Interim Report Part II

Siam Investment Fund 24 December 2002 SIAM INVESTMENT FUND STATEMENTS OF OPERATIONS FOR THE 6-MONTH PERIOD ENDED 30 SEPTEMBER 2002 AND 2001 US$ 2002 2001 Notes (Restated) Income Interest income 12,981 162,489 Dividend income 399,369 340,010 Net unrealized gain on foreign exchange relating to carrying value of investments 14 535,737 447,464 Net realized gain on sale of investments 14 3,194,384 864,588 Other income - 136,400 Total income 4,142,471 1,950,951 Expenses Advisory fees 9.1 249,996 249,996 Administrative expenses 10 99,747 100,778 Net unrealized loss on valuation of investments 14 7,263,106 1,760,654 Net realized loss on foreign exchange relating to carrying value of investments 14 262,893 152,539 Total expenses 7,875,742 2,263,967 Net loss for the period (3,733,271) (313,016) Loss per share (1.49) (0.13) The accounting policies and the notes on pages 5 to 17 form an integral part of these financial statements. 1 SIAM INVESTMENT FUND BALANCE SHEETS AS AT 30 SEPTEMBER 2002 AND 2001 US$ Notes 2002 2001 Investments 4 19,852,711 17,299,411 Current assets Cash and cash equivalents 1,550,305 335,289 Forward contract receivable, net 5 - 123,362 Interest receivable - 1,019,639 Other assets 7,587 3,083 Total current assets 1,557,892 1,481,373 Current liabilities Accrued expenses (34,596) (30,132) Total current liabilities (34,596) (30,132) Net current assets 1,523,296 1,451,241 Net assets 21,376,007 18,750,652 Net assets financed by: Share capital 6 12,500 12,500 Share premium 7 24,987,500 24,987,500 Capital reserve (4,276,778) (6,845,816) Revenue reserve 652,785 596,468 Total shareholders' funds 21,376,007 18,750,652 Net asset value per share 8 8.55 7.50 For and on behalf of Siam Investment Fund: ............................................... Director ............................................... Director The accounting policies and the notes on pages 5 to 17 form an integral part of these financial statements. 2 SIAM INVESTMENT FUND STATEMENTS OF CHANGES IN NET ASSETS FOR THE 6-MONTH PERIOD ENDED 30 SEPTEMBER 2002 AND 2001 Revenue Share Share Capital reserve Total capital premium reserve (Restated) Balance at 1 April 2001 12,500 24,987,500 (6,244,675) 308,343 19,063,668 Net loss for the period - - - (313,016) (313,016) Appropriated for: Net unrealized loss on valuation of investments - - (1,760,654) 1,760,654 - Net realized loss on foreign exchange - - (152,539) 152,539 - Net unrealized gain on foreign exchange relating to carrying value of investments - - 447,464 (447,464) - Net realized gain on sale of - - 864,588 (864,588) - investments Balance at 30 September 2001 12,500 24,987,500 (6,845,816) 596,468 18,750,652 Balance at 1 April 2002 12,500 24,987,500 (480,900) 590,178 25,109,278 Net loss for the period - - - (3,733,271) (3,733,271) Appropriated for: Net unrealized loss on valuation of investments - - (7,263,106) 7,263,106 - Net realized loss on foreign exchange - - (262,893) 262,893 - Net unrealized gain on foreign exchange relating to carrying value of investments - - 535,737 (535,737) - Net realized gain on sale of investments - - 3,194,384 (3,194,384) - Balance at 30 September 2002 12,500 24,987,500 (4,276,778) 652,785 21,376,007 The accounting policies and the notes on pages 5 to 17 form an integral part of these financial statements. 3 SIAM INVESTMENT FUND STATEMENTS OF CASH FLOWS FOR THE 6-MONTH ENDED 30 SEPTEMBER 2002 AND 2001 US$ 2002 2001 (Restated) Cash flows from operating activities: Net loss for the period (3,733,271) (313,016) Unrealized loss on valuation of investments 7,263,106 1,760,654 Unrealized gain on foreign exchange relating to carrying value of investments (535,737) (324,102) Unrealized gain on foreign exchange forward contracts - (123,362) 2,994,098 1,000,174 Changes in assets and liabilities: Accounts receivable 545,788 - Interest receivable - (266,728) Other current assets 5,413 9,250 Investment 1,458,299 (697,754) Dividend payable (3,750,000) - Accrued expenses 25,466 19,106 Total cash provided from operating activities 1,279,064 64,048 Increase in cash and cash equivalents for period 1,279,064 64,048 Cash and cash equivalents at beginning of the period 271,241 271,241 Cash and cash equivalents at end of the period 1,550,305 335,289 The accounting policies and the notes on pages 5 to 17 form an integral part of these financial statements. 4 SIAM INVESTMENT FUND NOTES TO THE FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2002 AND 2001 1 Business activities Siam Investment Fund ('the Fund') is a closed-end investment fund and was incorporated as an exempted company with limited liability in the Cayman Islands on 22 February 1996. The Fund obtained a listing for its shares on the London Stock Exchange on 25 April 1996. The Fund's investment objective is to achieve long-term capital appreciation through investments primarily in unlisted companies, joint ventures and projects. Previously, such investments were in the Southeast Asian region; however, following a change in mandate, approved at a shareholders meeting held on 6 March 1998, the Fund may now invest up to 100% of its capital in listed and unlisted companies in Thailand. 2 Duration The Fund may be dissolved on 31 March 2006. However, with the approval from the holders of at least two-thirds of the shares of the Fund, approved at or prior to the annual general meeting in 2006, the term of the Fund may be extended for an additional two years to 31 March 2008. 3 Significant accounting policies a) Basis of preparation The financial statements have been prepared in accordance with and are generally consistent with the International Accounting Standards. These require the Fund's Directors to make estimates and assumptions that effect the reported amounts and disclosure in the financial statements. Actual results could differ from these estimates. The financial statements are prepared under the historical cost convention as modified by the revaluation of certain marketable securities and investment properties. b) Cash equivalents The Fund considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 5 c) Investments The Fund's income, which is derived from investments and interest on deposits (excluding capital gains) after paying fees and other expenses of the Fund, may be distributed to Shareholders in the form of dividend. It is the intention of the Directors that dividends will not be paid out of unrealised gains. Realised gains (net of any realised losses or unrealised provisions for losses) may be distributed, if approved by the Board, provided that the Fund generally expects that it will reinvest the original cost of each realised investment. As a result of this dividend policy, realised and unrealised gains and losses on investments, including those relating to foreign exchange translation of the original cost of investment into US Dollars at the balance sheet date, are appropriated as capital reserve. Any distributions to shareholders are recorded on the ex-dividend date. All securities for which market quotations are readily available are valued at the closing market price. Securities for which market quotations are not readily available are valued by the Directors at cost to the Fund or at a valuation based on third-party transactions in the same or in similar investments or at fair market value taking into consideration the cost of the investments, the quoted prices of investments of comparable publicly traded companies, market conditions, the underlying collateral, financial data and projections of the issuer of any relevant securities, and such other factors as the Directors may deem relevant. Investment transactions are accounted for on the trade date. Realised gains and losses from securities transactions are reported on an identified cost basis. Dividend and interest income is accounted for on an accrual basis. Discounts on securities purchased are amortised over the life of the respective securities. d) Foreign currency transactions Transactions denominated in foreign currencies are translated into United States dollars at the rates of exchange ruling on the transaction dates. All assets and liabilities expressed in foreign currencies at the balance sheet date are translated into United States dollars at the rate of exchange ruling at that date. Realised and unrealised gains and losses on translation of foreign currencies relating to the carrying value of investments are charged directly to income statements before being appropriated as the capital reserves. All other realised and unrealised gains and losses on translation of foreign currencies are included in the income and expenditure account. e) Interest income Interest income is recognised under the accrual basis. For the period ended 30 September 2002, interest income arising from cash and cash equivalents was US$ 12,981 (2001: US$ 13,041) and no interest income arising from investments (2001: US$ 149,448). 6 4 Investments US$ 2002 2001 Listed securities, at market value 17,907,624 13,398,066 Unlisted securities, at Directors valuation 1,945,087 3,901,345 Investments - net 19,852,711 17,299,411 Cost of investments 25,578,993 22,663,439 The cost of investments shown above and in 4.1 and 4.2 below reflect the cost at the date of acquisition and do not include any subsequent foreign exchange adjustments. 7 An analysis of the Company's investments is as follows: 2002 2001 _______________________________ ________________________________________ % of net Market Market assets Industry % Cost value % Cost value of the holding US$ US$ holding US$ US$ Fund 2002 2001 4.1 Listed investments Nation Multimedia Group Public Co., Ltd. Publishing 5.59% 2,743,165 2,466,956 9.64% 4,720,635 3,087,529 11.54 16.47 SE - Education Public Co., Publishing 6.14% 799,105 1,677,663 19.37% 2,057,458 2,758,919 7.85 14.71 Ltd. TISCO Finance Public Co., Finance 0.27% 484,363 359,425 2.37% 1,203,758 1,051,264 1.68 5.60 Ltd Thai Military Bank Public Co., Banking 0.20% 1,267,692 419,306 0.20% 1,267,692 424,686 1.96 2.26 Ltd. Bangkok Bank Public Co., Banking 0.08% 1,559,377 1,222,919 0.06% 796,383 639,014 5.72 3.41 Ltd. The Siam Cement Public Co., Building - - - 0.03% 512,943 365,919 - 1.95 Ltd Telecom Asia Corp Public Co., Communication 0.07% 815,493 204,550 0.03% 626,869 182,577 0.96 0.97 Ltd. Advanced Info Services Public Co., Communication 0.03% 1,058,184 739,884 0.01% 204,798 206,278 3.46 1.10 Ltd Shinawatra Satellite Public Co., Communication 0.22% 543,381 394,728 - - - 1.85 - Ltd 8 2002 2001 _______________________________ _______________________________________ % of net Market Market assets Industry % holding Cost value % holding Cost value of the US$ US$ US$ US$ Fund 2002 2001 4.1 Listed investments (continued) Singer (Thailand) Public Co., Ltd. Electrical Products - - - 1.80% 367,996 349,345 - 1.86 Compass East Industry (Thailand) Public Co., Ltd Electrical Products - - - 0.46% 270,572 375,614 - 2.00 Delta Electronics (Thailand) Public Co., Ltd Electrical Components 0.08% 604,346 566,601 0.06% 363,737 288,361 2.65 1.54 Hana Microelectronics Public Co., Ltd Electrical Components 0.19% 553,273 441,399 0.15% 428,574 230,560 2.06 1.23 KCE Electronics Public Co., Ltd Electrical Components 1.50% 625,587 527,168 0.77% 368,808 211,435 2.47 1.13 K.R Precision Public Co., Ltd Electrical Components - - - 0.49% 251,925 104,610 - 0.56 Cal-Comp Electronic Public Co., Ltd Electrical Components - - - 0.12% 241,490 164,798 - 0.88 9 2002 2001 _______________________________ ____________________________________ % of net Market Market assets Industry % Cost value % Cost value of the holding US$ US$ holding US$ US$ Fund 2002 2001 4.1 Listed investments (continued) PTT Public Co., Ltd Energy 0.04% 890,362 947,977 - - - 4.43 - Siam Makro Public Co., Ltd Commerce 0.28% 658,451 733,309 - - - 3.43 - BEC World Public Co., Ltd Entertainment 0.06% 717,848 588,208 - - - 2.75 - Sansiri Public Co., Ltd Property 5.18% 1,607,415 1,515,376 - - - 7.09 - Golden Land Property Development Public Co., Ltd Property 0.17% 332,260 200,000 - 51,337 47,758 0.94 0.25 Thai Airways International Public Co., Ltd Transportation 0.02% 225,729 138,714 0.83% 335,100 234,014 0.65 1.25 Regional Container Lines Public Co., Ltd Transportation 0.40% 271,102 283,935 0.19% 159,058 131,096 1.33 0.70 Pranda Jewelry Public Co., Ltd Jewelry 1.91% 477,330 407,278 0.10% 166,059 190,126 1.91 1.01 Thai Reinsurance Public Co., Ltd Insurance 0.47% 362,648 369,884 - - - 1.73 - SE-Education-Warrants Public Co., Ltd Publishing - 385,210 1,449,809 - - 647,359 6.79 3.46 10 2002 2001 Market Market % of net Industry % holding Cost value % holding Cost value assets US$ US$ US$ US$ 2002 of the Fund 2001 Phoenix Pulp and Paper Public Co., Ltd Pulp & Paper - - - 0.48% 460,610 422,896 - 2.26 Serm Suk Public Co., Ltd Food & Beverages - - - 0.59% 286,121 502,816 - 2.68 Thai Union Frozen Products Public Co., Ltd Food & Beverages 0.17% 336,680 582,052 0.83% 336,680 425,744 2.72 2.27 Surapon Foods Public Co., Ltd Food & Beverages 0.81% 150,013 104,805 - - - 0.49 - Miscellaneous investments nil 73,827 288,094 - 283,906 272,738 1.35 1.46 Asia Pacific Resources Potash Ltd. (c) Fertilizer 43.38% 3,573,583 1,277,584 - 438,361 82,610 5.98 0.44 Total-listed investments 21,116,424 17,907,624 16,200,870 13,398,066 83.79 71.45 11 4.2 Unlisted investments 4.2.1 Equity investments 2002 2001 Directors' Directors' % of net assets Industry % holding Cost valuation % holding Cost valuation of the Fund US$ US$ US$ US$ 2002 2001 Northbridge Communities Ltd. (a) International School 6.25% 2,462,569 1,445,087 6.25% 2,462,569 1,401,345 6.76 7.47 Total-unlisted equity investment 2,462,569 1,445,087 2,462,569 1,401,345 6.76 7.47 4.2.2 Debt investments Convertible term loan to Monterey Pizza Co., Ltd. (b) Foods - 2,000,000 500,000 - 2,000,000 500,000 2.33 2.67 Convertible term debenture to Asia Pacific Resources Ltd. (c) Potash Fertilizer - - - - 2,000,000 2,000,000 - 10.67 Total-unlisted debt investments 2,000,000 500,000 4,000,000 2,500,000 2.33 13.34 Total-unlisted investments 4,462,569 1,945,087 6,462,569 3,901,345 9.09 20.81 Investments - net 25,578,993 19,852,711 22,663,439 17,299,411 92.88 92.26 12 (a) Northbridge Communities Ltd. Northbridge Communities Ltd. ('NCL') operates international schools and related property developments in Thailand and Cambodia. The operation from both sites has been doing well since July 2001. International School Eastern Seaboard (ISE) in Thailand has generated a cash surplus, which will be applied to their loan with a bank. Northbridge International School Cambodia (NISC) in Cambodia recorded a loss last year but should break even this year. Houses in Thailand are fully rented. Construction of apartment facilities in Cambodia has been completed and 15 of the 16 units are rented out. The Thai Export - Import Bank has approved in providing US$ 1.2 million with interest rate of LIBOR+3.25% p.a. payable every 3 months financing for the housing development in Cambodia. This project will include 11 houses, 7 of which will be leased out and 4 will be sold. (b) Monterey Pizza Co., Ltd. The convertible term loan to Monterey Pizza Co., Ltd. ('Monterey') is denominated in US$ and carries interest at six month US$ LIBOR, payable every six months. The loan is secured by the major shareholders of Monterey and was repayable in full prior to 20 December 1998. As part of the loan agreement, the Fund has the right to convert a portion of the term loan into Monterey Shares equivalent to 250,000 Monterey shares (with par value of Baht 100 per share) which have been placed in escrow. Monterey has experienced financial difficulties since 1997. Interest has not been paid when due. The Fund has stopped accruing interest since December 1997. A legal demand for payment of principal and accrued interest has been made to Monterey as well as to 2 directors who have guaranteed the loan. The court ruled in favor of the Fund's demand for Baht 108 million. The defendants have been asked by the court to settle with the Fund. The loan has already been written down to US$ 500,000. (c) Asia Pacific Resources Ltd. In 1998, the Fund invested US$ 2 million in a convertible term debenture issue by Asia Pacific Resources Ltd. ('APQ') The debenture was originally due to mature on 13 August 2000 but this was subsequently extended by one year. The debenture carried interest at 10%. As part of the debenture agreement, the Fund had the right to convert the term debenture into APQ shares at US$ 2.32 per share. In December 2001, the maturity of the debenture was further extended to 28 February 2002. In February 2002, the Company announced a significant refinancing exercise which included both a rights issue and the conversion of the convertible debentures at a revised conversion price of C$ 0.20 per share. Under the financing terms, Crew Development Corporation, the principal shareholder in APQ and Olympus Capital Holdings Asia I, L.P., the principal holder of the convertible debenture, undertook to provide interim financing and a minimum funding injection of up to a combined C$ 10 million in the event that the subscriptions amounted to less than C$ 20 million. 13 In the event, the Fund received a total of 25,590,466 shares in APQ as a result of the conversion. These shares were delivered on 17 April 2002. APQ shares are listed on the Toronto Stock Exchange. The market value of APQ common share as at 30 September 2002 was US$ 0.0504 (2001: US$ 0.2849) per share. Credit risk The Fund has significant investments in Thailand which may involve greater risk than investments in more developed markets. The prices of such investments may be volatile. The yields of emerging market debt obligations reflect, amongst other matters, perceived credit risk. The consequences of political, social or economic changes in Thailand may have disruptive effects on the market prices of the Fund's investments and the income they generate. Currency risk All of the Fund's equity investments where the investee company is incorporated in Thailand are subject to currency risk as the investee shares are denominated in Thai Baht. The Fund's debt investments are denominated in US$ and is thus not exposed to currency risk. Fair values Listed and unlisted investments are stated at market values and Directors' valuations respectively. At 30 September 2002, in the opinion of the Directors, the carrying values of the listed and unlisted investments approximate their fair values. Additional information related to all investments of the Group which account for more than 5% of net assets as at 30 September 2002 is as follows: EPS per Market value/ Cost of latest audited Directors' % of issued investment accounts valuation Investment Industry share capital US$ US$ US$ Equity investments NATION Publishing 5.59% 2,743,165 (0.0363) 2,466,956 SE - ED Publishing 6.14% 799,105 0.1253 1,677,663 BBL Banking 0.08% 1,559,377 0.0955 1,222,919 SANSIRI Property 5.18% 1,607,415 (0.0058) 1,515,376 Northbridge International School 6.25% 2,462,569 0.0948 1,445,087 SE-ED-WI Publishing 6.14% 385,210 0.1253 1,449,809 APQ Potash Fertlizer 43.38% 3,573,583 (0.1449) 1,277,584 The Group received dividends from the above investments during the period totaling US$ 399,369 (2001: US$ 340,010). 14 5 Forward foreign exchange contracts The Fund entered into off-balance sheet forward foreign exchange and option contracts to buy and sell specified amounts of foreign currencies in the future at a pre-determined exchange rate. The contracts were entered into in order to hedge the Fund's assets denominated in Thai Baht. 6 Share capital US$ 2002 2001 Authorised: 10,000,000 ordinary shares of US$ 0.005 each 50,000 50,000 Issued and fully paid 2,500,000 ordinary shares of US$ 0.005 each 12,500 12,500 7 Share premium US$ 2002 2001 Arising on the issue of 2,500,000 ordinary shares at a premium of US$ 10.295 per share, fully paid 25,737,500 25,737,500 Less: Placement fee (750,000) (750,000) 24,987,500 24,987,500 8 Net asset value per share The calculation of the net asset value per share is based on the net assets of US$ 21,376,007 (2001: US$ 18,750,652) divided by the number of shares, being 2,500,000. 15 9 Related party transactions 9.1 Advisory and performance fees Finansa Fund Management Ltd, a related company incorporated in the Cayman Islands, serves as the investment adviser to the Fund and receives the following.: (i) a monthly advisory fee in an amount equal to 2% per annum of the contributed capital (defined as the aggregate paid-up share capital of the Fund, inclusive of share premium) of the Fund; and (ii) a performance fee of 20% of the amounts by which distributions to shareholders exceed a cumulative compound rate of return on the Fund's contributed capital of 12% per annum. Advisory fees totaling US$ 249,996 (2001: US$ 249,996) were charged for the period. No performance fees (2001: Nil) were charged for the period. 9.2 Directors' fees and reimbursements The Fund's Articles of Association provide that the Fund may pay up to an aggregate of US$ 100,000 per year to its Directors. For the period ended 30 September 2002, an amount of US$ 30,000 (2001: US$ 50,000) was approved for payment to the Directors. In addition, the Fund reimburses Directors for travel and out-of-pocket expenses incurred in connection with Board of Directors meetings and meetings of committees of the Board of Directors. 9.3 Directors' interest in contracts of significance Mr. Eugene S. Davis is a director and shareholder of Finansa Plc., a shareholder in Finansa Fund Management Ltd., ('FFM'), the investment advisor to the Fund. Mr. Davis is also a director of FFM. 10 Custodial and administrative fees Under a custodial agreement with Citibank, N.A. (Hong Kong Branch) ('Citibank')., Citibank acts as custodian for the Fund, and is entitled to receive a fee from the Fund, computed and paid monthly in arrears, comprising the following: (i) a fee calculated at a 3.5 - 7.0 basis points per annum of the value of the portion held by the custodian; and (ii) a transaction fee of US$ 35 - US$ 90 per transaction. Under an administrative agreement with Bank of Butterfield International (Cayman) Ltd. ('Butterfield')., Butterfield acts as administrator of the Fund, and is entitled to receive a fee from the Fund calculated and payable quarterly in arrears at a rate of US$ 100 per hour on a time spent basis, subject to a minimum of US$ 7,500 per year. Custodial and administrative fees totaling US$ 4,933 and US$ 3,750 respectively (2001: US$ 3,733 and US$ 3,750) were charged for the period. 16 11 Directors The non-executive directors during the period ended 30 September 2002 were as follows: Eugene S. Davis M.L. Plaichumpol Kitiyakara Van Huong Nguyen David Roberts Enghug Nontikarn Mungkorn Kriengwatana (Appointed on 13 December 2001) Martin Michael Adams (Appointed on 14 November 2002) 12 Interest in shares Shareholders who held an interest of 3% or more in the Fund as of 30 September 2002 were as follows: Shareholder Number of shares Percentage Citivic Nominees Limited 2,500,000 100% (formerly MGTB Nominees Limited) 13 Taxation The Fund is exempt from Cayman Islands income tax and accordingly its only liability is the payment of an annual registration fee to the government of the Cayman Islands, amounting to US$ 500 per annum. It is possible that the Fund could be assessed for income tax in other jurisdictions. No assessments have been raised and the Directors consider the likelihood of a significant tax liability arising to be remote. 14 Correction of error In 2001, the Fund had taken realized and unrealized gains and losses on investments, including those relating to foreign exchange translation of the original cost of investment directly to the capital reserves account instead of charging to income statement when incurred. However, the comparative financial statements for the period ended 30 September 2001 had been restated to correct this error. 17 This information is provided by RNS The company news service from the London Stock Exchange

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