-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OubdtD/v88zFyybhtPJj4Y1ynQ7RFmDc5qf8Panw35l35tPPSEiz8gRDkbMW+q1H MSxa5IfMWlL/RDu219mw5A== 0000852254-96-000008.txt : 19961218 0000852254-96-000008.hdr.sgml : 19961218 ACCESSION NUMBER: 0000852254-96-000008 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSTITUTIONAL INTERNATIONAL FUNDS INC CENTRAL INDEX KEY: 0000852254 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05833 FILM NUMBER: 96682184 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT STREET STREET 2: LEGAL DEPARTMENT 7TH FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 MAIL ADDRESS: STREET 1: 100 EAST PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21202 N-30D 1 Annual Report October 31, 1996 Foreign Equity Fund Fellow Shareholders Few overseas markets were able to keep pace with an exuberant Wall Street where stock prices benefited from a benign interest rate environment and strong corporate earnings. Overseas the economic picture was more subdued. Overall, foreign stock returns were lackluster for the past six months but respectable for the year ended October 31. PERFORMANCE REVIEW The Foreign Equity Fund performed well against its benchmark index over the 12 months ended October 31. Its return of 14.48% over this period was significantly ahead of the Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE). During the six months ended October 31, the fund's results were more moderate in absolute terms but were still ahead of the index. Performance Comparison Periods Ended 10/31/96 __________________________ 6 Months 12 Months __________ __________ Foreign Equity Fund 1.03% 14.48% MSCI EAFE Index -2.27 10.80 Over the 12-month period ended October 31, fund performance against the index was helped significantly by an underweighting in Japan where the stock market performed poorly in dollar terms. The fund continues to be overweighted in the stock markets of Southeast Asia where markets such as Hong Kong contributed well while small positions in markets such as Singapore, Thailand, and Korea were disappointing. In Europe, the portfolio has a neutral weighting against the index but our stock selection added value. An overweighting in the Netherlands was particularly helpful. Latin America, which is not represented in the index, performed well over the 12 months, with Brazil making a strong contribution during the second half. Although the fund has continued to perform well against its index and peers, foreign stocks have failed to keep up with the U.S. market. In Europe, the Continental economies have been weak, constrained by the tight fiscal policies of those governments trying to meet the economic criteria required to meet the start of Economic Monetary Union (EMU) in January 1999. Countering this tight fiscal policy, most central banks kept the monetary reins relatively loose, which in turn has helped a number of markets produce double-digit returns. Market Performance 6 Months Ended 10/31/96 _______________________________ Local Currency Local vs. U.S. In U.S. Currency Dollars Dollars _______________________________ Australia 0.85% 0.87% 1.72% France 2.15 1.35 3.53 Germany 6.65 1.35 8.09 Hong Kong 10.36 0.04 10.40 Italy -10.35 3.18 -7.50 Japan -8.74 -7.90 -15.95 Mexico 2.26 -6.96 -4.86 Netherlands 9.44 1.18 10.74 Norway 0.46 3.25 3.72 Singapore -16.26 -0.21 -16.44 Sweden 13.97 3.55 18.01 Switzerland 2.31 -1.11 1.17 United Kingdom 5.20 8.52 14.16 Source: FAME Information Services, Inc., using MSCI indices. Japan continued its tentative recovery but the yen has remained weak against a background of a declining current account surplus, low domestic interest rates, and the government's determination to keep the corporate sector competitive in world markets. Elsewhere in the Pacific, the picture was mixed. The economies of Hong Kong and Malaysia remained buoyant, and each stock market produced returns of over 20% during the 12 months under review. Singapore and Korea were both hurt by a decline in exports of electronic components to the U.S. and their stock markets were poor performers. The best performance came from the stock markets of Latin America where overseas investors have been encouraged by a mix of disciplined economic policies and more stable currencies. Brazil and Argentina each achieved returns of more than 30% in dollars and the Mexican market was not far behind. Currency markets were much more subdued. The U.S. dollar improved steadily against the yen for most of the year but rose only a modest amount against leading European currencies such as the franc and deutschemark. Perhaps surprisingly, the British pound and the Italian lira were the strongest European currencies and each of them has even strengthened against the dollar over the last 12 months. On balance, the overseas currency mix hampered the fund. INVESTMENT REVIEW Far East A year ago, the economy in Japan was in trouble as the combination of currency strength and a banking crisis threatened to throw it into a deflationary spiral. Helped by a stimulatory fiscal policy and a successful strategy of currency depreciation, the economy pulled through this difficult period but the recovery is patchy at best. Capital expenditure - traditionally the engine of Japanese growth - picked up strongly and this in turn fed through to better figures for production and shipments. Significantly, there is evidence that an inventory overhang is now being worked off, which bodes well for the future. Dimming this brighter picture is consumer expenditure - by far the largest component of GDP - which remains very sluggish. Despite this mixed picture, our assumption is that the economy will continue its steady recovery. Monetary policy is supportive and the recent weakness of the yen will be a big help to Japan's export industry. The stock market also struggled to make progress. It still looks expensive compared with other world markets but, against its own history, looks to be better valued. Our strategy in the market avoids the financial sector where bad loans continue to haunt the city banks and valuations remain unacceptably high. We added to sectors such as retailing, pharmaceuticals, and consumer nondurables where we can find growth at a reasonable valuation. Our holdings also focused on a number of Japan's multinational corporations, many of which are world leaders in their fields. These stocks performed well for us recently and we have cut back in a number of them where prices moved ahead of realistic expectations. Elsewhere in the region, the economy of China is now an important influence even though its stock market is very undeveloped. Three years ago this economy was blazing along at an unsustainable pace, threatening an inflationary blowout and a sharp reversal of the trade balance. However, the current picture suggests that the authorities have achieved a soft landing. GDP growth has moderated to a level of about 10%, inflation is back under control, and the current account is now in modest surplus. The improved health of the Chinese economy has provided support for Hong Kong where, over the last six months, the stock market was one of the best in the region. With the U.S. dollar pegged to the Hong Kong dollar, a more benign interest rate environment in the U.S. quickly spilled over into Hong Kong, and the Bank of China reduced its interest rates twice in the last few months. Improved business results from the financial sector and a recovery in residential property prices all helped this market, where we have a moderate overweighting. In contrast, the Singapore market performed poorly over the last six months as a weak trend in exports put a brake on the broad economy. The government has announced measures to dampen speculation in the residential property market and the recent trend in corporate earnings has been below expectations. Singapore has one of the best managed economies in the world but the stock market is unlikely to perform until the economy picks up again. In contrast, the Malaysian market held up well during the summer months and smaller companies continued to perform well. The worry here is that the economy has been growing too fast, but recent statistics evidence a deceleration, which will in turn moderate the high external deficit. In Thailand, the stock market collapsed over the last six months. Corporate profits came in below expectations, the quality of bank balance sheets was called into question, and a downgrade in the rating of Thai obligations was a blow to foreign confidence. Our portfolio had less than 1% of assets in Thailand and the companies we have chosen should weather this uncomfortable period for the economy. South Korea is another stock market that performed poorly over the last six months. The main culprit here was a sharp deterioration in the trade deficit with a loss of competitiveness against Japanese companies and a very sharp fall in semiconductor prices. Again, our position in this market is very small but, with a number of blue chips now looking very cheap, it is probably time to add to our positions in Korea. In Australia, the economy is slowing but not sliding into recession. The new Liberal Coalition government was elected with a workable majority and its objectives of labor reform and further integration with Southeast Asia bode well for the future. The stock market itself has been unexciting but, helped by a 7% appreciation of the currency against the U.S. dollar, returns for the U.S. investor were quite reasonable. In New Zealand, the economy is in better shape and the market has shown solid dollar returns helped by a strong contribution from the New Zealand dollar. Chart 1 - Geographic Diversification - pie chart showing: Europe 53%, Japan 21%, Far East 14%, Latin America 7%, Other and Reserves 5%. Europe In Europe, the economic picture is one of contrasts. On the Continent, the German locomotive is showing a moderate recovery but there are few signs that this has spread to its neighbors. On the other hand, the U.K. continued a steady growth phase and smaller economies such as Norway and Ireland are performing very strongly. Germany remains at the forefront of the move to Economic Monetary Union and, along with the other founder members, its government must soon meet the Maastricht criteria for debt and budget deficits as a percentage of GDP. The budget for the old West Germany is in surplus but there is a significant deficit in the old East Germany and, therefore, overall fiscal policy remains tight at this point in the cycle. Recognizing this dilemma, the Bundesbank maintained a moderately loose monetary policy and the economy is unlikely to slip into recession. The picture from now on should improve as unification tax surcharges phase out and stimulate better consumer sentiment. Also the weaker deutschemark will help with the export sector. We continued to underweight this market but our bias toward growth companies in the chemical and drug sectors enabled us to add value. The situation in the Netherlands is similar but the domestic economy is of limited relevance to the Dutch market, which is dominated by a small number of multinational companies. A number of our favorite multinationals are among our largest holdings, and oil major Royal Dutch Petroleum, together with media and publishing stocks Wolters Kluwer and Elsevier, all performed very strongly. In the U.K., the economy is continuing a long period of steady growth which has enabled corporate earnings to advance, but inflation and the current account are well under control. It is unlikely that the U.K. will be a founding member of EMU and, therefore, it is less constrained by the Maastricht criteria. Also, with general elections that must be held no later than May 1997, the ruling Conservative Party will be anxious for the "feel good" factor to reappear. Despite all the temptations, the Chancellor has behaved prudently by raising interest rates a notch and his forthcoming budget will make few concessions on taxes. The stock market made good progress for most of the year and was one of Europe's better performers. In recent weeks, it retreated from an all-time high but, for the U.S. investor, this was more than compensated for by sterling's sharp advance. Our bias toward growth stocks in the service and pharmaceutical sector continued to be a successful strategy in this market. In France, the picture remained bleak with the economy hardly moving and unemployment uncomfortably high. Already this has caused some social unrest but the government is unable to offer fiscal stimulus given the deficit targets required by EMU. At least the current account was in surplus and the link between the french franc and deutschemark seemed to be holding steady. Despite the poor economic background, we can find many investments that meet our preference for growth at a reasonable price. These have tended to be in the service sector where retailers such as Carrefour and Pinault Printemps performed well. The stock market in Switzerland is another where the multinationals tend to dominate the scene. Surprisingly, the Swiss franc has been a weak currency over the year but this has focused attention on the exporters where our selections have been rewarding, even in U.S. dollars. Turning to the smaller economies, the Nordic markets were strong, with Sweden benefiting from a steady fall in interest rates as the government tried to hold the strong kroner in line with other European currencies. Norway also did well as the country's oil wealth provided healthy surpluses for both public expenditure and external trade. Spain and Italy have indicated their ambitions to be founding members of EMU but a cold look at the statistics suggests they will be hard pressed to meet the required economic targets in time. Nevertheless, the new Italian government under Mr. Prodi has shown remarkable vigor in tackling deep-seated problems such as public sector wage discipline and fiscal reform. Latin America The stock markets of Latin America made a strong contribution to the fund's return over the last 12 months. Our largest position was in Brazil where the economy regained momentum after a difficult 1995. Industrial production and retail sales were both in positive territory but the government will respond quickly to any signs of a resurgence of inflation or deterioration in the trade position. Many analysts think the currency is overvalued although, provided the government pursues the right policies, international confidence can be maintained. The major stock market theme this year was the privatization and restructuring of the telecommunications and electricity sectors, and our holding in blue chip Telecomunicacoes Brasileiras outperformed strongly. Mexico has come a long way since the peso crisis of two years ago although the banking system remains fragile despite a restructuring program. After a savage recession, the economy is now growing again with the export sector benefiting from the weak peso. Reserves are still uncomfortably low and international confidence will depend on further improvement of the trade position. INVESTMENT POLICY AND OUTLOOK Our strategy for the fund going forward is to maintain about half the portfolio in the stock markets of Europe. Japan remains the largest individual country position but is significantly underweighted versus the benchmark, and we maintain important positions in the smaller markets of Southeast Asia and Latin America. The portfolio remains well diversified in terms of its country distribution and the number of stocks held. A common theme to our stock selection is to find growth at a reasonable valuation, although we have been comfortable holding more cyclical issues in markets such as Japan where we think economic recovery will continue. Stock markets tend to be driven by the direction of interest rate moves and by the way corporate business results compare with expectations. For two years now, these two forces have been simultaneously positive for the U.S. market but have been less compelling overseas. There are some signs that this may be about to change. Interest rates in the U.S. are unlikely to fall much further and a long period of strong corporate profit growth may be coming to an end. In contrast, interest rates can fall further in a number of European markets and the economic recovery in Europe and Japan may surprise on the upside. The smaller markets of Asia and Latin America have great potential and have their part to play in a diversified international portfolio. The case for international diversification is as valid as ever, the fund remains fully invested, and we are optimistic about its future. Respectfully submitted, Martin G. Wade President November 22, 1996 INDUSTRY DIVERSIFICATION October 31, 1996 Percent of Net Assets ____________ Services 26.6% Finance 17.5 Consumer Goods 16.6 Capital Equipment 13.1 Energy 9.9 Materials 7.8 Multi-Industry 3.6 Miscellaneous 0.1 Reserves 4.8 Net Assets 100.0% EXCHANGE RATES TO U.S. DOLLARS October 31, 1996 Country Exchange Rate _____________________________________________________________________________ Argentina 0.9999 Australia 1.2616 Austria 10.6545 Belgium 31.1900 Brazil 1.0274 Canada 1.3402 Czech Republic 26.9280 Denmark 5.8123 Finland 4.5350 France 5.1125 Germany 1.5144 Hong Kong 7.7322 Italy 1,517.0000 Japan 113.8550 Malaysia 2.5265 Mexico 8.0375 Netherlands 1.6967 New Zealand 1.4135 Norway 6.3808 Peru 2.5805 Philippines 26.2800 Portugal 153.0500 Singapore 1.4085 South Korea 826.2500 Spain 127.5950 Sweden 6.5757 Switzerland 1.2640 Thailand 25.4950 United Kingdom 0.6144 SECURITY CLASSIFICATION October 31, 1996 Percent of Cost Market Value Net Assets (000) (000) ___________________________________ Common Stocks, Rights, and Warrants 92.0% $1,878,444 $2,135,928 Preferred Stocks 3.2 57,907 74,770 Bonds 0.0 525 677 Short-Term Investments 4.1 95,111 95,111 Total Investments 99.3 2,031,987 2,306,486 Other Assets Less Liabilities 0.7 15,967 15,983 Net Assets 100.0% $2,047,954 $2,322,469 TWENTY-FIVE LARGEST HOLDINGS October 31, 1996 Percent of Company Country Net Assets __________________________________________________________________________ Wolters Kluwer Netherlands 2.2% Royal Dutch Petroleum Netherlands 1.9 Elsevier Netherlands 1.8 National Westminster Bank United Kingdom 1.5 Smithkline Beecham United Kingdom 1.4 Telecomunicacoes Brasileiras Brazil 1.2 Reed International United Kingdom 1.2 Eaux Cie Generale France 1.2 Astra Sweden 1.0 Shell Transport & Trading United Kingdom 1.0 Roche Holdings Switzerland 0.9 ABB Sweden/Switzerland 0.9 ING Groep Netherlands 0.9 Gehe Germany 0.9 Mitsubishi Heavy Industries Japan 0.9 Kyocera Japan 0.8 Pinault Printemps France 0.8 Nestle Switzerland 0.8 Abbey National United Kingdom 0.8 NEC Japan 0.8 Carrefour France 0.8 Canon Japan 0.8 Kingfisher United Kingdom 0.7 Denso Japan 0.7 Bayer Germany 0.7 Total 26.6% SUMMARY OF INVESTMENTS AND CASH October 31, 1996 Percent of Net Assets __________________________________________ Percent of Country Equities! Cash Total MSCI EAFE __________________________________________________________________________ Austria 0.1 - 0.1 0.4 Belgium 1.0 - 1.0 1.2 Czech Republic 0.0 - 0.0 - Denmark 0.2 - 0.2 0.9 Finland 0.2 - 0.2 0.6 France 8.2 - 8.2 6.8 Germany 4.3 - 4.3 7.3 Ireland - - - 0.3 Italy 1.9 - 1.9 2.7 Netherlands 10.2 - 10.2 4.5 Norway 1.4 - 1.4 0.5 Portugal 0.5 - 0.5 - Russia 0.0 - 0.0 - Spain 2.3 - 2.3 2.0 Sweden 2.6 - 2.6 2.4 Switzerland 4.4 - 4.4 5.9 United Kingdom 15.7 - 15.7 18.2 Total Europe 53.0% - 53.0% 53.7% Australia 1.7 - 1.7 3.0 China 0.4 - 0.4 - Hong Kong 4.7 - 4.7 3.6 India 0.2 - 0.2 - Japan 21.3 - 21.3 35.4 Malaysia 3.0 - 3.0 2.6 New Zealand 0.7 - 0.7 0.4 Philippines 0.1 - 0.1 - Singapore 1.9 - 1.9 1.3 South Korea 1.0 - 1.0 - Thailand 0.6 - 0.6 - Total Pacific Basin 35.6% - 35.6% 46.3% Argentina 0.7 - 0.7 - Brazil 3.3 - 3.3 - Canada 0.3 - 0.3 - Chile 0.7 - 0.7 - Mexico 1.5 - 1.5 - Peru 0.1 - 0.1 - United States - 4.1 4.1 - Total Americas 6.6% 4.1% 10.7% - Other Assets Less Liabilities - 0.7 0.7 - Total 95.2% 4.8% 100.0% 100.0% ! Includes bonds convertible into equities. TOTAL RETURN PERFORMANCE Periods Ended October 31, 1996 Calendar One Three Year- One Three Five Since Month Months to-Date Year Years* Years* 9/7/89* __________________________________________________________________________ Foreign Equity Fund -0.51% 3.44% 9.92% 14.48% 8.86% 10.89% 9.06% S&P 500 Index 2.76 10.83 16.63 24.10 17.68 15.55 13.65 MSCI EAFE Index -1.00 1.91 3.57 10.80 6.92 7.98 4.63** Lipper Inter- national Funds Average -0.71 2.54 6.61 10.73 7.05 9.36 7.63 FT-A Euro Pacific Index -1.18 1.78 3.41 10.72 6.68 7.41 4.31** * Average annual compound total return. ** From 8/31/89. Income return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. PERFORMANCE COMPARISON As of October 31, 1996 Chart 2 - Performance Comparison - SEC Graph: a line chart showing the cumulative growth of $10,000 invested in the Foreign Equity Fund from inception compared with $10,000 invested in a broad-based index and average over the same period. Note: The index return does not reflect expenses, which have been deducted from the fund's return. * MSCI EAFE Index from 8/31/89. ** Commencement of operations. FINANCIAL HIGHLIGHTS Foreign Equity Fund For a share outstanding throughout each period ______________________________________________________________ Year Ten Months# Year Ended Ended Ended 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92 12/31/91 ______________________________________________________ NET ASSET VALUE, BEGINNING OF PERIOD $13.99 $14.59 $13.32 $10.05 $10.73 $9.54 ______ ______ ______ ______ ______ ______ Investment activities Net invest- ment income 0.21 0.18 0.09 0.13 0.17 0.18* Net realized and unrealized gain (loss) 1.78 (0.14)+ 1.48 3.14 (0.57) 1.28 ______ ______ ______ ______ ______ ______ Total from invest- ment activities 1.99 0.04 1.57 3.27 (0.40) 1.46 ______ ______ ______ ______ ______ ______ Distributions Net investment income (0.18) (0.12) (0.09) - (0.18) (0.18) Net realized gain (0.18) (0.52) (0.21) - (0.10) (0.09) ______ ______ ______ ______ ______ ______ Total distributions (0.36) (0.64) (0.30) - (0.28) (0.27) ______ ______ ______ ______ ______ ______ NET ASSET VALUE END OF PERIOD $15.62 $13.99 $14.59 $13.32 $10.05 $10.73 ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ RATIOS/SUPPLEMENTAL DATA Total return 14.48% 0.64% 11.96% 32.54% (3.74)% 15.44%* Ratio of expenses to average net assets 0.76% 0.80% 0.82% 0.86%! 0.99% 1.00%* Ratio of net investment income to average net assets 1.67% 1.69% 1.26% 1.65%! 1.49% 1.64%* Portfolio turn- over rate 13.8% 18.8% 22.0% 27.4%! 35.1% 46.7% Average commission rate paid $0.0017 - - - - - Net assets, end of period (in thousands) $2,322,469 $1,559,619 $1,058,478 $489,389 $238,979 $143,822 * Excludes expenses in excess of a 1.00% voluntary expense limitation in effect from 3/1/90 through 12/31/91. ! Annualized. # The fund's fiscal year-end was changed to 10/31. + The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. This amount is inconsistent with the fund's aggregate gains and losses because of the timing of sales and redemptions of the fund's shares in relation to fluctuating market values for the investment portfolio. STATEMENT OF NET ASSETS Foreign Equity Fund / October 31, 1996 Shares / Par Value In thousands ARGENTINA 0.7% Common Stocks 0.7% Banco de Galicia Buenos Aires (Class B) ADR (USD) . . . . . . . . . . . 93,992 $ 1,704 Banco Frances del Rio ADR (USD). . . . . . 78,355 2,057 Enron Global Power & Pipeline (USD). . . . 13,780 388 Naviera Perez (Class B). . . . . . . . . . 618,461 3,928 Sociedad Comercial del Plata * . . . . . . 214,150 505 Sociedad Comercial del Plata ADR (144a) (USD) *. . . . . . . . . . . . 19,896 471 Telecom Argentina Stet (Class B) . . . . . 114,560 432 Telecom Argentina Stet (Class B) ADR (USD) . . . . . . . . . . . . . . . . 20,037 756 Telefonica de Argentina (Class B) ADR (USD) . . . . . . . . . . . . . . . . 140,854 3,275 Telefonica de Argentina (Class B) ADS (USD) . . . . . . . . . . . . . . . . 21,200 493 Transportadora de Gas del Sur ADR (USD) . . . . . . . . . . . . . . . . 32,868 382 YPF Sociedad Anonima (Class D) ADR (USD) . . . . . . . . . . . . . . . . 102,315 2,328 Total Argentina (Cost $16,411) 16,719 AUSTRALIA 1.7% Common Stocks 1.6% Amcor Limited. . . . . . . . . . . . . . . 133,000 827 Australia & New Zealand Bank Group . . . . 391,000 2,284 Australia Gas & Light. . . . . . . . . . . 828,181 4,543 Broken Hill Proprietary. . . . . . . . . . 354,338 4,705 Coca Cola Amatil . . . . . . . . . . . . . 55,289 760 Howard Smith . . . . . . . . . . . . . . . 201,089 1,578 Lend Lease . . . . . . . . . . . . . . . . 114,017 1,933 National Australia Bank. . . . . . . . . . 203,445 2,233 News Corporation . . . . . . . . . . . . . 488,331 2,779 Publishing and Broadcasting. . . . . . . . 441,124 1,986 Tabcorp Holdings . . . . . . . . . . . . . 844,000 3,981 TNT *. . . . . . . . . . . . . . . . . . . 576,000 1,109 Westpac Banking. . . . . . . . . . . . . . 522,000 2,979 WMC. . . . . . . . . . . . . . . . . . . . 324,258 2,038 Woodside Petroleum . . . . . . . . . . . . 513,000 3,619 37,354 Preferred Stocks 0.1% Sydney Harbour Casino Holdings * . . . . . 1,309,000 1,868 1,868 Total Australia (Cost $30,382) . . . . . . 39,222 AUSTRIA 0.1% Common Stocks 0.1% EVN Energie Versargung Nieder. . . . . . . 6,230 845 Flughafen Wien . . . . . . . . . . . . . . 15,482 763 Total Austria (Cost $1,545) 1,608 BELGIUM 1.0% Common Stocks 1.0% Generale Banque. . . . . . . . . . . . . . 16,768 5,860 Generale Banque, VVPR Strip. . . . . . . . 1,524 1 Kredietbank. . . . . . . . . . . . . . . . 39,481 12,753 UCB. . . . . . . . . . . . . . . . . . . . 1,358 2,993 21,607 Convertible Bonds 0.0% Kredietbank, 5.75%, 11/30/03 . . . . . . . BEL 14,782,500 $ 622 622 Total Belgium (Cost $16,346) 22,229 BRAZIL 3.3% Common Stocks 0.5% Brazil Fund (USD). . . . . . . . . . . . . 58,780 1,234 Companhia Siderurgica Nacional . . . . . . 49,720,000 1,234 Eletrobras . . . . . . . . . . . . . . . . 9,970,768 3,096 Eletrobras ADR (USD) * . . . . . . . . . . 20,340 318 Pao de Acucar GDR (USD). . . . . . . . . . 117,940 2,315 Telecomunicacoes Brasileiras . . . . . . . 44,988,700 2,741 Telecomunicacoes de Sao Paulo *. . . . . . 967,420 165 White Martins. . . . . . . . . . . . . . . 769,040,000 1,190 12,293 Preferred Stocks 2.8% Banco Bradesco . . . . . . . . . . . . . . 638,961,239 5,448 Banco Itau . . . . . . . . . . . . . . . . 3,088,000 1,337 Brahma . . . . . . . . . . . . . . . . . . 6,133,250 3,791 Brasmotor. . . . . . . . . . . . . . . . . 5,547,410 1,884 Cia Cimento Portland Itau. . . . . . . . . 4,882,700 1,283 Cia Energetica de Sao Paulo ADS (USD) *. . 20,600 206 Cia Energetica Minas Gerais. . . . . . . . 66,062,577 2,103 Cia Energetica Minas Gerias ADR (144a) (USD) *. . . . . . . . . . . . 16,530 523 Cia Energetica Minas Gerias ADR, cv. (USD) *. . . . . . . . . . . . . 23,337 738 Cia Energetica Minas Gerais ADR, sponsored, non voting (USD) *. . . . . . . . . . . . 79,555 2,516 Cia Tecidos Norte de Minas . . . . . . . . 3,724,770 1,251 Lojas Americanas . . . . . . . . . . . . . 37,644,000 592 Petrol Brasileiros . . . . . . . . . . . . 18,608,917 2,409 Telecomunicacoes Brasileiras . . . . . . . 64,795,902 4,812 Telecomunicacoes Brasileiras ADR (USD) . . 277,229 20,654 Telecomunicacoes Brasileiras ADR (144a) (USD). . . . . . . . . . . . . 2,213 165 Telecomunicacoes de Minas Gerais . . . . . 10,703,000 1,195 Telecomunicacoes de Sao Paulo. . . . . . . 24,651,341 4,511 Telecomunicacoes de Rio de Janeiro . . . . 10,080,000 971 Unibanco . . . . . . . . . . . . . . . . . 103,658,000 2,875 Usiminas . . . . . . . . . . . . . . . . . 2,904,560,000 3,053 Usiminas ADR (144a) (USD). . . . . . . . . 12,540 130 Usiminas ADS (USD) . . . . . . . . . . . . 296,810 3,079 65,526 Total Brazil (Cost $60,615) 77,819 CANADA 0.3% Common Stocks 0.3% Alcan Aluminum . . . . . . . . . . . . . . 151,960 4,989 Royal Bank of Canada . . . . . . . . . . . 61,480 2,032 Total Canada (Cost $5,205) 7,021 CHILE 0.7% Common Stocks and Warrants 0.7% AFP Providia ADR (USD) . . . . . . . . . . 10,996 256 Chile Fund (USD) . . . . . . . . . . . . . 92,740 2,017 Chilectra ADR (144a) (USD) . . . . . . . . 33,009 $ 1,811 Chilgener ADS (USD). . . . . . . . . . . . 58,934 1,333 Compania Cervecerias Unidas ADS (USD). . . 43,830 888 Compania de Telecomunicaciones de Chile ADR (USD) . . . . . . . . . . . . . . . . 17,198 1,696 Empresa Nacional de Electricidad ADS (USD) . . . . . . . . . . . . . . . . 108,717 1,998 Enersis ADS (USD). . . . . . . . . . . . . 65,396 1,921 Five Arrows Chile Investment Trust (USD) . . . . . . . . . . . . . . . . . . 663,410 1,957 Five Arrows Chile Investment Trust, warrants, 5/31/99 (USD) * . . . . . . . . . . . . . 36,758 19 Genesis Chile Fund (USD) . . . . . . . . . 66,410 2,823 Total Chile (Cost $15,759) 16,719 CHINA 0.4% Common Stocks 0.4% Huaneng Power International (Class N) ADR (USD) * . . . . . . . . . . . . . . . 332,700 5,157 Shanghai Petrochemical (Class H) (HKD) . . 11,919,000 3,198 Yizheng Chemical Fibre (Class H) (HKD) . . 8,500,000 1,968 Total China (Cost $12,680) 10,323 CZECH REPUBLIC 0.0% Common Stocks 0.0% SPT Telecom. . . . . . . . . . . . . . . . 8,781 939 Total Czech Republic (Cost $834) 939 DENMARK 0.2% Common Stocks 0.2% Den Danske Bank. . . . . . . . . . . . . . 37,470 2,688 Tele Danmark (Class B) . . . . . . . . . . 13,050 658 Unidanmark (Class A) . . . . . . . . . . . 40,121 1,850 Total Denmark (Cost $4,504) 5,196 FINLAND 0.2% Preferred Stocks 0.2% Nokia (Class A). . . . . . . . . . . . . . 87,860 4,059 Total Finland (Cost $3,014) 4,059 FRANCE 8.2% Common Stocks and Warrants 8.2% Accor. . . . . . . . . . . . . . . . . . . 26,090 3,276 Alcatel Alsthom. . . . . . . . . . . . . . 50,920 4,343 Assurances Generales de France . . . . . . 65,582 1,934 AXA. . . . . . . . . . . . . . . . . . . . 13,600 849 Canal Plus . . . . . . . . . . . . . . . . 25,240 6,250 Carrefour. . . . . . . . . . . . . . . . . 32,397 17,978 Castorama Dubois . . . . . . . . . . . . . 11,668 1,997 Chargeurs International. . . . . . . . . . 15,368 667 Cie de St. Gobain. . . . . . . . . . . . . 69,756 9,415 Credit Local de France, bearer . . . . . . 20,520 1,765 Credit Local de France, registered . . . . 16,696 1,436 Eaux Cie Generale. . . . . . . . . . . . . 229,892 27,475 Ecco . . . . . . . . . . . . . . . . . . . 2,110 506 Elf Aquitaine. . . . . . . . . . . . . . . 85,880 6,867 GTM Entrepose. . . . . . . . . . . . . . . 25,080 $ 1,190 Guilbert . . . . . . . . . . . . . . . . . 28,341 4,507 Havas. . . . . . . . . . . . . . . . . . . 22,490 1,477 L'Oreal. . . . . . . . . . . . . . . . . . 8,615 2,917 Lapeyre. . . . . . . . . . . . . . . . . . 58,000 2,838 Legrand. . . . . . . . . . . . . . . . . . 20,839 3,616 LVMH . . . . . . . . . . . . . . . . . . . 63,936 14,644 Pathe. . . . . . . . . . . . . . . . . . . 16,728 4,512 Pinault Printemps. . . . . . . . . . . . . 49,853 18,800 Primagaz . . . . . . . . . . . . . . . . . 35,516 3,668 Primagaz, warrants, 6/30/98 *. . . . . . . 2,012 39 Rexel. . . . . . . . . . . . . . . . . . . 13,280 3,935 Sanofi . . . . . . . . . . . . . . . . . . 29,884 2,707 Schneider. . . . . . . . . . . . . . . . . 94,270 4,610 Societe Generale . . . . . . . . . . . . . 14,890 1,605 Sodexho. . . . . . . . . . . . . . . . . . 22,900 11,068 Television Francaise . . . . . . . . . . . 88,346 9,401 Total (Class B). . . . . . . . . . . . . . 177,361 13,873 Total France (Cost $157,759) 190,165 GERMANY 4.3% Common Stocks and Warrants 4.0% Allianz Holdings . . . . . . . . . . . . . 4,380 7,922 Allianz Holdings, warrants, 2/23/98 *. . . 13,000 687 Altana . . . . . . . . . . . . . . . . . . 1,686 1,347 Bayer. . . . . . . . . . . . . . . . . . . 451,659 17,059 Bilfinger and Berger . . . . . . . . . . . 63,560 2,573 Buderus. . . . . . . . . . . . . . . . . . 4,012 1,815 Deutsche Bank. . . . . . . . . . . . . . . 100,590 4,696 Gehe . . . . . . . . . . . . . . . . . . . 302,490 20,374 Hoechst. . . . . . . . . . . . . . . . . . 70,350 2,653 Hornbach Baumarkt. . . . . . . . . . . . . 14,770 478 Mannesmann . . . . . . . . . . . . . . . . 11,177 4,340 Praktiker. . . . . . . . . . . . . . . . . 32,915 674 Rhoen Klinikum . . . . . . . . . . . . . . 46,394 5,821 SAP. . . . . . . . . . . . . . . . . . . . 15,430 2,089 Schering . . . . . . . . . . . . . . . . . 24,562 1,977 Siemens. . . . . . . . . . . . . . . . . . 42,008 2,170 Siemens, warrants, 6/02/98 * . . . . . . . 12,000 1,014 Veba . . . . . . . . . . . . . . . . . . . 206,770 11,028 Veba, warrants, 4/06/98 *. . . . . . . . . 9,526 2,698 Volkswagen . . . . . . . . . . . . . . . . 4,834 1,936 93,351 Preferred Stocks 0.3% Fielmann . . . . . . . . . . . . . . . . . 27,225 1,133 Hornbach . . . . . . . . . . . . . . . . . 32,830 2,059 Krones . . . . . . . . . . . . . . . . . . 4,621 1,632 SAP. . . . . . . . . . . . . . . . . . . . 16,644 2,240 7,064 Total Germany (Cost $83,607) 100,415 HONG KONG 4.7% Common Stocks 4.7% Cathay Pacific Airways . . . . . . . . . . 2,799,000 4,380 Dao Heng Bank Group. . . . . . . . . . . . 1,342,000 5,901 First Pacific. . . . . . . . . . . . . . . 5,584,931 $ 7,693 Guangdong Investment . . . . . . . . . . . 5,846,000 4,196 Guangzhou Investment . . . . . . . . . . . 14,320,000 4,630 Guoco Group. . . . . . . . . . . . . . . . 1,640,000 8,675 Hong Kong Land Holdings (USD). . . . . . . 7,603,719 16,956 Hopewell Holdings. . . . . . . . . . . . . 11,561,000 7,775 Hutchison Whampoa. . . . . . . . . . . . . 1,865,000 13,025 New World Development. . . . . . . . . . . 2,465,774 14,350 Swire Pacific (Class A). . . . . . . . . . 1,065,000 9,401 Wharf Holdings . . . . . . . . . . . . . . 2,939,000 12,125 Total Hong Kong (Cost $94,958) 109,107 INDIA 0.2% Common Stocks 0.2% State Bank of India GDR (USD). . . . . . . 322,700 4,840 Total India (Cost $4,566) 4,840 ITALY 1.9% Common Stocks and Warrants 1.9% Assicurazioni Generali . . . . . . . . . . 111,268 2,149 Banca Fideuram . . . . . . . . . . . . . . 2,087,300 4,424 Danieli & Company, savings shares. . . . . 113,820 362 ENI. . . . . . . . . . . . . . . . . . . . 1,187,107 5,685 Finanziaria Autogrill. . . . . . . . . . . 152,088 155 IMI. . . . . . . . . . . . . . . . . . . . 408,757 3,235 Industrie Natuzzi ADR (USD). . . . . . . . 37,490 1,696 Istituto Nazionale delle Assicurazioni . . 555,000 766 Italgas. . . . . . . . . . . . . . . . . . 552,325 2,039 Mediolanum . . . . . . . . . . . . . . . . 201,080 1,993 Rinascente . . . . . . . . . . . . . . . . 202,500 1,197 Rinascente, warrants, 11/30/99 * . . . . . 10,125 4 Sasib, savings shares. . . . . . . . . . . 124,282 215 Stet . . . . . . . . . . . . . . . . . . . 1,720,680 5,944 Stet, savings shares . . . . . . . . . . . 829,120 2,208 Telecom Italia . . . . . . . . . . . . . . 1,494,258 3,329 Telecom Italia Mobile. . . . . . . . . . . 3,339,866 6,902 Telecom Italia Mobile, savings shares. . . 872,266 995 Unicem * . . . . . . . . . . . . . . . . . 84,206 561 43,859 Corporate Bonds 0.0% Danieli & Company, 7.25%, 1/01/00. . . . . ITL 89,730,000 55 55 Total Italy (Cost $37,538) 43,914 JAPAN 21.3% Common Stocks 21.3% Advantest. . . . . . . . . . . . . . . . . 39,700 1,499 Alps Electric. . . . . . . . . . . . . . . 318,000 3,938 Amada. . . . . . . . . . . . . . . . . . . 695,000 5,982 Canon. . . . . . . . . . . . . . . . . . . 928,000 17,769 Citizen Watch. . . . . . . . . . . . . . . 448,000 3,404 Daifuku. . . . . . . . . . . . . . . . . . 126,000 1,549 Daiichi Pharmaceutical . . . . . . . . . . 662,000 9,536 DaiNippon Screen Manufacturing . . . . . . 611,000 4,824 Daiwa House. . . . . . . . . . . . . . . . 855,000 $ 11,865 DDI. . . . . . . . . . . . . . . . . . . . 1,035 7,772 Denso. . . . . . . . . . . . . . . . . . . 831,000 17,225 East Japan Railway . . . . . . . . . . . . 2,129 9,780 Fanuc. . . . . . . . . . . . . . . . . . . 167,000 5,354 Hitachi. . . . . . . . . . . . . . . . . . 1,092,000 9,687 Hitachi Zosen. . . . . . . . . . . . . . . 1,097,000 5,357 Honda Motor. . . . . . . . . . . . . . . . 79,000 1,887 Inax . . . . . . . . . . . . . . . . . . . 331,000 2,814 Ishihara Sangyo Kaisha * . . . . . . . . . 368,000 1,102 Ito-Yokado . . . . . . . . . . . . . . . . 248,000 12,372 Kao. . . . . . . . . . . . . . . . . . . . 327,000 3,849 Kawada Industries. . . . . . . . . . . . . 107,000 771 Kokuyo . . . . . . . . . . . . . . . . . . 330,000 8,174 Komatsu. . . . . . . . . . . . . . . . . . 889,000 7,277 Komori . . . . . . . . . . . . . . . . . . 289,000 6,498 Kumagai Gumi . . . . . . . . . . . . . . . 633,000 2,001 Kuraray. . . . . . . . . . . . . . . . . . 747,000 7,217 Kyocera. . . . . . . . . . . . . . . . . . 292,000 19,261 Makita . . . . . . . . . . . . . . . . . . 462,000 6,330 Marui. . . . . . . . . . . . . . . . . . . 560,000 10,378 Matsushita Electric Industrial . . . . . . 876,000 14,003 Mitsubishi . . . . . . . . . . . . . . . . 452,000 5,042 Mitsubishi Heavy Industries. . . . . . . . 2,609,000 20,051 Mitsubishi Paper Mills . . . . . . . . . . 458,000 2,204 Mitsui Fudosan . . . . . . . . . . . . . . 1,329,000 16,459 Mitsui Petrochemical Industries. . . . . . 269,000 1,633 Murata Manufacturing . . . . . . . . . . . 310,000 9,965 National House Industrial. . . . . . . . . 170,000 2,449 NEC. . . . . . . . . . . . . . . . . . . . 1,652,000 17,992 Nippon Hodo. . . . . . . . . . . . . . . . 176,000 2,458 Nippon Steel . . . . . . . . . . . . . . . 3,998,000 11,658 Nippon Telephone & Telecom . . . . . . . . 904 6,312 Nomura Securities. . . . . . . . . . . . . 863,000 14,250 Pioneer Electronic . . . . . . . . . . . . 402,000 7,944 Sangetsu . . . . . . . . . . . . . . . . . 111,000 2,369 Sankyo . . . . . . . . . . . . . . . . . . 619,000 15,332 Sega Enterprises . . . . . . . . . . . . . 109,150 4,410 Sekisui Chemical . . . . . . . . . . . . . 939,000 10,474 Sekisui House. . . . . . . . . . . . . . . 635,000 6,693 Seven Eleven Japan . . . . . . . . . . . . 89,000 5,175 Sharp. . . . . . . . . . . . . . . . . . . 800,000 12,156 Shin-Etsu Chemical . . . . . . . . . . . . 525,000 8,992 Sony . . . . . . . . . . . . . . . . . . . 224,000 13,437 Sumitomo . . . . . . . . . . . . . . . . . 1,207,000 9,743 Sumitomo Electric. . . . . . . . . . . . . 1,280,000 16,864 Sumitomo Forestry. . . . . . . . . . . . . 394,000 5,571 TDK. . . . . . . . . . . . . . . . . . . . 221,000 12,966 Teijin . . . . . . . . . . . . . . . . . . 1,676,000 7,758 Tokio Marine & Fire Insurance. . . . . . . 341,000 3,744 Tokyo Electronics. . . . . . . . . . . . . 113,000 2,908 Tokyo Steel Manufacturing. . . . . . . . . 325,000 5,024 Toppan Printing. . . . . . . . . . . . . . 548,000 6,690 Uny. . . . . . . . . . . . . . . . . . . . 228,000 3,945 Yurtec . . . . . . . . . . . . . . . . . . 154,350 2,250 Total Japan (Cost $518,494) 494,393 MALAYSIA 3.0% Common Stocks and Warrants 3.0% Affin Holdings . . . . . . . . . . . . . . 4,615,000 $ 11,873 Affin Holdings, warrants, 11/15/99 * . . . 604,000 646 Berjaya Sports Toto. . . . . . . . . . . . 1,741,000 6,546 Commerce Asset Holdings. . . . . . . . . . 771,333 5,037 MBF Capital. . . . . . . . . . . . . . . . 2,983,000 4,109 Multi-Purpose Holdings . . . . . . . . . . 4,307,000 7,365 Renong . . . . . . . . . . . . . . . . . . 3,722,000 5,863 Renong, warrants, 11/21/00 * . . . . . . . 435,125 177 Resorts World. . . . . . . . . . . . . . . 599,000 3,438 Tanjong. . . . . . . . . . . . . . . . . . 1,731,000 6,714 Technology Resources Industries *. . . . . 2,257,000 5,405 United Engineers . . . . . . . . . . . . . 1,623,000 12,848 70,021 Preferred Stocks 0.0% Renong, cv. loan stock, 4.00%, 5/21/01 . . 696,200 255 255 Total Malaysia (Cost $58,720) 70,276 MEXICO 1.5% Common Stocks and Rights 1.5% Cemex (Class B). . . . . . . . . . . . . . 325,840 1,171 Cemex ADS (USD). . . . . . . . . . . . . . 95,160 672 Cemex ADS (144a) (USD) . . . . . . . . . . 410,812 2,901 Cifra ADR (USD). . . . . . . . . . . . . . 3,139,213 3,893 Fomentos Economico Mexicano (Class B). . . 332,862 1,010 Gruma (Class B) *. . . . . . . . . . . . . 593,166 2,948 Gruma (Class B), rights *. . . . . . . . . 15,733 6 Grupo Financiero Banamex (Class B) . . . . 966,552 2,044 Grupo Financiero Banamex (Class L) . . . . 31,801 65 Grupo Financiero Bancomer (Class L) *. . . 8,266 3 Grupo Industrial Maseca (Class B). . . . . 1,664,467 2,025 Grupo Modelo (Class C) . . . . . . . . . . 347,864 1,803 Grupo Televisa GDR (USD) . . . . . . . . . 49,322 1,295 Kimberly-Clark Mexico (Class A). . . . . . 130,087 2,509 Panamerican Beverages (Class A) ADR (USD) . . . . . . . . . . . . . . . . 100,714 4,394 Telefonos de Mexico (Class L) ADS (USD) . . . . . . . . . . . . . . . . 251,614 7,674 Total Mexico (Cost $44,830) 34,413 NETHERLANDS 10.2% Common Stocks 10.2% ABN Amro Holdings. . . . . . . . . . . . . 187,860 10,618 Ahold. . . . . . . . . . . . . . . . . . . 163,050 9,514 Akzo Nobel . . . . . . . . . . . . . . . . 16,188 2,040 CSM. . . . . . . . . . . . . . . . . . . . 239,610 12,639 Elsevier . . . . . . . . . . . . . . . . . 2,565,208 42,635 Fortis Amev. . . . . . . . . . . . . . . . 222,877 6,660 Hagemeyer. . . . . . . . . . . . . . . . . 51,110 3,841 ING Groep. . . . . . . . . . . . . . . . . 657,575 20,502 Koninklijke PTT Nederland. . . . . . . . . 77,335 2,799 Nutricia . . . . . . . . . . . . . . . . . 36,084 5,062 Otra . . . . . . . . . . . . . . . . . . . 45,880 860 Polygram . . . . . . . . . . . . . . . . . 271,899 12,772 Royal Dutch Petroleum. . . . . . . . . . . 262,807 43,401 Unilever . . . . . . . . . . . . . . . . . 81,866 $ 12,448 Wolters Kluwer . . . . . . . . . . . . . . 399,141 51,307 237,098 Preferred Stocks 0.0% ING Groep. . . . . . . . . . . . . . . . . 10,797 57 57 Total Netherlands (Cost $172,663) 237,155 NEW ZEALAND 0.7% Common Stocks and Rights 0.7% Air New Zealand (Class B). . . . . . . . . 511,736 1,249 Air New Zealand (Class B), rights *. . . . 139,564 145 Carter Holt Harvey . . . . . . . . . . . . 792,115 1,782 Fernz. . . . . . . . . . . . . . . . . . . 393,080 1,377 Fletcher Challenge Building. . . . . . . . 384,044 1,041 Fletcher Challenge Energy. . . . . . . . . 158,044 451 Fletcher Challenge Forests Division. . . . 1,558,094 2,601 Fletcher Challenge Paper . . . . . . . . . 284,089 514 Telecom Corporation of New Zealand . . . . 1,301,372 6,767 Total New Zealand (Cost $14,465) 15,927 NORWAY 1.4% Common Stocks 1.4% Bergesen (Class A) . . . . . . . . . . . . 46,430 1,015 Norsk Hydro. . . . . . . . . . . . . . . . 355,382 16,375 Orkla (Class A). . . . . . . . . . . . . . 222,310 14,215 Saga Petroleum (Class B) . . . . . . . . . 85,950 1,340 Total Norway (Cost $24,294) 32,945 PERU 0.1% Common Stocks 0.1% Telefonica del Peru (Class B). . . . . . . 316,910 671 Telefonica del Peru (Class B) ADR (USD) . . . . . . . . . . . . . . . . 39,284 810 Total Peru (Cost $1,429) 1,481 PHILIPPINES 0.1% Common Stocks 0.1% Philippine National Bank . . . . . . . . . 197,100 2,269 Total Philippines (Cost $3,269) 2,269 PORTUGAL 0.5% Common Stocks 0.5% Jeronimo Martins . . . . . . . . . . . . . 117,664 10,709 Total Portugal (Cost $5,147) 10,709 RUSSIA 0.0% Common Stocks 0.0% Gazprom ADR (USD). . . . . . . . . . . . . 38,080 714 Total Russia (Cost $600) 714 SINGAPORE 1.9% Common Stocks and Warrants 1.9% DBS Land . . . . . . . . . . . . . . . . . 1,075,000 $ 3,389 Development Bank of Singapore. . . . . . . 290,000 3,479 Far East Levingston Shipbuilding . . . . . 367,000 1,759 Fraser & Neave . . . . . . . . . . . . . . 154,400 1,535 Jurong Shipyard. . . . . . . . . . . . . . 103,000 482 Keppel . . . . . . . . . . . . . . . . . . 237,000 1,767 Overseas Union Bank. . . . . . . . . . . . 1,221,000 8,322 Singapore Airlines . . . . . . . . . . . . 86,000 757 Singapore Land . . . . . . . . . . . . . . 1,104,000 6,114 Singapore Press. . . . . . . . . . . . . . 223,820 3,718 United Industrial. . . . . . . . . . . . . 1,853,000 1,539 United Overseas Bank . . . . . . . . . . . 976,352 9,497 United Overseas Bank, warrants, 6/17/97 * . . . . . . . . . . . . . . . . 192,940 685 Total Singapore (Cost $42,399) 43,043 SOUTH KOREA 1.0% Common Stocks 1.0% Cho Hung Bank. . . . . . . . . . . . . . . 243,230 2,527 Hanil Bank . . . . . . . . . . . . . . . . 166,500 1,528 Hanil Securities . . . . . . . . . . . . . 92,887 967 Kook Min Bank. . . . . . . . . . . . . . . 98,238 1,883 Korea Electric Power . . . . . . . . . . . 147,400 4,335 Pohang Iron & Steel. . . . . . . . . . . . 50,660 3,228 Samsung Electronic * . . . . . . . . . . . 42,487 3,107 Samsung Electronic GDR (USD) * . . . . . . 22,267 362 Samsung Electronic GDS (USD) * . . . . . . 1,464 50 Samsung Electronic GDS, 1/2 non voting (USD) * . . . . . . . . . . . . . . . . . 69,887 1,524 Samsung Electronic, new *. . . . . . . . . 6,812 466 Samsung Fire & Marine Insurance. . . . . . 380 200 Seoul Bank . . . . . . . . . . . . . . . . 136,000 790 Shinhan Bank . . . . . . . . . . . . . . . 14,500 285 Yukong . . . . . . . . . . . . . . . . . . 70,278 1,636 Total South Korea (Cost $31,856) 22,888 SPAIN 2.3% Common Stocks 2.3% Aguas de Barcelona . . . . . . . . . . . . 29,857 1,221 Argentaria Banca de Espana . . . . . . . . 67,680 2,652 Banco Popular Espanol. . . . . . . . . . . 33,181 6,343 Banco Santander. . . . . . . . . . . . . . 120,703 6,196 Centros Comerciales Pryca. . . . . . . . . 91,773 2,107 Continente Central . . . . . . . . . . . . 45,860 931 Empresa Nacional de Electricidad . . . . . 180,145 11,027 Fomento de Construcciones y Contra . . . . 11,758 955 Gas Natural. . . . . . . . . . . . . . . . 34,818 6,091 Iberdrola. . . . . . . . . . . . . . . . . 531,026 5,639 Repsol . . . . . . . . . . . . . . . . . . 256,542 8,374 Repsol ADR (USD) . . . . . . . . . . . . . 10,390 340 Telefonica de Espana . . . . . . . . . . . 121,410 2,436 Total Spain (Cost $46,948) 54,312 SWEDEN 2.6% Common Stocks 2.6% ABB (Class A). . . . . . . . . . . . . . . 38,170 $ 4,324 Astra (Class B). . . . . . . . . . . . . . 523,057 23,863 Atlas Copco (Class B). . . . . . . . . . . 225,532 4,647 Electrolux (Class B) . . . . . . . . . . . 150,437 8,373 Esselte (Class B). . . . . . . . . . . . . 49,870 1,115 Hennes & Mauritz (Class B) . . . . . . . . 67,371 8,719 Nordbanken . . . . . . . . . . . . . . . . 13,300 350 Sandvik (Class A). . . . . . . . . . . . . 40,050 944 Sandvik (Class B). . . . . . . . . . . . . 247,110 5,825 Scribona (Class B) . . . . . . . . . . . . 49,060 541 Stora Kopparbergs (Class B). . . . . . . . 147,510 1,896 Total Sweden (Cost $41,181) 60,597 SWITZERLAND 4.4% Common Stocks 4.4% ABB. . . . . . . . . . . . . . . . . . . . 13,350 16,497 Adecco . . . . . . . . . . . . . . . . . . 32,713 9,188 Ciba-Geigy . . . . . . . . . . . . . . . . 8,150 10,039 CS Holding . . . . . . . . . . . . . . . . 40,405 4,036 Nestle . . . . . . . . . . . . . . . . . . 17,263 18,752 Roche Holdings . . . . . . . . . . . . . . 2,891 21,865 Sandoz . . . . . . . . . . . . . . . . . . 13,194 15,250 Schweizerischer Bankverein . . . . . . . . 34,384 6,624 Total Switzerland (Cost $77,360) 102,251 THAILAND 0.6% Common Stocks and Warrants 0.6% Advanced Information Service . . . . . . . 139,974 1,900 Bangkok Bank . . . . . . . . . . . . . . . 493,317 5,263 Bank of Ayudhya. . . . . . . . . . . . . . 355,246 1,017 Siam Cement. . . . . . . . . . . . . . . . 26,025 890 Siam Commercial Bank . . . . . . . . . . . 246,627 2,244 Thai Farmers Bank. . . . . . . . . . . . . 272,576 2,085 Thai Farmers Bank, warrants, 9/15/02 * . . 34,072 14 Total Access Communications (USD). . . . . 105,630 729 Total Thailand (Cost $16,161) 14,142 UNITED KINGDOM 15.7% Common Stocks 15.7% Abbey National . . . . . . . . . . . . . . 1,747,440 18,146 Argos. . . . . . . . . . . . . . . . . . . 939,200 11,771 Asda Group . . . . . . . . . . . . . . . . 4,059,530 7,797 British Gas. . . . . . . . . . . . . . . . 901,200 2,802 British Petroleum. . . . . . . . . . . . . 719,522 7,706 Cable & Wireless . . . . . . . . . . . . . 1,582,200 12,567 Cadbury Schweppes. . . . . . . . . . . . . 1,164,578 9,667 Caradon. . . . . . . . . . . . . . . . . . 2,090,350 8,233 Coats Viyella. . . . . . . . . . . . . . . 709,000 1,754 Compass Group. . . . . . . . . . . . . . . 611,000 6,076 David S. Smith . . . . . . . . . . . . . . 1,073,500 5,451 East Midlands Electricity. . . . . . . . . 434,619 3,809 Electrocomponents. . . . . . . . . . . . . 310,000 $ 2,079 GKN. . . . . . . . . . . . . . . . . . . . 138,000 2,599 Glaxo Wellcome . . . . . . . . . . . . . . 1,086,650 16,890 Grand Metropolitan . . . . . . . . . . . . 1,906,000 14,301 Guinness . . . . . . . . . . . . . . . . . 1,588,000 11,424 Heywood Williams Group . . . . . . . . . . 249,576 989 Hillsdown Holdings . . . . . . . . . . . . 675,300 1,934 John Laing (Class A) . . . . . . . . . . . 594,300 2,583 Kingfisher . . . . . . . . . . . . . . . . 1,621,977 17,265 Ladbroke Group . . . . . . . . . . . . . . 1,074,000 3,470 London Electricity . . . . . . . . . . . . 574,288 5,683 National Grid Group. . . . . . . . . . . . 510,800 1,496 National Westminster Bank. . . . . . . . . 2,974,619 34,036 Rank Group . . . . . . . . . . . . . . . . 1,233,000 8,148 Reed International . . . . . . . . . . . . 1,482,570 27,629 Rolls Royce. . . . . . . . . . . . . . . . 543,851 2,240 RTZ. . . . . . . . . . . . . . . . . . . . 756,960 12,074 Safeway. . . . . . . . . . . . . . . . . . 1,508,200 8,935 Sears. . . . . . . . . . . . . . . . . . . 504,000 710 Shell Transport & Trading. . . . . . . . . 1,366,000 22,411 Smithkline Beecham . . . . . . . . . . . . 2,582,015 31,771 Spring Ram . . . . . . . . . . . . . . . . 103,888 22 T & N. . . . . . . . . . . . . . . . . . . 1,399,000 2,892 Tesco. . . . . . . . . . . . . . . . . . . 1,353,903 7,294 Tomkins. . . . . . . . . . . . . . . . . . 3,312,080 13,854 United Newspapers. . . . . . . . . . . . . 1,374,620 15,057 Total United Kingdom (Cost $291,337) . . . 363,565 SHORT-TERM INVESTMENTS 4.1% Commercial Paper 2.4% Ciesco, 5.30%, 11/25/96. . . . . . . . . . $ 10,000,000 9,965 Indosuez North America, 5.38%, 12/18/96. . 10,000,000 9,930 Korea Development Bank, 5.27%, 11/12/96. . 10,000,000 9,984 Mobil Australia Finance, 4(2), 5.32%, 11/27/96 . . . . . . . . . . . . . 10,000,000 9,962 Oesterrichische Kontrollbank, 5.33%, 11/29/96 . . . . . . . . . . . . . 10,000,000 9,958 Investments in Commercial Paper through a joint account 5.56 - 5.63%, 11/01/96. . . 5,312,558 5,312 55,111 Other 1.7% Bank One Dayton, CD, 5.30%, 11/06/96 . . . 10,000,000 10,000 First Tennessee Bank N.A., CD, 5.32%, 11/04/96 . . . . . . . . . . . . . 10,000,000 10,000 SMM Trust, Floating Rate MTN, 5.706%, 3/26/97 . . . . . . . . . . . . . 10,000,000 10,000 Societe Generale, CD, 5.37%, 12/16/96. . . 10,000,000 10,000 40,000 Total Short-Term Investments (Cost $95,111) . . . . . . . . . . . . . . 95,111 Total Investments in Securities 99.3% of Net Assets (Cost $2,031,987). . . $ 2,306,486 Other Assets Less Liabilities. . . . . . . 15,983 __________ NET ASSETS . . . . . . . . . . . . . . . . $ 2,322,469 __________ __________ Net Assets Consist of: Accumulated net investment income - net of distributions. . . . . . . . . . . $ 32,715 Accumulated net realized gain/loss - net of distributions. . . . . . . . . . . 19,934 Net unrealized gain (loss) . . . . . . . . 274,515 Paid-in-capital applicable to 148,687,924 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares authorized . . . . . 1,995,305 __________ NET ASSETS . . . . . . . . . . . . . . . . $ 2,322,469 __________ __________ NET ASSET VALUE PER SHARE. . . . . . . . . $ 15.62 __________ __________ * Non-income producing 4(2) Commercial paper sold within terms of a private placement memorandum, exempt from registration under section 4.2 of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers -total of such securities at year-end amounts to 0.25% of net assets. BEL Belgian franc CD Certificate of Deposit HKD Hong Kong dollar ITL Italian lira MTN Medium-Term Note USD U.S. dollar The accompanying notes are an integral part of these financial statements. STATEMENT OF OPERATIONS Foreign Equity Fund (in thousands) Year Ended 10/31/96 _________ INVESTMENT INCOME Income Dividend (net of foreign taxes of $ 6,145) . . . . . . $ 42,090 Interest . . . . . . . . . . . . . . . . . . . . . . . 6,070 ________ Total income . . . . . . . . . . . . . . . . . . . . . . 48,160 ________ Expenses Investment management. . . . . . . . . . . . . . . . . 13,871 Custody and accounting . . . . . . . . . . . . . . . . 791 Registration . . . . . . . . . . . . . . . . . . . . . 313 Legal and audit. . . . . . . . . . . . . . . . . . . . 36 Directors. . . . . . . . . . . . . . . . . . . . . . . 12 Shareholder servicing. . . . . . . . . . . . . . . . . 9 Prospectus and shareholder reports . . . . . . . . . . 6 Miscellaneous. . . . . . . . . . . . . . . . . . . . . 15 ________ Total expenses . . . . . . . . . . . . . . . . . . . . . 15,053 ________ Net investment income. . . . . . . . . . . . . . . . . . 33,107 ________ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Securities . . . . . . . . . . . . . . . . . . . . . . 39,088 Foreign currency transactions. . . . . . . . . . . . . (1,281) ________ Net realized gain (loss) . . . . . . . . . . . . . . . 37,807 ________ Change in net unrealized gain or loss Securities . . . . . . . . . . . . . . . . . . . . . . 178,886 Other assets and liabilities denominated in foreign currencies. . . . . . . . . . . . . . . . 21 ________ Change in net unrealized gain or loss. . . . . . . . . 178,907 ________ Net realized and unrealized gain (loss). . . . . . . . . 216,714 ________ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. . . . $ 249,821 ________ ________ The accompanying notes are an integral part of these financial statements. STATEMENT OF CHANGES IN NET ASSETS Foreign Equity Fund (in thousands) Year Year Ended Ended 10/31/96 10/31/95 ________ ________ INCREASE (DECREASE) IN NET ASSETS Operations Net investment income . . . . . . . . . . . . $ 33,107 $ 20,980 Net realized gain (loss). . . . . . . . . . . 37,807 19,425 Change in net unrealized gain or loss . . . . 178,907 (19,253) __________ __________ Increase (decrease) in net assets from operations. . . . . . . . . . . . . . . 249,821 21,152 __________ __________ Distributions to shareholders Net investment income . . . . . . . . . . . . (21,229) (9,573) Net realized gain . . . . . . . . . . . . . . (21,229) (41,487) __________ __________ Decrease in net assets from distributions. . . . . . . . . . . . . . . . (42,458) (51,060) __________ __________ Capital share transactions* Shares sold . . . . . . . . . . . . . . . . . 772,534 632,538 Distributions reinvested. . . . . . . . . . . 30,404 35,819 Shares redeemed . . . . . . . . . . . . . . . (247,451) (137,308) __________ __________ Increase (decrease) in net assets from capital share transactions . . . . . . . . . 555,487 531,049 __________ __________ NET ASSETS Increase (decrease) during period. . . . . . . 762,850 501,141 Beginning of period. . . . . . . . . . . . . . 1,559,619 1,058,478 __________ __________ End of period. . . . . . . . . . . . . . . . . $2,322,469 $1,559,619 __________ __________ __________ __________ *Share information Shares sold . . . . . . . . . . . . . . . . . 51,462 46,409 Distributions reinvested. . . . . . . . . . . 2,138 2,775 Shares redeemed . . . . . . . . . . . . . . . (16,389) (10,263) __________ __________ Increase (decrease) in shares outstanding . . . . . . . . . . . . . 37,211 38,921 The accompanying notes are an integral part of these financial statements. NOTES TO FINANCIAL STATEMENTS Foreign Equity Fund / October 31, 1996 Note 1 - Significant Accounting Policies T. Rowe Price Institutional International Funds, Inc., (the corporation) is registered under the Investment Company Act of 1940. The Foreign Equity Fund (the fund), a diversified, open-end management investment company, is the sole portfolio currently established by the corporation and commenced operations on September 7, 1989. Valuation - Equity securities listed or regularly traded on a securities exchange (including Nasdaq) are valued at the last quoted sales price at the time the valuations are made. A security which is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Other equity securities and those listed securities that are not traded on a particular day are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Short-term debt securities are valued at amortized cost which approximates fair value. For purposes of determining the fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Currency Translation - Assets and liabilities are translated into U.S. dollars at the prevailing exchange rate at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing exchange rate on the dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains and losses. Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. Note 2 - Investment Transactions Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund's prospectus and Statement of Additional Information. Emerging Markets - At October 31, 1996, the fund held investments in securities of companies located in emerging markets. Future economic or political developments could adversely affect the liquidity or value, or both, of such securities. Commercial Paper Joint Account - The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. Other - Purchases and sales of portfolio securities, other than short-term securities, aggregated $798,278,000 and $257,049,000, respectively, for the year ended October 31, 1996. Note 3 - Federal Income Taxes No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended October 31, 1996. The results of operations and net assets were not affected by the reclassifications. Undistributed net investment income $ 1,000 Undistributed net realized gain (13,831,000) Paid-in-capital 13,830,000 At October 31, 1996, the aggregate cost of investments for federal income tax and financial reporting purposes was $2,031,987,000, and net unrealized gain aggregated $274,499,000, of which $366,520,000 related to appreciated investments and $92,021,000 to depreciated investments. Note 4 - Related Party Transactions The fund is managed by Rowe Price-Fleming International, Inc. (the manager), which is owned by T. Rowe Price Associates, Inc. (Price Associates), Robert Fleming Holdings Limited, and Jardine Fleming Holdings Limited under a joint venture agreement. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $1,378,000 was payable at October 31, 1996. The fee is computed daily and paid monthly, and is equal to 0.70% of average daily net assets. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $107,000 for the year ended October 31, 1996, of which $14,000 was payable at period-end. During the year ended October 31, 1996, the fund, in the ordinary course of business, paid commissions of $193,000 to, and placed security purchase and sale orders aggregating $72,215,000 with, certain affiliates of the manager in connection with the execution of various portfolio transactions. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Foreign Equity Fund In our opinion, the accompanying statement of net assets 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 Foreign Equity Fund (the portfolio constituting Institutional International Funds, Inc., hereafter referred to as the "Fund") at October 31, 1996, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period then ended, 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 audits. We conducted our audits 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 audits, which included confirmation of securities at October 31, 1996 by correspondence with custodians and, where appropriate, the application of alternative auditing procedures for unsettled security transactions, provide a reasonable basis for the opinion expressed above. The financial statements of the Fund for the fiscal periods presented prior to the year ended October 31, 1995 were audited by other independent accountants whose report dated November 17, 1994 expressed an unqualified opinion on those statements. PRICE WATERHOUSE LLP Baltimore, Maryland November 19, 1996 During fiscal year 1995, Price Waterhouse LLP succeeded Coopers & Lybrand L.L.P. as independent accountants for the Foreign Equity Fund, a decision that was approved by the fund's Board of Directors. During the two fiscal years preceding the change, the fund received unqualified opinions and had no disagreements with Coopers & Lybrand L.L.P. or reportable events that caused the change. APPENDIX Chart 1 - Geographic Diversification - pie chart showing: Europe 53%, Japan 21%, Far East 14%, Latin America 7%, Other and Reserves 5%. Chart 2 - Performance Comparison - SEC Graph: a line chart showing the cumulative growth of $10,000 invested in the Foreign Equity Fund from inception compared with $10,000 invested in a broad-based index and average over the same period. -----END PRIVACY-ENHANCED MESSAGE-----