PJF Prospect Japan

    RNS Number : 1748I
  Prospect Japan Fund Ld
  14 November 2008
   

    Prospect Japan Fund
    Interim Management Statement

    This interim management statement relates to the period from 1 July 2008 to the date of publication of this statement and has been
prepared solely to provide additional information in order to meet the relevant requirement of the UK Listing Authority's Disclosure and
Transparency Rules, and should not be relied on by Shareholders, or any other party, for any other purpose.

 NAV Performance (USD) %
                 YTD    1 Year  5 Year
    Fund        -54.75  -57.81  -30.53
 Topix Small    -18.27  -26.08  17.76

 Bloomberg            PJF LN 
 Yen / USD            104.77
 NAV (USD)             0.81
 Price (USD)           0.67
 Premium/ Discount %  -17.28%

    Prospect Japan Fund inception date is 20 December 1994. Above performance of the Fund is net of fees and expenses and includes
reinvestment of dividends and capital gains. Topix Small Cap Index (TPXSM) performance cited above is the total return including the
reinvestment of net dividends into the index denominated in US Dollars (Source: Bloomberg )

    RBS Loan Facility

    In November 2007, the Fund engaged in a facility agreement with the Royal Bank of Scotland as it was seen as an opportunity to take
advantage of attractive share prices and compelling valuations. However, amid the continual weakening of global financial and real estate
related sectors, the Fund, which is heavily concentrated in Japanese real estate related issuers, suffered further declines in share prices.
As a result of poor NAV performance, a default provision in the RBS loan agreement was triggered whereby the Fund was committed to repay the
loan. In August 2008, the Fund repaid the loan in a timely fashion with no undue pressure on the underlying securities and without any
penalty. 

    Investment Manager's Summary

    The Fund has had an extremely difficult year so far, falling 54.75% in the first nine months amidst the backdrop of global financial
turmoil.  Since then world markets have continued to be convulsed by global credit concerns and the viability of the US government-led
bailout for the financial system. Japan proved to be not immune, as many investors believed the last of the real estate-related bankruptcies
had yet to be seen  

    Although the market is trading at attractive valuations, during times of crisis fundamentals take a back seat to the actions of the
various authorities. The short term direction of the markets will continue to take its cues from the US Treasury and Federal Reserve. Given
the volatility in the US markets, we think there is a possibility Japan could be seen as a safe haven. This is partially because the
Japanese stock market has already been anticipating a weak domestic economy from the start of this year. Also both Japanese corporations and
households are carrying relatively low levels of debt compared to counterparts in the west. For example, the household debt to GDP ratio in
Japan is 63% versus 100% in both the US and Britain. (Source: CLSA).

    Having said that, investors should be aware that the greatest area of vulnerability on the domestic side in Japan is where the fund has
its highest concentration, namely the property sector. Real estate is the one element of the Japanese economy that was geared into the
global credit bubble. An added negative here has been a more severe than expected domestic credit crunch regarding property lending. New
bank lending to the real estate sector fell by 18.7% year-on-year to �1.8 trillion in 2Q 2008. (Source: Bank of Japan). This originally
stemmed from administrative guidance introduced in late 2006 by the Japanese Financial Services Agency. But Japanese banks have turned much
more cautious of their own volition in recent months as land prices have begun to soften. We believe the deteriorating credit environment is
the main reason behind the declines in the fund's holdings during the month. 

    Investment Outlook

    Against this pessimistic backdrop, the data suggest the market is trying to bottom. August condominium data released in September showed
a month-on-month improvement in new unit offerings, contract rates and unsold inventory.(Source: Real Estate Economic Research Institute) 
While a full fledged recovery is unlikely, perhaps we may be past the worst. Having dramatically scaled back our condominium exposure in the
previous quarters, we selectively increased our exposure during the month.

    The Fund also has significant exposure to the JREIT sector. JREIT market performance has been in decline for well over a year now, with
the TSEREIT index losing 56.69% of its value to 30 September 2008 since the peak on 31 May 2007.  At present, refinancing risk has become
the predominant catalyst for unit price movements.  Ironically, the performance of the underlying assets has remained stable throughout this
period, with residential properties having an average cap rate of 5.1% and average occupancy rate of 94% (Nikkei Real Estate Market Report).
 Unfortunately, fundamentals have temporarily taken a backseat to lending concerns and overall negative market sentiment.  We are still
positive on the sector as historically high and steady dividend yields should attract attention when risk appetite starts to improve.

       Prospect Japan Fund Top 10 Holdings 
       30-Sep-08                             %
 8969  Prospect Residential Investment       12.7
 1872  Azel                                  12.4
 8975  FC Residential                        11.6
 3141  Growell Holdings                      9.6
 8919  Yasuragi                              7.8
 9304  Shibusawa Warehouse                   6.5
 9942  Joyfull                               6.3
 8970  Japan Single Residence                6.2
 9756  Ask Planning                          4.5
 8963  TGR Investments                       4.4

       Sector Weightings                     %
       Retail                                15.9
       Storage/Warehousing                   6.5
       Commercial Services                   4.5
       Real Estate                           24.0
       REITs                                 39.2
       Investment Companies                  2.8
       Diversified Financial Services        1.3
                                                 
       Total                                 94.2
       No of Positions                       15

    Percentage weightings are Prospect Asset Management's internal calculations and have not been reconciled by the administrator. Results
of calculations as presented may not be exact due to rounding and precision of stored values.
    
The board is not aware of any significant events or transactions which have occurred since 31 October 2008 and the date of this report which
would have a material impact on the financial position of the company


    Enquiries:

    Prospect Asset Management, Inc. 
    Contact:
    Cheri Nakamura
    Phone: +1-808-395-6886

    Northern Trust International Fund Administration Services (Guernsey) Limited
    Contact:
    Andrew Maiden
    Phone: +44 (0) 1481 745368

This information is provided by RNS
The company news service from the London Stock Exchange
 
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