A PEREGRINE FUND
PEREGRINE
---------
ASIA
PACIFIC
GROWTH
FUND
ANNUAL REPORT
DECEMBER 31, 1996
PEREGRINE ASSET MANAGEMENT
(HONG KONG) LIMITED
<PAGE>
Dear Shareholder:
The Peregrine Asia Pacific Growth Fund rose 16.0%* in its maiden year, outpacing
the Morgan Stanley Capital International AC Asia Free Ex-Japan Index, which rose
10.0% and the Lipper Pacific Ex-Japan Fund Index, which rose only 9.6%.
[CHART]
* The performance data represents past performance and is not indicative of
future results. The investment return and principal value of an investment in
the Fund will vary so that shares, when redeemed, may be worth more or less
than their original cost. The Advisor is currently waiving certain expenses
of the Fund. Had the Fund incurred all expenses, investment returns would
have been reduced.
The Fund's strong relative performance was due in part to a concentration of
holdings in Asia's healthier markets. The stock markets of Greater China (Hong
Kong, Taiwan, and the Shanghai and Shenzhen exchanges) where the Fund was
heavily weighted (with an average 38% weighting throughout the year), had
languished in recent years but recovered strongly in 1996. Hong Kong and Taiwan
both gained over 33% for the year, a result some considered surprising given the
impending hand-over in Hong Kong and the stressful dialogue that Taiwan had been
holding with the mainland. Valuations of real estate investment companies with
strong growth prospects were particularly attractive at the beginning of the
year, and Great Eagle and Hongkong Land performed well.
China's Shenzhen "B" share index gained over 145%; our pick, Shenzhen Fangda (a
building materials supplier in Southern China), gained over 700% for the year,
1
<PAGE>
and over 660% since the Fund purchased the shares in March.
Several of Southeast Asia's markets also did well as strong earnings growth
bolstered confidence. Malaysia gained 25%, Indonesia gained 20%, and the
Philippines gained 18%. The Fund had an average of 19% of its assets invested in
these markets during the year. Appreciating share prices of consumer oriented
companies like KFC (Kentucky Fried Chicken in Malaysia) and SM Prime (an
operator of shopping malls in the Philippines) were due to strong economic
growth which translated into earnings growth at the corporate level.
The year had its disappointments as well. The South Korean, Thai, and Indian
markets were weak, despite good economic growth rates. In South Korea, the share
price of the national cellular franchise holder, Korea Mobile Telecom, succumbed
to the panic in the broader market despite strong earnings growth and what we
considered a bargain basement valuation. Thailand's real estate crunch exerted
pressure on the finance sector, which then spread to the broader market. The
scandal-plagued Indian government proved unable to accelerate the badly needed
reform process, so the market stagnated after initial optimism.
Our investment process is primarily a bottom up investigation of company
fundamentals. We look for the best and the brightest in Asia, whether they be
large or small, and then check the company's valuation against its peers
domestically and internationally, and against the market itself. If the company
appears to have a sustainable edge over its competitor, if it has a track record
of treating its outside shareholders well, and if the valuation is compelling,
we purchase the company's stock. Index considerations are not important to us,
which is why you will find in our portfolio obscure names like Shenzhen Fangda,
Anwar Sierad (which holds the franchise for Wendy's in Indonesia, Hong Kong and
China), and Qingling Motor (a Chinese manufacturer of Isuzu trucks). We are not
limited to small or obscure companies, however, and can therefore participate
confidently with well-capitalized blue chips that have established credentials,
such as Cheung Kong (a conglomerate with interests in real estate, ports,
2
<PAGE>
telecoms and power), Swire Pacific (the Coca Cola bottler for China and Hong
Kong, also part owner of Cathay Pacific Airways), and the publicly listed
subsidiaries in India of multinationals such as Nestle, Unilever (Brooke Bond)
and Asea Brown Boveri.
We believe the outlook for 1997 for Asia is very good. The economies continue to
grow strongly, local interest rates have scope to decline, and valuations are
still quite attractive. A research intensive, selective approach, we believe,
will continue to enjoy success in identifying attractive investments in Asia.
Sincerely,
/s/ Gary Greenberg
- -----------------------
Gary Greenberg
Portfolio Manager
Peregrine Asset Management (Hong Kong) Limited
February 18, 1997
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees
and Shareholders of
Peregrine Funds
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Asia Pacific Growth Fund (the
portfolio constituting Peregrine Funds, hereafter referred to as the "Fund") at
December 31, 1996, the results of its operations, the changes in its net assets,
and the financial highlights for the period from January 2, 1996 (commencement
of operations) through December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 1997
4
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
NO. OF SHARES SECURITIES (A) DESCRIPTION VALUE (NOTE 1)
USD
- --------------------------------------------------------------------------------
AUSTRALIA: 4.7%
2,479,000 Anzoil NL+ Oil & Gas Exploration $275,860
in Vietnam
121,920 Commonwealth Bank
of Australia Banking 758,790
---------
1,034,650
---------
CHINA: 7.1%
760,000 Anhui Expressway
Co. Ltd. "H" Tollway Operator 213,717
1,400,000 Qingling Motor Co. "H" Trucks Assembler 773,805
602,440 Shenzhen Fangda Co.
Ltd. "B" Building Materials 591,963
---------
1,579,485
---------
HONG KONG: 34.8%
250,000 Amoy Properties Ltd. Real Estate Developer 360,398
125,000 Cheung Kong (Holdings) Housing Developer,
Ltd. Conglomerate 1,111,093
172,800 Dah Sing Financial Group Banking 701,521
1,750,000 FPB Bank Holding
Co. Ltd. Consumer Lending 786,249
166,000 Great Eagle Holdings Ltd. Office Property 684,646
200,000 Hongkong Land
Holdings Ltd. Landlord 556,000
138,000 Hutchison Whampoa Ltd. Telecom, Retail, 1,083,909
Real Estate
500,000 International Bank of
Asia Ltd. Banking 332,923
300,000 National Mutual Asia Ltd. Life Insurance 285,086
216,000 Ng Fung Hong Ltd. Food Distribution 194,091
1,500,000 Regal Hotels International
Holdings Ltd. Hotels in Asia and U.S.A. 523,627
60,000 Sun Hung Kai Properties Residential Real
Ltd. Estate Development 735,018
40,000 Swire Pacific Ltd. "A" Property, Coca Cola
bottling, Cathay Pacific
Airlines 381,407
---------
7,735,968
---------
See Notes to Financial Statements.
5
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1996 (continued)
- --------------------------------------------------------------------------------
NO. OF SHARES SECURITIES (A) DESCRIPTION VALUE (NOTE 1)
USD
- --------------------------------------------------------------------------------
INDIA: 3.4%
19,133 Asea Brown Boveri Ltd. Power Plants & $295,539
Pollution Control
15,000 Bharat Petroleum Corp. Oil & Gas Exploration 120,292
16,450 Nestle India Consumer Products 100,076
25,000 Tata Engineering &
Locomotive Co. Ltd. Auto & Trucks 237,099
---------
753,006
---------
INDONESIA: 11.6%
422,000 P.T. Anwar Sierad "F"* Wendy's Fast Food 415,389
324,000 P.T. Bimantara Citra "F"* Media, Autos, Telecom 432,091
42,000 P.T. Gudang Garam "F"* Clove Cigarettes 181,371
122,000 P.T. HM Sampoerna "F"* Clove Cigarettes 650,804
600,000 P.T. Lippo Life Insurance
"F"* Life Insurance 552,497
45,500 P.T. Ramayana Lestari
Sentosa "F"* Discount Retailer 98,243
75,000 P.T. Semen Gresik "F"* Cement 241,320
---------
2,571,715
---------
MALAYSIA: 11.9%
105,000 Arab-Malaysian Finance
Bhd. "F" Consumer Lending 586,220
83,333 KFC Holdings
(Malaysia) Bhd. Fast Food 343,165
23,000 Malayan Banking Bhd. Banking 254,999
102,000 Malaysia Assurance
Alliance Bhd. Life Insurance 496,772
100,000 Pacific & Orient Bhd. Property and Casualty 241,536
Insurance
150,000 Tenaga Nasional Electrical Utility 718,669
---------
2,641,361
---------
See Notes to Financial Statements.
6
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1996 (continued)
- --------------------------------------------------------------------------------
NO. OF SHARES SECURITIES (A) DESCRIPTION VALUE (NOTE 1)
USD
- --------------------------------------------------------------------------------
PHILIPPINES: 4.9%
729,000 Belle Corp.+ Real Estate, Gaming $202,288
71,000 Benpres Holdings Media Telecom,
Corp. (GDR)+ Banking, Tollroads 532,500
3,700 Philippine Long Distance Telecommunications 203,231
586,100 SM Prime Holdings Mall operator 151,495
---------
1,089,514
---------
SINGAPORE: 12.6%
175,000 Clipsal Industries Electrical Installation
(Holdings) Ltd. Products 637,000
200,000 DBS Land Ltd. Housing Developer 735,977
58,000 Delifrance Asia Ltd. Fast Food 47,659
65,000 Overseas Union Bank
Ltd. "F" Banking 501,607
75,000 Singapore Land Ltd. Commercial Real Estate 415,326
70,000 Straits Steamship Land Residential & Commercial
Ltd. Real Estate 224,080
22,000 United Overseas Bank
"F" Banking 245,230
---------
2,806,879
---------
SOUTH KOREA: 4.7%
5,000 Dongbu Insurance
Co. Ltd. Non-Life Insurance 162,130
290 Korea Mobile Telecom
Corp. Cellular Operator 156,497
2,753 Korea Mobile Telecom
Corp. (Warrants
expiring 12/07/99)*+ Cellular Operator 554,088
480 Samsung Fire & Marine Property & Casualty
Insurance Insurance 176,094
---------
1,048,809
---------
See Notes to Financial Statements.
7
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1996 (continued)
- --------------------------------------------------------------------------------
NO. OF SHARES SECURITIES (A) DESCRIPTION VALUE (NOTE 1)
USD
- --------------------------------------------------------------------------------
TAIWAN: 2.0%
6,261 Taiwan Weighted Index
(Warrants expiring
3/12/98)*+ Miscellaneous $450,792
---------
THAILAND: 2.3%
19,000 Bangkok Bank Co. Ltd. Banking 141,459
16,400 K.R. Precision Co.+ Electronics 97,809
40,000 Quality House Public Residential Real Estate
Co. "F" Development 40,539
34,000 Siam Commercial Bank
Public Co., Ltd. Banking 222,681
-----------
502,488
-----------
Total Stocks: 100% $22,214,667
===========
(Cost: $19,778,038)
- --------------------------------------------------------------------------------
NO. OF SHARES UNDERLYING LONG VALUE OF
OF UNDERLYING SHARES OF EQUITY EQUITY SWAP
SECURITIES SWAPS: (NOTE 5) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
INDIA: 100.0%
467 Asea Brown Boveri Ltd.* Power Plants & $7,266
Pollution Control
3,200 Asian Paints (India) Ltd.* Decorative Paints 25,472
9,000 Asian Paints (India) Ltd.* Decorative Paints 71,640
13,000 Brooke Bond Lipton
India Ltd.* Tea & Ice Cream 120,250
3,800 Brooke Bond Lipton
India Ltd.* Tea & Ice Cream 35,150
62,000 India Cements, Ltd.* Cement 152,520
15,000 Siemens India Ltd.* Power Plants 175,200
Construction
-----------
TOTAL EQUITY SWAPS $587,498
===========
(Notional Amount of Agreements: $889,462)
- ---------------
(a) Unless otherwise indicated, securities owned are shares of common stock.
+ Non-income producing security.
* Fair value determined by the Board of Trustees.
Glossary
- --------
GDR - Global Depository Receipt
"F" - Foreign Registry
See Notes to Financial Statements.
8
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
SUMMARY OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
INDUSTRY % OF PORTFOLIO
- -------- --------------
Auto & Trucks 4.4%
Banking & Finance 19.9%
Cement 1.7%
Conglomerate 10.7%
Consumer 5.9%
Electrical Utility 3.2%
Engineering 2.1%
Hotels/Motels 2.3%
Industrial 5.8%
Infrastructure 0.9%
Insurance 8.4%
Miscellaneous 2.0%
Oil & Gas Exploration 1.7%
Real Estate 22.9%
Retail 0.4%
Telecommunications 4.0%
Tobacco 3.7%
--------
100.0%
--------
See Notes to Financial Statements.
9
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments at Value (Identified Cost,
$19,778,038) (Note 1) $22,214,667
U.S. and Foreign Currency (Cost of $696,377) 691,300
Deposit with Broker (Note 5) 587,498
Receivables:
Dividends 51,303
Capital Shares Sold 5,000
Deferred Organizational Costs 91,155
------------
TOTAL ASSETS 23,640,923
------------
LIABILITIES:
Payables:
Securities Purchased 279,388
Dividends Payable 178,563
Accounts Payable 55,873
-----------
TOTAL LIABILITIES 513,824
-----------
NET ASSETS $23,127,099
===========
Net asset value, maximum offering price and redemption price
per share (2,043,998 shares of beneficial interest outstanding
with an unlimited number of $.001 par value shares authorized) $11.31
===========
NET ASSETS CONSIST OF:
Aggregate Paid-in Capital $21,049,868
Unrealized Appreciation of Equity Investments, Equity
Swap Contracts and Foreign Currency 2,097,610
Distributions in Excess of Net Investment Income (22,048)
Accumulated Net Realized Gain on Equity Investments,
Equity Swap Contracts and Options 1,669
-----------
$23,127,099
===========
See Notes to Financial Statements.
10
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
STATEMENT OF OPERATIONS
For the Period from January 2, 1996 (Commencement of Operations)
through December 31, 1996
- --------------------------------------------------------------------------------
INCOME:
Dividends (Net of Foreign Taxes Withheld of $25,792) $407,313
Interest 182,019
----------
TOTAL INCOME 589,332
----------
EXPENSES:
Advisory Fee (Note 2) $208,303
Custodian 63,878
Administrative Fee (Note 2) 74,950
Professional 40,897
Registration 36,947
Transfer Agency 30,552
Amortization of Deferred Organizational Costs 22,771
Trustees Fees and Expenses 34,917
Reports to Shareholders 10,345
Other 4,484
----------
528,044
Fees Waived by the Advisor (Note 2) (111,437)
----------
TOTAL EXPENSES 416,607
----------
NET INVESTMENT INCOME 172,725
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 3)
Net Realized Gain on Equity Investments 268,940
Net Realized Gain on Equity Swap Contracts and Options 154,470
Net Realized Loss on Foreign Currency Transactions (34,110)
Net Unrealized Appreciation of Investments 2,436,629
Net Unrealized Depreciation of Foreign Currency Receivables
and Payables (5,924)
Net Unrealized Depreciation of Equity Swap Contracts (333,095)
----------
Net Realized and Unrealized Gain on Investments 2,486,910
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,659,635
==========
See Notes to Financial Statements.
11
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period from January 2, 1996 (Commencement of Operations)
through December 31, 1996
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net Investment Income $172,725
Net Realized Gain on Equity Investments 268,940
Net Realized Gain on Equity Swap Contracts and Options 154,470
Net Realized Loss on Foreign Currency Transactions (34,110)
Net Unrealized Appreciation of Investments 2,436,629
Net Unrealized Depreciation of Foreign Currency Receivables
and Payables (5,924)
Net Unrealized Depreciation of Equity Swap Contracts (333,095)
-----------
Net Increase in Net Assets Resulting from Operations 2,659,635
-----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (194,773)
Net Realized Gain (387,631)
-----------
(582,404)
-----------
CAPITAL SHARE TRANSACTIONS*:
Net Proceeds from Sales of Shares 20,546,027
Reinvestment of Dividends 403,841
-----------
Increase in Net Assets Resulting from Capital Share Transactions 20,949,868
-----------
TOTAL INCREASE IN NET ASSETS 23,027,099
NET ASSETS:
Beginning of Period 100,000
-----------
End of Period $23,127,099
===========
Number of Shares
----------------
*Shares of Beneficial Interest Issued and Redeemed:
Shares Sold 1,998,291
Reinvestment of Dividends 35,707
-----------
Net Increase 2,033,998
===========
See Notes to Financial Statements.
12
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
For the Period
from January 2,1996 (a)
through December 31,1996
------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
Income From Investment Operations:
Net Investment Income 0.08
Net Realized and Unrealized Gain on Investments 1.52
------
Total From Investment Operations 1.60 (b)
LESS : DISTRIBUTIONS FROM:
Net Investment Income (0.08)
Net Realized Gain on Investments (0.21)
------
TOTAL DISTRIBUTIONS (0.29)
------
NET ASSET VALUE, END OF PERIOD $11.31
------
TOTAL RETURN 16.00% (b)
------
RATIOS / SUPPLEMENTARY DATA
Net Assets, End of Period (`000) $23,127
Ratio of Gross Expenses to Average Net Assets 2.52%
Ratio of Net Expenses to Average Net Assets 2.00% (c)(d)
Ratio of Net Investment Income to Average Net Assets 0.82% (c)
Portfolio Turnover Rate 61%
Average Commission Rate Paid $0.0062 (e)
(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 December 31,
1996 was not annualized.
(c) Annualized.
(d) Reflects expense waiver.
(e) For the year ended December 31, 1996, the average commission rate paid on
trades in which commissions were charged was 0.62% of the trade amount.
See Notes to Financial Statements.
13
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - Significant Accounting Policies:
Peregrine Funds (the "Trust"), organized as a Delaware business trust on
December 1, 1995, is a diversified open-ended series fund registered under the
Investment Company Act of 1940. Asia Pacific Growth Fund (the "Fund") is
currently the only series of the Trust. The primary investment objective of the
Fund 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 following is a summary
of significant accounting policies consistently followed by the Trust in the
preparation of its financial statements. The financial statements have been
prepared in conformity with U.S. generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the amounts
and disclosures in the financial statements. Actual reporting results could
differ from those estimates. The Fund had no operations prior to January 2,
1996, except for the sale to Peregrine Nominees Limited of 10,000 shares for
$100,000.
A. Valuation of Investments - Securities, including options, traded on an
exchange are valued at the last sales price reported at the close of business
on the principal market for such securities on the last business day of the
period. Over-the-counter securities and listed securities for which no sale
was reported are valued at the mean of the bid and asked prices. Equity swaps
are valued based upon a fixed percentage of the average price of the
underlying securities and on the basis of quotes supplied by brokers.
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 readily available are stated at fair value as determined
by the Board of Trustees.
14
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
B. Currency Translation - The books and records of the Fund are maintained in
U.S. dollars. 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 asked 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. Realized gains or losses attributable to foreign
currency fluctuations on other foreign currency denominated assets and
liabilities are recorded as net realized gains and losses from foreign
currency transactions.
C. Dividends and Distributions - Dividend income and corporate actions are
recorded generally on the ex-date, except for certain dividends and corporate
actions which may be recorded after the ex-date, but recorded as soon as the
Fund acquires information regarding such dividends or corporate actions.
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. Book/tax differences are considered either temporary
or permanent in nature. To the extent that these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax treatment; temporary differences do not require
reclassification. At December 31, 1996, the Fund made a capital account
reclassification due to permanent book/tax differences relating to foreign
currency losses for the period ended December 31, 1996. This reclassification
resulted in an increase to distributions in excess of net investment income
and an increase to accumulated net realized gain on investments of $34,110.
15
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
D. Other - Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on securities are determined
on the specific identified cost method. Interest income is accrued as earned.
E. Organizational Costs - Deferred organizational costs will be amortized over a
period not to exceed five years from the commencement of operations. In the
event that, at any time during the five-year period beginning with the date
of commencement of operations, the initial shares acquired by Peregrine
Nominees Limited 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 initial shares
redeemed to the total number of original shares outstanding at the time of
redemption) of the then unamortized deferred organizational costs as of the
date of such redemption. In the event that the Fund liquidates before the
deferred organizational costs are fully amortized, Peregrine Nominees Limited
shall bear such unamortized deferred organizational costs.
F. 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.
G. 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/loss on foreign currency transactions. The Fund
16
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
may incur additional risk from investments in forward currency contracts
if the counterparty is unable to fulfill its obligation or if there are
unanticipated movements of the foreign currency relative to the U.S. dollars.
H. 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.
NOTE 2 - Agreements and Transactions with Affiliates: Peregrine Asset Management
(Hong Kong) Limited ("the Advisor") earned fees of $208,303 for the period ended
December 31, 1996 for investment advisory services. The fee is based on an
annual rate of 1% of average daily net assets. For the period ended December 31,
1996, the Advisor agreed to waive advisory fees in the amount of $111,437 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 a Portfolio Accounting and Administration Agreement
with Van Eck Associates Corporation ("Van Eck"), the Fund paid or accrued
$74,950 for costs incurred in connection with certain accounting and
administrative services. At December 31, 1996, the Fund owed Van Eck $6,250
which is included in accounts payable. 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 the Advisor. As of December 31, 1996, Peregrine Nominees Limited, an
affiliate of the Advisor, and a trustee, owned 78.57% and 6.92%, respectively,
of the outstanding shares of beneficial interest of the Fund. The Fund paid
brokerage commissions aggregating $18,129 to Peregrine Brokerage Limited and
Peregrine Futures (Hong Kong) Limited, affiliates of the Advisor, for the period
ended December 31, 1996. During the period ended December 31, 1996, the Advisor
reimbursed the Fund $58,340 in connection with a security transaction.
17
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
NOTE 3 - Purchases and Sales: Purchases and sales of securities, other than
short-term obligations, aggregated $30,457,445 and $10,969,654, respectively,
for the period ended December 31, 1996. For federal income tax purposes, the
identified cost of investments owned at December 31, 1996 was $19,800,666. As of
December 31, 1996, net unrealized appreciation for federal income tax purposes
aggregated $2,414,001 of which $3,619,185 related to appreciated securities and
$1,205,184 related to depreciated securities. At December 31, 1996, the Fund had
$3,991 of post-October currency losses which the Fund has elected to defer until
January 1, 1997.
NOTE 4 - Investments in Foreign Securities: 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. 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 which may be
particularly volatile.
NOTE 5 - Equity Swaps: During the period ended December 31, 1996, the Fund
entered into equity swaps with a single, international broker to gain investment
exposure to certain underlying securities. An equity swap is an agreement
whereby the Fund will receive or pay 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 accrued dividends. The equity
swaps open at December 31, 1996 have termination dates ranging from April 1,
1997, through June 30, 1997, but may be terminated earlier by the Fund without
the payment of any termination fees.
18
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
The Fund is required to make deposits with the equity swap counterparty equal to
the value of the underlying securities on trade date, plus a fixed percentage.
At December 31, 1996, the Fund has deposited $920,593 with the counterparty.
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 an adjustment to the deposit with broker. At
December 31, 1996, the Fund has accrued a loss of $333,095 relating to the
unrealized losses on open equity swaps. Losses incurred are limited to the
payments made on the trade date.
The values reflected in the accompanying investment portfolio represent the
value of each equity swap and not the value of the underlying security.
Risks may arise as a result of the failure of the counterparty to the contract
to comply with the terms of the equity 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.
19
<PAGE>
PEREGRINE FUNDS
ASIA PACIFIC GROWTH FUND
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a Peregrine Funds prospectus,
which includes more complete information, such as charges and expenses and the
risks associated with international investing, including currency fluctuations
or controls, expropriation, nationalization and confiscatory taxation. For a
free Peregrine Asia Pacific Growth Fund prospectus, please call the number
listed below. Please read the prospectus before investing.
Van Eck Securities Corporation - Distributor
99 Park Avenue, New York, NY 10016
For accounts assistance please call (800) 910-5525
