As filed with the Securities and Exchange Commission on August 15, 1996.
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Registration No. 33-64191
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
Post-Effective Amendment No. 1
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 3
(Check appropriate box or boxes)
PEREGRINE FUNDS
(Exact name of registrant as specified in charter)
99 Park Avenue
New York, New York 10016
(Address of principal executive offices and zip code)
(800) 910-5255
Registrant's telephone number including area code
Copy to:
Thaddeus Leszczynski, Esq. Beth R. Kramer, Esq.
Van Eck Associates Corporation Mayer, Brown & Platt
99 Park Avenue 1675 Broadway
New York, NY 10016 New York, NY 10019
(Name and address of agent for service)
Approximate date of proposed public offering:
It is proposed that this filing will become effective (check appropriate box):
/ /Immediately upon filing pursuant to /X/on August 30, 1996 pursuant to
paragraph (b) paragraph (b)
/ /60 days after filing pursuant to / /on (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
/ /75 days after filing pursuant to / /on (date) pursuant to paragraph
paragraph (a)(2) (a)(2) of rule 485
If appropriate, check the following box:
/ /this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
The Registrant has heretofore elected to register an indefinite number of shares
of beneficial interest, $.001 par value, of the Asia Pacific Growth Fund
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
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Cross-Reference Sheet
Pursuant to Rule 501(b) of Regulation S-K
under the Securities Act of 1933
Form N-1A
FORM N-1A ITEM NO. CAPTION OR LOCATION IN PROSPECTUS
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PART A
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1. Cover Page Cover page
2. Synopsis Shareholder Transaction Data; Fund
Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Fund Details; Fund's Investment
Objective, Policies and Risks
5. Management of the Fund Management
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Fund Details; Dividends and
Distributions; Taxes; Additional
Information
7. Purchase of Securities Being Offered Buying and Selling Fund Shares; Tax-
Sheltered Retirement Plans; Facts
About Your Account; Additional
Information
8. Redemption or Repurchase Buying and Selling Fund Shares
9. Pending Legal Proceedings Not Applicable
CAPTION OR LOCATION IN
STATEMENT OF ADDITIONAL
FORM N-1A ITEM NO. INFORMATION
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PART B
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10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and History General Information
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CAPTION OR LOCATION IN
STATEMENT OF ADDITIONAL
FORM N-1A ITEM NO. INFORMATION
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PART B
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13. Investment Objectives and Policies Overview of Investment Objective
and Policies of the Fund; Risk
Factors; Investment Restrictions
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Not Applicable
of Securities
16. Investment Advisory and Other Services Investment Advisory Services;
The Distributor; Additional
Information
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing of Valuation of Shares;
Securities Being Offered Tax-Sheltered Retirement Plans;
Investment Programs;
Redemptions in Kind
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Performance
23. Financial Statements Financial Statements
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PEREGRINE FUNDS/ASIA PACIFIC GROWTH FUND
PROSPECTUS
August 30, 1996
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99 Park Avenue, New York, New York 10016
Shareholder Services: (800) 910-5525
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The Asia Pacific Growth Fund (the "Fund") seeks long-term capital appreciation
by investing in the securities of companies that are expected to benefit from
the development and growth of the economies of Asia and the Pacific Basin. The
Fund is a series of Peregrine Funds (the "Trust"), an open-end management
investment company. Peregrine Asset Management (Hong Kong) Limited ("Peregrine")
serves as investment adviser to the Fund.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, a bank. The shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other governmental
agency, and are subject to investment risk, including possible loss of
principal.
This Prospectus sets forth concisely information about the Fund that you should
know before investing. It should be read and retained for future reference.
A Statement of Additional Information ("SAI") dated August 30, 1996, about the
Fund has been filed with the United States Securities and Exchange Commission
("SEC") and is incorporated herein by reference. For a free copy of the SAI,
write to the above address or call the telephone number listed above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS Page
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Shareholder Transaction Data.............................................. 3
Financial Highlights...................................................... 4
Fund Summary.............................................................. 5
Fund Details.............................................................. 5
Fund's Investment Objective, Policies and Risks........................... 7
Buying and Selling Fund Shares............................................ 12
Dividends and Distributions............................................... 14
Tax-Sheltered Retirement Plans............................................ 15
Facts About Your Account.................................................. 15
Management................................................................ 16
Advertising............................................................... 16
Taxes..................................................................... 17
Additional Information.................................................... 18
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SHAREHOLDER TRANSACTION DATA
The following table is intended to assist you in understanding the various
direct and indirect costs and expenses you will bear when you invest in the
Fund. All of the Annual Fund Operating Expenses are paid out of Fund assets. The
Fund's adviser, Peregrine, may, from time to time, waive fees and/or reimburse
certain operating expenses of the Fund.
Shareholder Transaction Expenses:
Maximum Sales Charge
Imposed on Purchases.................................. 0%
Redemption Charge (Imposed on redemptions
within 2 months of purchases) 2%
Annual Fund Operating Expenses: (as a percent of average net assets)
Management Fees............................................... 1.00%
Other Expenses................................................ 1.26%
Portfolio Administration Fees .............................. .25%
Transfer Agent and Custodian Fees........................... .29%
Other Expenses.............................................. .72%*
Total Fund Operating
Expenses.................................................. 2.26%+
* Other Expenses are estimates which assume $30 million in average daily net
assets. Actual "Other Expenses" may vary.
+ Peregrine has voluntarily agreed to waive management fees and/or assume
Operating Expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) to limit Total Fund Operating Expenses to an annual
rate of 2.00% of the Fund's average daily net assets until December 31,
1997.
EXAMPLE
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1 year 3 years
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You would bear the following
expenses on a $1,000 investment $23 $71
assuming (1) 5% annual return
and (2) redemption at the end of
each time period:
The above example is meant to illustrate the effect of expenses on return and
should not be considered to represent past or future returns or expenses, which
may be greater or less than those shown. For more information see "Management."
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FINANCIAL HIGHLIGHTS
The Financial Highlights below give selected information for a share of the Fund
outstanding for the period indicated. The Financial Highlights presented are to
update the financial information from the Fund's commencement of operations,
January 2, 1996 through June 30, 1996 and have not been audited. The Fund's
Annual Report as of December 31, 1996 will be audited by Coopers & Lybrand
L.L.P., independent accountants to the Fund.
FOR THE PERIOD
JANUARY 2, 1996(a)
TO JUNE 30, 1996
(UNAUDITED)
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Net Asset Value, Beginning of Period $ 10.00
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Income From Investment Operations:
Net Investment Income 0.07
Net Gains on Securities
(both realized and unrealized) 0.77
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Total From Investment Operations 0.84
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Net Asset Value, End of Period $ 10.84
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Total Return (b) 8.40%
Ratios/Supplementary Data
Net Assets, End of Period (000) $21,655
Ratio of Expenses to Average Net Assets 2.00%(c)(d)
Ratio of Net Income to Average Net Assets 1.34%(d)
Portfolio Turnover Rate 35%
Average Commission Rate Paid $0.0068
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(a) Commencement of operations.
(b) Total return is calculated asuming an initial investmentn made at the net
asset value at the beginning of the period and a redemption on the last day of
the period. Total return calculated for the period ended June 30, 1996 was not
annualized.
(c) Ratio would have been 2.26% if the expenses were not assumed by the Adviser.
(d) Annualized.
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FUND SUMMARY
WHO SHOULD CONSIDER INVESTING IN THE FUND
Investors who are interested in investing in the economies of Asia and the
Pacific Basin and are willing to assume the risks associated with these
investments should consider this Fund. Investing in these markets can provide
investors diversification as well as a way to participate in the growth
opportunities available in Asia and the Pacific Basin. See "How to Buy Shares"
and "How to Sell Shares."
The value of the Fund's investments will vary from day to day, and generally
reflect market, economic and political conditions, interest rates and company,
political or economic news. In the short-term, stock prices can fluctuate
dramatically in response to these factors. Over time, however, stocks have shown
greater growth potential than other types of securities, such as bonds. Bonds
fluctuate in response to interest rates and the credit rating of the issuer,
generally declining in value when interest rates rise or the credit rating of
the issuer declines. See "Fund's Investment Objective, Policies and Risks."
RISK PROFILE
The value of the Fund's shares can be expected to fluctuate more and to be more
volatile than funds investing only in securities of large U.S. companies or more
developed countries, or bond funds. The Fund is not meant to be a complete or
balanced investment program and is intended for those investors who can assume
greater risk with respect to a portion of their investment portfolio.
The Fund's risks include share price and currency fluctuation, confiscatory
taxation, expropriation, nationalization, inefficient securities markets and
settlement practices and lack of developed legal systems. See "Fund's Investment
Objective, Policies and Risks."
INVESTMENT ADVISER AND DISTRIBUTOR
As investment adviser, Peregrine manages the investments of the Fund and handles
the other business affairs of the Fund under supervision of the Board of
Trustees. Peregrine has been registered with the SEC as an investment adviser
since April 17, 1995. Peregrine was incorporated in Hong Kong in 1991 and is an
indirect subsidiary of Peregrine Investments Holdings Limited ("Peregrine
Holdings"). Peregrine Holdings and its affiliates comprise one of the largest
independent Asian based investment banks located outside Japan and Korea.
Established in 1988, Peregrine Holdings and its affiliates have offices in
sixteen Asian countries as well as in Europe, the United States and the Middle
East. Peregrine acts as sub-investment adviser to one other investment company
registered with the SEC. Peregrine and its affiliates act as adviser to five
offshore funds. As of June 30, 1996, Peregrine managed assets totaling
approximately $170 million. See "Management."
Van Eck Securities Corporation ("Distributor"), a Delaware corporation, is a
wholly-owned subsidiary of Van Eck Associates Corporation, and serves as the
Fund's distributor and markets the Fund's shares.
FUND DETAILS
ORGANIZATION OF THE FUND
The Fund is a separate series of Peregrine Funds (the "Trust"), and is an
open-end investment company. The Trust was organized as a Delaware business
trust on December 1, 1995. The Fund is a diversified fund as that term is used
in the Investment Company Act of 1940, as amended (the "1940 Act"). With respect
to 75% of a diversified fund's assets, no more than 5% of its assets may be
invested in the securities of any one issuer and not more than 10% of the
outstanding voting securities of an issuer may be owned.
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BOARD OF TRUSTEES
The Fund is governed by a Board of Trustees, which is responsible for protecting
the interests of shareholders. The Trustees are experienced executives who meet
throughout the year to oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund and review
performance. The majority of Trustees are not otherwise affiliated with
Peregrine.
SHAREHOLDER MEETINGS
The Fund may hold special shareholder meetings and mail proxy materials. These
meetings may be called to elect or remove Trustees, change the Fund's
fundamental investment objective and policies, approve an investment advisory
contract or for other purposes. You are entitled to one vote for each share you
own. If you cannot attend a shareholder meeting you may vote by proxy.
FUND'S PORTFOLIO TRANSACTIONS
Peregrine may use the Peregrine Group's broker-dealer and other affiliates and
other firms that sell Fund shares to purchase and sell the Fund's portfolio
securities and other assets, provided that their services and commissions are
comparable to those of other firms.
PORTFOLIO MANAGEMENT
The portfolio manager is responsible for the day-to-day management of the Fund.
Gary Greenberg is portfolio manager of the Fund.
Gary Greenberg, C.F.A., Manager of the Fund, has been serving in such capacity
since the Fund commenced operations. Mr. Greenberg, Deputy Managing Director of
Peregrine, joined Peregrine in July, 1994 and is responsible for Peregrine's
investment strategy in various regions of the world. He is also portfolio
manager of a U.S. fund investing in emerging markets and of an offshore fund
which invests in smaller companies in India. Prior to joining Peregrine, Mr.
Greenberg served as co-manager of the Acorn International Fund from 1992 to
1994. During that time period he was principal and portfolio manager of Wanger
Asset Management, which managed over U.S. $4 billion, including approximately
U.S. $2 billion invested in non-U.S. companies. From 1989 to 1992, he was
international securities analyst at Harris Associates L.P.
Other investment professionals at Peregrine who are expected to have significant
input in determining the Fund's investments include:
Bruce Seton, Chief Investment Officer of Peregrine, has been serving in such
capacity since September, 1994. Mr. Seton serves as Chief Executive Officer of
Peregrine and is responsible for establishing Peregrine's overall investment
guidelines and strategies. Prior to joining Peregrine in 1994, Mr. Seton spent
twenty-two years at Gartmore Investment Limited managing funds which emphasize
Asian emerging market investments.
Aureole Foong, Director of Peregrine, joined Peregrine in 1994 as a fund
manager. His responsibilities at Peregrine include managing funds which invest
in equities and derivatives in the Asia region. Prior to joining Peregrine, Mr.
Foong worked from 1990 to 1994 at Unifund, a Geneva-based private investment
company, where he served as a Senior Vice President.
Peregrine, its investment personnel and its affiliated companies may invest in
securities for their own accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain activities.
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FUND'S INVESTMENT OBJECTIVE, POLICIES AND RISKS
OBJECTIVE
The Fund's investment objective is to achieve long-term capital appreciation by
investing in the securities of companies that are expected to benefit from the
development and growth of the markets or economies in Asia and the Pacific
Basin.
The Fund considers the "Asia Pacific" region to include Australia, Bangladesh,
Brunei, Cambodia, Hong Kong, India, Indonesia, Republic of Korea, Laos,
Malaysia, Myanmar (formerly, Burma), Nepal, New Zealand, Pakistan, Papua New
Guinea, the People's Republic of China ("China"), the Philippines, Singapore,
Sri Lanka, Taiwan, Thailand and Vietnam. Other countries may be included in the
future. The Fund will normally invest in at least four countries in the Asia
Pacific region. The Fund does not expect to invest in Japan.
FUND'S BENEFITS AND RISKS
BENEFITS
Peregrine believes the Asia Pacific region has potential for dramatic economic
growth. The Fund offers investors who believe that the Asia Pacific region
offers strong long-term growth potential the ability to concentrate an
investment in Asia Pacific securities. The Fund's performance is closely tied to
economic and political conditions within the Asia Pacific region. The Fund may
not be suitable for all investors and is intended for investors willing to
assume greater risk and as a complement to a broader investment plan. The Fund
is not intended to be a complete investment program.
Peregrine normally invests the Fund's assets according to its investment
objective and policies. Peregrine determines whether an issuer or its principal
business are located in the Asia Pacific region by looking at such factors as
its country of organization, the primary trading market for its securities, and
the location of its assets, personnel, sales and earnings. When allocating the
Fund's investments among countries, Peregrine considers such factors as the
potential for economic growth, political developments, expected levels of
inflation, governmental policies and the outlook for currency relationships.
There can be no assurance that the Fund will achieve its investment objective.
EMERGING MARKET RISKS
Investors should expect volatility in the value of the Fund's shares as emerging
markets are characterized by wide fluctuations in securities' prices. Countries
in the Asia Pacific region are in various stages of economic development. Each
has its own risks. Some are considered emerging markets, which generally have
low-to-middle-income economies. Except for Australia and New Zealand, the other
Asia Pacific countries are considered emerging markets. Most countries in this
region are heavily dependent on international trade. Some have prosperous
economies, but are sensitive to world commodity prices. Others are especially
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vulnerable to recessions and economic factors in other countries. Some countries
in the region have experienced rapid growth recently, and many suffer from
obsolete financial systems, economic problems, or less developed legal systems.
Many are experiencing political and social uncertainty. In addition, the return
of Hong Kong to Chinese control may affect the entire region known as "Greater
China". The securities markets in the Asia Pacific region may be subject to
emergencies caused by governmental actions and political and economic factors.
In the event an emergency exists, the Fund may, with the approval of the SEC,
suspend your right to redeem your Fund shares during the emergency.
INTERNATIONAL INVESTING RISKS
The Fund's policy of investing in non-U.S. markets and, in particular, emerging
markets, involves increased or additional economic and political risks from
those mentioned above as compared to investing in the U.S. or other developed
markets. The Fund's share price will be affected by events and factors in the
various world markets.
These foreign markets have generally less stringent investor protection rules
and enforcement, disclosure standards and governmental regulation. In addition,
some foreign companies are not subject to the same financial accounting,
auditing and reporting standards that are required of U.S. companies. Compared
to U.S. markets, foreign markets are less developed and less liquid, have fewer
issuers, may be more subject to influence by large investors and more
susceptible to manipulation. Some have unstable governments. In addition to the
political and economic factors that can affect the value of foreign securities,
a governmental issuer may be unwilling to repay principal and interest when due
and may require that the conditions for payment be renegotiated. Investing in
countries with emerging economies or securities markets is subject to the
additional risks associated with political and economic structures undergoing
rapid change, economies heavily dependent upon international trade and extremely
sensitive to commodity prices and economic factors in other countries, the lack
of developed securities markets and effective regulations, less developed legal
and economic sectors, restrictions on foreign ownership of securities and
governments that in the past have failed to recognize private ownership, have
nationalized or expropriated private property, imposed currency exchange
controls, levied confiscatory taxes and limited the removal of funds or other
assets.
OTHER RISKS
When you sell your Fund shares they may be worth more or less than you paid for
them. Their value will depend upon the value of the Fund's investments, which
varies in response to many factors. Stock values fluctuate in response to the
activities of individual companies, and general market, economic and political
conditions. The securities of smaller, less well-known companies may be
particularly volatile. Bond values fluctuate based on changes in interest rates
and in the credit quality of the issuer. In addition, all of the Fund's
investments may be denominated in foreign currencies which fluctuate in response
to global economic, market and political factors. Peregrine will select
investments for the Fund that it believes offer the greatest opportunity for
long-term capital appreciation. There can be no assurance that Peregrine will be
successful.
In addition, because the Fund may invest in a wide variety of investments and
use various investment techniques, the Fund may be riskier and more volatile
than funds whose investments and investment techniques are less varied. Some of
the more common risks associated with the investments and investment techniques
available to the Fund are discussed below in "Fund's Investments and
Techniques." See also "Risk Factors" in the SAI.
INVESTMENT POLICIES
In pursuing its goals, the Fund will focus on equity securities but it may also
invest in other types of financial instruments, including debt securities of any
quality. The Fund may invest in the securities of any issuer, including
companies and other business organizations, as well as governments and
governmental and quasi-governmental agencies. The Fund, however, will tend to
focus on the equity securities of both large and small companies in the Asia
Pacific region. Except in unusual circumstances, Peregrine will normally invest
at least 65%, and at times nearly all, of the Fund's total assets in securities
of issuers expected to benefit from the development and growth of the economies
of the Asia Pacific region. The Fund will normally invest in at least four
countries in the Asia Pacific region.
Peregrine may use different investment techniques to attempt to achieve the
Fund's investment objective and to hedge the Fund's risks, but there is no
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guarantee that these strategies will work as Peregrine intends. Also, as a
mutual fund, the Fund seeks to spread investment risk by diversifying its
holdings among many companies and industries. Of course, diversification does
not eliminate risk and when you sell your Fund shares, they may be worth more or
less than you paid for them.
The Fund may, in seeking to avoid foreign taxes or comply with foreign
investment restrictions, invest in certain countries in the Asia Pacific region
through wholly-owned entities organized in a foreign country.
The Fund's investments will normally be denominated in a foreign currency. In an
attempt to protect against uncertainties in the markets or in anticipation of
the need for cash to meet redemption requests or settlement of portfolio
transactions, the Fund may, for temporary defensive purposes, invest in
short-term debt securities and money market instruments in excess of 35% of the
Fund's total assets. There is no limit on the amount of foreign currencies or
short-term instruments denominated in a foreign currency the Fund may hold.
The Fund may invest in a variety of instruments that are or may become available
in the market, and Peregrine may use a number of investment techniques and
strategies to achieve the Fund's objective. There are a number of risks and
restrictions associated with these instrument types and investment practices
that should be considered by investors. The investment types and investment
practices that will be used most often are listed below under "Fund's
Investments and Techniques." (A complete listing of the Fund's policies and
limitations and more detailed information about the Fund's investments and
strategies is contained in the Fund's SAI.) Policies and limitations are
considered at the time of purchase; the sale of instruments is not required in
the event of a subsequent change in circumstances.
Peregrine may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the Fund
achieve its goals. Current holdings and recent investment strategies are
described in the Fund's financial reports which are sent to shareholders twice a
year. For a free SAI or annual or semi-annual report, call (800) 910-5525 or
write to the Fund at the address on the cover.
FUND'S INVESTMENTS AND TECHNIQUES
EQUITY SECURITIES
Equity securities may include common stocks, preferred stocks, direct equity
interests in unincorporated entities or enterprises, convertible securities and
warrants. Common stocks, the most familiar type of equity security, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market, economic and political
conditions. Smaller companies are especially sensitive to these factors. The
Fund also considers equity swaps, indexed securities and similar instruments
whose values are tied to one or more equity securities to be equity securities.
DIVERSIFICATION
Diversification of the Fund's investment portfolio can reduce the risks of
investing. This may include limiting the amount of money invested in any one
issuer or, on a broader scale, in any one industry.
Restrictions: With respect to 75% of total assets, the Fund may not invest
more than 5% of its total assets in securities (including debt securities)
of any one issuer. The Fund may not invest more than 25% of its total
assets in any one industry. These limitations do not apply to U.S.
Government securities.
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FOREIGN AND EMERGING MARKETS SECURITIES
The Fund will normally invest a significant portion of its assets in securities
of issuers located outside the U.S. and traded outside the U.S. These securities
will usually be non-U.S. dollar denominated, but also may be dollar denominated,
such as American Depository Receipts ("ADRs"). Changes in the value of foreign
currencies can significantly affect the value of the Fund's investments and
share price. Peregrine may use a variety of techniques to either increase or
decrease the Fund's exposure to any currency.
DEBT SECURITIES
Bond and other debt instruments are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are purchased at a discount from
their face values. In general, bond prices rise when interest rates fall and
vice versa. Debt securities have varying degrees of quality and varying levels
of sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are speculative
and involve greater risk of default or price fluctuations due to changes in the
issuer's creditworthiness, or the reality that the issuer may already be in
default. The market prices of these securities may fluctuate more than
higher-quality securities and may decline significantly in periods of general
economic difficulty.
Restrictions: The Fund currently intends to limit its investments in debt
securities rated lower than Baa by Moody's Investors Services ("Moody's")
to 25% of its total assets. Purchase of a debt security is consistent with
the Fund's debt quality policy if it is rated at or above the stated level
by Moody's or rated in the equivalent categories by Standard & Poor's
Corporation ("S&P"), or is unrated but judged to be of equivalent rating
quality by Peregrine. The ratings of Moody's and S&P represent their
respective opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of
quality.
The SAI provides an explanation of the ratings assigned to debt holdings (not
including money market instruments).
ADJUSTING INVESTMENT EXPOSURE
The Fund may use various techniques to increase or decrease its exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options, futures and
forward contracts, entering into currency exchange contracts, swap agreements,
purchasing indexed securities and selling securities short.
Peregrine may use these practices to adjust the risk and return characteristics
of the Fund's portfolio of investments. If Peregrine judges market conditions
incorrectly or employs a strategy that does not correlate well with the Fund's
investments, these techniques could result in a loss to the Fund, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss to the Fund if the counterparty to the transaction does
not perform as promised.
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REPURCHASE AGREEMENTS
In a repurchase agreement, the Fund buys a security at one price and
simultaneously agrees to sell it back at a higher price. The difference between
the sale and repurchase prices represents interest earned by the Fund. Delays or
losses to the Fund could result if the other party to the agreement defaults or
becomes insolvent.
FOREIGN REPURCHASE AGREEMENTS
Repurchase agreements with foreign dealers may be less well-secured than U.S.
repurchase agreements, and may be denominated in foreign currencies. They also
may involve greater risk of loss or counterparty default. Some counterparties in
these transactions may be less creditworthy and subject to less regulation than
those in U.S. markets.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Peregrine, under the supervision of the
Board of Trustees, to be illiquid, which means that they may be difficult to
sell promptly at an acceptable price. Securities subject to legal or contractual
restrictions and repurchase agreements maturing in more than seven days are
considered illiquid. Difficulty in selling these securities may result in a loss
or may be costly to the Fund.
Restrictions: The Fund may not enter into a repurchase agreement maturing
in more than seven days if, as a result, more than 15% of the Fund's net
assets would be invested in these repurchase agreements and other illiquid
securities.
OTHER INSTRUMENTS
Other securities in which the Fund may invest include rights, securities of
investment companies, partly paid shares, and real estate-related investments.
SHORT SELLING
Short selling involves selling a security that the Fund does not own and has
borrowed from a broker or bank or other institution. When the Fund purchases the
security to replace the borrowed security, if the value of the security has
declined as anticipated, the Fund will profit to the extent of the difference
between the purchase price and the sale price. If the price of the security
increases, the Fund will suffer a loss.
Restrictions: The value of securities of any one issuer sold short will
constitute no more than 2% of the Fund's net assets or no more than 2% of
the issuer's outstanding class of securities. Only liquid securities will
be sold short. The value of all securities sold short will constitute no
more than 25% of the Fund's net assets.
LEVERAGE
The Fund may use leverage by borrowing from banks, or through reverse repurchase
agreements, futures, options and similar transactions. Leverage will subject the
Fund's share price to greater fluctuation.
Restrictions: The Fund may not borrow in an amount exceeding 33-1/3% of its
total assets.
LENDING OF PORTFOLIO SECURITIES
Securities may be lent to broker-dealers and institutions, including affiliates
of Peregrine. Lending is a means for the Fund to earn income. This practice
could result in a loss or a delay in recovering the Fund's securities.
Restrictions: Loans of the Fund's securities, in the aggregate, may not
exceed 33-1/3% of the Fund's total assets.
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FUNDAMENTAL POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, which are subject to change only with shareholder approval, and are
all listed below. All policies stated throughout this Prospectus, other than
those identified in this section as fundamental, can be changed without
shareholder approval.
The Fund's investment objective is to seek capital appreciation by investing in
the securities of companies that are expected to benefit from the development
and growth of the economies of the Asia Pacific region. This objective can be
changed only with shareholder approval.
The Fund, with respect to 75% of total assets, may not invest more than 5% of
its total assets in the securities (including debt securities) of any one
issuer, and may not own more than 10% of the outstanding voting securities of a
single issuer, excluding entities of which it is the sole owner. The Fund may
not invest more than 25% of its total assets in any one industry. The Fund may
borrow in an amount not exceeding 33-1/3% of its total assets. Loans of the
Fund's securities, in the aggregate, may not exceed 33-1/3% of total assets.
BUYING AND SELLING FUND SHARES
The Fund is a "no-load" mutual fund. The Fund does not currently impose a
transaction or sales charge for investors purchasing shares directly from the
Fund. However, to reduce transaction costs to the Fund resulting from excessive
shareholder activity, a redemption fee of 2% ("Redemption Fee") of the value of
the shares sold will be retained by the Fund if you sell your shares within 2
months of purchase. Full and fractional shares will be purchased or redeemed at
the next share price calculated after the investment or request for redemption
is received and accepted. The share price is calculated at the close of trading
on the New York Stock Exchange ("NYSE"), currently 4:00 P.M., Eastern Time, on
each day the NYSE is open for business. Purchases and sales will be made in U.S.
dollars. The Fund will not issue share certificates. The Fund may, without
notice, suspend the offering of shares or reject any purchase order.
HOW TO BUY SHARES
THROUGH A FINANCIAL INSTITUTION OR DST SYSTEMS, INC.
Fund shares may be purchased at their net asset value per share without payment
of a sales charge by: (1) ordering the shares through a financial institution
(which may impose a transaction charge for its services) and forwarding a
completed Application or investment firm settlement instructions with payment;
or (2) completing an Application and mailing it with payment to the Fund's
Transfer Agent and Dividend Paying Agent, DST Systems, Inc. ("DST"), c/o
Peregrine Funds, P.O. Box 419558, Kansas City, Missouri, 64141-9558.
BROKERS, BANKS AND FINANCIAL PROFESSIONALS
You may purchase or sell your shares through a broker, bank or investment
professional, which may charge a fee for its services. A financial institution
having a sales agreement with the Distributor must submit your order received by
it prior to the close of trading on the NYSE to the Distributor not later than
5:00 p.m., Eastern Time, or to DST through the facilities of the National
Securities Clearing Corporation by 7:00 p.m., Eastern Time, in order to receive
that day's price.
Certain financial institutions may enter into sales agreements with the
Distributor and may place confirmed purchase orders on behalf of their
customers, with payment to follow within three business days. If payment is not
received by the Fund, the financial institution will be held liable for any fees
or losses the Fund or the Distributor may incur.
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Some unaffiliated financial institutions have entered into agreements with the
Fund, the Distributor and/or Peregrine to provide services to shareholders. If
such financial institutions provide assistance in marketing the Fund, the
financial institutions will be compensated by Peregrine from its own resources.
PAYMENT
Payment for shares must be made payable to the Fund in U.S. dollars. Checks
drawn on a foreign bank will not be accepted unless provisions are made for
payment in U.S. dollars through a U.S. bank. Third party checks will not be
accepted.
MINIMUM PURCHASES
Initial purchases must be in the amount of $5,000 or more per account.
Subsequent purchases must be in the amount of $1,000 or more. Purchases may be
made through selected dealers or banks or investment professionals or by
forwarding payment to DST. Either minimum may be waived by the Fund in special
circumstances deemed to be appropriate by the Fund's Board of Trustees.
HOW TO SELL SHARES
You may sell your shares on any business day by writing or calling DST or your
financial institution. If you purchased shares through an investment
professional you may be required to sell your shares through that investment
professional if your shares are held in "street name". The redemption price will
be the net asset value per share next determined after the receipt of a request
in proper form as described herein. Currently, the Fund does not impose a fee
for redemption checks or wires, but it may do so at a later date.
IN WRITING
To sell shares you may write to DST, c/o Peregrine Funds, P.O. Box 419558,
Kansas City, Missouri 64141-9558. Your redemption request must (1) be signed by
all owners exactly as their names appear on the account, (2) specify the number
of shares or amount of investment to be redeemed if less than all shares in the
account are to be sold, (3) contain a signature guarantee of each owner's
signature by an eligible guarantor institution (notarization by a notary public
is not acceptable) if the redemption amount is $50,000 or more, if the
redemption check is to be made payable to other than the owners or is to be sent
to an address other than the record address or if the record address has been
changed within the past 30 days and (4) provide any additional documents
regarding accounts of estates, trusts, guardianships, custodianships,
partnerships and corporations (e.g., appointments as executor or administrator,
trust instruments or certificates of corporate authority) requested by DST.
Banks, trust companies, savings institutions and broker/dealers are eligible to
guarantee your signature.
BY TELEPHONE
If you have elected the telephone redemption privilege, you may sell your shares
by telephone by calling either (1) your financial institution (which may charge
a transaction fee) or (2) DST at 1-800-910-5525, as applicable. Telephone calls
to DST are recorded. Shares will be redeemed by telephone if you provide the
correct social security number, tax identification number or account number and,
to protect against fraud or losses, any additional information required by DST.
The Fund reserves the right to refuse a request for the telephone redemption
privilege without prior notice, either before, during or after the call.
Telephone instructions accepted after the close of business on the NYSE will not
be processed until the following business day. In the case of joint or multiple
owners, one owner's call may effect the telephone redemption. Because of unusual
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market conditions it may be difficult and/or impossible to contact DST or your
broker, bank or investment professional to redeem your shares. You should
continue to try contacting them by telephone at their telephone number or
written instructions may be sent by post or courier. Telefaxed instructions will
not be accepted.
TELEPHONE REDEMPTION--PROCEEDS BY CHECK
You may request redemption by telephone of $50,000 or less per day if the
proceeds check is to be payable to the registered owner(s) and sent to the
address of record on the account. To protect you and the Fund from fraud, a
telephone redemption request will not be accepted if you changed the registered
address within one month of the request. Accounts registered as estates, trusts,
guardianships, custodianships, partnerships and corporations and accounts held
in street name are not eligible for this privilege.
EXPEDITED REDEMPTION--PROCEEDS BY WIRE
You may request an expedited redemption by telephone with the proceeds
transmitted by wire to the bank account set forth in the Expedited Redemption
section of your completed Application. The Fund reserves the right to impose a
minimum amount that may be wired for redemptions and/or automatically deduct a
wiring fee from the amount wired. Reqeusts to establish or change the expedited
redemption wire instructions on an existing account must be made in writing,
signed by all registered accountholders with any additional documents requested
by DST (see IN WRITING above), and signature guaranteed.
UNAUTHORIZED TELEPHONE REDEMPTIONS
Like most mutual funds, the Fund and DST may only be liable for losses resulting
from unauthorized transactions if they do not follow reasonable procedures
designed to verify the caller's identity. Telephone calls may be recorded and
account number and other information may be requested. If you do not want the
ability to redeem by telephone, check the appropriate box on the Application or
call DST for instructions.
REDEMPTION FEE
Shares redeemed within 2 months of purchase will incur a Redemption Fee of 2%
which will be deducted from the value of those shares. The Redemption Fee is
paid to the Fund, not to the Distributor, and is intended to cover the costs
incurred by the Fund resulting from short-term trading by investors. The
Redemption Fee does not apply to shares acquired through the reinvestment of
distributions or attributable to appreciation. Shares held the longest will be
redeemed first for purposes of calculating the fee.
PAYMENT OF SALES PROCEEDS
Payment for shares sold will normally be made within seven days after a proper
redemption request is received, except for delays which may be permitted under
applicable law or rule. If Fund shares to be redeemed were purchased by check,
to protect the Fund from losses, the Fund will pay the proceeds only after it is
satisfied that your check has been cleared for payment. This may take as long as
15 days.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute its net investment income and net capital gains
annually, generally in December. Dividends or distributions declared in December
but paid in the following January will be includable in your income as of the
record date (usually in December) of such dividends or distributions. The fiscal
year of the Fund ends on December 31.
DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT
Dividends and distributions will be automatically reinvested in Fund shares at
net asset value unless you or your financial institution notifies DST that
dividends and distributions of $10 are to be paid in cash. If you do not want
your dividends and distributions reinvested automatically, please check "Cash"
on the Application. If you elect to have dividends and/or distributions paid in
cash, and the U.S. Postal Service cannot deliver the check, or if it remains
uncashed for six months, it as well as future dividends and distributions will
be reinvested in additional shares.
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TAX-SHELTERED RETIREMENT PLANS
You may purchase Fund shares for your tax-sheltered retirement plans. These
plans allow individuals to shelter investment income and capital gains from
current taxes. Contributions may be tax deductible. You should contact your plan
provider to determine eligibility of the Fund as an investment selection within
your plan. Additional information about these plans may be found in the SAI.
FACTS ABOUT YOUR ACCOUNT
YOUR ACCOUNT
DST maintains Fund account records. However, brokers, banks and financial
institutions maintain account records for shares that are held in street name
for their clients. If you purchased your shares from a financial institution,
you must call or write to the institution if you have questions about your
account or want to sell Fund shares you own. DST will have no record of your
account.
MINIMUM ACCOUNT SIZE
If at any time the number of shares in your account falls below a specified
amount, currently 500 shares, you may be notified that you have 30 days to bring
the number of shares you own up to the minimum amount. If you were unable to
comply with the account minimum within 30 days, the Fund could redeem your Fund
shares involuntarily and mail the proceeds to you. Your shares would be redeemed
at the net asset value on the day your account is closed.
FUND'S BUSINESS DAYS
You may transact business (buy and sell shares) in your account on each day the
NYSE is open. Shares are purchased and sold at the net asset value per share
(NAV) next calculated after your order is received and accepted. The NAV is
calculated at the close of business on the NYSE, currently 4:00 P.M., Eastern
Time.
FUND'S NAV
The Fund's NAV is the value of one share. It is computed by adding the value of
the Fund's investments, cash and other assets, subtracting the Fund's
liabilities and dividing the result by the number of shares outstanding at the
time.
VALUATION OF FUND'S INVESTMENTS
The assets of the Fund are primarily valued on the basis of market quotations.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. If market value is not ascertainable, investments are
valued at fair value as determined in good faith by the Board of Trustees.
Foreign investments will be valued in U.S. dollars using the prevailing exchange
rates on that day. The Fund invests in securities, options or futures contracts
listed or traded on foreign exchanges which may trade on Saturdays or other
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<PAGE>
customary U.S. national business holidays (days on which the Fund is not open
for business). Consequently, the Fund's NAV may be affected on days when you may
not purchase or redeem shares.
SPECIAL SERVICES
You may be charged a fee for special services you request, such as providing
historical account documents.
TRANSFER OF OWNERSHIP
To transfer ownership of (re-register) all or a portion of your shares, you must
provide a written request together with any documents DST may request to satisfy
itself that the request is genuine. See "Buying and Selling Fund Shares - How to
Sell Shares." DST will require the same information and certifications, all in
proper form, necessary to open and close an account.
MANAGEMENT
INVESTMENT ADVISER
Peregrine, as the Fund's investment adviser, manages the Fund's portfolio of
investments pursuant to an Investment Advisory Agreement and is paid an
investment advisory fee ("Advisory Fee") by the Fund at an annual rate of 1.00%
of average daily net assets. Peregrine currently acts as sub-adviser to one
other mutual fund registered with the SEC under the 1940 Act and manages pension
plans, offshore mutual funds and other portfolios. Total aggregate assets under
management by Peregrine were approximately $170 million as of June 30, 1996.
Peregrine has voluntarily agreed to waive the Advisory Fee and/or assume
operating expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) in order to limit the Fund's total expenses to an annual
rate of 2.00% of the Fund's average daily net assets until December 31, 1997.
PORTFOLIO ADMINISTRATOR
Van Eck Associates Corporation ("Van Eck") serves as the Fund's portfolio
administrator pursuant to a Portfolio Accounting and Administration Agreement.
Van Eck performs accounting and administrative services for the Fund and is paid
a fee ("Portfolio Administration Fee") at an annual rate of .25% of the Fund's
average daily net assets or $75,000, whichever is greater. Van Eck is
responsible for calculating the Fund's NAV, maintaining the Fund's records and
providing certain other accounting and administrative services.
The Advisory and Portfolio Administration Fees paid by the Fund are generally
more than those paid by other comparable mutual funds.
ADVERTISING
From time to time, the Fund may advertise its performance. Past performance is
not indicative of future performance.
AVERAGE ANNUAL TOTAL RETURN
The Fund may advertise its performance in terms of average annual total return,
which is computed by finding the average annual compounded rate of return over a
period so that the initial amount invested would equal the ending account value.
The calculation assumes that all dividends and distributions by the Fund are
reinvested and includes all recurring fees charged to all shareholder accounts.
It is not the actual return in each year, but an average. The actual return in
any year may be more or less than the average. Average annual total return for
periods of less than a year is equal to the actual return annualized and assumes
that performance to date will continue for the rest of the year.
AGGREGATE TOTAL RETURN
The Fund may advertise aggregate total return for a specified period of time,
which is the percentage change in the net asset value of Fund shares initially
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<PAGE>
purchased assuming reinvestment of dividends and capital gains distributions
without giving consideration to the length of time of the investment.
Non-recurring expenses may be excluded from the calculation of rates of return
so that the rates may be higher than if these expenses were included. The SAI
describes the methods used to calculate the Fund's total return.
The Fund may quote performance results from recognized services and publications
which monitor the performance of mutual funds and the Fund may compare its
performance to various published historical indices. These include market,
economic and performance data and indices. For example, the Fund may quote the
market performance of the S&P 500; Morgan Stanley Capital International Europe
Australia Far East (EAFE) Index; the Morgan Stanley Capital International
Combined Far East Ex-Japan Free Index or another appropriate index; performance
of various world economies or economic indicators; or compilations of historical
performance data from rating agencies. The Fund is rated in the Asia/Pacific
Basin Funds Category by performance rating agencies. Micropal, Ltd., a worldwide
mutual fund performance evaluation service, is one rating agency; Lipper
Analytical Services is another.
TAXES
FUND'S TAX STATUS
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, and will not pay income or excise
taxes to the extent that it distributes its net taxable investment income and
capital gains.
TAXATION OF DISTRIBUTIONS YOU RECEIVE
Notice as to the tax status of dividends and distributions will be mailed to you
annually. Income from dividends and distributions is normally taxable whether or
not reinvested. Distributions from net investment income and short-term capital
gains will be taxed as ordinary income. Distributions of long-term capital gains
will be taxed at capital gain rates. If the Fund fulfills certain requirements,
shareholders of the Fund may be able to claim a foreign tax credit or deduction
for foreign taxes paid to foreign governments by the Fund during the year. The
Fund does not anticipate that any portion of the Fund's dividends will be
eligible for the 70% corporate dividends received deduction.
TAXATION ON SALE OF SHARES
When you redeem your shares you may incur a capital gain or loss for tax
purposes. The amount of the capital gain or loss, if any, is the difference
between what you paid for your shares and what you receive. Be sure to keep your
regular statements - they contain the information necessary to calculate the
capital gain or loss.
This discussion was a brief description of the tax consequences of an investment
in the Fund. You should consult your tax adviser for additional tax
consequences, including state and local taxation, of dividends, distributions
and sale of Fund shares.
NON-RESIDENTS
Distributions of net investment income and short-term capital gains, if any,
made to non-resident aliens will be subject to 30% withholding or lower tax
treaty rates because such distributions are considered U.S. source income.
Currently, the Fund is not required to withhold tax from long-term capital gains
distributions paid to non-resident aliens.
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ADDITIONAL INFORMATION
QUESTIONS ABOUT THE FUND
For further information about the Fund, please call your financial advisor or
the Fund toll free at (800) 910-5525 or write to the Fund at the cover page
address.
CUSTODIAN
The custodian of the assets of the Trust is The Chase Manhattan Bank, N.A., 4
Chase Metrotech Center, Brooklyn, New York 11245.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, are
the Fund's independent accountants. The Fund's annual financial statements are
audited by Price Waterhouse.
COUNSEL
Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019, serves as outside
counsel to the Trust.
TRANSFER AND DIVIDEND DISBURSING AGENT
DST Systems, Inc., 1055 Broadway, Kansas City, Missouri 64105, serves as the
Fund's transfer, dividend disbursing and shareholder servicing agent.
INVESTMENT ADVISER
Peregrine Asset Management (Hong Kong) Limited, New World Tower, Suite 1710,
16-18 Queens Road, Central, Hong Kong, serves as the investment adviser to the
Fund.
DISTRIBUTOR
Van Eck Securities Corporation, 99 Park Avenue, New York, New York 10016, serves
as distributor for the Fund's shares.
PORTFOLIO ADMINISTRATOR
Van Eck Associates Corporation, 99 Park Avenue, New York, New York 10016, serves
as portfolio administrator for the Fund.
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PEREGRINE FUNDS
99 PARK AVENUE, NEW YORK, NEW YORK 10016
SHAREHOLDER SERVICES: TOLL FREE (800) 910-5525
ASIA PACIFIC GROWTH FUND
Peregrine Funds is an open-end investment company organized as a "business
trust" under the laws of the state of Delaware (the "Trust") and is commonly
referred to as a mutual fund. Asia Pacific Growth Fund (the "Fund") is the only
series of the Trust.
TABLE OF CONTENTS PAGE
General Information.......................................................... 2
Overview of Investment Objective and Policies of the Fund................... 2
Risk Factors ................................................................ 3
Foreign Securities.................................................. 3
Emerging Market Securities.......................................... 4
Foreign Currency Transactions....................................... 7
Futures and Options Contracts and Complex Securities................ 8
Options, Futures and Forward Contracts.............................. 8
Hedging and Other Investment Techniques............................. 10
Indexed Securities and Structured Notes............................. 11
Swap Agreements..................................................... 12
Loans of Portfolio Securities....................................... 12
Borrowing........................................................... 12
Real Estate Securities.............................................. 13
Investment Company Securities....................................... 13
Rights.............................................................. 14
Partly Paid Securities.............................................. 14
Direct Investments.................................................. 14
Repurchase Agreements............................................... 15
Debt Securities..................................................... 16
Rule 144A Securities and Section 4(2) Commercial Paper.............. 16
Investment Restrictions...................................................... 16
Investment Advisory Services................................................. 18
The Distributor.............................................................. 20
Portfolio Transactions and Brokerage......................................... 20
Trustees and Officers........................................................ 22
Valuation of Shares.......................................................... 24
Tax-Sheltered Retirement Plans............................................... 25
Investment Programs.......................................................... 27
Taxes........................................................................ 28
Redemptions in Kind.......................................................... 30
Performance.................................................................. 31
Additional Information....................................................... 32
Financial Statements......................................................... 32
Appendix..................................................................... 35
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE FUND'S CURRENT PROSPECTUS, DATED AUGUST 30, 1996 (THE
"PROSPECTUS"), WHICH IS AVAILABLE AT NO CHARGE UPON WRITTEN OR TELEPHONE REQUEST
TO THE TRUST AT THE ADDRESS OR TELEPHONE NUMBER SET FORTH AT THE TOP OF THIS
PAGE. SHAREHOLDERS ARE ADVISED TO READ AND RETAIN THIS STATEMENT OF ADDITIONAL
INFORMATION FOR FUTURE REFERENCE.
STATEMENT OF ADDITIONAL INFORMATION - AUGUST 30, 1996
<PAGE>
GENERAL INFORMATION
The Trust is an open-end management investment company organized as a "business
trust" under the laws of the S tate of Delaware. The Board of Trustees has
authority to create additional series or funds, each of which may issue a
separate class of shares. The Fund is currently the only series of the Trust.
The Fund is classified as a diversified fund under the Investment Company Act of
1940, as amended (the "1940 Act"). A diversified fund is a fund which meets the
following requirements: At least 75% of the value of its total assets is
represented by cash and cash items (including receivables), government
securities, securities of other investment companies and other securities, for
the purpose of this calculation limited in respect of any one issuer to an
amount not greater than 5% of the value of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer.
Peregrine Asset Management (Hong Kong) Limited (the "Adviser") serves as
investment adviser to the Fund.
OVERVIEW OF INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective is to achieve long-term capital appreciation by
investing in the securities of companies that are expected to benefit from the
development and growth of the markets or economies of Asia and the Pacific
Basin.
The Fund may invest in a broad range of equity securities, warrants and equity
options of companies located in, or expected to benefit from the development and
growth of the economies of countries located in Asia and the Pacific Basin. The
Fund considers the "Asia Pacific" region to include Australia, Bangladesh,
Brunei, Cambodia, Hong Kong, India, Indonesia, Republic of Korea, Laos,
Malaysia, Myanmar (formerly, Burma), Nepal, New Zealand, Pakistan, Papua New
Guinea, the People's Republic of China ('China"), the Philippines, Singapore,
Sri Lanka, Taiwan, Thailand and Vietnam. Other countries may be added in the
future. Currently, the Fund does not invest in Japan. Equity securities include
common and preferred stocks, structured notes, equity swaps, direct equity
interests in trusts, partnerships, joint ventures and other unincorporated
entities or enterprises, special classes of shares available only to foreign
persons in those markets that restrict ownership of certain classes of equity to
nationals or residents of that country, convertible preferred stocks and
convertible debt instruments. The Fund may buy and sell financial futures
contracts and options on financial futures contracts, forward currency contracts
and put or call options on securities, securities indices and foreign
currencies, currency swaps, structured and indexed notes and other instruments
which may be or become available that are consistent with the Fund's investment
objective. The Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., leverage its portfolio). Although the Fund will
invest its assets in a manner consistent with its investment objective and
policies, there can be no assurance the Fund will be able to achieve its
objective.
The Fund expects that under normal market conditions at least 65%, and at times,
substantially all of its assets will normally be invested in equity securities,
structured and indexed notes, swaps and other instruments whose return is tied
to one or more issuers in the Asia Pacific region. Issuers that the Fund may
invest in consist of companies that (a) are located in the Asia Pacific region
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or whose securities are principally traded in an Asia Pacific country or (b)(i)
have at least 50% of their assets in one or more countries located in the Asia
Pacific region or (ii) derive at least 50% of their gross sales, revenues or
profits from providing goods or services to or from within one or more countries
located in the Asia Pacific region. These investments are typically listed on
stock exchanges or traded in the over-the-counter markets in Asia Pacific
countries, but may be traded on exchanges or in markets outside the Asia Pacific
region. Similarly, the principal offices of these companies may be located
outside these countries. The Fund may commit 25% or more of its total assets to
any one country in the Asia Pacific region, and will normally invest in at least
four Asia Pacific countries. The Fund may invest, without limitation, in
depository shares or depository receipts, such as American Depository Receipts
and Shares, and Global Depository Receipts and Shares. Depository receipts and
shares are generally issued by custodian banks as evidence of ownership of the
underlying foreign securities.
The Fund may, for temporary defensive purposes, invest more than 35% of its
total assets in high grade, liquid debt securities of foreign and United States
companies which are not in the Asia Pacific region, of foreign governments and
the U.S. Government, and their respective agencies, instrumentalities, political
subdivisions and authorities, as well as in money market instruments denominated
in U.S. Dollars or a foreign currency. These money market instruments include,
but are not limited to, negotiable or short-term deposits with domestic or
foreign banks with total surplus and undivided profits of at least $50 million;
high quality commercial paper; and repurchase agreements maturing within seven
days with domestic or foreign dealers, banks and other financial institutions
deemed to be creditworthy under guidelines approved by the Board of Trustees of
the Fund. The commercial paper in which the Fund may invest will, at the time of
purchase, be rated P-1 or better by Moody's Investors Services, Inc. ("Moody's")
or A-1 or better by Standard & Poor's Corporation ("S&P") or, Fitch-1 by Fitch
or Duff-1 by Duff & Phelps or if unrated, will be of comparable high quality as
determined by the Adviser.
Some countries in the Asia Pacific region have favorable tax treaties with other
countries, the effect of which is that entities organized under the laws of the
tax favored country pay a lower rate of tax on income or capital gains earned on
investments in the taxing country. The Fund may invest, when it is advantageous
for tax reasons, through wholly-owned entities.
The Fund may invest in collateralized mortgage obligations. The Appendix to this
Statement of Additional Information contains an explanation of the rating
categories of Moody's and S&P relating to the fixed-income securities and
preferred stocks in which the Fund may invest, including a description of the
risks associated with each category.
RISK FACTORS
FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves certain
special considerations which are not typically associated with investing in
United States securities. Since investments in foreign companies will frequently
involve currencies of foreign countries, and since the Fund may hold securities
and funds in foreign currencies, the Fund may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations, if
any, and may incur costs in connection with conversions between various
3
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currencies. Most foreign stock markets, while growing in volume of trading
activity, have less volume than the New York Stock Exchange ("NYSE"), and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. Similarly, volume and liquidity in
most foreign bond and equity markets are lower than in the United States, and at
times volatility of price can be greater than in the United States. Fixed
commissions on foreign securities exchanges are generally higher than negotiated
commissions on United States exchanges. There is generally less government
supervision and regulation of securities exchanges, brokers and listed companies
in foreign countries than in the United States. In addition, with respect to
certain foreign countries, in particular emerging market countries, there exists
the possibility of exchange control restrictions, expropriation or confiscatory
taxation, and political, economic or social instability, which could affect
invesents in those countries. Foreign securities such as those purchased by
the Fund may be subject to foreign government taxes, higher custodian fees and
dividend collection fees which could reduce the yield on such securities.
EMERGING MARKET SECURITIES
Many countries in the Asia Pacific region are considered developing or emerging
countries. The Fund may have a substantial portion of its assets in these
countries or in countries with developing securities markets. Although there is
no universally accepted definition, a developing or emerging country is
generally considered by the Adviser to be a country which is in the initial
stages of industrialization or economic development. With the exception of
Australia and New Zealand, the other countries of the Asia Pacific region are
considered developing or emerging markets.
Shareholders should be aware that investing in the equity and fixed income
markets of those countries and emerging markets involves exposure to unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Securities markets of these countries
tend to be more volatile than the markets of developed countries; however, such
markets have, in the past, provided the opportunity for higher rates of return
to investors. Some of these countries do not have securities markets or
exchanges or are in the initial stages of formation.
Political and economic structures in many such countries may be undergoing
significant evolution and rapid development, and therefore, such countries may
lack the social, political and economic stability characteristic of the United
States. Certain of these countries have, in the past, failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. An investment in the Fund presents a greater risk
of loss to investors than would an investment in a fund investing in a more
diversified portfolio of companies located in more stable countries. The
economies of countries with developing markets may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme debt
burdens or inflation rates. Local securities markets may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. Securities
of issuers located in developing markets may have limited marketability and may
be subject to abrupt or erratic price movements. However, such markets have in
the past provided the opportunity for higher rates of return to investors. There
is no assurance that these markets will offer such opportunity in the future.
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Since the Fund invests at least 65% of its total assets in Asia Pacific region
investments, the investment performance will be especially affected by events
affecting companies in the Asia Pacific region. The value and liquidity of these
investments may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in the Asia Pacific region or
neighboring regions. The extent of economic development, political stability and
market depth in the various countries in the Asia Pacific region varies widely.
Certain countries in the Asia Pacific region, including Bangladesh, Cambodia,
China, Laos, Indonesia, Malaysia, Nepal, the Philippines, Thailand and Vietnam
are either comparatively underdeveloped or are in the process of becoming
developed. Investments in these countries typically involve greater potential
for gain or loss than investments in securities of issuers in developed
countries. Given the Fund's investments, the Fund will likely be particularly
sensitive to changes in China's economy as the result of a reversal of economic
liberalization, political unrest or changes in China's trading status. In
addition, the Fund will invest a significant portion of its assets in Hong Kong
and will be affected by the return of Hong Kong to Chinese control.
The securities markets in the Asia Pacific region are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. A high proportion of the shares of many issuers may be held by a limited
number of persons and financial institutions, which may limit the number of
shares available for investment by the Fund. A limited number of issuers in
securities markets in the Asia Pacific region may represent a disproportionately
large percentage of market capitalization and trading value. The limited
liquidity of securities markets in the Asia Pacific region may also affect the
Fund's ability to acquire or dispose of securities at the price and time it
wishes. Accordingly, during periods of rising securities prices in the more
illiquid securities markets, the Fund's ability to participate fully in such
price increases may be limited by its investment policy of investing not more
than 15% of its net assets in illiquid securities. Conversely, the Fund's
inability to dispose fully and promptly of positions in declining markets will
cause the Fund's net asset value to decline as the value of the unsold positions
is marked to lower prices. In addition, securities markets in the Asia Pacific
region are susceptible to being influenced by large investors trading
significant blocks of securities.
Many emerging countries limit the percentage foreign investors, such as the
Fund, may own of their domestic issuers by requiring that such issuers issue two
classes of shares-"local" and "foreign" shares. Foreign shares may be held only
by investors that are not considered nationals or residents of that country and
in some markets may be convertible into local shares. Foreign shares may be
subject to restrictions on the right to receive dividends and other
distributions, and may have limited voting and other rights, to name a few.
Local shares are intended for ownership by nationals or residents of the
country. The market for foreign shares is generally less liquid than the market
for local shares, although in some cases foreign shares may be converted into
local shares. In addition, foreign shares often trade at a premium to local
shares, while at other times there is no premium. If the Fund were to purchase
foreign shares at a premium and sell when there is a lower or no premium, the
Fund could realize a loss on its investment. Ownership by foreign investors of
local shares may be illegal in some jurisdictions and, in others, foreign owners
of local shares may not be entitled, among other things, to participate in
certain corporate actions such as stock dividends, rights and warrant offerings
(while foreign holders of foreign shares would participate). If the Fund were to
own local shares and could not participate in a stock, warrant or other
distribution, the Fund could suffer material dilution of its interest in that
issuer and the value of its holdings could decline dramatically over a very
short period, causing a loss on its investment. Generally, it is expected that
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the Fund will hold foreign shares. However, because of their limited number,
foreign shares may, at times, not be available for purchase by the Fund or the
premiums may be, in the opinion of the Adviser, unjustified or prohibitively
high. In order to participate in these markets, the Fund may deem it advisable
to purchase local shares which may expose the Fund to the additional risks
described above. The Fund will only purchase local shares where foreign shares
are not available for purchase or premiums are excessive and when, in the
opinion of the Adviser, the potential for gain in these markets outweighs the
risks that issuers will take corporate actions which may result in dilution to
the Fund. Where permitted by local law, the Fund will attempt to convert local
shares to foreign shares promptly. There can be no assurance that the Adviser
will be able to assess these risks accurately, that the Fund will be able to
convert its local shares to foreign shares or that dilution will not result.
The stock markets in certain of the Asia Pacific region countries, particularly
the Chinese markets, are undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and recording of
transactions and in interpreting and applying the relevant law and regulations.
In particular, the securities industry in China is not well developed. China has
no securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new, as are
their respective securities exchanges and other self-regulatory organizations.
In addition, Chinese stockbrokers and other intermediaries may not perform as
well as their counterparts in the United States and other more developed
securities markets. The prices at which the Fund may acquire or dispose of
investments may be affected by trading by persons with material non-public
information and by securities transactions by brokers in anticipation of
transactions by the Fund in particular securities. The securities markets in
Cambodia, Laos and Vietnam are currently non-existent.
Economies of countries in the Asia Pacific region may differ favorably or
unfavorably from the United States economy in such respects as rate of growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As export-driven economies,
the economies of countries in the Asia Pacific region are affected by
developments in the economies of their principal trading partners. Revocation by
the United States of China's "Most Favored Nation" status under United States
international trade laws, which the United States' President and Congress
consider annually, would adversely affect the trade and economic development of
China and Hong Kong. Hong Kong and Taiwan have limited natural resources,
resulting in dependence on foreign sources for certain raw materials and
economic vulnerability to global fluctuations of price and supply.
Governmental actions in China can have a significant effect on the economic
conditions in the Asia Pacific region, which could adversely affect the value
and liquidity of the Fund's investments. Although the Chinese government has
recently begun to institute economic reform policies, there can be no assurance
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
China and certain countries in the region do not have comprehensive systems of
laws, although substantial changes have occurred in China in this regard in
recent years. The corporate form of organization has only recently been
permitted in China and national regulations governing corporations were first
introduced in May, 1992. Prior to the introduction of such regulations, Shanghai
had adopted a set of corporate regulations applicable to corporations located or
listed in Shanghai, and the relationship between the two sets of regulations is
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not clear. Consequently, until a firmer legal basis is provided, even such
fundamental corporate law tenets as the limited liability status of Chinese
issuers and their authority to issue shares remain open to question. Laws
regarding fiduciary duties of officers and directors and the protection of
shareholders are not well developed. China's judiciary is relatively
inexperienced in enforcing the laws that exist, leading to a higher than usual
degree of uncertainty as to the outcome of litigation. Even where adequate law
exists in China, it may be impossible to obtain swift and equitable enforcement
of such law, or to obtain enforcement of a judgment by a court of another
jurisdiction. The bankruptcy laws pertaining to state enterprises have rarely
been used and are untried in regard to an enterprise with foreign shareholders,
and there can be no assurance that such shareholders, including the Fund, would
be able to realize the value of the assets of the enterprise or receive payment
in convertible currency. As the Chinese legal system develops, the promulgation
of new laws, existing laws and the preemption of local laws by national laws may
adversely affect foreign investors, including the Fund. The uncertainties faced
by foreign investors in China are exacerbated by the fact that many laws,
regulations and decrees of China are not publicly available, but merely
circulated internally. Similar risks exist in other Asia Pacific region
countries.
A large portion of Russia is in Asia and therefore the Fund may invest in those
Russian issuers. Political and social conditions in Russia, due to the unsettled
political conditions which could recur there and in neighboring countries,
together with the fact that settlement procedures in Russia are not fully
formalized, may pose certain risks to the Fund's investments. If aggravated by
local or international developments, such risks could have an adverse effect on
investments in Russia, including the Fund's investments and, under certain
conditions, on the liquidity of the Fund's portfolio and its ability to meet
shareholder redemption requests. The ability of the Fund to invest or hold its
investments in Russian companies may be further affected by changes in United
States or Russian laws or regulations.
Trading in futures contracts traded on foreign commodity exchanges may be
subject to the same or similar risks as trading in foreign securities.
FOREIGN CURRENCY TRANSACTIONS
Under normal circumstances, consideration of the prospects for currency exchange
rates will be incorporated into the long-term investment decisions made for the
Fund with regard to overall diversification strategies. Although the Fund values
its assets daily in terms of U.S. Dollars, it does not intend physically to
convert holdings of foreign currencies into U.S. Dollars on a daily basis. The
Fund will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund, at times, will use forward contracts, along
with futures contracts, foreign exchange swaps, structured notes and put and
call options (all types of derivatives), to "lock in" the U.S. Dollar price of a
security bought or sold and as part of its overall hedging strategy, for
defensive purposes and for cash management purposes. The Fund will conduct
foreign currency exchange transactions, either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, through
purchasing put and call options, through entering into futures contracts or
forward contracts to purchase or sell foreign currencies or by using structured
notes, swap agreements or other instruments that may become available. See
"Futures and Options Contracts and Complex Securities" below.
At the maturity of the forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or may retain the security
and terminate its contractual obligation to deliver the foreign currency prior
to maturity by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that the Fund will be able
to effect such a closing purchase transaction.
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It is impossible to forecast the market value of a particular portfolio security
at the expiration of the forward currency contract. Accordingly, the Fund may
decide to proceed with the purchase or sale as anticipated or may determine not
to proceed. In the first instance, the Fund may have to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security has fluctuated; or in the second, to enter into
an offsetting transaction.
FUTURES AND OPTIONS CONTRACTS AND COMPLEX SECURITIES
The Fund may buy and sell forward, futures and options contracts, structured
notes, swap agreements and other complex securities which are or may become
available for hedging and investment purposes. These are commonly referred to as
"derivatives." Derivatives include financial futures and forward contracts on
foreign or domestic currency, security, interest-rate, stock and bond indices.
Options, Futures and Forward Contracts
A forward contract, like a futures contract, involves an obligation to purchase
or sell a specific asset at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. Unlike futures contracts which are standardized
exchange-traded contracts, forward contracts are usually traded in the
over-the-counter market conducted directly between financial institutions and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades. There is, however, an
interest rate factor reflected in the delivery prices. A security or
interest-rate futures or forward contract is an agreement to buy or sell a
specified security at a set price on a future date. An index contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A foreign currency contract is an agreement to buy or sell a specified
amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation they may have under the
contract. The Fund will not commit more than 5% of its total assets to initial
margin deposits on futures contracts and premiums on options, except that margin
deposits for futures positions entered into for bona fide hedging purposes are
excluded from the 5% limitation.
In establishing a position in a futures or forward contract, which may be a long
or short position, the Fund will own an offsetting position or appropriate high
grade, liquid assets, such as U.S. Government securities or cash, will be
segregated with the Fund's Custodian to ensure that the position is not
leveraged above applicable limits. See "Borrowing" below. This segregated
account will be marked-to-market daily to reflect changes in the value of the
underlying futures or forward contract. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts. Certain
exchanges do not permit trading in particular futures contracts at prices in
excess of daily price fluctuation limits set by the exchange. Trading in futures
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contracts traded on foreign exchanges may be subject to the same or similar
risks as trading in foreign securities.
The Fund may invest in options on futures contracts. Compared to the purchase or
sale of futures contracts, the purchase and sale of options on futures contracts
involves less potential risk to the Fund because the maximum exposure is the
amount of the premiums paid for the options.
The Fund may invest up to 5% of its total assets, taken at market value at the
time of investment, in premiums on call and put options on domestic and foreign
securities, foreign currencies, stock and bond indices and financial futures
contracts (entered into for other than bona fide hedging purposes). As the
holder of a call or put option, the Fund pays a premium and has the right (for
generally 3 to 9 months) to purchase (in the case of a call option) or sell (in
the case of a put option) the underlying asset at the exercise price at any time
during the option period ("American" option) or at expiration of the contract
("European" option). An option on a futures contract gives the purchaser the
right, but not the obligation, in return for the premium paid, to assume a
position in a specified underlying futures contract (which position may be a
long or short position) at a specified exercise price during the option exercise
period. If the call or put is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Fund will lose
its premium payment. The Fund may, with respect to options it has purchased,
sell them, exercise them or permit them to expire.
The Fund may write call or put options. As the writer of an option, the Fund
receives a premium. The Fund keeps the premium whether or not the option is
exercised. If the call or put option is exercised, the Fund must sell (in the
case of a written call option) or buy (in the case of a written put option) the
underlying asset at the exercise price. The Fund may write only covered put and
call options. A covered call option, which is one where the Fund owns the
underlying asset, sold by the Fund exposes it during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying asset or the possible continued holding of an underlying instrument
which might otherwise have been sold to protect against depreciation in the
market price of the underlying instrument. A covered put option written by the
Fund exposes it during the term of the option to a decline in price of the
underlying instrument. A put option sold by the Fund is covered when, among
other things, cash or short-term liquid securities are placed in a segregated
account to fulfill the obligations undertaken. Covering a put option sold does
not reduce the risk of loss.
The Fund may invest in options which are either listed on a domestic securities
exchange, or are traded on a foreign exchange or over-the-counter.
In general, exchange traded options are third party contracts with standardized
prices and expiration dates. Over-the-counter options are two party contracts
with price and terms negotiated by the buyer and seller, are generally
considered illiquid, and will be aggregated with other illiquid positions for
purposes of the limitation on illiquid investments. With respect to
over-the-counter options, the Fund is exposed to the risk that the other party
will fail to perform under the contract; in such a case the Fund would incur a
loss equal to the then current "market" value of the option.
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HEDGING AND OTHER INVESTMENT TECHNIQUES
The Fund may use options, forward and futures contracts, structured and indexed
notes, swaps and similar investments (commonly referred to as derivatives) as a
defensive technique to protect against declines in the values of assets the
Adviser deems desirable to hold for tax or other considerations and to gain
investment exposure to certain securities, markets or assets. One defensive
technique involves selling a futures or forward contract, purchasing a put
option or structured or indexed note or entering into a swap agreement whose
value is expected to be inversely related to the asset being hedged. If the
anticipated decline in the value of the asset occurs, it would be offset, in
whole or part, by a gain on the instrument. The premium paid for the put option
would reduce any capital gain otherwise available for distribution when the
asset is eventually sold.
Hedging against a change in the value of an asset the Fund holds may reduce or
preclude the opportunity for gain if the value of the hedged asset should
increase.
The Fund may use futures contracts, options, structured and indexed notes,
forward contracts and swaps and other similar instruments for investment
purposes, such as creating "synthetic" positions or implementing "cross-hedging"
strategies. A synthetic position will be covered by segregation of short-term
liquid assets. A synthetic position permits the Fund to obtain investment
exposure and is the duplication of a cash market transaction when deemed
advantageous by the Adviser for cost, liquidity, tax or transactional efficiency
reasons. A cash market transaction is the purchase or sale of a security or
other asset for cash. For example, from time to time the Fund experiences large
cash inflows which may be redeemed from the Fund in a relatively short period.
In this case, the Fund currently can leave the amounts uninvested in
anticipation of the redemption or the Fund can invest in securities for a
relatively short period, incurring transaction costs on the purchase and
subsequent sale. Alternatively, the Fund may create a synthetic position by
investing in a futures contract on an asset, such as a securities index, gaining
investment exposure to the relevant market while incurring lower overall
transaction costs. By segregating cash, the Fund's futures contract position
would generally be no more leveraged or riskier than if it had invested in the
cash market - i.e., purchased the securities. In addition, a structured note may
permit the Fund to gain investment exposure that might not otherwise be
available. For example, some countries permit only residents or nationals to
invest in their markets. The Fund could enter into a structured note whose
principal value would be tied to the performance of that country's market index.
Cross-hedging involves the use of one asset to hedge against the decline in
value of another asset. For example, the Fund could hedge against a decline in
the value of a Taiwanese securities position by taking a position in the Hong
Kong market that is expected to perform inversely to the Taiwanese market.
The use of such instruments as described herein involves several risks. First,
there can be no assurance that the prices of such instruments and the hedged
asset or the cash market position will move as anticipated. If prices do not
move as anticipated, the Fund may incur a loss on its investment, may not
achieve the hedging protection it anticipated and/or incur a loss greater than
if it had entered into a cash market position. Second, investments in such
instruments may reduce the gains which would otherwise be realized from the sale
of the underlying securities or assets which are hedged. Third, positions in
such instruments can be closed out only on an exchange that provides a market
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for those instruments. There can be no assurance that such a market will exist
for a particular futures contract or option. If the Fund cannot close out an
exchange traded futures contract or option which it holds, it would have to
perform its contract obligation or exercise its option to realize any profit and
would incur transaction costs on the sale of the underlying assets. Further, if
the other party to a swap, structured or indexed note, forward contract or
option were to default on its obligation, the Fund would incur a loss. Finally,
certain of these derivative instruments may be illiquid, difficult to value
accurately and subject to extreme volatility.
The futures and options markets in certain of the Asia Pacific region countries
are not as developed as similar markets of more developed countries, and the
Fund may not be able to hedge or employ the strategies described above. In
addition, swaps and indexed or structured notes may not be available. It is the
policy of the Fund to meet the requirements of the Internal Revenue Code of
1986, as amended (the "Code") to qualify as a regulated investment company to
prevent double taxation of the Fund and its shareholders. One of these
requirements is that less than 30% of a fund's gross income must be derived from
gains from the sale or other disposition of securities held for less than three
months. The extent to which the Fund may engage in the foregoing transactions
may be materially limited by this requirement.
INDEXED SECURITIES AND STRUCTURED NOTES
The Fund may invest in securities whose value is linked to one or more
currencies, interest rates, stocks, bonds, financial instruments or indices. An
indexed security or structured note enables the Fund to purchase a note whose
coupons and/or principal redemption are linked to the performance of an
underlying asset. Indexed securities may be positively or negatively indexed
(i.e., their value may increase or decrease if the underlying instrument
appreciates). Indexed securities may have return characteristics similar to
direct investments in the underlying instrument or to one or more options on the
underlying asset or other assets. Indexed securities may be more volatile than
the underlying instrument itself, and present many of the same risks as
investing in forward, futures and options contracts. Indexed securities are also
subject to credit risks associated with the issuer of the security with respect
to both principal and interest. Indexed securities may be publicly traded or may
be two-party contracts (such two-party agreements are referred to here
collectively as "structured notes"). When the Fund purchases a structured note,
it will make a payment of principal to the counterparty. Some structured notes
have a guaranteed repayment of principal while others place a portion (or all)
of the principal at risk. Structured notes may give the Fund increased liquidity
and access to markets that it might otherwise be precluded from investing in.
These instruments may also be difficult to value accurately.
The Adviser will monitor the liquidity of these instruments under the
supervision of the Board of Trustees and those instruments determined to be
illiquid will be aggregated with other illiquid securities and limited to 15% of
the net assets of the Fund .
SWAP AGREEMENTS
The Fund may enter into swap agreements. Swap agreements permit the Fund to swap
(trade) the performance of one asset for another. For example, the Fund may swap
the performance of the Hang Seng Index (Hong Kong) for the Bombay Index (India).
By entering into such a swap, the Fund could simultaneously hedge a portion of
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its exposure to the Hong Kong market and gain exposure to the Indian market.
Rather than enter into a swap agreement, the Fund could have sold its Hong Kong
holdings and purchased Indian securities, thereby incurring transaction and
other costs. Since swaps are individually negotiated, the Fund may expect to
achieve an acceptable degree of correlation between its portfolio investments
and its swap position. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations.
The use of swaps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
transactions. If the Adviser is incorrect in its forecasts of market values and
currency exchange rates, the investment performance of the Fund would be less
favorable than it would have been if this investment technique were not used.
Swaps are generally considered illiquid and will be aggregated with other
illiquid positions for purpose of the limitation on illiquid investments.
High grade, liquid assets, such as U.S. Government securities or cash, will be
segregated with the Fund's Custodian in an amount equal to the Fund's net
obligation on such swap agreements. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend to broker-dealers portfolio securities with an aggregate
market value of up to one-third of its total assets. Such loans must be secured
by collateral (consisting of any combination of cash, U.S. Government securities
or irrevocable letters of credit) in an amount at least equal (on a daily
mark-to-market basis) to the current market value of the securities loaned. The
Fund may terminate the loans at any time and obtain the return of the securities
loaned within one business day. The Fund will continue to receive any interest
or dividends paid on the loaned securities and will continue to have voting
rights with respect to the securities. The Fund might experience a loss if the
broker-dealer with which it has engaged in a portfolio loan transaction breaches
its agreement.
BORROWING
The Fund may borrow up to 33-1/3% of the value of its net assets to increase its
holdings of portfolio securities. Under the 1940 Act, the Fund is required to
maintain continuous asset coverage of 300% with respect to such borrowings and
to sell (within three days) sufficient portfolio holdings to restore such
coverage if it should decline to less than 300% because of market fluctuations
or other factors, even if the sale would be disadvantageous from an investment
standpoint. Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset values, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the investment return from the
securities purchased with borrowed funds. It is anticipated that such borrowings
would be pursuant to a negotiated loan agreement with a commercial bank or other
institutional lender.
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REAL ESTATE SECURITIES
Although the Fund will not invest in real estate directly, it may invest its
assets in equity securities of real estate investment trusts ("REITs") and other
real estate industry companies or companies with substantial real estate
investments. Therefore, the Fund may be subject to certain risks associated with
direct ownership of real estate and with the real estate industry in general.
These risks include, among others: possible declines in the value of real
estate; possible lack of availability of mortgage funds; extended vacancies of
properties; risks related to general and local economic conditions;
overbuilding; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.
REITs are pooled investment vehicles which invest primarily in income producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or hybrid REITs. Equity REITs invest
the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. REITs are not taxed on income
distributed to shareholders, provided they comply with several requirements of
the Code.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to the risks of financing projects. REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation and the possibilities of
failing to qualify for the exemption from tax for distributed income under the
Code. REITs (especially mortgage REITs) are also subject to interest rate risk
(i.e., as interest rates rise, the value of the REIT may decline).
INVESTMENT COMPANY SECURITIES
The Fund may invest in issuers which are considered under the 1940 Act to be
investment companies. These investment companies may or may not be registered
with the Securities and Exchange Commission ("SEC") and may be foreign
investment companies. Investing in foreign investment companies involves the
same risks as investing in foreign securities. Investing in investment companies
permits the Fund to invest in markets that might otherwise have been
inaccessible and to obtain greater diversification. These investments involve
the payment of dual management fees.
RIGHTS
Rights are privileges granted to existing shareholders or may be attached to
other securities. Rights entitle the holder to purchase shares of a new issue
before they are offered to the public, often below the public offering price .
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Some rights are registered and are freely transferable while others are not.
Rights are similar to options in that they give the holder the right, not the
obligation, to purchase shares.
PARTLY PAID SECURITIES
Partly paid securities are securities for which the purchaser pays on an
installment basis. A partly paid security trades net of outstanding installment
payments. For this reason, the obligation to make payment is usually transferred
upon sale of the security. Fluctuations in the market value do not affect the
obligation to make installment payments when due. Partly paid securities become
fully paid securities upon payment of the final installment. Until that time,
the issuer of a partly paid security typically may retain the right to restrict
the voting and dividend rights of the security and to impose restrictions and
penalties in the event of a purchaser's default.
High grade, liquid assets, such as U.S. Government securities or cash, will be
segregated with the Fund's Custodian in an amount equal to the "unpaid"
installments on these securities. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
DIRECT INVESTMENTS
The Fund may invest up to 10% of its total assets in direct investments. Direct
investments include (i) the private purchase from an enterprise of an equity
interest in the enterprise in the form of shares of common stock or equity
interests in trusts, partnerships, joint ventures or similar enterprises, and
(ii) the purchase of such an equity interest in an enterprise from a principal
investor in the enterprise. In each case the Fund will, at the time of making
the investment, enter into a shareholder or similar agreement with the
enterprise and one or more other holders of equity interests in the enterprise.
The Adviser anticipates that these agreements will, in appropriate
circumstances, provide the Fund with the ability to appoint a representative to
the board of directors or similar body of the enterprise and for eventual
disposition of the Fund's investment in the enterprise. Such a representative of
the Fund will be expected to provide the Fund with the ability to monitor its
investment and protect its rights in the investment and will not be appointed
for the purpose of exercising management or control of the enterprise.
Certain of the Fund's direct investments will include investments in smaller,
less seasoned companies. These companies may have limited product lines, markets
or financial resources, or they may be dependent on a limited management group.
The Fund does not anticipate making direct investments in start-up operations,
although it is expected that in some cases the Funds' direct investments will
fund new operations for an enterprise which itself is engaged in similar
operations or is affiliated with an organization that is engaged in similar
operations. Such direct investments may be made in entities that are reasonably
expected in the foreseeable future to benefit from the growth and development in
the Asia Pacific region either by expanding current operations or establishing
significant operations in the Asia Pacific region.
14
<PAGE>
Direct investments may involve a high degree of business and financial risk that
can result in substantial losses. Because of the absence of any public trading
market for these investments, the Fund may take longer to liquidate these
positions than would be the case for publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices on
these sales could be less than those originally paid by the Fund. Furthermore,
issuers whose securities are not publicly traded may not be subject to public
disclosure and other investor protection requirements applicable to publicly
traded securities. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. In addition, in the event the
Fund sells unlisted foreign securities, any capital gains realized on such
transactions may be subject to higher rates of taxation than taxes payable on
the sale of listed securities. Direct investments are generally considered
illiquid and will be aggregated with other illiquid investments for purposes of
the limitation on illiquid investments. Direct investments can be difficult to
price and will generally be valued at fair value as determined in good faith by
the Board of Trustees. The pricing of direct investments may not reflect the
price at which these assets could be liquidated.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund acquires an underlying asset for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the asset at an
agreed upon price and time, thereby determining the yield during the holding
period. The agreement results in a rate of return that is not subject to market
fluctuations during the holding period. Repurchase agreements could involve
certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the Fund's ability to dispose of
the underlying asset. The Adviser, acting under the supervision of the Board of
Trustees, reviews the creditworthiness of those non-bank dealers with which the
Fund enters into repurchase agreements to evaluate these risks. Entering into
repurchase agreements with foreign dealers poses similar risks to investing in
foreign securities.
The Fund will not enter into a repurchase agreement with a maturity of more than
seven business days if, as a result, more than 15% of the value of the Fund's
total assets would then be invested in such repurchase agreements and other
illiquid securities. The Fund will only enter into a repurchase agreement where
(i) the underlying asset is of the type which the Fund's investment policies
would allow it to purchase directly, (ii) the market value of the underlying
security, including accrued interest, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
securities is made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as agent.
DEBT SECURITIES
The Fund may invest in debt securities. The market value of debt securities
generally varies in response to changes in interest rates and the financial
condition of each issuer. During periods of declining interest rates, the value
of debt securities generally increases. Conversely, during periods of rising
interest rates, the value of such securities generally declines. These changes
in market value will be reflected in the Fund's net asset value. Debt securities
15
<PAGE>
with similar maturities may have different yields, depending upon several
factors, including the relative financial condition of the issuers. For example,
higher yields are generally available from securities in the lower rating
categories of S&P or Moody's. However, the values of lower-rated securities
generally fluctuate more than those of high grade securities. Many securities of
foreign issuers are not rated by these services. Therefore the selection of such
issuers depends to a large extent on the credit analysis performed by the
Adviser.
RULE 144A SECURITIES AND SECTION 4(2) COMMERCIAL PAPER
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933, as amended (the "1933 Act") for resales of certain
securities to qualified institutional buyers. The SEC adopted Rule 144A to allow
a broader institutional trading market for securities otherwise subject to
restriction on resale to the general public.
The Adviser will monitor the liquidity of restricted securities in the Fund's
holdings under the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanisms of the transfer). In addition, commercial paper may be issued in
reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the 1933 Act. Such commercial paper is restricted as to
disposition under the federal securities laws and, therefore, any resale of such
securities must be effected in a transaction exempt from registration under the
1933 Act. Such commercial paper is normally resold to other investors through or
with the assistance of the issuer or investment dealers who make a market in
such securities, thus providing liquidity.
Securities eligible for resale pursuant to Rule 144A under the 1933 Act and
commercial paper issued in reliance on the Section 4(2) exemption under the Act
may be determined to be liquid in accordance with guidelines established by the
Board of Trustees for purposes of complying with investment restrictions
applicable to investments by the Fund in illiquid securities.
INVESTMENT RESTRICTIONS
The following investment restrictions are in addition to those described in the
Prospectus. Policies that are identified as fundamental may be changed only with
the approval of the holders of a majority of the Fund's outstanding shares. Such
majority is defined in the 1940 Act as the vote of the lesser of (i) 67% or more
of the outstanding shares present at a meeting, if the holders of more than 50%
of the Fund's outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Fund's outstanding shares. As to any of the following policies,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in value of portfolio
securities or amount of net assets will not be considered a violation of the
policy. Restrictions 1, 4, 9, 11, 12, 14 and 16 are not fundamental, unless
otherwise provided for by applicable federal or state law.
16
<PAGE>
The Fund may not:
1. Invest in securities which are subject to legal or contractual restrictions
on resale ("restricted securities") or for which there is no readily
available market quotation or engage in a repurchase agreement maturing in
more than seven days with respect to any security if the result is that
more than 15% of the Fund's net assets would be invested in such
securities, excluding securities which are deemed to be liquid under Rule
144A under the Securities Act of 1933.
2. Purchase or sell real estate, except the Fund may purchase securities of
companies which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are collateralized by
interests in real estate.
3. Purchase or sell commodities or commodity futures contracts, except that
financial futures contracts which may include stock and bond index futures
contracts, foreign currency futures contracts and similar contracts or
financial assets are not considered commodities or commodity contracts. The
Fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts not used for hedging purposes.
4. The Fund may not purchase more than 3% of the total outstanding voting
stock of any investment company or invest more than 5% of its total assets
in the securities of any investment company or invest more than 10% of its
total assets in investment companies in general. Such purchases may involve
only customary broker's commissions.
5. Lend to broker-dealers portfolio securities with an aggregate market value
in excess of 33 -1/3% of its total assets.
6. As to 75% of the Fund's total assets, purchase securities of any issuer, if
immediately thereafter (i) more than 5% of the Fund's total assets (taken
at market value) would be invested in the securities of such issuer, or
(ii) more than 10% of the outstanding voting securities of such issuer
would be held by the Fund. This restriction does not apply to any company
of which the Fund is the sole beneficial owner or securities acquired as
part of a merger, acquisition of assets or other reorganization.
7. Underwrite any issue of securities (except to the extent that the Fund may
be deemed to be an underwriter within the meaning of the Securities Act of
1933 in the purchase of securities for investment or disposition of
restricted securities).
8. Borrow money, in excess of 33-1/3% of the value of its net assets to
increase holdings of portfolio securities.
9. Mortgage, pledge or otherwise encumber its assets except to secure
borrowing effected within the limitations set forth in restriction (8).
17
<PAGE>
10. Issue senior securities. The Fund may (i) borrow money in accordance with
restrictions described above, (ii) enter into forward contracts, (iii)
purchase futures contracts on margin, (iv) issue multiple classes of
securities, and (v) enter into swap agreements or purchase structured notes
or similar instruments.
11. Make short sales of securities, except the Fund may engage in the
transactions permitted in these restrictions and under the Fund's
investment policies as set forth in its registration statement without
limitation.
12. Purchase any security on margin, except that it may obtain such short-term
credits as are necessary for clearance of securities transactions and, may
make initial or maintenance margin payments in connection with options and
futures contracts and options on future contracts and borrowing effected
within the limitations set forth in these restrictions.
13. Invest more than 25% of the value of the Fund's total assets in the
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to obligations
issued or guaranteed by the United States Government.
14. Participate on a joint or joint and several basis in any trading account in
securities, although transactions for the Fund and any other account under
common or affiliated management may be combined or allocated between the
Fund and such account.
15. Purchase participations or other interests (other than equity stock
interests) in oil, gas or other mineral, leases or exploration or
development programs.
16. Invest in real estate limited partnerships or in oil, gas or other mineral
leases.
In order to comply with certain securities laws of a state in which shares of
the Fund are currently sold, the Fund has undertaken with respect to investment
restriction number 1, not to invest more than 10% of its assets in "restricted
securities" and not to invest more than 5% of its assets in securities of
"unseasoned" issuers, i.e., companies which together with their predecessors
have a record of less than three years continuous operation. To the extent the
above restrictions have been adopted to comply with state securities laws, they
shall not apply to the Fund once such laws are no longer in effect.
INVESTMENT ADVISORY SERVICES
The Adviser, Peregrine Asset Management (Hong Kong) Limited, manages the
investments of the Fund and provides the Fund with office space, facilities and
simple business equipment and provides the services of executive and clerical
personnel for administering its affairs. The Adviser compensates all executive
and clerical personnel and Trustees of the Trust if such persons are employees
or affiliates of the Adviser or its affiliates. The Adviser's fee is computed
daily and paid monthly at an annual rate of 1.00% of average daily net assets.
For the period from January 2, 1996 (commencement of operations) to June 30,
1996, the Adviser was paid advisory fees of $73,366, net of $25,225 voluntarily
waived by the Adviser.
18
<PAGE>
Van Eck Associates Corporation, 99 Park Avenue, New York, New York ("Van Eck")
serves as portfolio administrator (the "Portfolio Administrator") for the Fund
pursuant to a Portfolio Accounting and Administrative Services Agreement dated
December 20, 1995. It provides accounting and administrative services and is
responsible for calculating the Fund's NAV, providing certain accounting and
administrative services and such other services and assistance as the Fund may
request.
The expenses borne by the Fund include: all the charges and expenses of the
transfer and dividend disbursing agent, the custodian fees and expenses, legal
counsel, auditors' and accounting fees and expenses, brokerage commissions for
portfolio transactions, taxes, if any, the advisory fee and portfolio accounting
and administrative fees, extraordinary expenses, expenses of shareholders' and
Trustees' meetings, expenses of preparing, printing and mailing proxy
statements, reports and other communications to shareholders, expenses of
preparing, setting in type and mailing to current shareholders, prospectuses and
periodic reports, expenses of registering and qualifying shares for sale, fees
and expenses of Trustees who are not "interested persons" of the Adviser,
membership dues of professional associations, fidelity bond and errors and
omissions insurance premiums, the cost of maintaining the books and records of
the Fund, and any other charges and fees not specifically enumerated as an
obligation of the Distributor, Adviser or Portfolio Administrator.
The Investment Advisory Agreement (the "Advisory Agreement") was last approved
at a meeting of the Board of Trustees held on March 15, 1996. The Advisory
Agreement provides that the Adviser shall reimburse the Trust for expenses of
the Trust in excess of certain expense limitations required by state regulation
unless the Trust has obtained an appropriate waiver of such expense limitations
or expense items from a particular state authority. Under the Advisory
Agreement, the maximum annual expenses which the Trust may be required to bear,
inclusive of the advisory fee but exclusive of interest, taxes, brokerage fees,
Rule 12b-1 Plan distribution payments (the Fund does not currently have such a
Plan) and extraordinary items, may not exceed the lowest expense limitation
imposed by any state in which the Fund is registered. Currently, only one state
imposes such an expense limitation on the Fund. For purposes of the expense
limitation imposed on the Fund by this state, expenses may not exceed: (i) 2.5%
of the first $30,000,000 of average net assets, 2.0% of the next $70,000,000 of
average net assets and 1.5% of the remaining average net assets. The amount of
the advisory fee to be paid to the Adviser each month will be reduced by the
amount, if any, by which the annualized expenses of the Fund for that month
exceeds the foregoing limitations. At the end of the fiscal year, if the
aggregate annual expenses of the Fund exceed the amount permissible under the
foregoing limitations, then the Adviser will be required promptly to reimburse
the Fund for the total amount by which expenses exceed the amount of the
limitations, not limited to the amount of the fees paid. If aggregate annual
expenses are within the limitations, however, any excess amount previously
withheld will be paid to the Adviser.
The Advisory Agreement provides that it shall continue in effect from year to
year as long as it is approved at least annually both (i) by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or by the Trustees of the Trust, and (ii) in either event by a vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement may be
terminated on 60 days written notice by either party and will terminate
automatically in the event of an assignment within the meaning of the 1940 Act.
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<PAGE>
THE DISTRIBUTOR
Shares of the Fund are offered on a continuous basis and are distributed through
Van Eck Securities Corporation (the "Distributor"), a wholly-owned subsidiary of
the Portfolio Administrator. The Trustees of the Trust last approved the
Distribution Agreement appointing the Distributor as distributor of shares of
the Fund at a meeting held on March 15, 1996.
The Distribution Agreement provides that the Distributor will pay all fees and
expenses in connection with printing and distributing prospectuses and reports
for use in offering and selling shares of the Fund and preparing, printing and
distributing advertising or promotional materials. The Fund will pay all fees
and expenses in connection with registering and qualifying its shares under
federal and state securities laws.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities and other
investments for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. In
transactions on stock and commodity exchanges in the United States, these
commissions are negotiated, whereas on foreign stock and commodity exchanges
these commissions are generally fixed and are generally higher than brokerage
commissions in the United States. In the case of securities traded on the
over-the-counter markets, there is generally no stated commission, but the price
usually includes an undisclosed commission or markup. In underwritten offerings,
the price includes a disclosed fixed commission or discount.
In purchasing and selling the Fund's portfolio investments, it is the Adviser's
policy to obtain quality execution at the most favorable prices through
responsible broker-dealers. In selecting broker-dealers, the Adviser will
consider various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for the
security or asset to be purchased or sold; the execution efficiency, settlement
capability and financial condition of the broker-dealer; the broker-dealer's
execution services rendered on a continuing basis; and the reasonableness of any
commissions.
The Adviser may cause the Fund to pay a broker-dealer who furnishes brokerage
and/or research services a commission that is in excess of the commission
another broker-dealer would have received for executing the transaction if it is
determined that such commission is reasonable in relation to the value of the
brokerage and/or research services which have been provided as defined in
Section 28(e) of the Securities Exchange Act of 1934. Such research services may
include, among other things, analyses and reports concerning issuers,
industries, securities, economic factors and trends and portfolio strategy. Any
such research and other information provided by brokers to the Adviser are
considered to be in addition to and not in lieu of services required to be
performed by the Adviser under the Advisory Agreement with the Trust. The
research services provided by broker-dealers can be useful to the Adviser in
serving its other clients or clients of the Adviser's affiliates.
In executing portfolio transactions on behalf of the Fund, the Adviser may
utilize the services of the Distributor and other affiliated persons as broker
pursuant to procedures adopted by the Board of Trustees. The procedures are
designed to ensure that commissions paid are comparable to tho se charged by
other firms.
20
<PAGE>
The Trustees will periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
Investment decisions for the Fund are made independently from those of the other
investment accounts managed by the Adviser and affiliated companies. Occasions
may arise, however, when the same investment decision is made for more than one
client's account. It is the practice of the Adviser to allocate such purchases
or sales insofar as feasible among its several clients or the clients of its
affiliates in a manner it deems equitable. The principal factors which the
Adviser considers in making such allocations are the relative investment
objectives of the clients, the relative size of the portfolio holdings of the
same or comparable securities, and the availability in the particular account of
funds for investment. Portfolio securities held by one client of the Adviser may
also be held by one or more of its other clients or by clients of its
affiliates. When two or more of its clients or clients of its affiliates are
engaged in the simultaneous sale or purchase of securities, transactions are
allocated as to amount in accordance with formulae deemed to be equitable as to
each client. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.
When the Adviser places purchase and sale transactions on behalf of the Fund and
its own account or that of its affiliates, it will coordinate the trading in
such a manner that it is fair to the participants.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
For the period from January 2, 1996 (commencement of operations) to June 30,
1996, the Fund paid $140,036 in brokerage commissions.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, the Fund will effect portfolio transactions without regard to
the holding period if, in the judgment of the Adviser, such transactions are
advisable in light of a change in circumstances of a particular company within a
particular industry or country, or in general market, economic or political
conditions. The Fund anticipates that its annual portfolio turnover rates will
not exceed 100%. For the period from January 2, 1996 (commencement of
operations) to June 30, 1996, the Fund's portfolio turnover rate was 35%.
The Adviser and related persons may, from time to time, buy and sell for their
own accounts securities recommended to clients for purchase or sale. The Adviser
recognizes that this practice may result in conflicts of interest. However, to
minimize or eliminate such conflicts, a Code of Ethics has been adopted by the
Adviser which requires that all trading in securities suitable for purchase by
client accounts must be approved in advance by a person familiar with purchase
and sell orders or recommendations. Approval will be granted if the security has
not been purchased or sold or recommended for purchase or sale on behalf of a
21
<PAGE>
client account within seven days; or if the security has been purchased or sold
or recommended for purchase or sale by a client account, it is determined that
the trading activity will not have a negative or appreciable impact on the price
or market of the security or the activity is of such a nature that it does not
present the dangers or potential for abuses or is likely to result in harm or
detriment to a client account. At the end of each calendar quarter, all related
personnel of the Adviser are required to file a report of all transactions
entered into during the quarter. These reports are reviewed by a senior officer
of the Adviser.
TRUSTEES AND OFFICERS
The Trustees and Officers of the Trust, their addresses, positions with the
Trust, age and principal occupations during the past five years are set forth
below:
TRUSTEES:
@#+ROGER O. BROWN (70) - TRUSTEE
2 North LaSalle, Chicago, IL 60602; Founding President and Chief Executive
Officer (1976-1990) and Retired President (1991 to Present) of Harris
Associates, Inc.; Director, Thresholds, since 1971; and Director, United
Communications Corporation, since 1960.
@#$*GARY GREENBERG (43) - TRUSTEE
1710 New World Tower, 16-18 Queen's Road, Central, Hong Kong; President of the
Trust; Deputy Managing Director of Peregrine since July, 1994; Co-manager of the
Acorn International Fund from 1992 to 1994; and International Securities Analyst
with Harris Associates L.P. (investment adviser) from 1989 to 1992.
@+WESLEY G. MCCAIN (54) - TRUSTEE
144 East 30th Street, New York, NY 10016; Chairman, Towneley Capital Management,
Inc. (investment adviser); Chairman, Eclipse Financial Asset Trust (mutual
fund); Trustee of investment companies advised by Van Eck; General Partner,
Pharaoh Partners, L.P.; President, Millbrook Associates, Inc.; Trustee, Libre
Group Trust; Chairman, Eclipse Financial Services, Inc.; Former Director,
International Investors Incorporated; Former Secretary and Treasurer, Millbrook
Advisers, Inc. (investment adviser); and Former Chairman, Finacor, Inc.
(financial services).
*BRUCE SETON (52) - TRUSTEE
1710 New World Tower, 16-18 Queen's Road, Central, Hong Kong; Executive Vice
President of the Trust . Chief Investment Officer of Peregrine since September,
1994; Chief Executive Officer of Peregrine. Prior to joining Peregrine in 1994,
Mr. Seton spent twenty-two years at Gartmore Investment Limited managing funds
which emphasize Asian emerging market investments.
#+RICHARD STAMBERGER (37) - TRUSTEE
888 17th Street, N.W., Washington, D.C. 20006; Principal, National Strategies,
Inc., a public policy firm in Washington, D.C.; Executive Vice President, Chief
Operating Officer and a Director of NuCable Resources Corporation (technology
firm/since 1988); associated with Anderson Benjamin & Reed, a regulatory
consulting firm based in Washington, D.C. (1985-1986); White House Fellow-Office
of Vice President (1984-1985); Director of Special Projects, National Cable
Television Association (1983-1984); and Trustee of investment companies advised
by Van Eck.
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<PAGE>
+THOMAS C. THEOBALD (59) - TRUSTEE
222 W. Adams Street, Chicago, IL 60606; Director, Private Investor/Corporate
Director (1994 to Present); Chairman, Continental Bank Corporation (1987 to
1994); Director, Enron Global Power & Pipelines, L.L.C.; Director, Xerox
Corporation; Director, Anixter International Corporation; Director, Kleinwort
Benson Holdings; Director, MacArthur Foundation; Advisory Board member, GFTA
(builder of models for foreign exchange, Dusseldorf, Germany); Trustee, Mutual
Life Insurance Company of New York; and Trustee, Northwestern University.
Messrs. Brown, McCain, Stamberger and Theobald are each paid an annual fee of
$10,000 for serving as Trustees, and are reimbursed for expenses in attending
Board of Trustees' meetings.
- ----------
*An "interested person" as defined in the 1940 Act.
OFFICERS:
AUREOLE FOONG (35) - 1710 New World Tower, 16-18 Queen's Road, Central, Hong
Kong - Vice President of the Trust. Vice President of Peregrine since 1994;
prior thereto, Senior Vice President at Unifund, a Geneva-based private
investment company from 1990 to 1994.
LILLIAN WONG (36) - 1710 New World Tower, 16-18 Queens Road, Central, Hong Kong,
- -Treasurer of the Trust. Senior Manager at Peregrine; has over 15 years
experience in accounting and administration, 11 of which were in the investment
management industry.
THADDEUS LESZCZYNSKI (49) - 99 Park Avenue, New York, NY 10016 - Secretary of
the Trust. An officer of Van Eck and investment companies advised by Van Eck.
$BRUCE SMITH (41) - 99 Park Avenue, New York, NY 10016 - Assistant Treasurer of
the Trust. An officer of Van Eck and investment companies advised by Van Eck.
- ----------
@ Member of Executive Committee--exercises general powers of the Board of
Trustees between meetings of the Board.
# Memeber of Nominating Committee.
+ Member of Audit Committee--reviews fees, services, procedures, conclusions and
recommendations of independent auditors.
$ Member of Pricing Committee.
As of August 12, 1996, all officers and Trustees as a group owned approximately
8.4% of the outstanding shares of the Fund.
The following persons owned over 5% of the Fund's outstanding shares as of
August 12, 1996:
NUMBER OF NATURE OF PERCENTAGE
NAME AND ADDRESS SHARES OWNED OWNERSHIP OWNED
---------------- ------------ --------- -----
Peregrine Nominees Ltd. 1,576,454.155 Beneficial 78.85%
1704 New World Tower
16-18 Queens Road
Hong Kong
Thomas C. Theobald 141,598.940 Beneficial 7.08%
222 W. Adams Street
Chicago, Illinois 60606
23
<PAGE>
VALUATION OF SHARES
The net asset value per share of the Fund is computed by dividing the value of
all of the Fund's securities plus cash and other assets, less liabilities, by
the number of shares outstanding. The net asset value per share is computed as
of the close of the NYSE, Monday through Friday, exclusive of national business
holidays. The Fund will be closed on the following national business holidays:
New Years Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas.
The net asset value need not be computed on a day in which no orders to
purchase, sell or redeem shares of the Fund have been received.
The value of a financial futures or commodity futures contract equals the
unrealized gain or loss on the contract that is determined by marking it to the
current settlement price for a like contract acquired on the day on which the
commodity futures contract is being valued. A settlement price may not be used
if the market makes a limit move with respect to a contract. Securities or
futures contracts for which market quotations are readily available are valued
at market value, which is currently determined using the last reported sale
price. If no sales are reported, as in the case of most securities traded
over-the-counter, securities are valued at the mean of their bid and asked
prices at the close of trading on the NYSE. Short-term investments having a
maturity of 60 days or less are valued at amortized cost, which approximates
market. Options are valued at the last sales price unless the last sales price
does not fall within the bid and ask prices at the close of the market, in which
case the mean of the bid and ask prices is used. All other securities are valued
at their fair value as determined in good faith by the Board of Trustees.
Foreign securities or futures contracts quoted in foreign currencies are valued
at appropriately translated foreign market closing prices or as the Board of
Trustees may prescribe.
Generally, trading in foreign securities and futures contracts, as well as
corporate bonds, U.S. Government securities and money market instruments is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in determining the net asset value of
the shares of the Fund may be computed as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the NYSE.
Occasionally, events affecting the value of such foreign securities and foreign
exchange rates may occur between such times and the close of the NYSE which will
not be reflected in the computation of the Fund's net asset values. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by the Trustees.
TAX-SHELTERED RETIREMENT PLANS
The Trust does not offer a prototype tax-sheltered retirement plan. However,
banks, broker- dealers and other financial intermediaries may offer such plans
through which shares of the Fund may be purchased. These plans are more fully
described below. Persons who wish to establish a tax-sheltered retirement plan
should consult their financial institutions as to the availability of such
plans, their own tax advisers or attorneys regarding their eligibility to do so
and the laws applicable thereto, such as the fiduciary responsibility provisions
and diversification requirements, and the reporting and disclosure obligations
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under the Employee Retirement Income Security Act of 1974. The Trust is not
responsible for compliance with such laws. Further information regarding the
retirement plans, including applications and fee schedules, may be obtained upon
request to the Fund.
The rules discussed below are complex. Individuals and their employers should
consult with their tax advisers and legal counsel regarding the advantages and
disadvantages of the different plans.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA") AND SPOUSAL INDIVIDUAL RETIREMENT ACCOUNT
("SPIRA"). The IRA is available to all individuals, including self-employed
individuals, who receive compensation for services rendered and wish to purchase
shares of the Fund. An IRA may also be established pursuant to a SEP. SPIRAs are
available to individuals who are otherwise eligible to establish an IRA for
themselves and whose spouses are treated as having no compensation of their own.
In general, the maximum deductible contribution to an IRA which may be made for
any one year is $2,000 or 100% of annual compensation includible in gross
income, whichever is less. If an individual establishes a SPIRA, the maximum
deductible amount that the individual may contribute annually is the lesser of
$2,250 or 100% of such individual's compensation includible in his gross income
for such year; provided, however, that no more than $2,000 per year for either
individual may be contributed to either the IRA or SPIRA. Contributions to a SEP
(discussed below) are excluded from an employee's gross income and are subject
to different limitations.
All taxpayers, including those who are active participants in employer-sponsored
retirement plans, will be able to make fully deductible IRA contributions at the
same levels discussed above, if their adjusted gross income is less than the
following levels: $25,000 for single taxpayers and $40,000
for married taxpayers who file joint returns.
Married taxpayers who file joint tax returns will generally be deemed to be
active participants if either spouse is an active participant under an
employer-sponsored retirement plan. In the case of taxpayers who are active
participants in employer-sponsored retirement plans and who have adjusted gross
income which exceeds the specified levels, deductible IRA contributions will be
phased out on the basis of adjusted gross income between $25,000 and $35,000 for
single taxpayers, adjusted gross income of $10,000 and under for married
taxpayers who file separate returns, and combined adjusted gross income between
$40,000 and $50,000 for married taxpayers who file joint returns. The $2,000 IRA
deduction is reduced by $200 for each $1,000 of adjusted gross income in excess
of the following levels: $25,000 for single taxpayers, $40,000 for married
taxpayers who file joint returns, and $0 for married taxpayers who file separate
returns. In the case of a taxpayer who contributes to an IRA and a SPIRA, the
$2,250 IRA deduction is reduced by $225 for each $1,000 of adjusted gross income
in excess of $40,000.
Individuals who are ineligible to make fully deductible contributions may make
nondeductible contributions up to an aggregate of $2,000 in the case of
contributions (deductible and nondeductible) to an IRA and up to an aggregate of
$2,250 in the case of contributions (deductible and nondeductible) to an IRA and
SPIRA and the income upon all such contributions will accumulate tax-free until
distribution.
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In addition, a separate IRA may be established by a "rollover" contribution,
which may permit the tax-free transfer of assets from qualified retirement plans
under specified circumstances. A "rollover contribution" includes a lump sum
distribution received by an individual because of severance of employment, from
a qualified plan and paid into an individual retirement account within 60 days
after receipt.
Dividends and capital gains earned on amounts invested in either an IRA or SPIRA
are automatically reinvested by the Trustee in shares of the Fund and accumulate
tax-free until distribution. Distributions from either an IRA or SPIRA prior to
age 59-1/2, unless made as a result of disability or death, may result in
adverse tax consequences and penalties. In addition, there is a penalty on
contributions in excess of the contribution limits and other penalties are
imposed on insufficient payouts from the IRA or SPIRA after age 70 1/2.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). A SEP may be utilized by employers to
provide retirement income to employees by making contributions to employee SEP
IRAs. Owners and partners may qualify as employees. The employee is always 100%
vested in contributions made under a SEP. The maximum contribution to a SEP-IRA
(an IRA established to receive SEP contributions) is the lesser of $30,000 or
15% of compensation, excluding contributions made pursuant to a salary reduction
arrangement. Subject to certain limitations, an employer may also make
contributions to a SEP-IRA under a salary reduction arrangement by which the
employee elects contributions to a SEP-IRA in lieu of immediate cash
compensation. The maximum amount which may be contributed to a SEP-IRA (for
1996) under a salary reduction agreement is the lesser of $400 (as adjusted for
cost of living increases) or 15% of compensation.
Contributions by employers under a SEP arrangement up to the maximum permissible
amounts are deductible for federal income tax purposes. Contributions up to the
maximum permissible amounts are not includible in the gross income of the
employee. Dividends and capital gains on amounts invested in SEP-IRAs are
automatically reinvested in shares of the Fund and accumulate tax-free until
distribution. Contributions in excess of the maximum permissible amounts may be
withdrawn by the employee from the SEP-IRA no later than April 15 of the
calendar year following the year in which the contribution is made without tax
penalties. Such amounts will, however, be included in the employee's gross
income. Withdrawals of such amounts after April 15 of the year next following
the year in which the excess contributions are made and withdrawals of any other
amounts prior to age 59-1/2, unless made as a result of disability or death, may
result in adverse tax consequences.
QUALIFIED PENSION PLANS. The Qualified Pension Plan can be utilized by
self-employed individuals, partnerships and corporations (for this purpose,
called "Employers") and their employees who wish to purchase shares of a Fund
under a retirement program.
The maximum contribution which may be made to a Qualified Pension Plan in any
one year on behalf of a participant is, depending on the benefit formula
selected by the Employer, up to the lesser of $30,000 or 25% of compensation
(net earned income in the case of a self-employed individual). Contributions by
Employers to Qualified Pension Plans up to the maximum permissible amounts are
deductible for federal income tax purposes. Contributions in excess of
permissible amounts will result in adverse tax consequences and penalties to the
Employer. Dividends and capital gains earned on amounts invested in Qualified
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<PAGE>
Pension Plans are automatically reinvested in shares of the Fund and accumulate
tax-free until distribution. Withdrawals of contributions prior to age 59-1/2,
unless made as a result of disability, death or early retirement, may result in
adverse tax consequences and penalties.
403(B)(7) PROGRAM. The Tax-Deferred Annuity Program and Custodial Account
offered by the Fund (the "403(b)(7) Program") allows employees of certain
tax-exempt organizations and schools to have a portion of their compensation set
aside for their retirement years in shares held in an investment company
custodial account.
In general, the maximum limit on annual contributions for each employee is the
lesser of $30,000 per year (as adjusted by the IRS for cost-of-living
increases), 25% of the employee's compensation or the employee's exclusion
allowance specified in Section 403(b) of the Code. However, an employee's salary
reduction contributions to a 403(b)(7) Program may not exceed $9,500 a year
(1995) (as adjusted for cost of living expenses and may be further adjusted if
the employee participates in another plan). Contributions in excess of
permissible amounts may result in adverse tax consequences and penalties.
Dividends and capital gains on amounts invested in the 403(b)(7) Program are
automatically reinvested in shares of the Fund. It is intended that dividends
and capital gains on amounts invested in the 403(b)(7) Program will accumulate
tax-free until distribution. Employees will receive distributions from their
accounts under the 403(b)(7) Program following termination of employment by
retirement, disability or death. Withdrawals of contributions prior to age 59
1/2, unless made as a result of disability, death or early retirement, may
result in adverse tax consequences and penalties.
INVESTMENT PROGRAMS
DIVIDEND REINVESTMENT PLAN. Reinvestments of dividends of the Fund will occur on
a date selected by the Board of Trustees.
TAXES
TAXATION OF THE FUND -- IN GENERAL
The Fund intends to qualify and elect to be treated each taxable year as a
"regulated investment company" under Subchapter M of the Code. To so qualify,
the Fund must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of any of the following which was held less than three months (the
"30% test"): (i) short sales of securities; (ii) stock or securities; (iii)
options, futures or forward contracts (other than on foreign currencies); or
(iv) foreign currencies (or options, futures or forward contracts on foreign
currencies) but only if such currencies (or options, futures or forward
contracts) are not directly related to the Fund's principal business of
investing in stock or securities; and (c) satisfy certain diversification
requirements.
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As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gain net income (capital
gains in excess of its capital losses) that it distributes to shareholders if at
least 90% of its net investment income and short-term capital gains for the
taxable year are distributed. However, if for any taxable year the Fund does not
satisfy the requirements of Subchapter M of the Code, all of its taxable income
will be subject to tax at regular corporate rates without any deduction for
distribution to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings or profits.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid this tax, during each calendar year the Fund must
distribute (i) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gain net income for the twelve month period ending on October 31 (or December
31, if the Fund so elects), and (iii) any portion (not taxed to the Fund) of the
2% balance from the prior year. The Fund intends to make sufficient
distributions to avoid this 4% excise tax.
TAXATION OF THE FUND' S INVESTMENTS
ORIGINAL ISSUE DISCOUNT. For federal income tax purposes, debt securities
purchased by the Fund may be treated as having an original issue discount.
Original issue discount represents interest for federal income tax purposes and
can generally be defined as the excess of the stated redemption price at
maturity of a debt obligation over the issue price. Original issue discount is
treated for federal income tax purposes as income earned by the Fund, whether or
not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Fund each year is determined on the basis
of a constant yield to maturity which takes into account the compounding of
accrued interest.
Debt securities may be purchased by the Fund at a discount which exceeds the
original issue discount remaining on the securities, if any, at the time the
Fund purchased the securities. This additional discount represents market
discount for income tax purposes. In the case of any debt security issued after
July 18, 1984, having a fixed maturity date of more than one year from the date
of issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless the Fund elects to include such accrued market discount
in income in the tax year to which it is attributable). Generally, market
discount is accrued on a daily basis. The Fund may be required to capitalize,
rather than deduct currently, part or all of any direct interest expense
incurred or continued to purchase or carry any debt security having market
discount, unless it makes the election to include market discount currently.
Because the Fund must include original issue discount in income, it will be more
difficult for the Fund to make the distributions required for it to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
OPTIONS AND FUTURES TRANSACTIONS. Certain of the Fund's investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in the Fund's income for purposes of the 90% test, the 30% test, the
excise tax and the distribution requirements applicable to regulated investment
companies, (ii) defer recognition of realized losses, and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
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<PAGE>
loss. Such provisions may apply to options and futures contracts. The extent to
which the Fund makes such investments may be materially limited by these
provisions of the Code.
FOREIGN CURRENCY TRANSACTIONS. Under Section 988 of the Code, special rules are
provided for certain foreign currency transactions. Foreign currency gains or
losses from foreign currency contracts (whether or not traded in the interbank
market), from futures contracts that are not "regulated futures contracts" and
from unlisted options are treated as ordinary income or loss under Section 988.
The Fund may elect to have foreign currency-related regulated futures contracts
and listed options subject to ordinary income or loss treatment under Section
988. In addition, in certain circumstances, the Fund may elect capital gain or
loss for foreign currency transactions. The rules under Section 988 may also
affect the timing of income recognized by the Fund.
TAXATION OF THE SHAREHOLDERS
Distributions of net investment income and the excess of net short-term capital
gain over net long-term capital loss are taxable as ordinary income to
shareholders. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon a taxable
disposition of shares within six months from the date of their purchase will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by shareholders during such period.
Distributions of net investment income and capital gain net income will be
taxable as described above, whether received in cash or reinvested in additional
shares. When distributions are received in the form of shares issued by the
Fund, the amount of the distribution deemed to have been received by
participating shareholders is the fair market value of the shares received
rather than the amount of cash which would otherwise have been received. In such
a case, participating shareholders will have a basis for federal income tax
purposes in each share received from the Fund equal to the fair market value of
such share on the payment date.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain as described above,
even though, from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a distribution will then receive
a return of their investment upon distribution which will nevertheless be
taxable to them.
Income received by the Fund may give rise to withholding and other taxes imposed
by foreign countries. If more than 50% of the value of the Fund's assets at the
close of a taxable year consists of securities of foreign corporations, the Fund
may make an election that will permit an investor to take a credit (or, if more
advantageous, a deduction) for foreign income taxes paid by the Fund, subject to
limitations contained in the Code. If the Fund satisfies this requirement, the
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Fund will make such an election. As an investor, you would then include in gross
income both dividends paid to you and the foreign taxes paid by the Fund on its
foreign investments. The Fund cannot assure investors that they will be eligible
for the foreign tax credit. The Fund will advise shareholders annually of their
share of any creditable foreign taxes paid by the Fund.
The Fund may be required to withhold federal income tax at a rate of 31% from
dividends made to any shareholder who fails to furnish a certified taxpayer
identification number ("TIN") or who fails to certify that he or she is exempt
from such withholding or who the Internal Revenue Service notifies the Fund as
having provided the Fund with an incorrect TIN or failed to properly report for
federal income tax purposes. Any such withheld amount will be fully creditable
on each shareholder's individual federal income tax return.
The foregoing discussion is a general summary of certain of the current federal
income tax laws affecting the Fund and investors in Fund shares. The discussion
does not purport to deal with all of the federal income tax consequences
applicable to the Fund, or to all categories of investors, some of which may be
subject to special rules. Investors should consult their own advisors regarding
the tax consequences to them, including state and local tax consequences of
investment in the Fund.
REDEMPTIONS IN KIND
The Fund has elected to have the ability to redeem its shares in kind,
committing itself to pay in cash all requests for redemption by any shareholder
of record limited in amount with respect to each shareholder of record during
any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the net asset
value of such company at the beginning of such period.
PERFORMANCE
The Fund may advertise performance in terms of average annual total return for
1, 5 and 10 year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
- --------------------------------------------------------------------------------
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at the
end of the year or period;
- --------------------------------------------------------------------------------
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The calculation assumes all dividends and distributions by the Fund are
reinvested at the price stated in the Prospectus on the reinvestment dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts.
The Fund may also advertise performance in terms of aggregate total return.
Aggregate total return for a specified period of time is determined by
ascertaining the percentage change in the net asset value of shares of the Fund
initially acquired assuming reinvestment of dividends and distributions and
without giving effect to the length of time of the investment according to the
following formula:
- --------------------------------------------------------------------------------
[(B-A)/A](100) = ATR
Where A = initial investment
B = value at end of period
ATR = aggregate total return
- --------------------------------------------------------------------------------
The calculation assumes all distributions by the Fund are reinvested at the
price stated in the Prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
The Fund's aggregate total return for the period from January 2, 1996
(commencement of operations) to June 30, 1996 was 8.4%
ADVERTISING PERFORMANCE
As discussed in the Fund's Prospectus, the Fund may quote performance results
from recognized publications which monitor the performance of mutual funds, and
the Fund may compare its performance to various published historical indices.
These publications are listed in Part B of the Appendix. In addition, the Fund
may quote and compare its performance to the performance of various economic and
market indices and indicators, such as the S&P 500, Financial Times Index,
Morgan Stanley Capital International Europe, Australia, Far East Index, Morgan
Stanley Capital International World Index, Morgan Stanley Capital International
Combined Far East (ex-Japan) Free Index, Salomon Brothers World Bond Index,
Salomon Brothers World Government Bond Index, GNP and GDP data. Descriptions of
these indices are provided in Part B of the Appendix.
ADDITIONAL INFORMATION
CUSTODIAN. The Chase Manhattan Bank, N.A., is the custodian of the Trust's
portfolio securities, cash, coins and bullion. The custodian is authorized, upon
the approval of the Trust, to establish credits or debits in dollars or foreign
currencies with, and to cause portfolio securities of the Fund to be held by its
overseas branches or subsidiaries, and foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the SEC.
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FINANCIAL STATEMENTS
An audited Statement of Assets and Liabilities for the Fund as at December 20,
1995 and footnotes thereto follow.
The unaudited financial statements of the Fund for the period from January 2,
1996 (commencement of operations) to June 30, 1996 are incorporated herein by
reference to the Fund's Semi-Annual Report to Shareholders, which is available
at no charge upon written or telephone request to the Trust at the address or
telephone number set forth on the first page of this Statement of Additional
Information.
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THE ASIA PACIFIC GROWTH FUND
(A SEPARATE SERIES OF PEREGRINE FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 20, 1995
ASSETS
Assets:
Cash ........................................................... $100,000
Deferred organization expenses (Note 1) ........................ 95,000
--------
Total assets ............................................. 195,000
LIABILITIES
Liabilities:
Organization expenses payable and total
liabilities (Note 1) .......................................... 95,000
Commitments (Notes 1 and 2)
NET ASSETS (Applicable to 10,000 shares of
beneficial interest issued and
outstanding, $0.001 par value, unlimited number of
shares authorized) .............................................. 100,000
Net asset value per share ....................................... $ 10.00
========
NOTE 1. Organization
The Asia Pacific Growth Fund (a separate series of Peregrine Funds)
(the "Fund") was organized as a Delaware Business Trust on December 1, 1995 as a
diversified, open-end management investment company. The Fund has had no
operations other than the sale to Peregrine Nominees Limited (" Nominees"), an
affiliate of Peregrine Asset Management (Hong Kong) Limited, the Fund's
investment adviser (the "Investment Adviser"), of 10,000 shares of beneficial
interest for $100,000. A portion of the costs incurred and to be incurred in
connection with the organization and initial registration of the Fund will be
paid by Nominees, however, the Fund will reimburse these costs. Such
organizational costs estimated at $95,000 will be deferred and amortized over a
period of 60 months from the date the Fund commences operations. In the event
that, at any time during the five year period beginning with the date of the
commencement of operations, the initial shares acquired by Nominees prior to
such date are redeemed, by any holder thereof, the redemption proceeds payable
in respect of such shares will be reduced by the pro rata share (based on the
proportionate share of the original shares redeemed to the total number of
original shares outstanding at the time of redemption) of the then unamortized
deferred organizational expenses as of the date of such redemption. In the event
that the Fund liquidates before the deferred organizational expenses are fully
amortized, Nominees shall bear such unamortized deferred organizational
expenses.
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NOTE 2. Agreements and Affiliated Parties
The Fund expects to enter into an investment advisory agreement (the
"Investment Advisory Agreement") with the Investment Adviser. Under the
Investment Advisory Agreement, the Fund will pay the Investment Adviser a fee,
payable monthly, at an annual rate of 1% of the average daily net assets of the
Fund. The Investment Adviser has voluntarily agreed to waive its fee and/or
assume operating expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) in order to limit the Fund's total expenses to an annual
rate of 2.00% of the Fund's average daily net assets until December 31, 1997.
The Fund expects to enter into a Portfolio Accounting and
Administrative Services Agreement (the "Portfolio Accounting and Administrative
Services Agreement") with Van Eck Associates Corporation (the "Administrator").
Under the Portfolio Accounting and Administrative Services Agreement, the Fund
will pay the Administrator a fee at an annual rate of 0.25% of the average daily
net assets of the Fund or $75,000, whichever is greater.
The Fund expects to enter into a Distribution Agreement (the
"Distribution Agreement") with Van Eck Securities Corporation (the
"Distributor"), an affiliate of the Administrator. The Distribution Agreement
provides that the Distributor will pay all fees and expenses in connection with
printing and distributing prospectuses and reports for use in offering and
selling shares of the Fund and preparing, printing and distributing advertising
or promotional materials. The Fund will pay all fees and expenses in connection
with registering and qualifying its shares under federal and state securities
laws,
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of
Trustees of The Asia Pacific Growth Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Asia Pacific
Growth Fund, a separate series of Peregrine Funds (the "Fund"), at December 20,
1995, in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Fund's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
December 22, 1995
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APPENDIX
PART A.
CORPORATE BOND RATINGS
Description of Moody's Investors Service, Inc. corporate bond ratings:
Aaa--Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high quality bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be greater or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Standard & Poor's Corporation corporate bond ratings;
AAA -- Bonds rated AAA have the highest rating assigned by S&P to debt
obligations. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
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<PAGE>
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
PREFERRED STOCK RATINGS
Moody's Investors Service, Inc. describes its preferred stock ratings as:
aaa - An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of convertible preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium-grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue which is rated ba is considered to have speculative elements,
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safe-guarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b - An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa - An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payment.
ca - An issue which is rated ca is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c - This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Standard & Poor's Corporation describes its preferred stock ratings as:
AAA - This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
36
<PAGE>
AA - A preferred stock issue rated AA also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effect of
changes in circumstances and economic conditions.
BBB - An issue rated BB B is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC - Preferred stocks rated BB, B, and CCC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BBB indicates the lowest degree of speculation and
CCC the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
SHORT-TERM DEBT RATINGS
Description of Moody's short-term debt ratings:
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries, higher rates of return
of funds employed, conservative capitalization structure with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3--Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime--Issuers rated Not Prime do not fall within any of the Prime rating
categories.
37
<PAGE>
Description of S&P's short-term debt ratings:
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B--Issues rated B are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
PART B
The publications and services from which the Fund will quote performance are:
Micropal, Ltd. (an international investment fund information service), Fortune,
Changing Times, Money, U.S. News & World Report, Money Fund Scorecard,
Morningstar, Inc., Business Week, Institutional Investor, The Wall Street
Journal, Wall Street Transcripts, The New York Post, Investment Company
Institute publications, The New York Times, Barron's, Forbes, Research,
Donaghues Money Fund Report, Donaghue's Money Letter, The Economist, FACS, FACS
of the Week, Financial Planning, Investment Daily, Johnson's Charts, Mutual Fund
Profiles (S&P), Powell Monetary Analysis, Sales & Marketing Management, Life,
Black Enterprise, Fund Action, Speculators Magazine, Time, NewsWeek, U.S.A
Today, Wiesenberger Investment Service, Mining Journal Quarterly, Mining Journal
Weekly, Northern Miner, Gold Gazette, George Cross Newsletter, Engineering and
Financial Times, Journal of Commerce, Mikuni's Credit Ratings, Money Market
Directory of Pension Funds, Oil and Gas Journal, Pension Funds and Their
Advisers, Investment Company Data, Inc., Mutual Funds Almanac, Callan
Associates, Inc., Media General Financial Services, Financial World, Pensions &
Investment Age, Registered Investment Advisors, Aden Analysis, Baxter Weekly,
Congressional Yellow Book, Crain's New York Business, Survey of Current
Business, Treasury Bulletin, U.S. Industrial Outlook, Value Line Survey, Bank
Credit Analyst, S&P Corporation Records, Euromoney, Moody's, Investment Dealer's
Digest, Financial Mail, Financial Post, Futures, Grant's Interest Rate Observer,
Institutional Investor, International Currency Review, International Bank Credit
Analyst, Investor's Daily, German Business Weekly, GATT Trade Annual Report, and
Dimensional Fund Advisers, Inc.
Market Index Descriptions
FINANCIAL TIMES INDEX: A capitalization-weighted index of securities traded on
the London Stock Exchange. It is calculated on a total return basis with
dividends reinvested.
38
<PAGE>
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR EAST INDEX (US$
TERMS): An arithmetic, market value-weighted average of the performance of over
1,079 companies listed on the stock exchanges of Europe, Australia, New Zealand
and the Far East. The index is calculated on a total return basis, which
includes reinvestment of gross dividends before deduction of withholding taxes.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX (US$ TERMS): An arithmetic,
market value-weighted average of the performance of over 1,515 companies listed
on the stock exchanges of the following countries: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom and the United States. The index is calculated
on a total return basis, which includes reinvestment of gross dividends before
deduction of withholding taxes. The combined market capitalization of these
countries represents approximately 60% of the aggregate market value of the
stock exchanges of the above 22 countries.
MORGAN STANLEY CAPITAL INTERNATIONAL COMBINED FAR EAST EX-JAPAN FREE INDEX: An
arithmetic, market value-weighted average of the performance of companies listed
on the stock exchanges of the following countries: Hong Kong, Indonesia, Korea
(Korea is included at 20% of its market capitalization in the Combined Free
Index), Malaysia, Philippines Free, Singapore Free and Thailand. The combined
market capitalization of these countries represents approximately 60% of the
aggregate market value of the stock exchanges of the above seven countries.
SALOMON BROTHERS WORLD BOND INDEX (US$ TERMS): Measures the total return
performance of high quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars, Canadian Dollars, European Currency Units, French Francs,
Japanese Yen, Netherlands Guilder, Swiss Francs, UK Pounds Sterling, US Dollars
and German Deutsche Marks. Only high-quality, straight issues are included. The
index is calculated on both a weighted basis and an unweighted basis. Generally,
index samples for each market are restricted to bonds with at least five years'
remaining life.
SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (US$ TERMS): The WGBI includes the
Government bonds markets of the United States, Japan, Germany, France, the
United Kingdom, Canada, Italy, Australia, Belgium, Denmark, the Netherlands,
Spain, Sweden and Austria. Country eligibility is determined based on market
capitalization and investability criteria. A market's eligible issues must total
at least US $20 billion, Y2.5 trillion and DM30 billion for three consecutive
months for the market to be considered eligible for inclusion. Once a market
satisfies this criteria, it will be added at the end of the following quarter.
Guidelines by which a market may be excluded from the index have also been
established. A market will be excluded if the market capitalization of eligible
issues falls below half of all of the entry levels for six consecutive months.
Once again, the market will be removed at the end of the following quarter. In
addition, market entry barriers are a reason for exclusion despite meeting the
size criteria (for example, if a market discourages foreign investor
participation).
GROSS DOMESTIC PRODUCT: The market value of all final goods and services
produced by labor and property supplied by residents of a country in a given
period of time, usually one year. Gross Domestic Product ("GDP") comprises (1)
39
<PAGE>
purchases of persons, (2) purchases of governments (Federal, State & Local), (3)
gross private domestic investment (includes change in business inventories), and
(4) international trade balance from exports. Nominal GDP is expressed in 1993
dollars. Real GDP is adjusted for inflation and is currently expressed in 1987
dollars. Gross National Product (GNP) also includes the above components of GDP
of foreign subsidiaries of domestic companies.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements included in Parts A and B:
Included in Prospectus (Part A):
Financial Highlights of Asia Pacific Growth Fund for
the period January 2, 1996 to June 30, 1996
(unaudited)
Included in Statement of Additional Information (Part B):
Statement of Assets and Liabilities at December 20,
1995 (audited); Notes to Financial Statements; Report
of Independent Accountants dated December 22, 1995.
The following unaudited financial statements of the Registrant
are included in Registrant's Semi-Annual Report to
Shareholders for the six months ended June 30, 1996, filed
with the Securities and Exchange Commission under Section
30(b)(1) of the Investment Company Act of 1940, and have been
incorporated in Part B hereof by reference:
Asia Pacific Growth Fund - Investment Portfolio at
June 30, 1996; Asia Pacific Growth Fund - Statement
of Assets and Liablitites at June 30, 1996;
Asia Pacific Growth Fund - Statement of Operations
for the period January 2, 1996 to June 30, 1996; Asia
Pacific Growth Fund - Statement of Changes in Net
Assets for the period January 2, 1996 to June 30,
1996; Asia Pacific Growth Fund - Financial Highlights
for the period January 2, 1996 to June 30, 1996; Asia
Pacific Growth Fund - Notes to Financial Statements
b) Exhibits (An * denotes inclusion in this filing)
(1) (a) Form of Master Trust Agreement (incorporated by
reference from the Registration Statement filed on November 13, 1995)
(b) Master Trust Agreement (incorporated by reference
from Pre-Effective Amendment No. 2 filed on December 28, 1995)
* (c) First Amendment to the Master Trust Agreement
changing Fund name to Asia Pacific Growth Fund
1
<PAGE>
(2) (a) Form of By-Laws of the Registrant (incorporated
by reference from the Registration Statement filed on November 13, 1995)
(b) By-Laws of the Registrant (incorporated by
reference from Pre-Effective Amendment No. 2 filed on December 28, 1995)
(3) Not Applicable
(4) Not Applicable
(5) (a) Form of Investment Advisory Agreement
(incorporated by reference from the Registration Statement filed on November 13,
1995)
(b) Investment Advisory Agreement made between
Peregrine Asset Management (Hong Kong) Limited and Peregrine Funds (incorporated
by reference from Pre-Effective Amendment No. 2 filed on December 28, 1995)
(6) (a) Form of Distribution Agreement (incorporated by
reference from the Registration Statement filed on November 13, 1995)
(b) Distribution Agreement made between Peregrine
Funds and Van Eck Securities Corporation (incorporated by reference from Pre-
Effective Amendment No. 2 filed on December 28, 1995)
(7) Not Applicable
(8) (a) Form of Global Custody Agreement (incorporated by
reference from the Registration Statement filed on November 13, 1995)
* (b) Global Custody Agreement made between The Chase
Manhattan Bank, N.A. and Peregrine Funds.
(9) (a) Form of Transfer Agency Agreement (incorporated
by reference from the Registration Statement filed on November 13, 1995)
(b) Form of Portfolio Accounting and Administrative
Services Agreement (incorporated by reference from the Registration Statement
filed on November 13, 1995)
(c) Portfolio Accounting and Administrative Services
Agreement between Peregrine Funds and Van Eck Associates Corporation
(incorporated by reference from Pre-Effective Amendment No. 2 filed on
December 28, 1995)
(10) Opinion of Mayer, Brown & Platt (incorporated by
reference from Pre-Effective Amendment No. 2 filed on December 28, 1995)
(11) Consent of Price Waterhouse LLP, independent
accountants (incorporated by reference from Pre-Effective Amendment No. 2 filed
on December 28, 1995)
(12) Not Applicable
2
<PAGE>
*(13) Letter agreement providing initial capital
(14) Not Applicable
(15) Not Applicable
*(16) Performance Calculation
*(17) Financial Data Schedule
(18) Powers of Attorney (incorporated by reference from
Pre-Effective Amendment No. 2 filed on December 28, 1995)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Set forth below are the number of record holders, as of August 12,
1996, of each class of securities of the Registrant:
NUMBER OF
TITLE OR CLASS RECORD HOLDERS
-------------- --------------
Shares of beneficial interest 16
of Asia Pacific Growth Fund
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of the Master Trust Agreement of the
Registrant filed as Exhibit (1) to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the Form ADV of Peregrine Asset Management (Hong
Kong) Limited, File No. 801-48793, as currently on file with the Securities and
Exchange Commission, and to the caption "Management" in the Registrant's
Prospectus and to the captions "The Distributor" and "Trustees and Officers" in
the Registrant's Statement of Additional Information.
3
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) and (b) The business and other connections of the principal
underwriter is listed in the Form BD of Van Eck Securities Corporation as
currently on file with the NASD -File number 2269 and the SEC - File No. 8-4618.
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following table sets forth information as to the location of
accounts, books and other documents required to be maintained pursuant to
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder (17 CFR 270.31a-1 to 31a-3).
Accounts, books and documents listed
by reference to specific subsection of
17 CFR 270 31A-1 TO 31A-3 PERSON IN POSSESSION AND ADDRESS
- ------------------------- --------------------------------
31a-1(b)(1) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(2)(i) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(2)(ii) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
Van Eck Associates Corporation
31a-1(b)(2)(iii) 99 Park Avenue
New York, NY 10016
31a-1(b)(2)(iv) DST Systems Inc.
21 West Tenth Street
Kansas City, MO 64105
31a-1(b)(3) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
4
<PAGE>
Accounts, books and documents listed
by reference to specific subsection of
17 CFR 270 31A-1 TO 31A-3 PERSON IN POSSESSION AND ADDRESS
- -------------------------------------- --------------------------------
31a-1(b)(4) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(5) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-1(b)(6) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(7) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(8) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
31a-1(b)(9) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-1(b)(10) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-1(b)(11) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
5
<PAGE>
Accounts, books and documents listed
by reference to specific subsection of
17 CFR 270 31A-1 TO 31A-3 PERSON IN POSSESSION AND ADDRESS
- ------------------------- --------------------------------
31a-1(c) Not Applicable
31a-1(d) Van Eck Securities Corporation
99 Park Avenue
New York, NY 10016
31a-1(e) Not Applicable
31a-1(f) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-2(a)(1) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
DST Systems, Inc.
21 West Tenth Street
Kansas City, MO 64105
Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-2(a)(2) Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
6
<PAGE>
Accounts, books and documents listed
by reference to specific subsection of
17 CFR 270 31A-1 TO 31A-3 PERSON IN POSSESSION AND ADDRESS
- ------------------------- --------------------------------
31a-2(a)(3) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-2(b) Van Eck Securities Corporation
99 Park Avenue
New York, NY 10016
31a-2(c) Van Eck Securities Corporation
99 Park Avenue
New York, NY 10016
31a-2(d) Peregrine Asset Management
(Hong Kong) Limited
1704 New World Tower
16-18 Queen's Road
Central Hong Kong
31a-2(e) Not Applicable
31a-3 Not Applicable
ITEM 31. MANAGEMENT SERVICES
All management related service contracts entered into by or for Asia
Pacific Growth Fund are described in Parts A and B of the Form N-1A.
ITEM 32. UNDERTAKINGS
Asia Pacific Growth Fund will file a post-effective amendment, using
financial statements which may not be certified, within four to six months
following the commencement of operation of the Fund.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 31st day of July, 1996.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of Rule 485
under the Securities Act of 1933 and that no material event requiring disclosure
in the prospectus, other than one listed in paragraph (b)(1) of such Rule or one
for which the Commission has approved a filing under paragraph (b)(1)(ix) of the
Rule, has occurred since the latest of the following three dates: (i) the
effective date of the Registrant's Registration Statement; (ii) the effective
date of the Registrant's most recent Post-Effective Amendment to its
Registration Statement which included a prospectus; or (iii) the filing date of
a post-effective amendment filed under paragraph (a) of Rule 485 which has not
become effective.
PEREGRINE FUNDS
By: /S/ GARY GREENBERG*
-------------------------
Gary Greenberg, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ GARY GREENBERG* Trustee and President 7/31/96
- ------------------
Gary Greenberg
/S/ ROGER O. BROWN Trustee 7/31/96
- ------------------
Roger O. Brown
/S/ WESLEY G. MCCAIN* Trustee 7/31/96
- --------------------
Wesley G. McCain
/S/ BRUCE SETON Trustee 7/31/96
- ---------------
Bruce Seton
/S/ RICHARD STAMBERGER* Trustee 7/31/96
- ----------------------
Richard Stamberger
/S/ THOMAS C. THEOBALD Trustee 7/31/96
Thomas C. Theobald
- ------------------
- ----------
*Executed on behalf of the Trustee by Thaddeus Leszczynski, attorney-in-fact.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. ITEM
- ----------- ----
Exhibit 1(c) First Amendment to the Master Trust Agreement
Exhibit 8(c) Global Custody Agreement
Exhibit 13 Letter agreement providing initial capital
Exhibit 16 Performance calculation
Exhibit 17 Financial Data Schedule
EXHIBIT 1(c)
PEREGRINE FUNDS
Amendment No. 1 to Master Trust Agreement
Amendment No. 1 to the Master Trust Agreement of PEREGRINE FUNDS made
in New York this 18th day of December 1995 by the Majority of the Trustees of
said Trust:
WITNESSETH:
WHEREAS, Section 7.3 of the Master Trust Agreement dated December 1, 1995 (the
"Agreement") of PEREGRINE FUNDS (the "Trust") provides that the Agreement may be
amended at any time, so long as such amendment does not adversely affect the
rights of any shareholder and so long as such amendment is not in contravention
of applicable law, including the Investment Company Act of 1940, by an
instrument in writing signed by a majority of the then Trustees; and
WHEREAS, the undersigned, being the Majority Trustees of the Trust, desire to
amend Section 4.2 of the Agreement by changing the name of the Sub-Trust from
"Asia Growth Fund" to "Asia Pacific Growth Fund".
NOW THEREFORE, the Majority of the Trustees hereby state:
That the initial paragraph of Section 4.2 of the Agreement, as heretofore in
effect, is amended to read as follows:
"Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES. Without
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further
Sub-Trusts, the Trustees hereby establish and designate one Sub-Trust which
shall be known as "Asia Pacific Growth Fund," and which shall initially consist
of a single class of Shares. The Shares of such Sub-Trusts and any Shares of any
further Sub-Trust or classes thereof that may from time to time be established
and designated by the Trustees shall (unless the Trustees otherwise determine
with respect to some further Sub-Trust at the time of establishing and
designating the same) have the following relative rights and preferences:"
<PAGE>
IN WITNESS WHEREOF, the undersigned hereunto set their hand and seal for
themselves and their assigns as of this 18th day of December 1995.
/S/ RODGER LAWSON
- -----------------
Rodger Lawson
/S/ THADDEUS LESZCZYNSKI
- ------------------------
Thaddeus Leszczynski
/S/ BRUCE SMITH
- ---------------
Bruce Smith
EXHIBIT 8(C)
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective December 20, 1995, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and Peregrine Funds for the benefit of the
Asia Growth Fund (the "Customer").
1. CUSTOMER ACCOUNTS.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined in
Section 3) for the account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account") for
any and all cash in any currency received by the Bank or its Subcustodian for
the account of the Customer, which cash shall not be subject to withdrawal by
draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
<PAGE>
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets in
the Accounts in accounts which the Bank has established with one or more of its
branches or Subcustodians. The Bank and Subcustodians are authorized to hold any
of the Securities in their account with any securities depository in which they
participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as special custody accounts for the exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Customer with any particular Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its discretion, may
advance the Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by the Bank on similar
loans.
2
<PAGE>
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim or
a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for the Customer upon
Instructions after consultation with the Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractural settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transactions.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and
debits of the particular transaction at any time.
7. ACTIONS OF THE BANK.
The Bank shall follow instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for difinitive
Securities.
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(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets. Unless
the Customer sends the Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, the Customer shall be deemed to
have approved such statement. In such event, or where the Customer has otherwise
approved any such statement, the Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where the Customer and
all persons having or claiming an interest in the Customer or the Customer's
Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take any action under this Agreement.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
a. Corporate Actions. Whenever the Bank receives information concerning the
Securities which requires discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the Bank
will give the Customer notice of such Corporate Actions to the extent that the
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not received in time
for the bank to take timely action, or actual notice of such Corporate Action
was received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
b. Proxy Voting. The Bank will deliver proxies to the Customer or its
designated agent pursuant to special arrangements which may have been agreed to
in writing. Such proxies shall be executed in the appropriate nominee name
relating to Securities in the Custody Account registered in the name of such
nominee but without indicating the manner in which such proxies are to be voted;
and where bearer Securities are involved, proxies will be delivered in
accordance with Instructions. Proxy voting services may be provided by the Bank
or, in whole or in part, by one or more third parties appointed by the Bank
(which may be affiliates of the Bank); provided that the Bank shall be liable
for the performance of any such third party to the same extent as the Bank would
have been if it performed such services itself.
c. THE RECLAIMS. (i) Subject to the provisions hereof, the Bank will apply
for a reduction of withholding tax and any refund of any tax paid or tax credits
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which apply in each applicable market in respect of income payments on
Securities for the Benefit of the Customer which the Bank believes may be
available to such Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside
the United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax will be deducted from U.S. source income. The Customer
shall provide to the Bank such documentation and information as it may
require in connection with taxation, and warrants that, when given, this
information shall be true and correct in every respect, not misleading in
any way, and contain all material information. The Customer undertakes to
notify the Bank immediately if any such information requires updating or
amendment.
(iii) The Bank shall not be liable to the Customer or any third party
for any tax, fines or penalties payable by the Bank or the Customer, and
shall be indemnified accordingly, whether these result from the inaccurate
completion of documents by the Customer or any third party, or as a result
of the provision to the Bank or any third party of inaccurate or misleading
information or the withholding of material information by the Customer or
any other third party, or as a result of any delay of any revenue authority
or any other matter beyond the control of the Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, the Bank shall have no responsibility with regard to the
Customer's tax position or status in any jurisdiction.
(vi) The Customer confirms that the Bank is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to the Customer or the Securities and/or Cash held for the
Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would
have been if it performed such services itself.
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
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<PAGE>
10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written notice
from the Customer or its designated agent to act on behalf of the Customer under
the Agreement. Such persons shall continue to be Authorized Persons until such
time as the Bank receives Instructions from the Customer or its designated agent
that any such employee or agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in Instructions which
are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank would be liable
to the Customer by reason of the failure of the Bank or its Subcustodian to
utilize reasonable care, the Bank shall be liable to the Customer only to
the extent of the Customer's direct damages, to be determined based on the
market value of the property which is the subject of the loss at the date
of discovery of such loss and without reference to any special conditions
or circumstances. Alternatively, the customer may, at its election and at
its sole expense, be subrogated to the rights of the Bank in respect of any
Subcustodian in connection with such a loss. The Bank will not be
responsible for the insolvency of any Subcustodian which is not a branch or
affiliate of Bank.
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(ii) The Bank will not be responsible for any act, omission, default
or the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its
obligations under this Agreement, the Bank may rely on the genuineness of
any document which it believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless from
any liability or loss resulting from the impression or assessment of any
taxes or other government charges, and any related expenses with respect to
income from or Assets in the Accounts.
(v) The bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for the Customer) on all matters and shall
be without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) The Bank need not maintain insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluation or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or affect
the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of ware or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this Section
12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than as
provided in Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant to this
Agreement;
(v) review or reconcile trade confirmations received from brokers. The
Customer or its Authorized Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
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<PAGE>
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for the than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
13. FEES AND EXPENSES.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
reasonable legal fees. The Bank shall have a lien on and is authorized to charge
any Accounts of the Customer for any amount owing to the Bank under any
provision of this Agreement.
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) CERTIFICATE OF RESIDENCY, ETC. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) ACCESS TO RECORDS. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank relating to the
Assets as is required in connection with their examination of books and records
pertaining to the Customer's affairs. Subject to restrictions under applicable
law, the Bank shall also obtain an undertaking to permit the Customer's
independent public accountants reasonable access to the records of any
Subcustodian which has physical possession of any Assets as may be required in
connection with the examination of the Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be governed
by the laws of the State of New York and shall not be assignable by either
party, but shall bind the successors in interest of the Customer and the Bank.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the
Assets deposited in the Accounts are (Check one):
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__ Employee Benefit Plan or other assets subject to the Employee Retirement
Income Security Act of 1974, ass amended ("ERISA");
XX Mutual Fund assets subject to certain Securities and Exchange Commission
("SEC") rules and regulations;
__ Neither of the above.
This Agreement consists exclusively of this document together with Schedule
A, Exhibits I-______and the following Rider(s) [Check applicable rider(s)]:
__ ERISA
XX MUTUAL FUND
__ SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement supersedes
any other agreements, whether written or oral, between the parties. Any
amendment to this Agreement must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions of this Agreement
are held invalid, illegal or enforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) WAIVER. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) NOTICES. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
Bank: The Chase Manhattan Bank, N.Y.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
Customer: Peregrine Funds
c/o Van Eck Associates Corporation
99 Park Avenue, 8th Floor
New York, NY 10018
Attention: Theodeus Laszczynski
Facisimile (212) 687-5248
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<PAGE>
(i) TERMINATION. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided that such
notice to the Bank shall specify the names of the persons to whom the Bank shall
deliver the Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver the
Assets to the persons to specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Section 13. If within sixty (60)
days following receipt of a notice of termination by the Bank, the Bank does not
receive Instructions from the Customer specifying the names of the persons to
whom the Bank shall deliver the Assets, the Bank, at its election, may deliver
the Assets to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or any continued to hold the Assets until Instructions are
provided to the Bank.
Peregrine Funds.
By:/S/ GARY GREENBERG Trustee
------------------ -------
GARY GREENBERG Title
THE CHASE MANHATTAN BANK, N.A.
By:/S/ JON CAREY Vice-President
------------- --------------
JON CAREY Title
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Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A and
Peregrine Funds for the benefit of the Asia
Pacific Growth Fund, effective December 20, 1995
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940), Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsibile to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodians or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's
government or an agency thereof and that has shareholders' equity in excess
of $200 million in
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<PAGE>
U.S. currency (or a foreign currency equivalent thereof), (ii) a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States and that has shareholders' equity in
excess of $100 million in U.S. currency (or a foreign currency equivalent
thereof) (iii) a banking institution or trust company incorporated or
organized under the laws of a country other than the United States or a
majority owned direct or indirect subsidiary of a qualified U.S. bank or
bank holding company that is incorporated or organized under the laws of a
country other than the United States which has such other qualifications as
shall be specified in Instructions and approved by the Bank; or (iv) any
other entity that shall have been so qualified by exemptive order, rule or
other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of
a country other than the United States, which operates (i) the central
system for handling securities or equivalent book-entries in that country,
or (ii) a transnational system for the central handling of securities or
equivalent book-entries.
The Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through ____ of Schedule A, and further represents that its Board
has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. The Bank will supply the Customer with any amendment
to Schedule A for approval. The Customer has supplied or will supply the Bank
with certified copies of its Board of Directors resolution(s) with respect to
the foregoing prior to placing Assets with the Subcustodian so approved.
Section 11. INSTRUCTIONS.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in is prospectus.
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<PAGE>
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or other
securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the Bank,
its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in iind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent of
such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
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<PAGE>
national securities exchange, or of any similar organizations, regarding
escrow or other arrangements in connections with transactions by the
Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be releases only
upon payment to the Bank of monies for the premium due and a receipt of the
Securities which are to be held in escrow. Upon exercise of the option, or
an expiration, the Bank will receive from brokers the Securities previously
deposited. The Bank will act strictly in accordance with Instructions in
the delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not returned
promptly when due other than to make proper request for such return;
(m) For spot or forward exchange transactions to facilitate security
trading, receipt of income from Securities or related transactions;
(n) For other proper purposes as may be specified in Instructions issued by
an officer of the Customer which shall include a statement of the purpose
for which the delivery or payment is to be made, the amount of the payment
or specific Securities to be delivered, the name of the person or persons
to whom delivery or payment is to be made, and a certificate that the
purpose is a proper purpose under the instruments governing the Customer;
and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. STANDARD OF CARE; LIABILITIES.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. bank, each eligible foreign custodian and
each eligible foreign securities depository holding the Customer's
Securities pursuant to this Agreement afford protection for such Securities
at least equal to that afforded by the Bank's established procedures with
respect to similar securities held by the Bank and its securities
depositories in New York.
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SECTION 14. ACCESS TO RECORDS.
ADD THE FOLLOWING LANGUAGE TO THE END OF SECTION 14(C):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
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GLOBAL CUSTODY AGREEMENT
WITH PEREGRINE FUNDS FOR THE
BENEFIT OF THE ASIA PACIFIC FUND
DATE DECEMBER 20, 1995
DOMESTIC
SPECIAL TERMS AND CONDITIONS RIDER
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions will apply rather than the provisions of Section
8 of the Agreement:
The Bank will send to the Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of the Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or relate
to legal proceedings within a reasonable time after sufficient copies are
received by the Bank for forwarding to its customers. In addition, the Bank
will follow coupon payments, redemptions, exchanges or similar matters with
respect to Securities in the Custody Account and advise the Customer or the
Authorized Person for such Account of rights issued, tender offers or any
other discretionary rights with respect to such Securities, in each case,
of which the Bank has received notice from the issuer of the Securities, or
as to which notice is published in publications routinely utilized by the
Bank for this purpose.
FEES
The fees referenced in Section 13 of this Agreement cover only domestic and
euro-dollar holdings. There will be no Schedule A to this Agreement, as there
are no foreign assets in the Accounts.
PEREGRINE NOMINEES LIMITED EXHIBIT (13)
1704 NEW WORLD TOWER
16-18 QUEENS ROAD
HONG KONG
December 20, 1995
Mr. Gary Greenberg
President
Peregrine Funds
99 Park Avenue
New York, New York 10016
Dear Mr. Greenberg:
With respect to our purchase of 10,000 shares of beneficial interest
("Initial Shares") of Asia Pacific Growth Fund (the "Fund"), a series of
Peregrine Funds (the "Trust"), at $10.00 per share, for an aggregate purchase
price of $100,000.00, we hereby advise you that we are purchasing such Initial
Shares with no intention to dispose of them either through resale to others or
through redemption by the Trust.
The amount paid by the Trust on any redemption by us, or any other
current holder of the Fund's initial shares, will be reduced by the PRO RATA
portion of any unamortized organization expenses which the number of such
Initial Shares redeemed bears to the total number of the Fund's initial shares
outstanding immediately prior to such redemption.
Sincerely,
PEREGRINE NOMINEES LIMITED
By: /S/ PETER WONG
--------------------------
Peter Wong
Director
Peregrine
1/2/96 NAV $10.00
6/28/96 NAV $10.84
- ----------- ------
Return 8.4%
Calculation: ($10.84-$10.00)/$10.00
No dividends paid
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