INTERNATIONAL EQUITY PORTFOLIO
ANNUAL REPORT
October 31, 1996
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996
(expressed in U.S. dollars)
Shares Value
------ -----
COMMON STOCKS, RIGHTS
& WARRANTS (98.9%)
AUSTRALIA (1.7%)
ENERGY
11,575 Broken Hill Proprietary Co., Ltd. ................. $ 153,679
21,350 Woodside Petroleum, Ltd. .......................... 150,614
----------
304,293
----------
GOLD MINES
26,250 RGC, Ltd. .......................................... 118,599
----------
MATERIALS
6,935 CRA, Ltd. .......................................... 108,730
23,715 WMC, Ltd. .......................................... 149,065
----------
257,795
----------
TOTAL AUSTRALIA .................................... 680,687
----------
FRANCE (6.3%)
CAPITAL EQUIPMENT
2,400 Alcatel Alsthom .................................... 204,675
----------
CONSUMER DURABLES
1,480 Peugeot SA ......................................... 154,296
----------
CONSUMER NON-DURABLES
440 Bongrain SA ........................................ 178,152
960 LVMH ............................................... 219,885
----------
398,037
----------
FINANCE
2,060 Societe Generale ................................... 222,017
----------
MEDIA & ADVERTISING
1,110 Canal Plus ......................................... 274,867
2,840 Havas SA ........................................... 186,537
2,240 Television Francaise 1 ............................. 238,349
----------
699,753
----------
RETAIL
582 Comptoirs Modernes ................................. 278,449
----------
SERVICES
1,625 Accor SA ....................................... 204,059
690 Sodexho SA ..................................... 333,494
----------
537,553
----------
TOTAL FRANCE ................................... 2,494,780
----------
GERMANY (2.2%)
BANKING
7,150 Commerzbank AG ................................. 160,053
3,510 Depfa Bank AG .................................. 144,164
----------
304,217
CAPITAL EQUIPMENT
2,520 Siemens AG .......................................... 130,210
----------
ENERGY
2,730 VEBA AG ............................................. 145,604
----------
PHARMACEUTICALS
3,770 Merck KGaA* ......................................... 138,462
----------
RETAIL
1,560 Metro AG* ........................................... 127,940
----------
TOTAL GERMANY ....................................... 846,433
----------
HONG KONG (4.2%)
BANKING
36,000 Dao Heng Bank Group, Ltd. ........................... 158,299
----------
INSURANCE
157,000 National Mutual Asia, Ltd. .......................... 131,981
----------
MATERIALS
396,000 C.P. Pokphand Co. ................................... 131,877
----------
MULTI-INDUSTRY
29,000 Guoco Group, Ltd. ................................. 153,397
23,000 Hutchison Whampoa, Ltd. ............................ 160,627
21,000 Jardine Matheson Hldgs., Ltd. ...................... 118,650
17,000 Swire Pacific, Ltd. ................................ 150,054
----------
582,728
----------
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
HONG KONG (continued)
REAL ESTATE
20,000 Cheung Kong Hldgs., Ltd. ........................... $ 160,368
31,000 New World Development
Co., Ltd. ....................................... 180,414
15,000 Sun Hung Kai Properties, Ltd. ...................... 170,715
----------
511,497
----------
TELECOMMUNICATIONS
72,800 Hong Kong
Telecommunications, Ltd. ........................ 128,517
----------
TOTAL HONG KONG .................................... 1,644,899
----------
INDIA (2.8%)
CONSUMER DURABLES
18,625 Ashok Leyland, Ltd. ................................ 204,875
5,635 Bajaj Auto, Ltd. ................................... 178,911
----------
383,786
----------
FINANCE
19,900 Industrial Credit & Investment
Corp. of India, Ltd. ............................ 216,413
----------
MATERIALS
9,815 Grasim Industries, Ltd. ............................ 137,410
61,135 Indo Gulf Fertilisers and
Chemicals Corp., Ltd. ............................ 42,794
17,655 Reliance Industries, Ltd. .......................... 196,412
5,525 Southern Petrochemicals
Industries Corp., Ltd. ............................. 21,409
----------
398,025
----------
PHARMACEUTICALS
6,355 Ranbaxy Laboratories, Ltd. ........................ 119,156
----------
TOTAL INDIA ....................................... 1,117,380
----------
INDONESIA (1.1%)
BANKING
49,000 Bank Bali ......................................... 100,975
122,250 Bank Dagang Nasional .............................. 86,598
----------
187,573
----------
CAPITAL EQUIPMENT
3,000 Voksel Electric ....................................... 1,030
----------
MATERIALS
40,000 Semen Cibinong ........................................ 87,580
----------
MULTI-INDUSTRY
2,000 Centris Multipersada Pratama .......................... 816
----------
PHARMACEUTICALS
90,000 Kalbe Farma ........................................... 106,255
----------
REAL ESTATE
91,000 Ciputra Development ................................... 66,415
2,000 Ciputra Development (Rights) .......................... 202
----------
66,617
----------
TOTAL INDONESIA ........................................ 449,871
----------
IRELAND (2.7%)
BANKING
25,000 Irish Permanent, Plc .................................. 190,116
----------
CONSUMER NON-DURABLES
43,360 Greencore Group, Plc .................................. 252,774
----------
MATERIALS
57,400 Smurfit (Jefferson) Group, Plc ........................ 158,899
----------
MEDIA & ADVERTISING
47,441 Independent Newspapers, Plc ........................... 253,003
----------
PHARMACEUTICALS
7,678 Elan Corp., Plc., ADR* ................................ 213,064
----------
TOTAL IRELAND ......................................... 1,067,856
----------
ITALY (2.4%)
BANKING
12,030 Istituto Mobiliare Italiano SpA (IMI) .................. 95,201
----------
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
ITALY (continued)
CONSUMER DURABLES
18,600 Ente Nazionale
Idrocarbun SpA (ENI)* ............................... $ 89,076
30,100 Fiat SpA ............................................... 80,458
----------
169,534
----------
INSURANCE
3,806 Assicurazioni Generali SpA ............................. 73,511
15,000 Assicurazione Industriale
SAI SpA ............................................. 46,869
62,600 Istituto Nazionale
Delle Assicurazioni SpA ............................. 86,452
----------
206,832
----------
MEDIA
12,240 Mondadori (Arnoldo) Editore SpA ........................ 90,368
----------
RETAIL
16,000 Rinascente SpA ......................................... 94,608
800 Rinascente SpA (Warrants)* ............................. 343
----------
94,951
----------
TELECOMMUNICATIONS
59,100 Telecom Italia Mobile SpA .............................. 122,135
70,300 Telecom Italia SpA ..................................... 156,634
----------
278,769
----------
TOTAL ITALY ............................................ 935,655
----------
JAPAN (36.3%)
BANKING
53,000 Asahi Bank, Ltd. ....................................... 544,640
300 Bank of Tokyo-Mitsubishi
Bank, Ltd. .......................................... 6,113
84,000 Daiwa Bank, Ltd. ....................................... 475,868
85,000 Long Term Credit Bank of Japan ......................... 563,656
56,000 Mitsui Trust and
Banking Co., Ltd. ................................... 541,039
65,000 Sakura Bank, Ltd. ...................................... 616,574
47,000 Sumitomo Trust and
Banking Co., Ltd. .................................... 520,135
---------
3,268,025
---------
CAPITAL EQUIPMENT
3,200 Autobacs Seven Co., Ltd. ........................... 252,391
18,000 Bridgestone Corp. .................................. 303,544
14,000 NipponDenso Co., Ltd. .............................. 290,194
6,600 Fanuc, Ltd. ........................................ 211,585
17,000 Hitachi, Ltd. ...................................... 150,806
71,000 Ishikawajima Harina Heavy
Industries Co., Ltd. ............................ 327,390
2,200 Kandenko ........................................... 23,767
25,000 Kubota, Ltd. ....................................... 141,408
12,200 Kurita Water Industries, Ltd. ...................... 245,382
4,000 Kyocera Corp. ...................................... 263,844
4,700 Mabuchi Motor Co., Ltd. ............................ 239,427
27,000 Matsushita Electric
Industrial Co., Ltd. ............................. 260,858
9,000 Murata Mfg. Co., Ltd. .............................. 289,315
18,000 Nippon Electric Glass, Ltd. ........................ 275,087
26,000 Sekisui House, Ltd. ................................ 274,033
----------
3,549,031
----------
CONSUMER DURABLES
15,000 Canon, Inc. ........................................ 287,207
5,000 TDK Corp. .......................................... 293,356
12,000 Toppan Printing .................................... 146,502
----------
727,065
----------
CONSUMER NON-DURABLES
10,000 Fuji Photo Film Co. ................................ 287,207
23,000 Kao Corp. .......................................... 270,695
4,200 Nintendo Co., Ltd. ................................. 265,601
5,800 Sony Corp. ......................................... 347,934
----------
1,171,437
----------
ENERGY
46,000 Cosmo Oil Co. ...................................... 248,878
10,800 Tokyo Electric Power Co. ........................... 247,578
----------
496,456
----------
FINANCE
7,500 Orix Corp. ......................................... 279,303
43,000 Yamaichi Securities Co., Ltd. ...................... 239,445
----------
518,748
----------
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
JAPAN (continued)
BANKING
38,000 Yasuda Fire & Marine
Insurance Co. .................................... $ 241,307
-----------
MATERIALS
35,000 Dai Nippon Ink & Chemicals ......................... 149,708
83,000 Kawasaki Steel Corp. ............................... 255,878
19,000 NGK Spark Plug Co. ................................. 195,248
24,000 Sumitomo Electric Industries, Ltd. ................. 316,192
16,000 Sumitomo Forestry Co., Ltd. ........................ 223,442
11,000 Tostem Corp. ....................................... 315,928
-----------
1,456,396
-----------
MULTI-INDUSTRY
300 Homewide Corp. ..................................... 3,373
17,000 Sumitomo Corp. ..................................... 137,218
-----------
140,591
-----------
PHARMACEUTICALS
12,000 Sankyo Co. ......................................... 297,220
15,000 Taisho Pharmaceutical .............................. 297,747
14,000 Yamanouchi Pharmaceutical
Co., Ltd. ....................................... 284,046
-----------
879,013
-----------
SERVICES
5,000 Ito-Yokado Co., Ltd. ............................... 249,440
17,000 Japan Radio Co. .................................... 226,955
7,000 Kato Denki Co., Ltd. ............................... 100,830
4,000 Secom Co., Ltd. .................................... 238,198
-----------
815,423
-----------
TELECOMMUNICATIONS
33 DDI Corp. .......................................... 247,815
13,000 Denki Kogyo Co., Ltd. .............................. 115,322
4,000 Japan Telecom Co., Ltd. ............................ 96,263
2,700 Kakusai Denshin Denwa .............................. 233,587
14,000 Matsushita Communications
Industrial Co., Ltd. ............................ 370,120
-----------
1,063,107
-----------
TOTAL JAPAN ........................................ 14,326,599
-----------
MALAYSIA (4.3%)
BANKING
62,000 Commerce Asset Hldgs., Bhd ......................... 404,908
-----------
FINANCE
246,000 Public Finance, Bhd ................................ 379,735
-----------
REAL ESTATE
216,000 Bolton Properties, Bhd ............................. 388,142
83,000 IOI Properties, Bhd ................................ 275,955
248,000 Lion Land, Bhd ..................................... 248,344
-----------
912,441
-----------
TOTAL MALAYSIA ..................................... 1,697,084
-----------
NETHERLANDS (3.6%)
FINANCE
13,515 Fortis Amev NV ..................................... 403,849
-----------
MATERIALS
3,100 Akzo Nobel NV ...................................... 390,629
-----------
MEDIA & ADVERTISING
37,160 Elsevier NV ........................................ 617,618
-----------
TOTAL NETHERLANDS .................................. 1,412,096
-----------
SINGAPORE (2.0%)
BANKING
16,000 Development Bank of Singapore ...................... 191,977
-----------
ENERGY
60,000 DBS Land, Ltd. ..................................... 189,137
-----------
FINANCE
78,000 First Capital Corp., Ltd. .......................... 180,532
-----------
REAL ESTATE
98,000 Wing Tai Hldgs., Ltd. .............................. 240,738
-----------
TOTAL SINGAPORE .................................... 802,384
-----------
SOUTH KOREA (0.8%)
MULTI-INDUSTRY
24 CITC Seoul Access Trust* ........................... 306,782
-----------
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
SPAIN (2.0%)
CONSUMER NON-DURABLES
3,250 Tabacalera SA ......................................... $ 118,951
----------
3,900 Viscofan Envolturas SA ................................ 55,629
----------
174,580
----------
ENERGY
1,600 Repsol SA ............................................. 52,228
----------
FINANCE
3,340 Argentaria SA ......................................... 130,883
----------
MULTI-INDUSTRY
1,750 Corp Fin Alba ......................................... 148,125
----------
SERVICES
10,970 Autopistas Cesa SA (Acesa) ............................ 125,954
----------
UTILITIES
7,730 Telefonica de Espana .................................. 155,091
----------
TOTAL SPAIN ........................................... 786,861
----------
SWEDEN (2.6%)
CAPITAL EQUIPMENT
1,485 ASEA AB (B free) ...................................... 165,534
7,540 Atlas Copco AB (A free) ............................... 155,944
7,200 Ericsson (LM)
Telephone Co., ADR ................................. 194,899
----------
516,377
----------
CONSUMER DURABLES
2,770 Electrolux AB (B free) ................................ 154,177
5,470 Swedish Match AB* ..................................... 16,304
6,140 Volvo AB (B free) ..................................... 127,456
----------
297,937
----------
MATERIALS
1,920 Mo och Domsjo AB (B free) ............................. 52,849
4,600 Munksjo AB ............................................ 45,470
----------
98,319
----------
MULTI-INDUSTRY
3,090 Investor AB (B free) .................................. 124,527
3,090 Scania AB (Warrants)* ................................. 2,913
----------
127,440
----------
TOTAL SWEDEN .......................................... 1,040,073
----------
SWITZERLAND (5.2%)
BANKING
3,900 CS Holding AG (Bearer)* ............................... 389,537
----------
CONSUMER DURABLES
660 SMH AG (Bearer) ....................................... 404,668
----------
CONSUMER NON-DURABLES
455 Nestle AG (Registered)* ............................... 494,237
----------
INSURANCE
570 Winterthur Insurance .................................. 339,565
----------
MATERIALS
185 Ciba-Geigy AG ......................................... 226,859
----------
PHARMACEUTICALS
180 Sandoz AG (Registered) ................................ 208,481
----------
TOTAL SWITZERLAND ..................................... 2,063,347
----------
UNITED KINGDOM (18.7%)
BANKING
137,300 Bank of Scotland ...................................... 630,186
----------
CONSUMER NON-DURABLES
43,500 Reckitt & Colman, Plc ................................. 504,102
----------
ENERGY
56,975 PowerGen, Plc ......................................... 472,937
----------
MATERIALS
65,200 Redland, Plc .......................................... 445,703
26,600 RTZ Corp., Plc ........................................ 425,583
----------
871,286
----------
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1996 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
UNITED KINGDOM (continued)
MULTI-INDUSTRY
94,944 BTR, Plc .......................................... $ 397,918
61,500 Grand Metropolitan, Plc ........................... 463,953
92,900 Inchcape, Plc ..................................... 433,957
----------
1,295,828
----------
PHARMACEUTICALS
41,200 Glaxo Wellcome, Plc ............................... 647,103
----------
RETAIL
22,600 Marks & Spencer, Plc .............................. 189,805
79,900 Safeway, Plc ...................................... 474,016
94,100 Tesco, Plc ........................................ 510,015
----------
1,173,836
----------
SERVICES
59,200 Ladbroke Group, Plc ............................... $ 192,227
210,354 TC Group, Plc ..................................... 489,593
----------
681,820
----------
TELECOMMUNICATIONS
58,600 Carlton Communications, Plc ....................... 469,735
165,100 Vodafone Group, Plc ............................... 638,204
----------
1,107,939
----------
TOTAL UNITED KINGDOM .............................. 7,385,037
----------
TOTAL INVESTMENTS (identified cost
$38,373,698) (a) ............................... 98.9% $39,057,824
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ................................. 1.1 426,624
----- -----------
NET ASSETS .......................................... 100.0% $39,484,448
===== ===========
- --------------
* non-income producing security
(a) The aggregate cost for federal income tax purposes is $38,373,698, the
aggregate gross unrealized appreciation is $3,442,437 and the aggregate
gross unrealized depreciation is $2,758,311 resulting in net unrealized
appreciation of $684,126.
See Notes to Financial Statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
(expresses in U.S. dollars)
ASSETS:
Investments in securities, at value
(identified cost $38,373,698) (Note 1) .................. $39,057,824
Cash (including $71,785 in foreign currency)............... 566,767
Receivables for:
Forward foreign currency exchange contracts
sold - (Notes 1 and 4) ............................... 342,501
Dividends .............................................. 98,092
Investments sold ....................................... 62,607
Foreign tax reclaim..................................... 8,532
Deferred organization expenses (Note 1).................... 3,036
-----------
Total Assets ....................................... 40,139,359
-----------
LIABILITIES:
Payables for:
Investments purchased................................... 612,774
Investment advisory fee (Note 2) ....................... 20,650
Foreign withholding taxes............................... 15,163
Expense reimbursement fee (Note 2) ..................... 5,212
Administrative fee (Note 2)............................. 1,112
-----------
Total Liabilities .................................. 654,911
-----------
NET ASSETS .................................................... $39,484,448
===========
Net Assets Consist of:
Paid-in capital............................................ $38,456,422
Net unrealized appreciation................................ 1,028,026
-----------
Net Assets ...................................................... $39,484,448
===========
See notes to financial statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
(expressed in U.S. dollars)
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding tax of $128,329) $ 521,060
Interest ............................................. 29,723
----------
Total Income ................................. 550,783
----------
Expenses:
Investment advisory fee (Note 2) ..................... 226,127
Expense reimbursement fee (Note 2) ................... 73,964
Administrative fee (Note 2) .......................... 12,176
Amortization of organization expenses (Note 1) ....... 889
----------
Total Expenses ............................... 313,156
----------
Net Investment Income ........................ 237,627
----------
NET REALIZED AND UNREALIZED GAIN (Notes 1 and 3)
Net realized gain on:
Investments .......................................... 1,725,975
Foreign exchange transactions ........................ 181,191
----------
1,907,166
----------
Net change in unrealized appreciation/depreciation on:
Investments .......................................... 278,797
Foreign currency translations ........................ 855,764
----------
1,134,561
----------
Net Realized and Unrealized Gain ..................... 3,041,727
----------
Net Increase in Net Assets Resulting from Operations ... $3,279,354
==========
See notes to financial statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the period
April 1, 1995
For the year (commencement of
ended operations) to
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income .......................................... $ 237,627 $ 183,401
Net realized gain on investments and foreign
exchange transactions ........................................ 1,907,166 513,894
Net change in unrealized appreciation(depreciation) on
investments and foreign currency translations ................ 1,134,561 (106,535)
------------ ------------
Net increase in net assets resulting from operations ......... 3,279,354 590,760
------------ ------------
Capital Transactions:
Proceeds from contributions .................................... 9,914,234 27,500,000
Value of withdrawals ........................................... (1,900,000) --
------------ ------------
Net increase in net assets resulting from
capital transactions ....................................... 8,014,234 27,500,000
------------ ------------
Total increase in net assets ............................... 11,293,588 28,090,760
NET ASSETS:
Beginning of period ............................................ 28,190,860 100,100
------------ ------------
End of period .................................................. $ 39,484,448 $ 28,190,860
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(expressed in U.S. dollars)
For the period
April 1, 1995
For the year (commencement of
ended operations) to
October 31, 1996 October 31, 1995
---------------- ----------------
Supplemental Data:
Portfolio turnover rate .................. 56% 23%
Average commission rate paid per share* .. $0.0191 $0.0152
* Most foreign securities markets do not charge commissions based on a rate
per share but as a percentage of the principal value of the transaction. As
a result, the above rate is not indicative of the commission arrangements
currently in effect.
See notes to financial statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(expressed in U.S. dollars)
1. Organization and Significant Accounting Policies. International Equity
Portfolio (the Portfolio) is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company which was
organized as a trust under the laws of the State of New York on August 15, 1994.
The Portfolio commenced operations on April 1, 1995. The Declaration of Trust
permits the Trustees to create an unlimited number of beneficial interests in
the Portfolio.
The Portfolio's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date of the
financial statements and are based, in part, on the following accounting
policies. Actual results could differ from those estimates.
A. Valuation of Investments. (1) The value of investments listed on
either a domestic or foreign securities exchange is based on the last sale
price on that exchange prior to the time when assets are valued, or in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchange; (2) unlisted securities are valued at
the average of the quoted bid and asked prices in the over-the-counter
market; (3) securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by and under the general supervision and responsibility of the
Portfolio's Trustees. Such procedures include the use of independent
pricing services, which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as
to the value from dealers; and general market conditions; (4) all assets
and liabilities initially expressed in foreign currencies will be converted
into U.S. dollars at the prevailing rates of exchange available at the time
of valuation; and (5) trading in securities on most foreign exchanges and
over-the-counter markets is normally completed before the close of the New
York Stock Exchange and may also take place on days on which the New York
Stock Exchange is closed. If events materially affecting the value of
foreign securities occur between the time when the exchange on which they
are traded closes and the time when the Portfolio's net assets are
calculated, such securities will be valued at fair value in accordance with
procedures established by and under the general supervision of the
Portfolio's Trustees.
B. Foreign Currency Translations. The accounting records of the
Portfolio are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the current rate of exchange of such
currency against the U.S. dollar to determine the value of investments,
assets and liabilities. Purchases and sales of securities, and income and
expenses are translated at the prevailing rate of exchange on the
respective dates of such transactions. Upon the purchase or sale of a
security denominated in foreign currency, the Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale, for a
fixed amount of U.S. dollars of the amount of foreign currency involved in
the underlying security transaction. The Portfolio isolates that portion of
realized gain or loss on investments resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of such investments. Reported net realized and unrealized
gains and losses arise from the sales of portfolio securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on
the Portfolio's books and the U.S. dollar equivalent of the amounts
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)
(expressed in U.S. dollars)
actually received or paid. Net unrealized appreciation or depreciation on
foreign currency translations arise from changes in the value of the assets
and liabilities, excluding investments in securities, at fiscal year end,
arising from changes in the exchange rate.
C. Forward Foreign Currency Exchange Contracts. The Portfolio may
enter into forward foreign currency exchange contracts (contracts) in
connection with planned purchases or sales of securities, to hedge the U.S.
dollar value of portfolio securities denominated in a particular currency,
or to increase or shift its exposure to a currency other than U.S. dollars.
The Portfolio has no specific limitation on the percentage of assets which
may be committed to these types of contracts. The Portfolio could be
exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts or if the value of the foreign currency
changes unfavorably. The U.S. dollar values of foreign currency underlying
all contractual commitments held by the Portfolio are determined using
forward currency exchange rates supplied by a quotation service.
D. Accounting for Investments. Security transactions are accounted for
on the trade date. Realized gains and losses on security transactions are
determined on the identified cost method. Dividend income and other
distributions from portfolio securities are recorded on the ex-dividend
date. Dividend income is recorded net of foreign taxes withheld where
recovery of such taxes is not assured. Interest income is accrued daily.
E. Federal Income Taxes. The Portfolio will be treated as a
partnership for federal income tax purposes. As such, each investor in the
Portfolio will be subject to taxation on its share of the Portfolio's
ordinary income and capital gains.
F. Deferred Organization Expenses. Expenses incurred by the Portfolio
in connection with its organization are being amortized on a straight-line
basis over a five-year period.
2. Transactions with Affiliates.
Investment Advisory Fee. The Portfolio has an investment advisory agreement
with Brown Brothers Harriman & Co. (the Adviser) for which it pays the Adviser a
fee calculated daily and paid monthly at an annual rate equivalent to 0.65% of
the Portfolio's average daily net assets. For the year ended October 31, 1996,
the Portfolio incurred $226,127 for advisory services.
Administrative Fee. The Portfolio has an administrative agreement with
Brown Brothers Harriman Trust Company (Cayman) Limited (the Administrator) for
which it pays the Administrator a fee calculated daily and paid monthly at an
annual rate equivalent to 0.035% of the Portfolio's average daily net assets.
The Administrator has a subadministration agreement with Signature Financial
Group (Cayman) Ltd. for which Signature Financial Group (Cayman) Ltd. receives
such compensation as is from time to time agreed upon. For the year ended
October 31, 1996, the Portfolio incurred $12,176 for administrative services.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENT (continued)
(expressed in U.S. dollars)
Expense Reimbursement Fee. Brown Brothers Harriman Trust Company (Cayman)
Limited pays certain expenses of the Portfolio and receives a fee from the
Portfolio, computed and paid monthly, such that after such fee the aggregate
expenses will not exceed 0.90% of the Portfolio's average daily net assets. For
the year ended October 31, 1996, Brown Brothers Harriman Trust Company (Cayman)
Limited incurred $100,217 in expenses on behalf of the Portfolio. The expense
reimbursement agreement will terminate when the aggregate amount of fees
received by Brown Brothers Harriman Trust Co. (Cayman) Limited thereunder equals
the aggregate amount of expenses paid by Brown Brother Harriman Trust Company
(Cayman) Limited thereunder.
3. Investment Transactions. For the year ended October 31, 1996, the cost
of purchases and the proceeds of sales of investment securities other than
short-term investments were $29,806,044 and $19,283,007, respectively. There
were no purchases or sales of U.S. government obligations during the period.
Custody fees for the Portfolio were reduced by $4,000 as a result of the
Portfolio directing a portion of its portfolio transactions to certain
unaffiliated brokers. Additionally custody fees for the Portfolio paid pursuant
to the expense reimbursement agreement were reduced by approximately $115,977 as
a result of an expense offset arrangement with the Portfolio's custodian.
4. Financial Instruments with Off-Balance Sheet Risk. At October 31, 1996,
the Portfolio had outstanding forward foreign currency exchange contracts as a
hedge to protect against possible changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Portfolio bears
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contracts.
Forward foreign currency exchange contracts open at October 31, 1996:
Contracts In Exchange Deliver Unrealized
to Deliver For Date Appreciation
---------- --- ---- ------------
JPY 1,500,000,000 $13,574,661 12/2/96 $ 342,501
=========== ==========
<PAGE>
INDEPENDENT AUDITORS' REPORT
Trustees and Investors
International Equity Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of International Equity Portfolio as of
October 31, 1996, the related statement of operations for the year then ended
and the statement of changes in net assets and the financial highlights for the
year ended October 31, 1996 and for the period April 1, 1995 (commencement of
operations) to October 31, 1995 (all expressed in U.S. dollars). These financial
statements and financial highlights are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of International Equity
Portfolio at October 31, 1996, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche
Grand Cayman, Cayman Islands
December 17, 1996
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The following investment management strategies and techniques have
materially affected the Portfolio's performance for the fiscal year ended
October 31, 1996.
INTERNATIONAL EQUITY PORTFOLIO
International equity markets, as measured by the MSCI-EAFE Index, have
risen a dollar adjusted 10.5% over the twelve month period ending October 31,
1996. A stable interest rate environment in Japan, coupled with declining
interest rates in Europe during the early part of this year, provided support
for equity markets worldwide. The continued depreciation of the Yen versus the
US dollar during this period, however, dampened the overall returns. The
Japanese market, the largest market outside the US, rose 10.3% in local currency
terms, but translated to a decline of .8% as a result of currency depreciation.
The Portfolio's employment of a defensive currency hedging policy to protect the
Japanese assets against Yen depreciation contributed to the Portfolio's
out-performance relative to its benchmark over the period. The Portfolio
achieved a return of 10.8% for its investors this year.
The Portfolio's strategy this year was to underweight exposure to
Europe, primarily through an underweighted position in the German market. A
combination of a poor economic environment projected for 1996, and an
overvaluation of equity prices based on forecasted earnings prompted this
strategy. The Portfolio continued its strategy of focusing on the growth
prospects within Southeast Asia, but at a level lower than the previous year.
The Japanese exposure within the Portfolio was brought up to a full weight by
early this year, funded by the reductions in both Europe and Southeast Asia.
[The following information was depicted as a line graph in the printed material]
International Equity Portfolio
Growth of $10,000
Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots two lines: the first line represents
the growth of a ten thousand dollar investment in the Fund from July 23, 1992 to
October 31, 1996; the second line represents the growth of a ten thousand dollar
investment in a portfolio of securities reflecting the composition of the
MSCI-EAFE for the same time period. The graph points are as follows:
[GRAPH PLOT POINTS TO COME]
* net of fees and expenses
Past performance is not predictive of future performance.
