HANSBERGER INSTITUTIONAL SERIES, N-30D, 1999-03-01

HANSBERGER INSTITUTIONAL SERIES
N-30D, 1999-03-01

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<PAGE>

------------------

Hansberger
------------------
Institutional
Series
------------------

ANNUAL REPORT
December 31, 1998
International Fund
Emerging Markets Fund
<PAGE>

Hansberger Institutional Series
International Fund
Emerging Markets Fund

February 5, 1999

Dear Fellow Shareholder:

Overall the past year has been difficult for global value investors and
favorable for growth and momentum investors. As you know, we are of the deep
"value" camp and as a result our performance last year was disappointing. 1998
was a year of extremes as strong liquidity overshadowed underlying fundamental
stock valuations resulting in large-cap growth stocks in the U.S. and Europe
continuing their strong relative outperformance. We did not participate in
this late stage rally in growth stocks as our value discipline steered us
toward more attractively valued mid-cap stocks, commodity sensitive
securities, stocks of companies in emerging markets, and other out of favor
stocks which dramatically underperformed the popular indices.

To illustrate this performance and valuation dichotomy, a recent Goldman,
Sachs & Co. study of global equity performance for 1998 found that based upon
valuation (P/E ratios), the first quintile (or highest P/E) stocks gained
36.6% while the fifth quintile (or lowest P/E) stocks gained only 4.7%.
Likewise, the top quintile stocks in terms of market capitalization gained 32%
while the smallest (fifth quintile) stocks gained only 7.7%. Meanwhile, stocks
in commodity sensitive industries were down between 8% and 18% with energy
service stocks falling 47% on average during the year and stocks in emerging
markets were down over 25% on average. Additionally, the returns achieved in
many individual markets were based on a narrow subset of stocks. For example,
according to a recent Morgan Stanley study, half of the return of the S&P 500
last year came from 15 stocks led by Microsoft. And in Finland without the
224% rise in Nokia, which accounts for 60% of the local index, the market's
1998 return would have been 0%, rather than 72%. The small cap Russell 2000
benchmark was down 2.5% for the year and international small cap returns were
not much better.

We have been, and continue to be, surprised by the continued strength of
large-cap growth stocks, particularly in light of mounting global deflationary
trends that are leading to volume and margin pressure in many industries.
Highlighting this action has been the performance of many technology and
internet stocks that have climbed to become among the largest market
capitalization stocks in the United States, despite the lack of proven
operating histories and an absence of profits in many cases. While this trend
has persisted during recent years, we believe that it is unsustainable looking
forward.

Many of the professionals in our organization have experienced difficult
periods like 1998 in the past and these periods have usually been followed by
periods of substantial outperformance. For example, the value style resulted
in an extreme overweight position in Japan in the 1970's and early 1980's to
an extreme underweight position in the late 1980's. As investors continued to
flood into Japan, we had exited, resulting in relative underperformance as the
Nikkei approached 40,000. With the ensuing crash in Japan, this strategy
proved correct, albeit early. During 1991-1992, this same value discipline led
us to invest in Anglo Saxon (U.S., U.K., and Australian) banking stocks as the
savings and loan crisis in the U.S. and real estate lending in other markets
caused a severe correction in this sector. After purchase, many of these stock
prices continued to move downward as picking the bottom is often difficult to
do as a value investor. As conditions improved however, many of these stocks
saw price increases of between ten and twenty times our original purchase
price over the next five years.

Based on current global valuation differentials, we believe many stocks in
the portfolio are positioned for a rebound similar to what we have experienced
in the past. It is difficult to pinpoint the timing of when valuations will
re-emerge as determinants of stock price performance, but we believe that the
disparity in valuations and investment opportunities that exists in the market
place today are possibly the greatest that we have seen in 35 years. There
have been several occasions throughout history when conventional wisdom has
led to pricing anomalies and asset bubbles (from Dutch tulips in the
seventeenth century to Japanese real estate in the 1980s to many internet
stocks today), but fundamentals have eventually returned as the long-term
determinant of stock prices and performance.

During 1998, we have continued to manage your portfolio under our strict
value discipline, which based upon our experience has proven successful over
the past four decades. We will not deviate from our process of investing
<PAGE>

in what we see as the most undervalued companies throughout the world.
Geographic and industry weightings continue to be a residual of our
fundamental investment process and we remain fully invested in our portfolios.

Despite the preponderance of high valuations in many stocks, our long-term
bottom-up investment process has uncovered many opportunities that we feel
offer considerable appreciation potential. As mentioned earlier, our exposure
to many of these stocks has temporarily hindered our performance during the
"extreme" conditions of 1998, but we believe these stocks with overly
depressed valuations are well positioned for a period of outperformance. Many
opportunities have emerged among commodity-sensitive stocks as the Commodity
Research Bureau's (CRB) index recently fell to its lowest level in 21 years.
This weakness has contributed to the difficult economic conditions that exist
in many commodity export-dependent markets, such as Latin America, Canada,
Australia, New Zealand, and Russia. We view the current levels of many
commodity prices as being significantly below fair value, and we have been
building meaningful positions in undervalued and/or low cost producers in oil,
steel, paper, forest products, agriculture, and other non-ferrous metals
stocks. Although a significant rebound in demand for many commodities might
not re-emerge in the near-term, overly depressed price levels are leading to
the reduction in capacity in many areas while the pace of industry
consolidation is accelerating. For example, planned capital expenditures in
the forest products sector are at a 40-year low and capacity is being
permanently shuttered. Other industries with strong portfolio representation
include telecommunication stocks, utilities, banks outside of the U.S. and
Southern Europe, and building materials companies. We view these stocks as
having potential for positive earnings revisions as well as favorable absolute
and relative performance potential.

Compared with our peer group, the significant differences in geographic
allocation involves our relative underweight exposure to the U.S. (in our
global portfolios), our modest exposure in Japan, and our higher relative
exposure in emerging markets, especially Asian emerging markets, which are not
even represented in the World or EAFE indices. While our exposure to Europe is
near the benchmark's average level, our focus has gradually shifted in favor
of more attractively valued stocks in Northern Europe whereas momentum
investors have continued to fuel Southern European stock markets. In short, we
believe that decelerating earnings prospects among many large-cap U.S. and
continental European companies do not justify the near all-time high
valuations. We are skeptical of "europhoria" and await the first divergences
between national fiscal policies and "euroland" central bank monetary policies
given the recent political moves to the left of several member countries.

Opportunities in Japan are becoming increasingly abundant following several
years of depressed economic conditions and lagging stock prices. We are
focusing on domestically oriented Japanese companies with inefficient balance
sheets and with a management attitude toward increasing shareholder value.
Exposure to stocks in Australia and New Zealand has increased as depressed
commodity prices and weaker Asian demand has weighed heavily against both
stocks and currencies in these countries. The Fund's significant exposure to
developing markets is a function of the extremely depressed valuations that
have emerged and the potential for more meaningful strength in corporate
earnings. Although full-fledged economic recoveries are still several months
away in many of these countries, stock market performance typically leads the
recovery of real economies by 12-18 months as we are currently witnessing in
several Pacific Rim countries. Despite making strong gains in recent months,
the MSCI Emerging market index was down 25% on the year and valuations remain
deeply depressed relative to long-term earnings growth prospects.

We have remained relatively underweight in Latin American markets given our
concern about Brazil and the possible effects of a devaluation of the Real.
Our investments have primarily been focused on telecommunication companies and
resource based companies with U.S. dollar revenues. As we write this letter,
Brazil has effectively devalued and global markets are feeling the effects.
With economic growth stymied by higher interest rates, the devaluation was
necessary to stimulate the economy. Adjustments to fiscal policy also need to
be implemented to build a more stable base for future growth.

Lastly, we remain skeptical of the continued upward march of U.S. stock
markets, especially by the largest and most popular stocks. The U.S. consumer,
who accounts for two-thirds of U.S. GDP, is driving the economy by spending in
excess of their income, thus dipping into savings. This situation which we
believe is being fueled by wealth effects from stock market gains can not
continue forever. Our hope is that the process adjusts itself gradually and
does not unravel with a falling stock market lowering consumer confidence and
then halting consumer spending. This process could have serious global
ramifications given that much of the rest of the World is feeding off U.S.
economic strength until they get their own countries back on track. We are
already seeing the effects of cheaper foreign imports on U.S. based companies;
capacity utilization is falling, investment spending is falling and profit
<PAGE>

margins are falling. We do not believe protectionism and Smoot Hawley rhetoric
are the answers if the global economy, two-thirds of which is in recession, is
to get back on its feet.

It is our experience that extreme conditions lead to opportunities for the
patient and disciplined investor. Although the opportunities that have arisen
during the extreme environment of 1998 have not been rewarding to our clients
during this last year, our investments on your behalf were made with a multi-
year investment horizon and we are steadfastly confident that your portfolio
will reap the rewards of these investments during the coming years. We
appreciate the confidence you have placed in our firm. Please call us should
you have any questions or comments.

For Hansberger Institutional Series
James E. Chaney
Chief Investment Officer
Hansberger Global Investors, Inc.
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

INTERNATIONAL FUND

Markets

During 1998, the performance disparity between developed markets and
developing markets widened. Most developed European markets posted double-
digit gains for the year. In local terms, the Finland Index led the charge
with a 119.1% gain followed by Belgium (64.8%), Spain (47.9%) and France
(40.0%). The monetary unification of Europe and strong earnings growth over
the past several years continued to drive stock prices higher in the region.

Performance of international markets outside of developed Europe remained
lackluster. The on-going currency and trade crisis in Russia adversely
affected that country's market as well as the markets of its Eastern European
neighbors. Stock performance in Latin America reflected the sluggishness
brought about by the Asian crisis and the weakness in commodity prices. Asia
also continued to suffer until the fourth quarter, as investors' forecasts for
the timing of a regional economic turnaround remained uncertain and relied
greatly on the prospects for economic reform in Japan. Local index returns for
markets in the Far East were negative for 1998, with the exception of Korea
(137.5%), the Philippines (14.9%) and Thailand (18.7%).

Fund Performance

The Fund's total return for the 1998, was -7.0% versus the MSCI EAFE Index
return of 20.3% for the same period. The primary factor affecting performance
was the Fund's relative exposure to developing markets, Asia, medium and small
capitalization issues and commodity stocks. Although the Fund's emerging
market exposure typically remains under 25%, this segment of your Fund offset
the gains that the developed markets generated.

The double-digit performance in both the first and fourth quarters was
overshadowed by the factors mentioned above. During the fourth quarter alone
the Fund returned 14.6% (versus the MSCI EAFE Index return of 20.8% for the
quarter). This positive move during the fourth quarter reaffirmed our
confidence in the markets where we remained invested. In particular, the
liquidity that pushed most Asian markets forward in the fourth quarter is a
sign that overall investor confidence in the region is building.

Investment Outlook

Although the Fund's relative performance for the year remained under
pressure, we continue to believe that the factors adversely affecting its
results over the short-term, are the same factors that will add value over
time. We remain, for example, committed to the developing regions that offer
the greatest long-term prospects. Our analysis shows that several emerging
markets appear undervalued on a risk-adjusted basis. Opportunities should
continue to emerge in Asia as we begin to see signs that a recovery is
underway. The progress that we have witnessed in South Korea is evidence of
life in these markets. Another area of investment interest is in commodity
oriented stocks where valuations are at a historical low. We will also
continue to take advantage of the attractive valuation disparity between small
and medium capitalization companies versus their larger cap counterparts.

For the International Fund Team
James E. Chaney
Chief Investment Officer
Hansberger Global Investors, Inc.

1
<PAGE>

This graph compares the Fund's performance with the MSCI Europe Australia Far
East ("EAFE") Index, a broad-based unmanaged index that represents the general
performance of international equity markets. Total returns for the Fund and
the index include reinvestment of all dividends and capital gains. The index
does not include commissions or fees that an investor purchasing the
securities in the index would pay. Past performance is no guarantee of future
results, and the investment return and principal value of an investment in the
Fund will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Although the investment characteristics
of the index are similar to those of the Fund, the securities owned by the
Fund and those composing the index are likely to be different, and any
securities that the Fund and the index have in common are likely to have
different weightings in the respective portfolios. Investors cannot invest
directly in the index.

2
<PAGE>

PORTFOLIO MANAGEMENT REVIEW

EMERGING MARKETS FUND

Markets

The year began with optimism as Asian currencies, battered at the end of
1997, began to recover. Talks of an early recovery in most Asian economies
resulted in the MSCI Emerging Markets Free Index matching the performance of
the MSCI All Country World Index right through April 1998. But things began to
turn for the worse as it became apparent that most of the Asian economies were
still showing declining or negative growth rates for GDP. The Asian currencies
came under a cloud again and prices of many global commodities hit 10-year
lows.

The effective devaluation of the Russian Ruble in July did not help matters
and, in fact, the focus of investors turned to Latin America in anticipation
of the next shock. Investors, demanding more compensation for their risk,
withheld capital to emerging markets and sent interest rates on sovereign
bonds on divergent trends. Interest rates in the developed markets declined,
while those in the emerging markets spiked upwards as investors fled for
safety. This divergence threatened the solvency of many financial institutions
in the developed world encouraging the Federal Reserve of the United States to
cut interest rates and pump liquidity back into the global financial system.

This helped money flow back into some Asian economies, namely South Korea
and Thailand, and eased the pressure on the financial systems in Hong Kong and
Singapore. The benefits of lower interest rates and stable currencies saw a
dramatic turnaround in most of the Asian stock markets towards the end of
1998.

As in 1997, we visited many of our companies and re-evaluated their
strengths and weaknesses in the new business environment. The sharp fall in
stock prices of the larger companies allowed us to acquire these names at what
we believe to be good value. The ability to buy these big names which do not
suffer from liquidity even in abnormal times, saw a reduction of companies in
our portfolio from 160 names to 100 names. As such, the increase in
concentration in our portfolio saw the average exposure to any one company
increase from 0.6% to 1.0%.

Fund Performance

The Fund's total return was -30.2% for the 12-months ended December 31, 1998
versus a decline of -25.3% for the MSCI Emerging Markets Free ("MSCI EMF")
Index. Within the emerging market asset class, Russia/Eastern Europe (-57.1%)
and Latin America (-35.1%) lagged the performance of Asia (-11.0%). The Fund's
overweight position in Asia, relative to the Indices, helped relative
performance, as did the Fund's underweight stance in Latin America. An
overweight position in Russia/Eastern Europe hurt the relative performance of
the Fund.

While the performance of the Latin American and Eastern European markets was
consistently poor throughout the year, the performance of the Asian markets
was clearly superior in the second half when it posted positive numbers. This
strong regional performance helped the fund recover 20.1% of its value in the
last quarter alone, outpacing the MSCI EMF Index's 18.0% gain. This positive
move reaffirmed our confidence in the markets where we remain invested and we
see the increasing liquidity that is moving into this region as a positive
sign that investors are more aware of its relative value and that overall
confidence could be coming back.

Investment Outlook

The recent devaluation by Brazil certainly flattened the growing confidence
in this asset class, but it vindicated our stand of being underweight in Latin
America. Fears of China following suit with their own devaluation have arisen
again, and we believe such an event may occur if the Japanese Yen and Korean
Won begin to weaken again. Eastern Europe, guilty by association with Russia,
may see itself emerge from that negative fallout. Greece, soon to join the
Euro-zone economies, will act as an example to other Eastern European nations
willing to administer fiscal and monetary discipline to get their economies in
order. By the end of 1999, we expect much of the emerging market asset class
to show signs of economic revival while slower growth envelopes North America
and Europe.

For the Emerging Markets Fund Team
Thomas L. Hansberger, CFA
Chairman
Hansberger Global Investors, Inc.

3
<PAGE>

This graph compares the Fund's performance with the MSCI Emerging Markets Free
Index, a broad-based unmanaged index that represents the general performance
of equity markets in developing markets. Total returns for the Fund and the
index include reinvestment of all dividends and capitalizations. The index
does not include commissions or fees that an investor purchasing the
securities in the index would pay. Past performance is no guarantee of future
results, and the investment return and principal value of an investment in the
Fund will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Although the investment characteristics
of the index are similar to those of the Fund, the securities owned by the
Fund and those composing the index are likely to be different, and any
securities that the Fund and the index have in common are likely to have
different weightings in the respective portfolios. Investors cannot invest
directly in the index.

4
<PAGE>

International Fund

Portfolio of Investments
December 31, 1998

Colombia - 0.3%
85,000 Banco Ganadero, S.A. Preferred ADR.................. $ 770,312
------------
Croatia - 0.9%
154,000 Pliva d.d. GDR(c)................................... 2,541,862
------------
Czech Republic - 2.0%
66,500 The Czech Power Company (Ceske Energeticke
Zavody)(a)......................................... 1,495,350
502,100 Komercni Banka A.S., GDR(a)......................... 2,083,715
77,000 Skoda Plzen A.S.(a)................................. 448,830
116,135 Zivnobanka-Investicni Fond.......................... 1,572,450
------------
5,600,345
------------
Denmark - 1.3%
40,500 Unidanmark A/S,
Class A -Registered................................ 3,658,968
------------
Finland - 1.7%
86,000 Fortum Oyj(a)....................................... 522,853
199,800 Kemira Oyj.......................................... 1,430,236
270,000 Merita plc, Class A................................. 1,705,057
145,000 Metsa-Serla Oyj, Class B............................ 1,180,145
------------
4,838,291
------------
France - 5.8%
18,002 Bail Investissement................................. 2,621,635
43,709 Banque Nationale de Paris........................... 3,598,691
25,000 Elf Aquitaine S.A. ................................. 2,889,346
80,000 Rhone-Poulenc S.A., Class A......................... 4,116,289
48,000 Scor................................................ 3,173,092
------------
16,399,053
------------
Germany - 3.8%
57,000 BASF AG............................................. 2,173,627
100,500 Bilfinger & Berger Bau AG........................... 2,231,323
71,000 Tarkett-Sommer AG................................... 881,908
45,000 VEBA AG............................................. 2,665,167
4,525 Viag AG............................................. 2,674,542
------------
10,626,567
------------
Hong Kong - 6.7%
6,298,000 Cafe De Coral Holdings Ltd. ........................ 1,971,364
410,000 Dao Heng Bank Group Ltd. ........................... 1,267,482
</TABLE>

5
<PAGE>

International Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common and
Preferred Stocks (continued)
Hong Kong (continued)
12,002,000 Giordano Holdings Ltd. .............................. $ 2,246,333
84,800 HSBC Holdings plc.................................... 2,112,543
580,000 Hutchison Whampoa Ltd. .............................. 4,098,874
1,112,248 Jardine Matheson Holdings Ltd. ...................... 2,869,600
14,540,000 Pacific Ports Co., Ltd. ............................. 1,426,364
4,345,000 Swire Pacific Ltd., Class B.......................... 2,888,347
------------
18,880,907
------------
India - 0.5%
286,100 Jardine Fleming India Fund(a)........................ 1,466,262
------------
Indonesia - 0.6%
1,234,000 PT Indostat.......................................... 1,608,056
------------
Israel - 0.7%
107,500 Koor Industries Ltd. ADR............................. 1,874,531
------------
Italy - 2.3%
331,000 Banca Commerciale Italiana........................... 2,282,068
247,400 Societa Assicuratrice Industriale - SAI S.p.A. RNC... 1,645,842
378,625 Telecom Italia S.p.A RNC............................. 2,381,433
------------
6,309,343
------------
Japan - 8.7%
105,000 Aoyama Trading Co., Ltd. ............................ 2,940,186
388,000 Ataka Construction & Engineering..................... 1,650,332
63,000 Chudenko Corp. ...................................... 1,345,414
371,000 Daito Trust Construction Co. ........................ 3,218,511
445,000 Daiwa Securities Co., Ltd. .......................... 1,522,109
620,000 Dowa Fire & Marine Insurance Co. .................... 2,307,488
370,000 Kyudenko Corp. ...................................... 2,504,918
1,512,000 Marubeni Corp. ...................................... 2,599,273
870,000 Nippon Fire & Marine Insurance Co. .................. 3,207,089
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan (continued)
100,000 Yamanouchi Pharmaceutical Co., Ltd. .................. $ 3,225,521
------------
24,520,841
------------
Korea - 3.5%
390,000 Korea Fund, Inc.(a)................................... 3,607,500
45,000 Pohang Iron & Steel Co., Ltd.......................... 2,898,965
43,000 Sindo Ricoh, Ltd. .................................... 1,540,565
2,500 SK Telecom Co., Ltd................................... 1,817,332
------------
9,864,362
------------
Malaysia - 1.3%
1,470,000 Malakoff Bhd.(d)...................................... 2,926,518
331,000 O.Y.L. Industries Bhd.(d)............................. 703,389
------------
3,629,907
------------
Mexico - 1.5%
65,000 Panamerica Beverages, Inc., Class A(a)................ 1,417,813
60,000 Telefonos de Mexico S.A., Class L, ADR................ 2,921,250
------------
4,339,063
------------
Netherlands - 5.0%
70,853 Ahrend N.V. .......................................... 1,618,613
51,800 Ballast Nedam N.V. Preferred.......................... 1,682,624
36,000 Eriks Holdings N.V. .................................. 2,300,442
276,000 European Vinyl Corp. International N.V. .............. 2,189,893
90,000 KPN N.V. ............................................. 4,505,032
71,475 Koninklijke Pakhoed N.V. ............................. 1,804,098
------------
14,100,702
------------
New Zealand - 4.1%
1,880,000 Air New Zealand Ltd., Class B......................... 2,949,936
3,225,000 Carter Holt Harvey Ltd. .............................. 2,886,803
768,100 Fisher & Paykel Industries Ltd. ...................... 2,770,427
1,484,900 Fletcher Challenge Energy............................. 2,814,739
------------
11,421,905
------------
</TABLE>

6
<PAGE>

International Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common and
Preferred Stocks (continued)
Norway - 2.8%
127,200 Bergesen d.y. ASA, Class B............................ $ 1,472,706
172,100 Odfjell ASA........................................... 1,313,274
310,000 Saga Petroleum ASA, Class A........................... 2,834,607
110,000 Sparebanken NOR....................................... 2,141,908
------------
7,762,495
------------
Pakistan - 0.2%
5,700 Pakistan Telecom Ltd. Reg. S, GDR..................... 196,650
12,200 Pakistan Telecom Ltd. GDR(c).......................... 420,900
------------
617,550
------------
Peru - 0.6%
317,000 Banco Wiese ADR....................................... 594,375
125,000 Southern Peru Copper Corp. ........................... 1,179,688
------------
1,774,063
------------
Philippines - 1.2%
80,000 Philippine Long Distance Telephone Company............ 2,056,555
808,000 Philippine National Bank(a)........................... 1,246,272
------------
3,302,827
------------
Poland - 1.0%
95,080 Bank Rozwoju Eksportu S.A. ........................... 2,194,154
140,000 Telekomunikacja Polska S.A. GDR(a)(c)................. 714,000
------------
2,908,154
------------
Portugal - 0.6%
40,500 Electricidade de Portugal, S.A. ADR................... 1,804,781
------------
Russia - 0.8%
60,000 Lukoil Oil Co. ADR.................................... 930,078
2,237,300 Novorossiysk Sea Shipping(b).......................... 111,865
19,000 Oskolcement(a,b)...................................... 5,700
285,500 Rostelecom ADR(a)..................................... 1,195,531
------------
2,243,174
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Singapore - 3.2%
244,000 Asia Pulp & Paper Company Ltd. ADR(a)................. $ 1,997,750
758,000 City Developments Ltd. ............................... 3,284,667
587,000 United Overseas Bank Ltd. ............................ 3,771,030
------------
9,053,447
------------
Slovakia - 0.7%
31,500 Nafta Gbely A.S. ..................................... 273,334
236,500 Slovakofarma A.S. GDR(c).............................. 798,188
202,010 Vychodoslovenske Zeleziarne VSZ A.S.(a)............... 980,525
------------
2,052,047
------------
Slovenia - 0.5%
195,000 SKB Banka GDR(c)...................................... 1,404,000
------------
South Africa - 0.9%
26,252 AngloGold Ltd. ....................................... 1,021,512
508,000 Standard Bank Investment Corp., Ltd. ................. 1,552,396
------------
2,573,908
------------
Spain - 5.5%
45,000 Banco Pastor S.A. .................................... 2,818,041
55,000 Catalina Occidente S.A. .............................. 1,431,889
235,000 Iberdrola S.A. ....................................... 4,390,128
68,500 Repsol S.A. .......................................... 3,648,642
70,909 Telefonica S.A. ...................................... 3,148,296
1,418 Telefonica S.A., Rights expiring 1/30/99(a)........... 1,257
------------
15,438,253
------------
Sweden - 3.5%
260,000 ABB AB, Class B....................................... 2,761,943
160,000 ASTRA AB, Class A..................................... 3,270,852
120,000 Assidoman AB.......................................... 1,897,292
120,000 Getinge Industrier AB, Class B........................ 1,808,356
------------
9,738,443
------------
Switzerland - 1.0%
6,200 Forbo Holdings AG -Registered......................... 2,712,359
------------
</TABLE>

7
<PAGE>

International Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common and
Preferred Stocks (continued)
Thailand - 2.3%
1,778,100 Bankok Bank Public Co. Ltd.(a)...................... $ 3,668,707
361 Thai International Fund GDR......................... 2,824,825
------------
6,493,532
------------
United Kingdom - 11.3%
1,790,860 BICC plc............................................ 2,085,791
778,250 BTR plc............................................. 1,605,654
193,835 British Telecommunications plc...................... 2,920,329
270,000 Cable & Wireless plc................................ 3,319,856
331,769 J Sainsbury plc..................................... 2,659,308
448,000 Nycomed Amersham plc................................ 3,085,954
168,825 National Westminster Bank plc....................... 3,255,602
197,000 Powergen plc(a)..................................... 2,589,431
804,559 Rolls-Royce plc..................................... 3,333,253
1,246,863 Storehouse plc...................................... 2,821,426
583,654 Terranova Foods plc(a).............................. 1,068,218
209,000 United Utilities plc................................ 2,896,692
------------
31,641,514
------------
Total -- Common and Preferred Stocks (Cost
$299,951,030)...................................... 276,110,157
------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value
(000) Maturity Discount Date Rate (Note A1)
- ------------------------------------------------------------------------------
U.S. Government Obligations - 5.4%
<S> <C> <C>
U.S. Treasury Bills - 1.5%
$ 170 01/07/99, 4.16%....................................... $ 169,954
268 01/14/99, 3.91%....................................... 267,744
1,298 01/28/99, 4.07%....................................... 1,294,392
247 02/04/99, 4.42%....................................... 246,088
1,150 02/11/99, 4.46%....................................... 1,144,793
571 02/25/99, 4.42%....................................... 567,478
104 03/04/99, 4.31%....................................... 103,260
187 03/11/99, 4.38%....................................... 185,526
206 03/18/99, 4.43%....................................... 204,196
------------
Total -- U.S. Government Obligations
(Cost $4,181,473)...................................... 4,183,431
------------
TOTAL INVESTMENTS - 99.9% (Cost $304,132,503)........... 280,293,588
Other Assets and Liabilities
(Net) -- 0.1%.......................................... 199,090
------------
NET ASSETS -- 100%...................................... $280,492,678
============
</TABLE>
(a) Non-income producing securities.
(b) Fair valued securities - See Note A1. Total market value of fair valued
securities owned at December 31, 1998 was $117,565 or 0.0% of net assets.
(c) 144A Security - Certain conditions for public sale may exist.
(d) Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities
during that holding period must be held in Malaysian ringgits or re-
invested in Malaysian securities until the end of the holding period, at
the earliest September 1, 1999. The Manager has assessed the risks
inherent to these controls and has taken action to limit those risks. All
forward foreign currency contracts with Malaysian exposure as of December
31, 1998 have been terminated.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.

8
<PAGE>

International Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
Sector Diversification

<TABLE>
<CAPTION>
% of
Net Market
Assets Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Capital Equipment.......................................... 17.5 $ 49,018,196
Consumer Goods............................................. 6.2 17,445,327
Diversified Operations..................................... 6.2 17,361,104
Energy..................................................... 12.7 35,623,652
Finance.................................................... 19.9 55,844,964
Gold Mines................................................. 0.4 1,021,512
Materials.................................................. 15.7 44,256,678
Services................................................... 19.8 55,538,725
Government Obligations..................................... 1.5 4,183,430
----- ------------
Total Investments........................................ 99.9 $280,293,588
Other Assets and Liabilities (Net)......................... 0.1 199,090
----- ------------
Net Assets............................................... 100.0 $280,492,678
===== ============
</TABLE>

9
<PAGE>

Emerging Markets Fund

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks - 94.6%
Argentina - 2.3%
51,000 Telefonica de Argentina S.A. ADR.................... $ 1,424,813
66,000 YPF S.A. ADR........................................ 1,843,875
------------
3,268,688
------------
Brazil - 5.6%
235,000 Aracruz Celulose S.A. ADR........................... 1,880,000
60,000 CEMIG S.A. ADR...................................... 1,142,196
102,600 Companhia Vale do Rio Doce ADR...................... 1,316,255
25,600 Petroleo Brasileiro S.A. ADR........................ 290,284
24,050 Telecomunicacoes Brasileiras S.A.--Telebras ADR..... 1,787,216
58,040,000 Telerj Celular S.A.(a).............................. 915,094
47,000 Unibanco--Uniao de Bancos Brasileiras S.A. GDR...... 678,563
------------
8,009,608
------------
Chile - 1.9%
82,000 Administradura de Fundos de Pensiones Provida ADR... 1,101,875
79,948 Cia. de Telecomunicaciones de Chile S.A. ADR........ 1,653,924
------------
2,755,799
------------
China - 2.8%
136,000 Huaneng Power International, Inc. ADR(a)............ 1,972,000
84,000 Shandong Huaneng Power Co., Ltd. ADR................ 383,250
17,634,000 Shanghai Petrochemical Co. Ltd., Class H............ 1,593,314
------------
3,948,564
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Croatia - 1.6%
3,000 Pliva d.d. GDR Reg. S................................ $ 49,517
138,500 Pliva d.d. GDR(c).................................... 2,286,026
------------
2,335,543
------------
Czech Republic - 1.9%
8,900 Deza Valasske Mezirici A.S. ......................... 158,598
245,500 Komercni Banka A.S., GDR(a).......................... 1,018,825
100,000 SPT Telecom A.S.(a).................................. 1,528,187
------------
2,705,610
------------
Greece - 1.4%
76,666 Hellenic Telecommunication Organization S.A. ........ 2,040,738
------------
Hong Kong - 10.4%
2,950,000 Cafe De Coral Holdings Ltd. ......................... 923,392
3,000,000 Guangnan Holdings.................................... 689,277
700,000 Hong Kong Telecommunications Ltd. ................... 1,224,305
98,800 HSBC Holdings plc.................................... 2,461,312
378,000 Hutchison Whampoa Ltd. .............................. 2,671,335
992,949 Jardine Matheson Holdings Ltd. ...................... 2,561,808
501,000 SmarTone Telecommunications Holdings Ltd. ........... 1,390,364
329,500 Swire Pacific Ltd., Class A.......................... 1,475,833
6,930,000 Techtronic Industries Co. ........................... 1,234,425
------------
14,632,051
------------
Hungary - 3.0%
69,000 BorsodChem Rt. ...................................... 1,787,895
72,800 EGIS Rt. ............................................ 1,650,565
21,016 Pick Szeged Rt. ..................................... 889,767
------------
4,328,227
------------
India - 7.5%
80,000 Bajaj Auto Ltd. GDR(c)............................... 1,250,000
135,000 BSES Ltd. GDR(c)..................................... 1,721,250
</TABLE>

10
<PAGE>

Emerging Markets Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
India (continued)
240,000 Gujarat Ambuja Cements Ltd.(c)...................... $ 1,584,000
150,000 Mahanagar Telephone Nigam Ltd. GDR(c)............... 1,830,000
176,000 State Bank of India GDR(c).......................... 1,465,200
5,000 Tata Electric Co. GDR(a,c).......................... 900,000
481,000 Tata Engineering and Locomotive Co., Ltd. GDR(c).... 1,924,000
------------
10,674,450
------------
Indonesia - 0.9%
98,600 PT Indosat ADR...................................... 1,201,688
1,144,000 PT Kalbe Farma(a)................................... 57,200
------------
1,258,888
------------
Israel - 0.8%
65,000 Koor Industries Ltd. ADR............................ 1,133,438
------------
Korea - 8.5%
54,940 Pohang Iron & Steel Co., Ltd. ...................... 3,539,314
50,000 Sindo Ricoh......................................... 1,791,355
4,020 SK Telecom Co., Ltd. ............................... 2,922,269
127,000 SK Telecom Co., Ltd. ADR............................ 1,293,813
39,101 Samsung Electronics Co. ............................ 2,622,985
------------
12,169,736
------------
Malaysia - 4.1%
355,000 Malakoff Bhd.(d).................................... 706,744
320,000 Malayan Banking Bhd.(d)............................. 551,169
303,000 O.Y.L. Industries Bhd.(d)........................... 643,888
1,530,000 Road Builder (M) Holdings Bhd.(d)................... 1,252,612
1,900,000 Technology Resources Industries Bhd.(d)............. 841,517
800,000 Telekom Malaysia Bhd.(d)............................ 1,789,508
------------
5,785,438
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- ------------------------------------------------------------------------------
<S> <C> <C>
Mexico - 6.4%
122,000 Cifra S.A. de CV ADR............................... $ 1,480,324
675,651 Cemex S.A. de C.V. ................................ 1,457,380
1,400,000 Grupo Casa Autrey S.A. de CV....................... 1,018,388
298,200 Grupo Industrial Durango S.A., ADR(a).............. 1,640,100
134,000 Tubo de Acero de Mexico S.A. (TAMSA) ADR........... 862,625
33,700 Telefonos de Mexico S.A., Class L, ADR............. 1,640,768
225,000 Transpotacion Martima Mexicana S.A. de C.V., Class
A, ADR(a)......................................... 1,026,563
------------
9,126,148
------------
Peru - 0.5%
375,000 Banco Wiese ADR.................................... 703,125
7,000 Southern Peru Copper Corp. ........................ 66,063
------------
769,188
------------
Philippines - 5.1%
72,000,000 Digital Telecommunications Phils., Inc.
(Digitel)(a)...................................... 1,758,355
558,600 Metropolitan Bank & Trust Co. ..................... 4,020,771
60,000 Phillippine Long Distance Telephone Company........ 1,542,416
------------
7,321,542
------------
Poland - 4.0%
94,000 Amica Wronki S.A.(a)............................... 417,778
200,250 Budimex S.A(a)..................................... 884,295
73,200 Bank Rozwoju Eksportu S.A. ........................ 1,689,231
251,000 Polifab Cieszyn-Wroclaw S.A. ...................... 597,108
300,000 Telekomunikacja Polska S.A. GDR(a)(c).............. 1,530,000
</TABLE>

11
<PAGE>

Emerging Markets Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Poland (continued)
64,200 Zaclady Metali Lekkich Kety(a)....................... $ 605,419
------------
5,723,831
------------
Romania - 0.3%
88,974 Alro Slatina S.A.(a)................................. 403,005
------------
Russia - 6.1%
7,415,000 Bashkirenergo........................................ 148,300
20,000 Chelyabinsk Svyazinform.............................. 134,000
62,000 Dalmoreproduct(a,b).................................. 12,400
168,000 Gazprom ADR(c)....................................... 1,423,800
13,700,000 Irkutskenergo(a)..................................... 582,250
103,300 Lukoil Oil Co. ADR................................... 1,601,284
1,350,000 Novorossiysk Sea Shipping(a,b)....................... 67,500
2,000 Oskolcement(a,b)..................................... 600
425,970 Rostelecom ADR(a).................................... 1,783,736
860,500 Surgutneftegaz ADR................................... 3,011,750
------------
8,765,620
------------
Singapore - 6.5%
230,000 Asia Pulp & Paper Company Ltd. ADR(a)................ 1,883,125
550,000 City Developments Ltd. .............................. 2,383,333
260,000 Development Bank of Singapore Ltd. .................. 2,347,879
405,000 United Overseas Bank Ltd. ........................... 2,601,818
------------
9,216,155
------------
Slovakia - 2.6%
24,280 Drotovna A.S.(a)..................................... 65,839
9,500 Nafta Gbely A.S. .................................... 82,434
13,000 SES A.S.(a).......................................... 42,654
387,000 Slovakofarma GDR(c).................................. 1,306,125
80,940 Slovnaft A.S. ....................................... 1,448,571
169,496 VSZ A.S.(a).......................................... 822,707
------------
3,768,330
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note A1)
- ------------------------------------------------------------------------------
<S> <C> <C>
Slovenia - 0.6%
121,500 SKB Banka GDR(c)................................... $ 874,800
------------
South Africa - 0.7%
335,000 Standard Bank Investment Corp. .................... 1,023,726
------------
Thailand - 5.6%
220,000 Advanced Info Service Public Co. Ltd. ............. 1,283,081
1,768,300 Bangkok Bank Public Co. Ltd. (Foreign)(a).......... 3,648,487
1,700,000 Thai Farmer's Bank Public Co., Ltd.(a)............. 2,993,122
------------
7,924,690
------------
Turkey - 0.9%
113,956,000 Yapi ve Kredi Bankasi A.S. ........................ 1,318,517
------------
Venezuela - 2.6%
60,000 Compania Anonima Nacional Telefonos de Venezuela
ADR............................................... 1,068,750
420,500 Mavesa, S.A. ADR................................... 1,576,872
247,833 Siderurgica Venezolana Sivensa ADR................. 1,121,742
------------
3,767,364
------------
Total -- Common Stocks (Cost $141,737,023) ........ 135,049,694
------------
</TABLE>

12
<PAGE>

Emerging Markets Fund (continued)

Portfolio of Investments
December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Face
Amount Maturity Discount Value
(000) Date Rate (Note A1)
- ------------------------------------------------
U.S. Government Obligations - 5.4%
<S> <C> <C>
U.S. Treasury Bills - 5.4%
$ 302 01/14/99, 3.91%....... $ 301,711
432 01/21/99, 3.85%....... 431,107
277 01/28/99, 4.07%....... 276,230
81 02/04/99, 4.42%....... 80,701
657 02/11/99, 4.46%....... 654,025
124 02/18/99, 4.39%....... 123,332
374 02/25/99, 4.42%....... 371,693
78 03/04/99, 4.31%....... 77,445
2,278 03/11/99, 4.38%....... 2,260,043
831 03/18/99, 4.43%....... 823,720
53 03/25/99, 4.41%....... 52,494
2,254 04/01/99, 4.51%....... 2,230,468
------------
Total -- U.S. Government
Obligations
(Cost $7,679,709)...... 7,682,969
------------
TOTAL INVESTMENTS --
100.0%
(Cost $149,416,732).... 142,732,663
Other Assets and
Liabilities
(Net) -- 0.00%......... (61,930)
------------
NET ASSETS -- 100%...... $142,670,733
============
</TABLE>
(a) Non-income producing securities.
(b) Fair valued securities - See Note A1. Total market value of fair valued
securities owned at December 31, 1998 was $80,500 or 0.1% of net assets.
(c) 144A Security - Certain conditions for public sale may exist.
(d) Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities during
that holding period must be held in Malaysian ringgits or re-invested in
Malaysian securities until the end of the holding period, at the earliest
September 1, 1999. The Manager has assessed the risks inherent to these
controls and has taken action to limit those risks. All forward foreign
currency contracts with Malaysian exposure as of December 31, 1998 have
been terminated.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
Sector Diversification

<TABLE>
<CAPTION>
% of
Net Market
Assets Value
------ ------------
<S> <C> <C>
Capital Equipment......................................... 4.3 $ 6,203,914
Consumer Goods............................................ 7.7 11,008,411
Diversified Operations.................................... 5.5 7,842,414
Energy.................................................... 11.6 16,551,244
Finance................................................... 22.1 31,588,497
Materials................................................. 16.5 23,501,894
Services.................................................. 26.9 38,353,320
Government Obligations.................................... 5.4 7,682,969
----- ------------
Total Investments....................................... 100.0 $142,732,663
Other Assets and Liabilities (Net)........................ (0.0) (61,930)
----- ------------
Net Assets.............................................. 100.0 $142,670,733
===== ============
</TABLE>

13
<PAGE>

Statements of Assets and Liabilities

December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Emerging
International Markets
Fund Fund
------------- ------------
<S> <C> <C>
ASSETS:
Investments, at Cost--see accompanying
portfolios...................................... $304,132,503 $149,416,732
============ ============
Investments, at Value (Note A1).................. $280,293,588 $142,732,663
Cash............................................. 148,531 --
Foreign Currency (Cost $83)...................... 83 --
Net Unrealized Gain on Foreign Currency Contracts
(Note A3)....................................... 7,632 --
Dividends Receivable............................. 415,298 146,440
Receivable for Investments Sold.................. 1,302,052 57,938
Deferred Organization Costs (Note A5)............ 30,187 30,212
Other Assets..................................... 15,765 3,341
------------ ------------
Total Assets.................................... 282,213,136 142,970,594
------------ ------------
LIABILITIES:
Payable for Investments Purchased................ 1,116,746 --
Overdraft Payable................................ -- 55,996
Distributions Payable............................ 301,071 44,092
Management Fees Payable (Note B)................. 150,310 74,366
Administration Fees Payable...................... 32,392 17,297
Custodian Fees Payable........................... 62,749 49,290
Professional Fees Payable........................ 18,676 18,539
Accrued Expenses and Other Liabilities........... 38,514 40,281
------------ ------------
Total Liabilities............................... 1,720,458 299,861
------------ ------------
Net Assets....................................... $280,492,678 $142,670,733
============ ============
NET ASSETS CONSIST OF:
Paid-in Capital.................................. $320,414,118 $175,741,396
Accumulated Undistributed (Distributions in
Excess of) Net Investment Income................ 484,164 (109,068)
Accumulated Net Realized Loss.................... (16,566,684) (26,278,954)
Unrealized Depreciation of Investments and
Foreign Currency Translations................... (23,838,920) (6,682,641)
------------ ------------
Net Assets....................................... $280,492,678 $142,670,733
============ ============
Shares of Beneficial Interest Outstanding
(unlimited authorization, no par value)......... 31,262,453 24,135,230
============ ============
Net Asset Value Per Share........................ $ 8.97 $ 5.91
============ ============
</TABLE>

14
<PAGE>

Statements of Operations

Year Ended December 31, 1998

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Emerging
International Markets
Fund Fund
------------- ------------
<S> <C> <C>
Investment Income:
Dividends.......................................... $ 6,451,341 $ 1,532,767
Interest........................................... 847,786 444,851
Less: Foreign Taxes Withheld....................... (616,719) (53,915)
------------ ------------
Total Income...................................... 6,682,408 1,923,703
------------ ------------
Expenses:
Investment Advisory Fees (Note B):
Basic Fees........................................ 1,775,788 830,137
Less: Fees Waived................................. (248,754) (361,020)
------------ ------------
Investment Advisory Fees--Net...................... 1,527,034 469,117
Administration Fees................................ 308,937 120,144
Custodian Fees..................................... 373,945 319,407
Professional Fees.................................. 31,895 32,608
Registration and Filing Fees....................... 72,540 58,621
Shareholder Reports................................ 15,258 11,146
Trustees' Fees and Expenses (Note E)............... 9,382 5,218
Amortization of Organization Costs (Note A5)....... 10,107 10,107
Miscellaneous Expenses............................. 16,056 5,208
------------ ------------
Net Expenses....................................... 2,365,154 1,031,576
------------ ------------
Net Investment Income.............................. 4,317,254 892,127
------------ ------------
Net Realized Gain (Loss):
Security Transactions.............................. (16,566,969) (25,792,215)
Foreign Currency Transactions...................... (417,984) (481,031)
------------ ------------
Net Realized Loss................................. (16,984,953) (26,273,246)
------------ ------------
Net Unrealized Appreciation (Depreciation) on:
Investments........................................ (2,957,737) 2,771,703
Foreign Currency Translations on Receivables and
Payables.......................................... 10,006 2,055
------------ ------------
Net Unrealized Appreciation (Depreciation) during
the period....................................... (2,947,731) 2,773,758
------------ ------------
Net Realized Loss and Unrealized Appreciation
(Depreciation).................................... (19,932,684) (23,499,488)
------------ ------------
Net Decrease in Net Assets Resulting from
Operations........................................ $(15,615,430) $(22,607,361)
============ ============
</TABLE>

15
<PAGE>

Statements of Changes in Net Assets

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
International Fund Emerging Markets Fund
----------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations:
Net Investment Income... $ 4,317,254 $ 1,852,563 $ 892,127 $ 236,784
Net Realized Gain
(Loss)................. (16,984,953) 2,371,356 (26,273,246) (334,732)
Net Unrealized
Appreciation
(Depreciation)......... (2,947,731) (20,891,189) 2,773,758 (9,456,399)
------------ ------------ ------------ -----------
Net Decrease in Net
Assets Resulting from
Operations............. (15,615,430) (16,667,270) (22,607,361) (9,554,347)
------------ ------------ ------------ -----------
Distributions:
Net Investment Income... (3,409,988) (1,512,675) (428,686) (319,047)
In Excess of Net
Investment Income...... -- (15,225) (109,068) --
Capital Gains........... (870,351) (1,851,460) -- (73,128)
------------ ------------ ------------ -----------
Total Distributions.... (4,280,339) (3,379,360) (537,754) (392,175)
------------ ------------ ------------ -----------
Capital Share
Transactions (Note G):
Proceeds from Shares
Sold................... 122,323,434 198,341,640 134,663,958 42,364,916
Net Asset Value on
Reinvestment of
Distributions.......... 3,944,493 3,160,738 493,293 217,646
Cost of Shares
Redeemed............... (12,751,236) (6,001) (7,386,982) (1,455,689)
Transaction Fees........ 312,901 813,273 1,325,368 307,324
------------ ------------ ------------ -----------
Increase in Net Assets
from Capital Share
Transactions........... 113,829,592 202,309,650 129,095,637 41,434,197
------------ ------------ ------------ -----------
Net Increase in Net
Assets................. 93,933,823 182,263,020 105,950,522 31,487,675
Net Assets:
Beginning of Year...... 186,558,855 4,295,835 36,720,211 5,232,536
------------ ------------ ------------ -----------
End of Year............ $280,492,678 $186,558,855 $142,670,733 $36,720,211
============ ============ ============ ===========
Undistributed
(Distributions in
Excess of) Net
Investment Income
Included in End of Year
Net Assets............. $ 484,164 $ (15,225) $ (109,068) $ 4,734
============ ============ ============ ===========
</TABLE>

16
<PAGE>

Financial Highlights

For a Share Outstanding Throughout Each Period

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
International Fund
-------------------------------------------------------
Year Ended Year Ended Period Ended
December 31, 1998 December 31, 1997 December 31, 1996*+
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.79 $ 10.12 $10.12
-------- -------- ------
Income from Investment
Operations:
Net Investment Income... 0.14 0.10 --
Net Realized and
Unrealized Loss........ (0.81) (0.25) --
-------- -------- ------
Total from Investment
Operations............ (0.67) (0.15) --
-------- -------- ------
Less Distributions from:
Net Investment Income... (0.11) (0.08) --
In Excess of Net
Investment Income...... -- -- ++ --
Capital Gains........... (0.04) (0.10) --
-------- -------- ------
Total Distributions.... (0.15) (0.18) --
-------- -------- ------
Net Asset Value, End of
Period................. $ 8.97 $ 9.79 $10.12
======== ======== ======
Total Return............ (6.96)% (1.46)% 0.00 %
Ratios and Supplemental
Data:+
Net Assets, End of
Period (in Thousands).. $280,493 $186,559 $4,296
Ratio of Expenses to
Average Net Assets(1).. 1.00 % 1.00 % 1.00 %**
Ratio of Net Investment
Income to Average Net
Assets(1).............. 1.82 % 1.84 % 3.50 %**
Portfolio Turnover
Rate................... 32 % 14 % 0 %
- --------------------------------------------
(1) Effect of voluntary
expense limitation
during the period:
Ratio of Expenses to
Average Net Assets.... 1.10 % 1.29 % 77.13 %**
Ratio of Net Investment
Income (Loss) to
Average Net Assets.... 1.72 % 1.55 % (72.63)%**
</TABLE>

* The Fund commenced operations on December 30, 1996.
** Annualized.
+ The per share amounts for the two day period ended December 31, 1996 are
based on average outstanding shares.
++ Amount represents less than $0.01 per share.

17
<PAGE>

Financial Highlights

For a Share Outstanding Throughout Each Period

The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Emerging Markets Fund
-------------------------------------------------------
Year Ended Year Ended Period Ended
December 31, 1998 December 31, 1997 December 31, 1996*+
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.50 $ 10.12 $10.12
-------- ------- ------
Income from Investment
Operations:
Net Investment Income... 0.04 0.05 --
Net Realized and
Unrealized Loss........ (2.61) (1.58) --
-------- ------- ------
Total from Investment
Operations............ (2.57) (1.53) --
-------- ------- ------
Less Distributions from:
Net Investment Income... (0.02) (0.07) --
In Excess of Net
Investment Income...... -- ++ -- --
Capital Gains........... -- (0.02) --
-------- ------- ------
Total Distributions.... (0.02) (0.09) --
-------- ------- ------
Net Asset Value, End of
Period................. $ 5.91 $ 8.50 $10.12
======== ======= ======
Total Return............ (30.20)% (15.11)% 0.00 %
Ratios and Supplemental
Data:+
Net Assets, End of
Period (in Thousands).. $142,671 $36,720 $5,233
Ratio of Expenses to
Average Net Assets(1).. 1.25 % 1.50 % 1.50 %**
Ratio of Net Investment
Income to Average Net
Assets(1).............. 1.08 % 1.12 % 2.87 %**
Portfolio Turnover
Rate................... 44 % 15 % 0 %
- --------------------------------------------
(1) Effect of voluntary
expense limitation
during the period:
Ratio of Expenses to
Average Net Assets.... 1.68 % 2.18 % 65.28 %**
Ratio of Net Investment
Income (Loss) to
Average Net Assets.... 0.65 % 0.44 % (60.91)%**
</TABLE>

18
<PAGE>

Notes to Financial Statements

December 31, 1998

Hansberger Institutional Series (the "Trust"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. As of December 31, 1998, the Trust was
comprised of two separate active, diversified portfolios (individually re-
ferred to as a "Fund", collectively as the "Funds"). The International Fund
and the Emerging Markets Fund, each a Fund of the Trust, commenced operations
on December 30, 1996.

The International Fund seeks to achieve long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States including developing countries. The
Emerging Markets Fund seeks to achieve long-term capital growth through a pol-
icy of investing primarily in publicly traded equity securities of companies
located in emerging markets.

A. Accounting Policies: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment compa-
nies. Such policies are consistently followed by the Trust in the preparation
of the financial statements. Generally accepted accounting principles may re-
quire management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could dif-
fer from those estimates.

1. Security Valuation: Equity securities listed on a U.S. exchange are val-
ued at the latest quoted sales price on the valuation date. Securities
listed on a foreign exchange are valued at their closing price. Unlisted se-
curities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at a price within a range
not exceeding the current asked price nor less than the current bid price.
Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Securities not priced in this manner are valued at the
most recently quoted bid price, or, when securities exchange valuations are
used, at the latest quoted sale price on the day of valuation. If there is
no such reported sale, the latest quoted bid price will be used. Debt secu-
rities purchased with remaining maturities of 60 days or less are valued at
amortized cost, if it approximates market value. All other securities and
assets for which market values are not readily available, including re-
stricted securities and unlisted foreign securities, are valued at fair
value as determined in good faith by the Board of Trustees, although the ac-
tual calculations may be done by others.

The Funds' investments in emerging markets or developing markets may subject
the Funds to a greater degree of risk than in a developed market. Risks as-
sociated with these developing markets, attributable to political, social or
economic factors, may affect the price of the Funds' investments and income
generated by these investments, as well as the Funds' ability to repatriate
such amounts.

2. Foreign Currency Translation: The accounting records of the Funds are
maintained in U.S. dollars. Investment securities and other assets and lia-
bilities denominated in a foreign currency are translated into U.S. dollars
at the foreign currency exchange rates applicable on that day. Purchases and
sales of securities, income receipts and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates of
the transactions. Net realized gains and losses on foreign currency transac-
tions represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, currency gains and
losses realized between the trade and settlement dates on securities trans-
actions and the difference between the amount of net investment income ac-
crued and the U.S. dollar amount actually received. The effect of changes in
foreign currency exchange rates on investments in securities are not segre-
gated in the Statement of Operations from the effects of changes in market
prices of those securities, but are included with the net realized and
unrealized gain or loss on investment in securities.

3. Forward Currency Exchange Contracts: The Funds may enter into forward
currency exchange contracts in connection with planned purchases or sales of
securities or to hedge the value of some or all of a Fund's portfolio secu-
rities. A forward currency contract is an agreement between two parties to
purchase and sell currency at a set price on a future date. The market value
of a forward currency contract fluctuates with changes

19
<PAGE>

Notes to Financial Statements (continued)

in currency exchange rates applicable on that day. Forward currency con-
tracts are marked-to-market daily using the forward foreign currency ex-
change rates applicable on that day or at such other rates as deemed appro-
priate. The change in value is recorded by the Funds as an unrealized gain
or loss. When a forward currency contract is extinguished, either by deliv-
ering the currency or by entering into another forward currency contract,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value of the con-
tract at settlement date. The Funds could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value
of the currency changes unfavorably relative to the U.S. dollar.

4. Taxes: It is each Fund's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision
for Federal income taxes is required in the financial statements. The Funds
may be subject to taxes imposed by countries in which it invests. Such taxes
are generally based on income and/or capital gains earned or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains and net unrealized appreciation as the income and/or capital gains are
earned.

5. Organizational Costs: The organizational costs of the Funds are being am-
ortized on a straight-line basis over a period of five years beginning with
each Fund's commencement of operations. Hansberger Global Investors, Inc.
has agreed that in the event any of its initial shares in a Fund are re-
deemed, the proceeds on redemption will be reduced by the pro-rata portion
of any unamortized organizational costs in the same proportion as the number
of shares redeemed bears to the initial shares held at time of redemption.

6. Other: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend
income is recorded on the ex-date (except that certain dividends from for-
eign securities where the ex-dividend date may have passed are recorded as
soon as the Fund is informed of the ex-dividend date in the exercise of rea-
sonable diligence) net of applicable withholding taxes where recovery of
such taxes is not reasonably assured. Interest income is recognized on the
accrual basis except where collection is in doubt. Discounts and premiums on
securities purchased are amortized according to the effective yield method
over their respective lives. Most expenses of the Trust can be directly at-
tributed to a particular Fund. Expenses which cannot be directly attributed
are apportioned among the Funds based upon relative net assets. Distribu-
tions for the Funds are recorded on the ex-date. Income and capital gain
distributions are determined in accordance with U.S. Federal income tax reg-
ulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing book and tax treatment for
organizational expenses.

Permanent book and tax basis differences relating to shareholder distribu-
tions may result in reclassifications to paid-in capital, undistributed net
investment income (loss) and accumulated net realized gain (loss) on invest-
ments and foreign currency transactions. Undistributed net investment income
(loss) and accumulated net realized gain (loss) may include temporary book
and tax differences which should reverse in a subsequent period.

For the year ended December 31, 1998, the Funds reclassified the following
amounts:

<TABLE>
<CAPTION>
Accumulated
Undistributed Net
Net Investment Realized Paid-in
Income (Loss) Gain (Loss) Capital
-------------- ----------- --------
<S> <C> <C> <C>
International Fund....................... $(407,877) $417,984 $(10,107)
Emerging Markets Fund.................... (470,923) 481,030 (10,107)
</TABLE>

Distributions in excess of tax basis earnings and profits will be reported
in the Funds' financial statements as a return of capital. Furthermore, dif-
ferences in the recognition or classification of income between the finan-
cial statements and tax earnings and profits which result in temporary over-
distributions for financial statement purposes are classified as distribu-
tions in excess of net investment income or in excess of accumulated net re-
alized gains.

Permanent book and tax basis differences, if any, are not included in ending
undistributed net investment income for the purpose of calculating net in-
vestment income per share in the Financial Highlights.

B. Adviser: Hansberger Global Investors, Inc. (the "Adviser") provides each
Fund with investment advisory services pursuant to an investment advisory
agree-

20
<PAGE>

Notes to Financial Statements (continued)

ment at a monthly fee calculated at the annual rate of 0.75% and 1.00% of aver-
age daily net assets of the International Fund and the Emerging Markets Fund,
respectively. The Adviser has voluntarily agreed to reduce advisory fees pay-
able to it and to reimburse the Funds, if necessary, if the annual operating
expenses as defined, expressed as a percentage of average daily net assets, ex-
ceed the maximum rations of 1.00% for the International Fund and 1.25% for the
Emerging Markets Fund. The Adviser, at its discretion, may revise or discon-
tinue the voluntary fee waivers and reimbursements at any time.

C. Administrator: Chase Global Funds Services Company (the "Administrator" or
"CGFSC"), a subsidiary of The Chase Manhattan Bank, provides the Trust with ad-
ministrative, dividend disbursing and transfer agent services pursuant to an
Administrative Agreement (the "Agreement"). Under the Agreement the Trust pays
the Administrator a monthly fee in proportion to the Funds combined average
daily net assets at the following annual rate: 0.12% of the first $500 million
of average daily net assets, 0.08% for the next $500 million of average daily
net assets, and 0.06% for average daily net assets over $1 billion. Certain em-
ployees of CGFSC are officers of the Fund.

D. Custodian: The Chase Manhattan Bank serves as the Trust's custodian in ac-
cordance with a custodian agreement. Custodian fees are computed and payable
monthly based on assets held, investment purchases and sales activity, an ac-
count maintenance fee, plus reimbursement for certain out-of-pocket expenses.

E. Trustee Fees: The Trust pays each Trustee, who is not also an officer or af-
filiated person, an annual fee plus travel and other expenses incurred in at-
tending Board meetings. Trustees who are also officers or affiliated persons
receive no remuneration for their service as Trustees.

Expenses for the year ended December 31, 1998, include legal fees paid to Mor-
gan, Lewis & Bockius LLP. A partner of that firm is a Trustee to the Trust.

F. Purchases and Sales: For the year ended December 31, 1998, purchases and
sales of investment securities other than long-term U.S. Government securities
and short-term investments were:

<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- ------------ -----------
<S> <C> <C>
International Fund..................................... $193,264,200 $70,511,803
Emerging Markets Fund.................................. 155,680,677 32,955,346
</TABLE>

There were no purchases or sales of long-term U.S. Government securities during
the year ended December 31, 1998.

During the year ended December 31, 1998, the Funds paid brokerage commissions
to J.M. Sassoon and Salomon Smith Barney, affiliated broker/dealers, as
follows:

<TABLE>
<CAPTION>
Fund J.M. Sassoon Salomon Smith Barney
- ---- ------------ --------------------
<S> <C> <C>
International................................. 2,456 23,763
Emerging Markets.............................. 3,831 17,679
</TABLE>

G. Capital Share Transactions: Transactions in fund shares for the periods in-
dicated below:

<TABLE>
<CAPTION>
International Fund Emerging Markets Fund
--------------------- ----------------------
Year Year Year Year
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Shares sold...................... 13,156,398 18,303,555 20,995,902 3,945,128
Shares issued on reinvestment of
distributions................... 427,557 323,501 84,036 25,943
Shares repurchased............... 1,372,479 530 1,264,492 168,298
---------- ---------- ----------- ----------
Increase (decrease).............. 12,211,476 18,626,526 19,815,446 3,802,773
Fund shares:
Beginning of year................ 19,050,977 424,451 4,319,784 517,011
---------- ---------- ----------- ----------
End of year...................... 31,262,453 19,050,977 24,135,230 4,319,784
</TABLE>

Shareholders entering after April 1, 1997, are charged a transaction fee in
connection with each purchase and redemption of shares of each Fund. The trans-
action fee is 0.50% for the International Fund and 1.00% for the Emerging Mar-
kets Fund. The transaction fee is not a sales charge and is retained by the
Funds. The fee does not apply to and is not charged in connection with ex-
changes from one Fund to another, certain insignificant transactions, including
the reinvestment of dividends or capital gain distributions, or transactions
involving shareholders who previously purchased shares that were not subject to
the transaction fee.

H. Other: At December 31, 1998, cost, unrealized appreciation, unrealized (de-
preciation), and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of the Portfolio were:

<TABLE>
<CAPTION>
Net
Unrealized
Unrealized Unrealized Appreciation
Fund Cost Appreciation (Depreciation) (Depreciation)
- ---- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
International Fund..... $304,548,775 $26,441,838 $(50,688,459) $(24,246,621)
Emerging Markets Fund.. 149,416,916 16,498,713 (23,182,966) (6,684,253)
</TABLE>

21
<PAGE>

Notes to Financial Statements (continued)

From time to time, certain Funds of the Trust have shareholders that hold a
significant portion of a Fund's outstanding shares. Investment activities of
these shareholders could have a material impact on those Funds.

At December 31, 1998, the International Fund and the Emerging Markets Fund had
a capital loss carryforward of $12,730,319 and $19,631,279, respectively, to
offset future capital gains which will expire from December 31, 1999 through
2006.

I. Subsequent Events:

1. Euro conversion: On January 1, 1999, the European Monetary Union "EMU"
plans to introduce a new single currency, the euro, which will replace the
national currencies of the participating member nations. Until 2002, the
national currencies will continue to exist, but exchange rates will be
pegged to the euro. As of December 31, 1998, the eleven member nations are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
Netherlands, Portugal and Spain.

The introduction of the euro is likely to affect all stages of the
investment process, including trading, foreign exchange, custody, and
accounting. Because this change to a single currency is new, the
introduction of the euro may result in market volatility and may affect the
business or financial condition of European issuers or of a Fund. In
addition, while the conversion will eliminate currency risk among the
participating nations, currency risk between the euro and the U.S. dollar
remains a factor.

While there can be no assurances that the conversion will not adversely
affect the Funds, the Investment Adviser, Subadviser and the Funds' service
providers are taking steps which they believe appropriate and reasonably
address the issues involved in the introduction of the euro.

2. Malaysian Exit Levy: On February 4, 1999, the Malaysian government
announced that it is replacing the 12-month holding period imposed under the
September 1, 1998 exchange control rules with a graduated exit tax. The new
exit tax will allow repatriation subject to a levy. The amount of the levy
and whether it is imposed on principal or capital gains will depend on a
number of factors such as the holding period and whether specific
investments were made before or after February 15, 1999 (the effective date
of this new rule). In general, existing investments in Malaysia will be
subject to a levy on repatriation of principal until September 1, 1999.
Money invested in Malaysia after February 15, 1999 will not be subject to a
levy on principal, however a profits tax of 30% for investments repatriated
in less than one year and 10% for investments repatriated after one year
will apply.

22
<PAGE>

Report of Independent Public Accountants

To the Shareholders and Trustees of Hansberger Institutional Series:

We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Hansberger Institutional Series, a
Massachusetts Business Trust (comprising, respectively, the International Fund
and the Emerging Markets Fund) as of December 31, 1998 and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust'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 generally accepted auditing
standards. 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 as of December 31, 1998 by correspondence with the custodian and
brokers. 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Hansberger Institutional
Series as of December 31, 1998, the results of their operations, the changes
in their net assets and the financial highlights for the periods presented in
conformity with generally accepted accounting principles.

Arthur Andersen LLP

Boston, Massachusetts
February 5, 1999

- -------------------------------------------------------------------------------

Federal Income Tax Information (Unaudited):

For the year ended December 31, 1998, the Funds expect to pass through to
shareholders foreign tax credits of approximately $616,719 and $53,915 for the
International Fund and Emerging Markets Fund, respectively. In addition, for
the year ended December 31, 1998, gross income derived from sources within
foreign countries amounted to $3,944,391 and $707,647 for the International
Fund and Emerging Markets Fund, respectively.