592)
----------- -----------
NET ASSETS $ 1,847,996 $ 1,067,575
=========== ===========
Capital stock shares outstanding 194,092 128,877
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
7
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
STATEMENTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
FAR EAST ASEAN
GROWTH GROWTH
FUND FUND
---------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $1,596 and $1,255,
respectively) (Note 1) $ 7,561 $ 6,371
Interest 16,705 15,138
---------------- ----------------
Total income 24,266 21,509
---------------- ----------------
EXPENSES:
Custodian, administrative and transfer agent fees 60,697 60,102
Management fee (Note 2) 10,792 7,109
Auditing fees 6,967 6,967
Insurance 4,237 2,673
Legal fees 3,173 1,958
Distribution fee (Note 2) 2,248 1,481
Amortization of organization expenses (Note 1) 2,063 2,063
Miscellaneous 2,974 2,628
---------------- ----------------
Total expenses 93,151 84,981
Less: Fees waived and expenses reimbursed
by the Adviser (Note 2) (75,651) (73,426)
---------------- ----------------
Net expenses 17,500 11,555
---------------- ----------------
Net investment income 6,766 9,954
---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS:
Net realized gain (loss) on:
Investments 26,737 (17,607)
Foreign currency related transactions (1,227) (563)
---------------- ----------------
Net realized gain (loss) on investments and foreign currency
related transactions 25,510 (18,170)
Change in net unrealized appreciation (depreciation) on investments
and foreign currency denominated assets and liabilities (56,927) (119,065)
---------------- ----------------
Net realized and unrealized loss on investments and
foreign currency related transactions (31,417) (137,235)
---------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (24,651) $ (127,281)
================ ================
</TABLE>
See accompanying notes to the financial statements.
8
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
FAR EAST GROWTH FUND ASEAN GROWTH FUND
------------------------------------- --------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996
--------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 6,766 $ 22,637 $ 9,954 $ 22,737
Net realized gain (loss) on investments
and foreign currency related transactions 25,510 34,629 (18,170) 7,669
Net unrealized appreciation (depreciation) on
investments and foreign currency
denominated assets and liabilities (56,927) 119,717 (119,065) 76,160
------------ ------------- ------------- --------------
Net increase (decrease) in net assets
resulting from operations (24,651) 176,983 (127,281) 106,566
------------ ------------- ------------- --------------
Distributions declared to shareholders from:
Net investment income - (32,626) - (19,617)
------------ ------------- ------------- --------------
Total distributions declared to shareholders - (32,626) - (19,617)
------------ ------------- ------------- --------------
Fund share transactions: (Note 4)
Proceeds from sale of shares 106,000 249,939 105,000 186,000
Net asset value of shares issued to shareholders
in payment of distributions declared - 29,302 - 16,314
Cost of shares repurchased (12,613) (309,927) (48,328) (163,321)
------------ ------------- ------------- --------------
Net increase (decrease) in net assets
resulting from Fund share transactions 93,387 (30,686) 56,672 38,993
------------ ------------- ------------- --------------
Total increase (decrease) in net assets 68,736 113,671 (70,609) 125,942
NET ASSETS:
Beginning of period 1,779,260 1,665,589 1,138,184 1,012,242
------------ ------------- ------------- --------------
End of period (including undistributed
(distributions in excess of) net
investment income of $18,501, $11,735
$8,807 and ($1,147), respectively) $ 1,847,996 $ 1,779,260 $ 1,067,575 $ 1,138,184
============ ============= ============= ==============
</TABLE>
See accompanying notes to the financial statements.
9
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
FAR EAST GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997
(UNAUDITED) 1996 1995 1994**
-------------- ---------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.65 $ 8.88 $ 9.81 $ 10.00
------------ ---------- ---------- ---------
Income (loss) from investment operations:***
Net investment income (a) 0.032 0.134 0.097 0.014
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions (0.162) 0.822 (0.734) 0.074
------------ ---------- ---------- ---------
Total from investment operations (0.130) 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 $ 9.52 $ 9.65 $ 8.88 $ 9.81
============ ========== ========== =========
TOTAL RETURN (B) (1.35%) 10.84% (6.47%) 0.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,848 $ 1,779 $ 1,666 $ 1,987
Net expenses to average
daily net assets (a) 1.95%* 2.29% 2.35% 2.35%*
Net investment income to average
daily net assets (a) 0.75%* 1.33% 1.01% 0.19%*
Portfolio turnover rate 63% 130% 107% 52%
Average commission rate (c) $ 0.0087 $ 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. Without
the waiver and reimbursement of expenses, the net investment income
per share and ratios would have been:
Net investment loss $ (0.419) $ (0.639) $ (0.660) $ (0.558)
Net expenses to average
daily net assets 10.36%* 10.67% 10.24% 10.11%*
Net investment loss
to average daily net assets (7.66%)* (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) The average commission rate will vary depending on the markets in which trades are executed.
* 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.
10
<TABLE>
<CAPTION>
ASIA HOUSE FUNDS
ASEAN GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997
(UNAUDITED) 1996 1995 1994**
-------------- -----------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.22 $ 8.47 $ 9.11 $ 10.00
------------ ------------- --------- ---------
Income (loss) from investment operations:***
Net investment income (a) 0.078 0.187 0.091 0.078
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions (1.018) 0.725 (0.588) (0.808)
------------ ------------- --------- ---------
Total from investment operations (0.940) 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 $ 8.28 $ 9.22 $ 8.47 $ 9.11
============ ============= ========= =========
TOTAL RETURN (B) (10.20%) 10.77% (5.42%) (7.29%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,068 $ 1,138 $ 1,012 $ 1,114
Net expenses to average
daily net assets (a) 1.95%* 2.29% 2.35% 2.35%*
Net investment income to average
daily net assets (a) 1.68%* 2.22% 1.04% 0.97%*
Portfolio turnover rate 32% 126% 81% 59%
Average commission rate (c) $ 0.0046 $ 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. Without
the waiver and reimbursement of expenses, the net investment income
per share and ratios would have been:
Net investment loss $ (0.483) $ (1.004) $ (1.138) $ (0.902)
Net expenses to average
daily net assets 14.35%* 16.65% 16.39% 14.54%*
Net investment loss
to average daily net assets (10.71%)* (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) The average commission rate will vary depending on the markets in which trades are executed.
* 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.
11
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
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 in 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
12
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- ------------------------------------------------------------------------------
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.
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.
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.
13
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - 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.
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 as soon as the Fund is informed of the ex-dividend
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 date of 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.
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.
14
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- ------------------------------------------------------------------------------
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in 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.
INTERIM FINANCIAL INFORMATION
The interim financial statements relating to June 30, 1997 have not been
audited by independent certified public accountants, but in the opinion of
the Funds' management, reflect all normally recurring adjustments necessary
for the fair presentation of the financial statements.
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 that
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.
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.
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.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended June 30, 1997 were as
follows:
Purchases Sales
--------------- ---------------
Far East Growth Fund $763,516 $1,081,352
ASEAN Growth Fund $240,364 $ 407,612
15
ASIA HOUSE FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- ------------------------------------------------------------------------------
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in the
Funds' shares were as follows:
<TABLE>
<CAPTION>
Far East Growth Fund ASEAN Growth Fund
-------------------------------------- --------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
(Unaudited) (Unaudited)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Shares sold 11,044 26,390 11,104 20,322
Shares issued to shareholders in
reinvestment of distributions --- 3,154 --- 1,773
Shares repurchased (1,347) (32,731) (5,617) (18,270)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) 9,697 (3,187) 5,487 3,825
Fund shares:
Beginning of period 184,395 187,582 123,390 119,565
------------------ ------------------ ------------------ ------------------
End of period 194,092 184,395 128,877 123,390
================== ================== ================== ==================
Percentage of shares held by Asia
House Investments Inc. and
interested directors of the Fund
(or affiliates thereof) at the end of 32.60% 34.24% 43.13% 47.42%
the period
=============== ================== ============== =====================
Percentage of shares held by other
individuals in excess of 10% of
outstanding shares at the end of
the period 19.67% 20.70% 16.35% 17.07%
=============== ================== ============== =====================
</TABLE>
