BARRETT INTERNATIONAL SHARES
- --------------------------------------------------------------------------------
Semiannual Report
June 30, 1997
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<PAGE>
Board of Directors
DAVID S. LEE(1) Chairman of the Board; Managing Director,
Scudder, Stevens & Clark, Inc.
EDGAR R. FIEDLER(1) (2) (3) Senior Fellow and Economic Counsellor, The
Conference Board, Inc.
PETER B. FREEMAN(2) (3) Corporate Director and Trustee
ROBERT W. LEAR(2) (3) Executive-in-Residence and Visiting Professor,
Columbia University Graduate School of
Business
DANIEL PIERCE(1) President; Chairman of the Board, Scudder,
Stevens & Clark, Inc.
(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
- --------------------------------------------------------------------------------
Officers
DAVID S. LEE Chairman of the Board
DANIEL PIERCE President
STEPHEN L. AKERS Vice President
K. SUE COTE Vice President
CAROL L. FRANKLIN Vice President
JERARD K. HARTMAN Vice President
KATHRYN L. QUIRK Vice President
THOMAS W. JOSEPH Vice President and Assistant Secretary
THOMAS F. McDONOUGH Vice President and Secretary
PAMELA A. McGRATH Vice President and Treasurer
2
<PAGE>
Dear Shareholder:
We are pleased to provide you with the June 30, 1997, semiannual report for
the Institutional International Equity Portfolio (the "Portfolio"). The
Portfolio is currently comprised of a single class of shares ("Barrett
International Shares"). The report covers the period from December 31, 1996
through June 30, 1997.
Since the Portfolio has been in operation, the Portfolio has provided a
positive total return of 19.47%, reflecting in part a generally positive market
environment for international equities. Going forward, the Portfolio will
continue to seek to provide long-term growth of capital by investing principally
in the equity securities of companies which do business primarily outside of the
United States. The management discussion which follows outlines key elements of
the current market environment and Portfolio strategy.
Thank you for your investment in the Portfolio. If you have any questions
about the Portfolio, please call us at (800) 854-8525.
/s/David S. Lee
David S. Lee
Chairman
3
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO/BARRETT INTERNATIONAL SHARES
PERFORMANCE UPDATE
June 30, 1997
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INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
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Total Return
Period Growth --------------
Ended of Average
6/30/97 $ 10,000 Cumulative Annual
- --------------------------------------------
1 Year $ 11,732 17.32% 17.32%
Life of Fund* $ 11,947 19.47% 15.34%
- --------------------------------------------
MSCI EAFE & CANADA INDEX
- --------------------------------------------
1 Year $ 11,351 13.51% 13.51%
Life of Fund* $ 11,205 12.05% 10.24%
- --------------------------------------------
*The Portfolio commenced operations on April 3, 1996.
Index comparisons begin April 30, 1996.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
INSTITUTIONAL INTERNATIONAL
EQUITY PORTFOLIO
Year Amount
- ----------------------
4/96* $ 10,000
6/96 $ 10,066
9/96 $ 9,934
12/96 $ 10,372
3/97 $ 10,538
6/97 $ 11,810
MSCI EAFE & CANADA INDEX
Year Amount
- ----------------------
4/96* $ 10,000
6/96 $ 9,871
9/96 $ 9,879
12/96 $ 10,075
3/97 $ 9,919
6/97 $ 11,205
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far East
(EAFE) & Canada Index is an unmanaged capitalization-weighted measure of stock
markets in Europe, Australia, the Far East and Canada. Index returns assume
dividends reinvested net of withholding tax and, unlike Portfolio returns, do
not reflect any fees or expenses.
- ----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- ----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Periods Ended June 30
1996 1997
---- ----
NET ASSET VALUE........... $ 12.22* $ 14.21
INCOME DIVIDENDS.......... $ - $ -
FUND TOTAL RETURN (%)..... 1.83 17.32
INDEX TOTAL RETURN (%).... 1.63 13.51
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Manager had not maintained
the Portfolio's expenses, total return for the one year and life of the
Portfolio would have been lower.
4
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO/BARRETT INTERNATIONAL SHARES
PORTFOLIO SUMMARY
June 30, 1997 (Unaudited)
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PORTFOLIO CHARACTERISTICS
COUNTRY/REGION (Excludes Cash Equivalents of 5%)
- ---------------------------------------------------------------------------
Emerging Markets 22%
Japan 17%
Germany 14%
United Kingdom 12%
France 9%
Switzerland 9%
Sweden 5%
Netherlands 4%
Italy 3%
Other 5%
- ------------------------------------
100%
- ------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS (Excludes Cash Equivalents of 5%)
- --------------------------------------------------------------------------
Manufacturing 19%
Financial 13%
Durables 10%
Consumer Discretionary 7%
Communications 7%
Service Industries 7%
Technology 6%
Energy 6%
Utilities 6%
Other 19%
- ------------------------------------
100%
- ------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
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10 LARGEST EQUITY HOLDINGS (16% of Portfolio)
1. SKANDIA FOERSAEKRINGS AB Financial conglomerate
in Sweden
2. PETROLEO BRASILEIRO S.A. Petroleum company in
Brazil
3. TELECOMUNICACOES BRASILEIRAS S.A.
Telecommunication services in Brazil
4. COSCO PACIFIC LTD.
Shipping containers leasing and
management in Hong Kong
5. CENTRAIS ELECTRICAL BRASILEIRAS S.A. Electric utility in
Brazil
6. HSBC HOLDINGS LTD. Bank in Hong Kong
7. COMPANHIA ENERGETICA DE MINAS GERAIS Electric power utility
in Brazil
8. NOVARTIS AG Pharmaceutical company in
Switzerland
9. TELECOM ITALIA MOBILE SPA Cellular telecommunication
services in Italy
10. L. M. ERICSSON TELEPHONE CO. Leading manufacturer of
cellular telephone equipment in Sweden
For more complete details about the Portfolio's investment portfolio, see
page 10.
5
<PAGE>
Dear Shareholder:
The following portfolio management discussion summarizes the performance of
the key markets in which portfolio holdings are invested, reviews the economic
and investment fundamentals underlying these markets, and summarizes the
portfolio's investment strategy with respect to these markets.
Performance Summary
The Institutional International Equity Portfolio provided a total return of
13.86% for the six months ended June 30, 1997, comparing favorably to the 11.22%
return for the unmanaged MSCI EAFE and Canada Index of international stocks for
the same time period. Most global markets had positive returns in the first half
of 1997 against a backdrop of a strong global economy, a benign inflation
environment and optimism that further monetary tightening in the U.S. might be
avoided.
Despite a stronger yen, Japan rallied driven by signs of economic recovery
and diminished fears of interest rate hikes, with core blue chip portfolio
holdings Canon, Sony and Hitachi turning in excellent performances. In Europe,
political uncertainty failed to dampen investor enthusiasm, although a strong
U.S. dollar lessened returns for U.S. dollar-based investors. France shrugged
off the unexpected victory of the Socialist party concluding that the new
government would accept European imperatives on European Monetary Union (EMU)
and postpone left-wing reforms discussed during the election period. French
growth is picking up after a long period of weakness, and retail holdings
Carrefour and Pinault Printemps responded with positive price appreciation over
the period. Despite some volatility, the UK market welcomed Mr. Blair's new
Labour government. The announcement of an independent Central Bank, takeover
rumors in the banking and insurance sectors, and strong performance on Wall
Street offset concerns about a rumored cut in the tax credit on dividends, the
scope of the windfall profits tax on utilities, and a stronger currency. Germany
continued its upward rally underpinned by subdued inflation, a strong dollar,
and ongoing corporate restructuring. Spain was driven up by good macroeconomic
fundamentals and record inflows of domestic money into equity mutual funds. Hong
Kong, the best performing market in the Pacific Rim, rose to record highs,
buoyed by a favorable outlook for U.S. interest rates and the expectation that
the political transition to China would be smooth. Our largest exposure to
emerging markets is Brazil, a market which continued its untrammeled path
upward, rising 35%, driven by macroeconomic stability and ongoing privatization
and deregulation.
In the second quarter, Europe was dominated by political events: the
election of the Labour Party in the UK after an 18 year absence, the unexpected
return to power of the Socialists in France, and a public row between the German
government and the Bundesbank over the plan to revalue central bank gold
reserves to help the country meet European
6
<PAGE>
Monetary Union criteria. In the U.K., initial policy changes made by the new
Labour government have been greeted positively. The granting of independence to
the Central Bank lends credibility to the government's anti-inflation stance and
a pro-European outlook has engendered a more active dialogue between Labour
party leader Mr. Blair and his European counterparts. While we expect ongoing
uncertainty regarding the EMU process, France will probably not challenge its
commitments to Europe, commitments made when the Socialists were last in power.
Fears about a slowdown in the privatization schedule diminished when the partial
privatization of France Telecom was scheduled for late 1997. The recent
announcement of a complete corporate overhaul by Rhone Poulenc, a holding in the
portfolio, is evidence of ongoing restructuring in France.
In Europe, we are seeing stronger than expected growth, with domestic
demand, long dormant, finally showing signs of life. A pick-up in growth should
translate into better corporate profitability, with upward earnings revisions
underpinning valuations in buoyant equity markets. Unemployment remains
stubbornly high and will continue to be a problem until there is more widespread
evidence of structural reform in Continental European labor markets.
Nonetheless, there has been some movement toward labor market reform, such as
the introduction of lower severance pay in Spain. Managements are increasingly
emphasizing financial re-engineering and greater corporate focus, and efforts on
the part of governments and corporations to downsize and restructure will remain
a feature of European markets.
Japan's economy continues to recover. Although consumption remains weak,
there is some evidence of a revival in domestic demand. Deflation has abated and
residential land prices are stabilizing. Interest rates should stay low until
the recovery broadens and there is further resolution of the problems in the
banking sector. Regular announcements of share-buybacks and the introduction of
shareholder options reflect improved corporate governance on the part of
Japanese managements. Upcoming reform of holding company legislation should
provide additional clarity. Although deregulation is proceeding at a slow pace,
changes in rules governing pension fund weightings in equities and the
deregulation of the investment trust industry in 1998 will be an additional
positive for the market.
Smaller Asian equity markets have suffered over the last couple of years as
a conspiracy of cyclical forces combined to slow growth: restrictive Asian
central bank policy, economic weakness in major export markets Europe and Japan,
and a plunge in electronics and textile sectors. The outlook is mixed looking
forward. Thailand and Korea face banking and structural adjustment, while Hong
Kong has the special issue of the transition to Chinese sovereignty.
7
<PAGE>
Portfolio Strategy
The positioning of your portfolio did not undergo much change in the second
quarter, reflecting the fact that the fundamental conditions were largely
unchanged. The portfolio remains significantly underweight in Japan and
overweight in Europe.
In Europe, we continue to look to companies which are restructuring and
focused on building value for shareholders, such as Daimler Benz and Volkswagen
(VW) in Germany. VW, one of the best performing stocks in the German market this
year, is an excellent example of the restructuring theme. The company is rapidly
turning around from a loss situation, led by new CEO Ferdinand Piech. VW has
moved aggressively to slash costs, launching an impressive new model offensive
to gain market share. The company is reducing the number of production platforms
from sixteen to four across brands and regions, and realizing substantial cost
savings in the process. Today, VW ranks among the world's four largest car
producers, is the market share leader in Western Europe, and is strongly
positioned in emerging markets such as Latin America and elsewhere.
We are also positioned in companies with effective strategies and products
in growth markets, like telecommunication infrastructure provider Nokia in
Finland and information technology leader SAP in Germany. A focus on
telecommunications stocks in Southern Europe, where restructuring benefits,
improved financials, and developing market opportunities have aided the bottom
line, has been rewarded by excellent performance from holdings Telefonica de
Espana and Telecom Italia Mobile. Industry consolidation in the pharmaceutical
sector continued to drive portfolio returns, particularly in the U.K., where
Glaxo and Zeneca substantially outperformed the market. Swiss pharmaceutical
company Novartis followed its peers upwards with a rise of 29%. Banco Popular in
Spain and Astra in Sweden were sold over the quarter.
In Japan, new positions were taken in Advantest and Shiseido. Advantest is
a leading semiconductor testing equipment maker with a strong product cycle. The
company is relatively currency insensitive and attractively valued. Shiseido is
Japan's largest cosmetic manufacturer and ranks fourth globally. The cosmetic
market, which bottomed out in the second quarter, is picking up, and
high-priced, high-margin cosmetic sales, Shiseido's product focus, are
recovering. Overseas sales and margins are expanding under a new marketing
strategy, and management has put in place a new five-year plan to achieve higher
profitability. We continue to maintain a portfolio tilt towards high-quality,
technology-driven exporters such as Sony, Canon, Hitachi, and Tokyo Electron.
Over the period, we sold Bridgestone and Sumitomo Metal Mining, due to valuation
concerns.
In the Pacific Rim, we are guardedly optimistic that improved
profitability, combined with attractive stock valuations following several years
of market stagnation may lead to a rebound in selected markets. However, we
remain generally cautious on the smaller bourses in the Pacific Rim. Brazil
remains our favorite emerging market, as lower inflation and
8
<PAGE>
ongoing deregulation translates itself into spectacular share price performance.
Our focus in Brazil has largely been on a small number of government-controlled
companies in the process of being restructured prior to their eventual
privatization: telecommunications company Telebras, utility Electrobras and oil
company Petrobras.
Going forward, the Fund will continue to provide broad-based exposure to
the many exciting investment opportunities unfolding overseas, including those
presented by Europe's ongoing structural change and globally competitive
Japanese companies. Thank you for your interest in the Institutional
International Equity Portfolio.
/s/Irene T. Cheng /s/J. Gregory Garrett
Irene T. Cheng J. Gregory Garrett
Lead Portfolio Manager Portfolio Manager
9
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
----------- -----------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 4.7%
Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $969,159 on 7/1/97,
collateralized by a $962,000 U.S. Treasury Note, 6.25%,
2/15/03 (Cost $969,000) .......................................... 969,000 969,000
-----------
CONVERTIBLE BONDS -- 0.2%
Japan 0.2%
Softbank Corp., 0.5%, 3/29/02 (Cost $63,199) ........................ JPY 5,000,000 45,153
-----------
Shares
-----------
COMMON STOCKS -- 95.1%
Argentina 1.0%
YPF S.A. "D" (ADR) (Petroleum company) .............................. 6,500 199,875
Brazil 7.9%
Centrais Eletricas Brasileiras S.A. "B" (pfd.) (Electric utility) ... 520,000 310,570
Companhia Energetica de Minas Gerais (pfd.) (Electric power
utility) ......................................................... 6,000,000 309,307
Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial
complex) ......................................................... 5,900 131,799
Petroleo Brasileiro S.A. (pfd.) (Petroleum company) ................. 1,300,000 361,056
Telecomunicacoes Brasileiras S.A. (pfd.) (Telecommunication
services) ........................................................ 2,300,000 348,867
Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Steel
manufacturer) .................................................... 15,000 167,054
-----------
1,628,653
-----------
Canada 1.0%
Canadian Pacific Ltd. (Ord.) (Transportation and natural
resources) ....................................................... 7,523 214,095
-----------
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
----------- -----------
<S> <C> <C>
Finland 2.1%
Nokia AB Oy "A" (Leading manufacturer of telecommunications
equipment and cellular telephones) ............................... 2,950 220,366
Pohjola Insurance Co., Ltd. "B" (Insurance company) ................. 6,800 201,666
-----------
422,032
-----------
France 8.5%
Alcatel Alsthom (Manufacturer of transportation, telecommunication
and energy equipment) ............................................ 1,672 209,402
Cap Gemini Sogeti S.A. (Software consultants) ....................... 2,545 134,251
Carrefour (Hypermarket operator and food retailer) .................. 300 217,877
Lafarge S.A. (Producer of cement, concrete and aggregates) .......... 1,212 75,380
Lafarge S.A. (Registered) ........................................... 1,300 80,853
Pinault-Printemps, S.A. (Distributor of consumer goods) ............. 500 240,271
Rhone-Poulenc S.A. "A" (Medical, agricultural and consumer
chemicals) ....................................................... 4,695 191,740
Salomon S.A. (Manufacturer of ski and golf equipment) ............... 2,180 166,226
Schneider S.A. (Manufacturer of electronic components and
automated manufacturing systems) ................................. 4,164 221,638
Total S.A. "B" (International oil and gas exploration, development
and production) .................................................. 2,052 207,410
-----------
1,745,048
-----------
Germany 13.5%
Adidas AG (Manufacturer of sport shoes, clothing and equipment) ..... 1,200 132,791
BASF AG (Leading international chemical producer) ................... 6,500 240,196
Bayer AG (Leading chemical producer) ................................ 5,700 219,032
Bayerische Vereinsbank AG (Commercial bank) ......................... 4,800 196,227
Commerzbank AG (Worldwide multi-service bank) ....................... 8,100 229,425
Daimler-Benz AG (Automobile and truck manufacturer) ................. 2,500 202,827
Hoechst AG (Chemical producer) ...................................... 6,000 254,504
Mannesmann AG (Bearer) (Diversified construction and technology
company) ......................................................... 600 267,301
RWE AG (pfd.) (Producer and marketer of petroleum and chemical
products) ........................................................ 5,000 174,015
SAP AG (pfd.) (Computer software manufacturer) ...................... 1,100 228,313
Schering AG (Pharmaceutical and chemical producer) .................. 2,000 213,692
</TABLE>
See notes to financial statements.
11
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
<TABLE>
<CAPTION>
Market
Shares Value ($)
----------- -----------
<S> <C> <C>
VEBA AG (Electric utility, distributor of oil and chemicals) ........ 2,800 157,330
Volkswagen AG (Leading automobile manufacturer) ..................... 336 257,572
-----------
2,773,225
-----------
Hong Kong 6.1%
Cosco Pacific Ltd. (Shipping containers leasing and management) ..... 150,000 347,540
First Pacific Co., Ltd. (International management and investment
company) ......................................................... 88,000 112,452
HSBC Holdings Ltd. (Bank) ........................................... 10,308 310,013
Hutchison Whampoa Ltd. (Container terminal and real estate
company) ......................................................... 22,000 . 190,970
Kerry Properties, Ltd. (Real estate company) ........................ 54,000 131,039
Television Broadcasts Ltd. (Television broadcasting) ................ 38,000 170,692
-----------
1,262,706
-----------
Italy 2.9%
Ente Nazionale Idrocarburi SPA (Exploration and production of oil,
natural gas and chemicals) ....................................... 32,000 181,187
Luxottica Group SPA (ADR) (Manufacturer and marketer of
eyeglasses) ...................................................... 2,000 135,625
Telecom Italia Mobile SPA (Cellular telecommunication services) ..... 87,900 284,399
-----------
601,211
-----------
Japan 16.0%
Advantest Corp. (Producer of measuring instruments and
semiconductor testing devices) ................................... 2,800 214,990
Bridgestone Corp. (Leading automobile tire manufacturer) ............ 10,000 232,091
Canon Inc. (Leading producer of visual image and information
equipment) ....................................................... 8,000 217,782
DDI Corp. (Long distance telephone and cellular operator) ........... 26 191,920
Hitachi, Ltd. (General electronics manufacturer) .................... 12,000 134,020
Honda Motor Co., Ltd. (Leading automobile and motorcycle
manufacturer) .................................................... 6,000 180,614
Jusco Co., Ltd. (Major supermarket operator) ........................ 5,000 168,833
Keyence Corp. (Specialized manufacturer of sensors) ................. 1,100 163,162
Kokuyo Corp. (Leading manufacturer of paper stationery) ............. 5,000 135,241
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of
consumer electronic products) .................................... 9,000 181,398
</TABLE>
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
----------- -----------
<S> <C> <C>
Matsushita Electric Works, Inc. (Leading maker of building materials
and lighting equipment) .......................................... 5,000 56,714
Pioneer Electronics Corp. (Leading manufacturer of audio
equipment) ....................................................... 7,000 169,793
Ricoh Co., Ltd. (Leading maker of copiers and information
equipment) ....................................................... 13,000 170,142
Secom Co., Ltd. (Electronic security system operator) ............... 1,000 73,379
Shiseido Co., Ltd. (Leading cosmetic producer) ...................... 14,000 230,870
Sony Corp. (Consumer electronic products manufacturer) .............. 3,000 261,497
Sumitomo Electric Industries, Ltd. (Leading manufacturer of electric
wires and cables) ................................................ 11,000 184,277
Sumitomo Metal Industries, Ltd. (Leading integrated crude steel
producer) ........................................................ 45,000 127,999
Tokyo Electron Ltd. (Leading semiconductor production equipment
manufacturer) .................................................... 4,000 191,257
-----------
3,285,979
-----------
Korea 0.9%
Pohang Iron & Steel Co., Ltd. (ADR) (Leading steel producer) ........ 5,800 185,600
-----------
Malaysia 1.1%
Malayan Banking Berhad (Leading banking and financial services
group) ........................................................... 12,000 125,990
Renong Berhad (Holding company involved in engineering,
construction, financial services, telecommunication and
information technology) .......................................... 72,000 94,136
-----------
220,126
-----------
Netherlands 3.8%
AEGON Insurance Group NV (Insurance company) ........................ 3,000 209,384
Elsevier NV (International publisher of scientific, professional,
business, and consumer information books) ........................ 9,000 150,390
Getronics NV (Provider of computer installation and maintenance
services) ........................................................ 5,000 161,496
Heineken Holdings NV "A" (Brewery) .................................. 700 108,768
Wolters Kluwer CVA (Publisher) ...................................... 1,200 146,110
-----------
776,148
-----------
</TABLE>
See notes to financial statements.
13
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
<TABLE>
<CAPTION>
Market
Shares Value ($)
----------- -----------
<S> <C> <C>
Philippines 2.3%
C & P Homes, Inc. (Home construction company) ....................... 247,500 92,897
Manila Electric Co. "B" (Electric utility) .......................... 25,350 124,943
Metropolitan Bank and Trust Company (Commercial bank and trust
company) ......................................................... 4,774 101,359
SM Prime Holdings Corp. (Leader in commercial center
operations) ...................................................... 552,000 163,239
-----------
482,438
-----------
Portugal 1.3%
Portugal Telecom S.A. (Telecommunication services) .................. 6,500 262,231
-----------
Spain 2.4%
Acerinox, S.A. (Stainless steel producer) ........................... 1,200 224,852
Compania Telefonica Nacional de Espana S.A. (ADR)
(Telecommunication services) ..................................... 3,000 258,750
-----------
483,602
-----------
Sweden 4.4%
AGA AB "B" (Free) (Producer and distributor of industrial and
medical gases) ................................................... 8,600 114,511
Astra AB "A" (Free) (Pharmaceutical company) ........................ 4,266 79,414
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of
cellular telephone equipment) .................................... 7,000 275,625
S.K.F. AB "B" (Free) (Manufacturer of roller bearings) .............. 3,000 77,564
Skandia Foersaekrings AB (Free) (Financial conglomerate) ............ 9,800 361,063
-----------
908,177
-----------
Switzerland 8.3%
ABB AG (Bearer) (Manufacturer of electrical equipment) .............. 120 181,582
Adecco S.A. (Bearer) (Personnel and temporary employment
company) ......................................................... 600 230,058
Ciba Specialty Chemical (Registered) (Manufacturer of chemical
products for plastics, coatings, fibers and fabrics) ............. 1,083 100,106
Clariant AG (Registered) (Manufacturer of color chemicals) .......... 328 212,229
Credit Suisse Group (Registered) (Provider of bank services,
management services and life insurance) .......................... 1,500 192,571
Holderbank Financiere Glaris AG (Bearer) (Cement producer) .......... 266 251,156
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
----------- -----------
<S> <C> <C>
Novartis AG (Registered) (Pharmaceutical company) ................... 190 303,636
Roche Holdings AG (PC) (Producer of drugs and medicines) ............ 25 226,036
------------
1,697,374
------------
United Kingdom 11.6%
Avis Europe PLC (Car rental services) ............................... 83,800 189,791
BOC Group PLC (Producer of industrial gases) ........................ 11,177 194,227
Barclays PLC (Commercial and investment banking, insurance and
other financial services) ........................................ 8,750 173,691
British Petroleum PLC (Major integrated world oil company) .......... 16,590 206,376
Carlton Communications PLC (Television post production products
and services) .................................................... 25,500 215,935
General Electric Co., PLC (Manufacturer of power, communications
and defense equipment and other various electrical
components) ...................................................... 25,000 149,461
Glaxo Wellcome PLC (Pharmaceutical company) ......................... 8,934 184,857
Pearson PLC (Diversified media and entertainment holding
company) ......................................................... 14,000 162,267
PowerGen PLC (Electric utility) ..................................... 16,478 195,928
RTZ Corp., PLC (Mining and finance company) ......................... 10,000 174,274
Reuters Holdings PLC (International news agency) .................... 12,000 126,496
WPP Group PLC (Advertising agency) .................................. 46,000 188,062
Zeneca Group PLC (Holding company: manufacturing and marketing
of pharmaceutical and agrochemical products and specialty
chemicals) ....................................................... 7,000 231,510
------------
2,392,875
------------
Total Common Stocks (Cost $15,594,787) ................................. 19,541,395
------------
===================================================================================================================
Total Investments -- 100.0% (cost $16,626,986) (a) ..................... $ 20,555,548
============
</TABLE>
(a) Cost for federal income tax purposes was $16,629,183. At June 30, 1997, net
unrealized appreciation for all securities based on tax cost was
$3,926,365. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,220,849 and unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $294,484.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
----------------------
JPY Japanese Yen
15
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Assets and Liabilities (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Investments, at market (identified cost $16,626,986) ................... $20,555,548
Cash ................................................................... 1,109
Dividend and interest receivable ....................................... 56,291
Foreign tax recoverable ................................................ 28,377
Due from Manager ....................................................... 50,338
Deferred organizational expenses ....................................... 21,738
Other assets ........................................................... 346
------------
Total assets ..................................................... 20,713,747
Liabilities
Payable for investments purchased ...................................... $ 2,784
Other payables and accrued expenses .................................... 64,460
------------
Total liabilities ................................................ 67,244
------------
Net assets, at market value ............................................ $20,646,503
============
Net Assets Net assets consist of:
Undistributed net investment income 157,402
Net unrealized appreciation(depreciation) on:
Investments ...................................................... 3,928,562
Foreign currency related transactions ............................ (1,017)
Accumulated net realized loss ....................................... (873,968)
Paid-in capital ..................................................... 17,435,524
------------
Net assets, at market value ............................................ $20,646,503
============
Net asset value, offering and redemption price per share
($20,646,503 B 1,452,762 outstanding shares of
Capital Stock, $.001 par value, 100,000,000
shares authorized) .................................................. $14.21
=======
</TABLE>
See notes to financial statements.
16
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Operations (Unaudited)
For the six months ended June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income
Dividend (net of foreign taxes withheld of $17,824) .................... $ 216,548
Interest ............................................................... 29,366
------------
245,914
Expenses:
Management fee ......................................................... $ 83,045
Custodian and accounting fees .......................................... 59,368
Shareholder services ................................................... 16,290
Directors' fees and expenses ........................................... 3,620
Auditing ............................................................... 28,960
Reports to shareholders ................................................ 10,317
Amortization of organization expenses .................................. 2,849
Registration fees ...................................................... 9,500
Legal .................................................................. 5,068
Miscellaneous fees ..................................................... 2,025
------------
Total expenses before reductions ....................................... 221,042
Expense reductions ..................................................... (133,383)
------------
Expenses, net ....................................................... 87,659
------------
Net investment income .................................................. 158,255
------------
Net realized and unrealized gain (loss) on investments
Net realized loss from:
Investments ......................................................... (707,584)
Foreign currency related transactions ............................... (3,579) (711,163)
------------ ------------
Net unrealized appreciation (depreciation) from:
Investments ......................................................... 3,057,092
Foreign currency related transactions ............................... (1,017) 3,056,075
------------ ------------
Net gain on investments ................................................ 2,344,912
------------
Net increase in net assets resulting from operations ................... $ 2,503,167
============
</TABLE>
See notes to financial statements.
17
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months For the period
Ended April 3, 1996
June 30, (commencement of
1997 operations) to
(Unaudited) December 31, 1996
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income .................................................. $ 158,255 $ 143,757
Net realized loss on investments ....................................... (711,163) (174,257)
Net unrealized appreciation on investments during the period ........... 3,056,075 871,470
....................................................................... ------------- -------------
Net increase in net assets resulting from operations ................... 2,503,167 840,970
------------- -------------
Distributions to shareholders from net investment income ............... -- (156,525)
------------- -------------
Capital Stock Transactions:
Proceeds from sale of shares ........................................... 367,493 17,436,410
Reinvestment of distributions .......................................... -- 88,761
Cost of shares redeemed ................................................ (121,665) (313,308)
------------- -------------
Net increase in assets from Portfolio share transactions ............... 245,828 17,211,863
------------- -------------
Increase in net assets ................................................. 2,748,995 17,896,308
------------- -------------
Net Assets:
Beginning of period .................................................... 17,897,508 1,200
------------- -------------
End of period (including undistributed net investment income of
$157,402 and distributions in excess of net investment income of
$853) ............................................................... $20,646,503 $17,897,508
------------- -------------
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .............................. 1,433,768 100
------------- -------------
Shares sold ............................................................ 28,615 1,451,638
Shares issued to shareholders in reinvestment of distributions ......... -- 7,199
Shares redeemed ........................................................ (9,621) (25,169)
------------- -------------
Net increase in Portfolio shares ....................................... 18,994 1,433,668
------------- -------------
Shares outstanding at end of period .................................... 1,452,762 1,433,768
============= =============
</TABLE>
See notes to financial statements.
18
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the period
Six Months April 3, 1996
Ended (commencement of
June 30, operations) to
1997 December 31,
(Unaudited) 1996
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ................................... $ 12.48 12.00
------- -------
Income from Investment Operations:
Net investment income .................................................. .11 .11
Net realized and unrealized gain on investments ........................ 1.62 .48
------- -------
Total from investment operations ....................................... 1.73 .59
------- -------
Less distributions from income ......................................... -- (.11)
------- -------
Net asset value, end of period ......................................... $ 14.21 $ 12.48
======= =======
Total return (%) (b) ................................................... 13.86** 4.93**
Ratios and Supplementary Data
Net assets, end of period ($ millions) ................................. 21 18
Ratio of operating expenses, to average daily net assets (%) ........... .95* .95*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ...................................... 2.40* 2.55*
Ratio of net investment income, to average daily net assets (%) ........ 1.72* 1.24*
Portfolio turnover rate (%) ............................................ 37.9* 10.1*
Average commission rate paid (c) ....................................... $.0078 $.0004
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stock
securities.
* Annualized
** Not annualized
19
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Notes to Financial Statements
1. Organization
Institutional International Equity Portfolio (the "Portfolio") is a
portfolio of Scudder Institutional Fund, Inc. (the "Company") which is an
open-end, diversified management investment company. Currently the Portfolio is
comprised of a single class of shares ("Barrett International Shares").
2. Significant Accounting Policies
The Portfolio's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of management
estimates. Significant accounting policies followed by the Portfolio are:
(a) Security Valuation--Portfolio securities which are traded on U.S. or
foreign stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq System, for which
there have been sales, are valued at the most recent sale price reported on such
system. If there are no such sales, the value is the high or "inside" bid
quotation. Securities which are not quoted on the Nasdaq System but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the calculated
mean between the most recent bid and asked quotations. If there are no such bid
and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Portfolio, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
(b) Foreign Currency Transactions--The books and records of the Portfolio
are maintained in U.S. dollars.
Foreign currency transactions are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Portfolio does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
(c) Forward Foreign Currency Exchange Contracts. A forward foreign
currency exchange contract (forward contract) is a commitment to purchase or
sell a foreign currency at the settlement date at a negotiated rate. During the
period, the Portfolio utilized forward contracts as a hedge in connection with
portfolio purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss)
20
<PAGE>
is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Portfolio gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
(d) Federal Income Taxes--The Portfolio intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code and to
distribute all taxable income, including any realized net capital gains, to
shareholders. Therefore, no Federal income tax provision is required.
As of December 31, 1996, the Portfolio had a net tax basis capital loss
carryforward of approximately $147,000, which may be applied against any
realized net capital gains of each succeeding year until fully utilized or until
December 31, 2004, the expiration date. In addition, from November 1, 1996
through December 31, 1996, the Portfolio incurred approximately $14,000 of net
realized capital losses and $1,000 of net realized currency losses. As permitted
by tax regulations, the Portfolio intends to elect to defer these losses and
treat them as having arisen in the year ended December 31, 1997.
(e) Distribution of Income and Gains-- Distributions of net investment
income are made annually. During any particular year, net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Portfolio if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to foreign currency denominated securities. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolio may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Portfolio.
(f) Organization Costs--Costs incurred by the Portfolio in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period.
(g) Other--Investment transactions are recorded on a trade date basis.
Interest income is recorded on the accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend dates.
3. Repurchase Agreements
It is the Portfolio's policy to obtain possession, through its custodian,
of the securities underlying each repurchase agreement to which it is a party,
either through physical delivery or book entry transfer in the Federal Reserve
System or Participants Trust Portfolio. Payment by the Portfolio in respect of a
repurchase agreement is authorized only when proper delivery of the underlying
securities is made to the Portfolio's custodian. The Portfolio's investment
manager values such underlying securities each business day using quotations
obtained from a reputable, independent source. If the Portfolio's investment
manager determines that the value of such underlying securities (including
accrued interest thereon) does not at least equal the value of each repurchase
agreement (including accrued interest thereon) to which such securities are
subject, it will ask for additional securities to be delivered to the
Portfolio's custodian. In connection with each repurchase agreement transaction,
if the seller defaults and the value of the collateral declines or if the seller
enters an insolvency proceeding, realization of the collateral by the Portfolio
may be delayed or limited.
21
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Notes to Financial Statements (continued)
4. Purchases and Sales of Securities
For the six months ended June 30, 1997, purchases and sales of securities
(excluding short-term investments) aggregated $4,495,439 and $3,322,650,
respectively.
5. Management Fee and Other Transactions with Affiliates
The Portfolio retains Scudder, Stevens & Clark, Inc. ("Scudder") as
investment manager for the Portfolio, pursuant to an investment advisory
agreement between Scudder and the Company on behalf of the Portfolio, for a
management fee payable each month, based upon the average daily value of the
Portfolio's net assets, at an annual rate of 0.90%. Scudder has agreed not to
impose all or a portion of its management fee until July 31, 1997, and during
such period to maintain the annualized expenses of the Portfolio at not more
than 0.95% of average daily net assets. For the six months ended June 30, 1997,
Scudder did not impose any of its fee amounting to $83,045. In addition, Scudder
reimbursed expenses amounting to $50,338.
On June 26, 1997, Scudder entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in
Scudder, and Scudder will form a new global investment organization by combining
with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change its name to
Scudder Kemper Investments, Inc. Subject to the receipt of the required
regulatory and shareholder approvals, the transaction is expected to close in
the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Portfolio's shareholder service, transfer and dividend disbursing agent. For the
six months ended June 30, 1997, the amount charged by SSC aggregated $15,358 of
which $2,619 is unpaid at June 30, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records for the Portfolio. For the six
months ended June 30, 1997, the amount charged to the Portfolio by SFAC
aggregated $25,834, of which $4,167 is unpaid at June 30, 1997.
The Portfolio has a compensation arrangement under which payment of
Directors' fees may be deferred. Interest is accrued (based on the rate of
return earned on the 90 day Treasury Bill as determined at the beginning of each
calendar quarter) on the deferred balances and is included in "Directors' fees
and expenses." For the six months ended June 30, 1997, Directors' fees and
expenses amounted to $3,620. The accumulated balance of deferred Directors' fees
and interest thereon relating to the Portfolio aggregated $1,315, which is
included in accrued expenses of the Portfolio.
6. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
22
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23
<PAGE>
BARRETT INTERNATIONAL SHARES
345 Park Avenue, New York, New York 10154
(800) 854-8525
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Fund Accounting Agent
Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Transfer Agent and
Dividend Disbursing Agent
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
Legal Counsel
Dechert Price & Rhoads
Boston, Massachusetts 02109
-----------------
This report is for the information of the shareholders. Its use in connection
with any offering of the Company's shares is authorized only in case of a
concurrent or prior delivery of the Company's current prospectus.
BARRETT INTERNATIONAL
SHARES
-----------------------------------
Semiannual Report
June 30, 1997
