PEREGRINE ASIA PACIFIC GROWTH-FUND
- ----------------------------------
INTERIM REPORT-FIRST HALF 1996
- ------------------------------
POLITICAL REVIEW
- ----------------
Politics in Asia were noisy during the period. China's acceptance of Taiwan's
transition to multi-party democracy lacked a certain grace and the actions of
President Clinton during the election may have marked a turning point in what
threatened to become an unpleasant situation. The implied American commitment to
Asia's stability should underwrite further peaceful development in the region
over the next several years.
Single party rule also ended, if less dramatically, in India. The Congress party
was resoundingly defeated in what was generally perceived to be India's first
clean election. The market performed well before the election in the belief that
the reformist (but also nationalist) BJP party would win. A reformist finance
minister nominated by the winning coalition has given the market enough
confidence to maintain most of those earlier gains.
Hong Kong's transition to Chinese rule began in earnest, with the British (and,
coincidentally, the local democratic) side losing many battles with their
Chinese counterparts over the persistence of democratic institutions. Concerns
regarding the stability of the Indonesian Government became more acute in June
as President Suharto's health became an issue. His subsequent clean bill of
health will alleviate some of these concerns. The nomination of a plausible
successor would give the stock market greater confidence.
ECONOMIC REVIEW
- ---------------
The consensus view on U.S. interest rates turned 180 degrees during the second
quarter, turning hopes that Asian rates would drop into fears that they would
rise. A closer analysis reveals that in many Asian countries (with the obvious
exception of Hong Kong), interest rates are being driven by other factors.
In Indonesia and Thailand, rates are being driven by capital inflows, and
therefore seem to have a downward bias despite a possible 50 basis point hike
in U.S. rates. Korean and Malaysian rates have risen during the quarter in
response to domestic inflationary pressures. Philippine, Chinese and Indian
inflation has declinend over the quarter, allowing the authorities room to nudge
rates down.
Current account deficits have been an unwelcome feature of East Asian economies
this year. High deficits in Thailand and Malaysia have been exacerbated by
strong short term capital inflows, creating a policy dilemma for central bank
authorities. Indonesia and the Philippines have better quality financing of
their deficits (foreign direct investment in the case of Indonesia and worker's
remittances in the case of the Philippines). In Korea the weak Japanese yen and
falling DRAM prices worsened the current account, but as a proportion of GDP it
remains small.
Economic growth continues to impress, and continues to translate itself into
corporate profitability. Growth estimates for the region, at the half year,
remain will above 6% at the GDP level, translating into a consensus forecast
rise of nearly 19% at the level of earnings per share. Any hike in U.S.
interest rates, though damaging to sentiment, will do little to hurt business in
the region, even in Hong Kong (where rates are tied to
<PAGE>
U.S. rates through the currency peg). The property market's recovery in Hong
Kong is underpinned by restricted supply, good end-user demand, and the
beginning of a new liquidity cycle in China. A successful austerity program in
China, resulting in inflation dipping beneath 10%, has allowed authorities to
begin to loosen credit, a process which should continue throughout the year.
Easier credit in China usually finds its way to Hong Kong.
MARKET REVIEW
- -------------
The region's stock markets performed will in the first half of the year, gaining
8%. Strong earnings growth at consumer products companies in Indonesia, the
rediscovery of India by international investors, and the de-escalation of
tensions between China and Taiwan were among the positive themes during the
period. The markets worried about the downturn in the semi-conductor cycle, a
decline in property prices caused partly by persistently high interest rates in
Thailand, and the effect of China's austerity program on corporate earnings.
During June, Morgan Stanley Capital International announced a major reweighting
of the MSCI Far East Free ex-Japan Index, doubling Korea's weighting from 4% to
about 8%, and increasing that of Taiwan from 0 to over 10%, effective September
1. Both markets are notoriously difficult to access, but Korea's, where
foreigners were already heavily overweight, failed to respond, while Taiwan's,
where foreigners had little exposure, sprang into life and was the best
performing market in Asia in the second quarter. The heavier weightings of these
two countries reflect the relative size and importance of the markets.
PERFORMANCE REVIEW AND FUND STRATEGY
- ------------------------------------
The Fund outperformed the Lipper index in the first half of the year and rose
8.4%. It lagged the index during its strong rise in early January (when the Fund
was initiating its investments and was therefore still largely in cash), then
significantly outperformed the index in the second quarter due to an overweight
position in India and in the life insurance sector. The Fund is maintaining
exposure to the residential and office property sectors in Hong Kong in the
belief that the recovery begun in the first half of the year continue, and that
confidence in Hong Kong will build in the run-up to 1997. The manager is also
maintaining a position in the Thai residential construction sector, noting that
demand is beginning to rise again, and valuations are at historically low
levels.
Gary Greenberg
Peregrine Asset Management (Hong Kong) Limited
July 31, 1996
A pre chart showing the investment allocation by country as of June 30, 1996
will be included in the shareholder report.
Hong Kong ............................ 27.4%
South Korea .......................... 13.1%
Indonesia ............................ 11.7%
Singapore ............................ 10.4%
Malaysia ............................. 8.7%
India ................................ 9.3%
Thailand ............................. 8.2%
China ................................ 5.3%
Philippines .......................... 2.7%
Taiwan ............................... 2.0%
Austrailia ........................... 1.2%
<PAGE>
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO JUNE 30, 1996 (UNAUDITED)
NO. OF SHARES SECURITIES (A) VALUE (NOTE 1)
- --------------------------------------------------------------------------------
AUSTRALIA: 1.5%
1,654,000 Anzoil NL $ 260,422
-----------
CHINA: 6.2%
285,000 Shanghai New Asia Group Co. Ltd. "B" 149,910
1,400,000 Qingling Motor Co. "H" 470,242
1,373,000 Shenzhen Fangda Co. Ltd. "B" 496,648
-----------
1,116,800
-----------
HONG KONG: 32.3%
150,000 Amoy Properties Ltd. 181,185
125,000 Cheung Kong (Holdings) Ltd. 900,274
450,000 Cosco Pacific Ltd. 322,645
1,750,000 FPB Bank Holding Co. Ltd. 621,714
80,000 Great Eagle Holdings Ltd. 234,087
200,000 Hongkong Land Holdings Ltd. 450,000
138,000 Hutchison Whampoa Ltd. 868,216
500,000 International Bank Of Asia Ltd. 322,968
200,000 Liu Chong Hing Bank Ltd. 272,585
300,000 National Mutual Asia Ltd. 263,542
1,500,000 Regal Hotels International Holdinds Ltd. 402,095
60,000 Sun Hung Kai Properties Ltd. 606,534
40,000 Swire Pacific Ltd. "A" 342,346
-----------
5,788,191
-----------
INDONESIA: 11.5%
51,000 P.T. HM Sampoerna "F" 580,916
300,000 P.T. Lippo Life Insurance "F" 394,907
222,000 P.T. Bimantara Citra "F" 279,110
99,000 P.T. Gudang Garam "F" 424,468
76,950 P.T. Mulia Industrindo "F" 114,110
58,380 P.T. Mulia Industrindo
(Rights expiring 6/2/97)* 38,895
75,000 P.T. Semen Gresik "F" 218,407
-----------
2,050,813
-----------
MALAYSIA: 10.3%
85,000 Arab Malaysian Finance Bhd. "F" 371,417
50,000 KFC Holdings (Malaysia) Bhd. 270,595
23,000 Malayan Banking Bhd. 221,287
102,000 Malaysia Assurance Alliance Bhd. 539,747
100,000 Pacific & Orient Bhd. 280,617
83,000 Sistem Televisyen Malaysia Bhd.* 156,384
-----------
1,840,047
-----------
See Notes to Financial Statements.
<PAGE>
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO JUNE 30, 1996 (UNAUDITED)
NO. OF SHARES SECURITIES (A) VALUE (NOTE 1)
- --------------------------------------------------------------------------------
PHILIPPINES: 3.2%
71,000 Benpres Holdings Corp. (GDR) 568,000
-----------
SINGAPORE: 12.3%
175,000 Clipsal Industries (Holdings) Ltd. 491,750
150,000 DBS Land Ltd. 514,529
65,000 Overseas Union Bank Ltd. "F" 446,846
75,000 Singapore Land Ltd. 507,619
70,000 Straits Steamship Land Ltd. 234,160
-----------
2,194,904
-----------
SOUTH KOREA: 8.3%
4,500 Dongbu Insurance Co. Ltd. 221,339
290 Korea Mobile Telecom Corp. 228,797
2,020 Korea Mobile Telecom Corp.
(Warrants expiring 7/12/99) 724,624
480 Samsung Fire & Marine Insurance 314,793
-----------
1,489,553
-----------
TAIWAN: 2.4%
6,261 Taiwan Weighted Index
(Warrants expiring 12/3/98) 432,479
-----------
THAILAND: 9.6%
13,000 Advanced Info Service
Public Co., Ltd. 203,749
37,500 Bangkok Bank Co. Ltd. 354,414
25,000 BEC World Public Co. Ltd.* 139,797
45,000 Land & House Public Co. Ltd. 510,357
50,000 Quality House Public Co. "F" 103,371
25,000 Quality House Public Co. "F"
(Warrants expiring 8/13/96)* 32,735
34,000 Siam Commercial Bank
Public Co., Ltd. 380,248
-----------
1,724,671
-----------
TOTAL STOCKS & OTHER INVESTMENTS: 97.6%
(Cost $16,663,810) 17,465,880
-----------
See Notes to Financial Statements.
<PAGE>
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO JUNE 30, 1996 (UNAUDITED)
PRINCIPAL
AMOUNT SHORT-TERM OBLIGATION: 2.4% VALUE (NOTE 1)
- --------------------------------------------------------------------------------
INDONESIA: 2.4%
IDR 1,000,000,000 PT Polysindo Commercial Paper due 7/8/96
Interest Yield of 19.26%
(amortized cost $426,273) 428,639
-----------
TOTAL INVESTMENTS: 100% (COST $17,090,083) $17,894,519
===========
NO. OF SHARES
OF UNDERLYING SECURITIES EQUITY SWAPS (NOTE 5): VALUE (NOTE 1)
- --------------------------------------------------------------------------------
INDIA: 60.8%
14,700 Asea Brown Boveri Ltd. 306,201
3,200 Asian Paints (India) Ltd. 39,264
9,000 Asian Paints (India) Ltd. 110,430
15,000 Bharat Petroleum Corp. 145,050
16,200 Brooke Bond Lipton India Ltd. 166,860
25,000 Brooke Bond Lipton India Ltd. 257,500
3,800 Brooke Bond Lipton India Ltd. 39,140
62,000 India Cements Ltd. 290,935
15,000 Siemens Ltd. 257,100
25,000 Tata Engineering & Locomotive Co. Ltd. 362,250
-----------
1,974,730
-----------
SOUTH KOREA: 39.2%
4,840 Daehan Fire & Marine Insurance 198,536
5,500 Dongbu Insurance Co. Ltd. 267,905
2,480 LG Insurance Company Ltd. 249,761
480 Samsung Fire & Marine Insurance 310,550
13,500 Shinhan Bank 243,945
-----------
1,270,697
-----------
TOTAL EQUITY SWAPS (Notional amount of agreements $3,246,858) $ 3,245,427
===========
- ----------
(a) Unless otherwise indicated, securities owned are shares of common stock.
* Fair value as determined by the Board of Trustees.
Glossary:
GDR-Global Depository Receipt
"F"-Foreign registry
<PAGE>
SUMMARY OF INVESTMENTS BY INDUSTRY % OF PORTFOLIO
- ---------------------------------- --------------
Auto & Trucks 2.6%
Banks 9.9%
Broadcast Media 0.9%
Building Materials 0.9%
Cable Television Equipment 3.2%
Cement 1.2%
Distilling/Tobacco 3.2%
Electronics & Electrical Equipment 2.7%
Financial Services 3.3%
Commercial Paper 2.4%
Holding Company - Diversified 9.6%
Holding Co. 4.8%
Hotels/ Motels 2.2%
Insurance 7.5%
Life Insurance 2.2%
Metals 2.8%
Miscellaneous 2.4%
Multi-Line Insurance 1.6%
Oil & Gas Exploration 1.5%
Packaging 1.8%
Real Estate 21.3%
Restaurants 2.3%
Telecommunications 6.5%
Television 0.8%
Tobacco 2.4%
------
100.0%
======
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
ASIA PACIFIC GROWTH FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
Assets:
Investments at value (identified cost,
$17,090,083) (Note 1) $17,894,519
Cash 3,114,672
Deposit-equity swaps 923,665
Receivables:
Securities sold 296,511
Interest and dividends 65,840
Due from broker (Note 5) 15,610
Capital shares sold 15,000
From Advisor 7,273
Deferred organization costs 102,628
-----------
Total assets 22,435,718
-----------
Liabilities:
Payables:
Securities purchased 689,242
Accounts payable 91,622
-----------
Total liabilities 780,864
-----------
Net Assets $21,654,854
===========
Net asset value, maximum offering price
and redemption price per share
(1,997,479 shares of beneficial interest
outstanding with an unlimited number of
$.001 par value shares authorized) $10.84
===========
Net assets consist of:
Aggregate paid in capital $20,528,341
Unrealized appreciation of investments,
swaps and foreign currency 801,755
Undistributed net investment income 121,700
Undistributed realized gains 203,058
-----------
$21,654,854
===========
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
ASIA PACIFIC GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE PERIOD JANUARY 2, 1996(COMMENCEMENT OF OPERATIONS)TO JUNE 30, 1996
(UNAUDITEd)
INCOME:
Dividends (less foreign taxes withheld of $12,400) $ 202,632
Interest 127,112
-----------
Total income 329,744
Expenses:
Advisory fee (Note 2) $98,591
Administrative fee (Note 2) 36,895
Professional 20,207
Registration 18,385
Transfer agency 15,249
Amortization of deferred organization 11,285
Trustees fees and expenses 10,539
Reports to shareholders 4,959
Custodian 4,165
Other 2,132
-------
222,407
Expenses assumed by the Advisor (Note 2) (25,225)
-------
Total expenses 197,182
-----------
Net investment income 132,562
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized gain on investments 140,301
Realized gain from swap contracts and index options 62,757
Realized loss from foreign currency transactions (10,862)
Unrealized appreciation of investments 804,436
Unrealized depreciation of foreign
currency receivables and payables (1,250)
Unrealized depreciation of swap contracts (1,431)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,126,513
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
ASIA PACIFIC GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE PERIOD JANUARY 2, 1996 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1996
(UNAUDITED)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 132,562
Realized gain from security
transactions 140,301
Realized gain from swaps
contracts and index options 62,757
Realized loss from foreign
currency transactions (10,862)
Unrealized appreciation of investments 804,436
Unrealized depreciation of foreign
currency receivables and payables (1,250)
Unrealized depreciation of swap
contracts (1,431)
-----------
Increase in net assets
resulting from operations 1,126,513
-----------
CAPITAL SHARE TRANSACTIONS*:
Net proceeds from sales of shares 20,428,341
Cost of shares reacquired 0
-----------
Increase in net assets resulting
from capital share transactions 20,428,341
-----------
Total increase in net assets 21,554,854
NET ASSETS:
Beginning of Period 100,000
-----------
End of Period (including undistributed net investment income
of $121,700) $21,654,854
===========
*Shares of Beneficial Interest
Issued and Redeemed:
Shares sold 1,987,479
Shares reacquired 0
-----------
Net increase 1,987,479
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
ASIA PACIFIC GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FOR THE PERIOD
JANUARY 2, 1996 (A)
TO JUNE 30, 1996
(UNAUDITED)
-----------
Net Asset Value, Beginning of Period $10.00
------
Income From Investment Operations:
Net Investment Income 0.07
Net Gains on Securities 0.77
------
Total From Investment Operations 0.84
------
Net Asset Value, End of Period" $10.84
======
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
- -----------------------------
(a) Commencement of operations.
(b) Total return is calculated assuming an initial investment 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 certain expenses were not assumed by the
Advisor.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
ASIA PACIFIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Peregrine Funds (the "Trust"), organized as a Delaware business trust on
December 1, 1995, is registered under the Investment Company Act of 1940. The
following is a summary of significant accounting policies consistently followed
by the Asia Pacific Growth Fund (the "Fund"), a diversified open-ended
management company of the Trust, in the preparation of its financial statements.
The policies are in conformity with generally accepted accounting principles.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires the use of management's estimates and the actual
results could differ. The Fund had no operations prior to January 2, 1996 except
for the sale to Peregrine Asset Management (Hong Kong) Limited of 10,000 shares
for $100,000.
A. Security valuation-Portfolio securities, including option contracts, traded
on an exchange and traded in the NASDAQ National Market System are valued at the
last sales prices reported on principal exchanges at the close of business on
the principal market for such securities on the last business day of the period.
Over-the-counter securities not included in the NASDAQ National Market System
and listed securities for which no sale was reported are valued at the mean of
the bid and ask prices. The valuations of equity swaps are provided by the
counterparty of the agreements and such valuations are based upon a fixed
percentage of the closing bid price of the underlying securities. Short-term
obligations purchased with sixty days or less to maturity are valued at cost.
Short-term obligations purchased with more than sixty days remaining to maturity
are valued at market. Short-term obligations purchased with sixty days or less
to maturity are valued at cost which with accrued interest approximates value.
Forward currency contracts are valued at the spot currency rate plus an amount
("points") which reflects the differences in interest rates between the U.S. and
the foreign markets. Securities for which quotations are not available are
stated at fair value as determined by the Board of Trustees.
B. Federal income taxes-It is the Fund's policy to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Currency Translation-Assets and liabilities denominated in foreign currencies
and commitments under forward currency contracts are translated into U.S.
Dollars at the mean of the quoted bid and ask prices of such currencies on the
last business day of the period. Purchases and sales of investments are
translated at the exchange rates prevailing when such investments were acquired
or sold. Income and expenses are translated at the exchange rates prevailing
when accrued. The portion of realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates is
not separately disclosed. Recognized gains or losses attributable to foreign
currency fluctuations on foreign currency denominated assets and liabilities are
recorded as net realized gains and losses from foreign currency transactions.
D. Dividends and Distributions-Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
<PAGE>
ASIA PACIFIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
E. Other-Security transactions are accounted for on the date the securities are
purchased or sold. Interest income is accrued as earned.
F. Deferred organizational costs will be amortized over a period not to exceed
five years.
G. Options Contracts- The Fund may invest in call and put options on securities,
futures contracts, foreign currencies and stock and bond indices. Call and put
options give the Fund the right but not the obligation to buy (calls) or sell
(puts) the instrument underlying the option at a specified price. The premium
paid on the option, should it be exercised, will, on a call, increase the cost
of the investment acquired and, on a put, reduce the proceeds received from the
sale of the instrument underlying the option. If the options are not exercised,
the premium paid will be recorded as a capital loss upon expiration. The Fund
may incur additional risk to the extent the value of the underlying instrument
does not correlate with the anticipated movements of the option values.
H. Forward Currency Contracts - The Fund may buy and sell forward currency
contracts to settle purchases and sales of foreign denominated securities. In
addition, the Fund may enter into forward currency contracts to hedge foreign
denominated assets. Realized gains and losses from forward currency contracts
are included in realized gain from foreign currency transactions. The Fund may
incur additional risk from investments in forward currency contracts if the
counterparty is unable to fulfill its obligation or there are unanticipated
movements of the foreign currency relative to the U.S. dollar.
NOTE 2-Peregrine Asset Management (Hong Kong) Limited earned fees of $98,591 for
the period ended June 30, 1996 for investment advisory services. The fee is
based on an annual rate of 1% of average daily net assets. For the period ended
June 30, 1996, the Adviser agreed to waive advisory fees in the amount of
$25,225 which represents the amount exceeding a self imposed expense limitation
of 2% of average daily net assets (such limitation will be in effect until
December 31, 1997). In accordance with Portfolio Accounting and Administration
Agreement with Van Eck Associates Corporation ("Van Eck"), the Fund reimbursed
Van Eck $36,895 for costs incurred in connection with certain accounting and
administrative services. The fee is based on an annual rate of .25 of 1% of
average daily net assets or $75,000, whichever is greater. Certain of the
officers and trustees of the Trust are officers, directors or stockholders of
Peregrine Asset Management (Hong Kong) Limited. As of June 30, 1996, Peregrine
Nominees Ltd. owned 78.92% of the outstanding shares of beneficial interest of
the Fund.
<PAGE>
ASIA PACIFIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3-Purchases and sales of securities, other than short-term obligations,
aggregated $22,593,512 and $5,661,683, respectively, for the period ended June
30, 1996. For federal income tax purposes the identified cost of investments
owned at June 30, 1996 was $17,090,083. As of June 30, 1996, net unrealized
appreciation for federal income tax purposes aggregated $804,436 of which
$1,302,189 related to appreciated securities and $497,753 related to depreciated
securities. The Fund paid brokerage commissions aggregating $14,762 to Peregrine
Brokerage Limited and Peregrine Futures (Hong Kong) Limited, affiliates of the
Adviser, for the period ended June 30, 1996.
Note 4-The Fund invests in foreign securities. Investments in foreign securities
may involve a greater degree of risk than investments in domestic securities due
to political, economic or social instability. In addition, some foreign
companies are not generally subject to the same uniform accounting, auditing and
financial rules as are American companies, and there may be less government
supervision and regulation. Foreign investments may also be subject to foreign
taxes, dividend collection fees and settlement delays. However, foreign markets
have, in the past, provided an opportunity for higher rates of return.
The Fund concentrates its investments in companies closely tied to economic and
political conditions within the Asia Pacific region. Since the Fund may so
concentrate, it may be subject to greater risks and market fluctuations than
other more diversified portfolios. In addition, the Fund invests in securities
of smaller, less well-known companies may be particularly volatile. Other risks
include confiscatory taxation, expropriation, nationalization, inefficient
securities markets and lack of developed legal systems.
NOTE 5-The Fund entered into equity swaps to gain investment exposure to the
relevant market of the underlying securities. Both agreements obligate two
parties to exchange cash flows at specified intervals.
At June 30, 1996 the Fund had the following gross appreciation (depreciation)
amounts in equity swaps with a single counterparty outstanding (stated in US
dollars):
Total appreciation $ 147,193
Total depreciation $(148,624)
---------
Net unrealized depreciation of swaps $(1,431)
Net amount due on closed swaps $17,041
---------
$15,610
=========
An equity swap is an agreement whereby the Fund will pay or receive a fixed
percentage of an amount equal to the gain or loss in the market value of the
underlying security from trade date of the agreement to its termination date
plus any
<PAGE>
ASIA PACIFIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
accrued dividends. The Fund made payments to the counterparty on certain of the
swap agreements equal to the value of the underlying securities on trade date.
These payments will be returned to the Fund on the termination date of the
agreement. Losses incurred are limited to the payments made on the trade date.
Risks may arise as a result of the failure of the other party to the contract to
comply with the terms of the swap contract. Therefore, the Fund considers the
creditworthiness of each counterparty to a swap contract in evaluating potential
credit risk. Additionally, risks may arise from unanticipated movements in the
value of the swaps relative to the underlying securities.
The Fund records a net receivable or payable daily, based on the change in the
value of the underlying securities. The net receivable or payable for financial
statement purposes is shown as due to or from broker.
