BARRETT INTERNATIONAL SHARES
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
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<PAGE>
<TABLE>
<CAPTION>
Board of Directors
<S> <C>
DAVID S. LEE^(1) Chairman of the Board; Managing Director, Scudder, Stevens
& Clark, Inc.
EDGAR R. FIEDLER^(1)^(2)^(3) Vice President and Economic Counsellor, The Conference Board;
formerly Assistant Secretary of the Treasury for Economic Policy
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; Director or Trustee,
Various Organizations
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
</TABLE>
- --------------------------------------------------------------------------------
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 first annual 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 when the Portfolio commenced
operations on April 3, 1996, through December 31, 1996.
Since the Portfolio has been in operation, the Portfolio has provided a
positive total return of 4.93%, 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
DECEMBER 31, 1996
- --------------------------------------------
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------
Total Return
Period Growth ------------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
Life of
Fund* $10,493 4.93% --
- --------------------------------------
MSCI EAFE & CANADA INDEX
- --------------------------------------
Total Return
Period Growth ------------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
Life of
Fund* $10,076 0.76% --
- --------------------------------------
*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
5/96 $ 9,951
6/96 $10,066
7/96 $ 9,671
8/96 $ 9,778
9/96 $ 9,934
10/96 $ 9,893
11/96 $10,272
12/96 $10,372
MSCI EAFE & CANADA INDEX
Year Amount
- ----------------------
4/96* $10,000
5/96 $ 9,829
6/96 $ 9,872
7/96 $ 9,583
8/96 $ 9,619
9/96 $ 9,880
10/96 $ 9,814
11/96 $10,218
12/96 $10,076
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.
PERIOD ENDED DECEMBER 31
1996*
-------------------------
NET ASSET VALUE... $12.48
INCOME DIVIDENDS.. $ .11
FUND TOTAL
RETURN (%)........ 4.93
INDEX TOTAL
RETURN (%)........ .76
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 life of the Portfolio would have been lower.
4
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO/BARRETT INTERNATIONAL SHARES
PORTFOLIO SUMMARY
DECEMBER 31, 1996
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PORTFOLIO CHARACTERISTICS
COUNTRY/REGION (Excludes Cash Equivalents of 10%)
- ---------------------------------------------------------------------------
Japan 21%
Emerging Markets 20%
Germany 15%
United Kingdom 11%
Switzerland 8%
France 8%
Sweden 5%
Netherlands 5%
Italy 3%
Other 4%
----
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 10%)
- --------------------------------------------------------------------------
Manufacturing 24%
Financial 11%
Service Industries 8%
Consumer Discretionary 7%
Metals & Minerals 6%
Communications 6%
Technology 6%
Energy 6%
Utilities 6%
Other 20%
-----
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 (13% of Portfolio)
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1. HOESCHT AG
Chemical producer in Germany
2. HENNES & MAURITZ AB
Clothing and cosmetics retailer throughout Europe
3. MANNESMANN AG
Diversified construction and technology company in Germany
4. BASF AG
Leading international chemical producer in Germany
5. BAYER AG
Leading chemical producer in Germany
6. CARLTON COMMUNICATIONS PLC
Television post production products and services in the United Kingdom
7. NOVARTIS AG
Pharmaceutical company in Switzerland
8. HSBC HOLDINGS LTD.
Bank in Hong Kong
9. L.M. ERICSSON TELEPHONE CO.
Leading manufacturer of cellular telephone equipment in Sweden
10. COMPANIA TELEFONICA NACIONAL DE ESPANA SA
Telecommunication services in Spain
For more complete details about the Portfolio's Investment Portfolio,
see page 9.
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
4.93% for the abbreviated fiscal year ended December 31, 1996, compared with
0.76% for the MSCI EAFE and Canada Index for the same time period. The Portfolio
commenced operations on April 3, 1996.
Although there were some important exceptions, most world markets turned in
performances that ranged from solid to strong. In Europe falling interest rates,
ongoing corporate restructuring, takeover activity, and greater management focus
on shareholder value propelled markets upwards. Investors seem to be
increasingly aware of the beneficial effects of structural changes on European
equity markets. Several bourses reached new peaks, including France, whose
market was characterized by takeover-related activity and renewed confidence in
French progress towards monetary union. Germany rose on the back of the strong
U.S. market, corporate restructuring, and a weaker Deutschemark. Deutsche
Telekom's initial public offering, the largest in Europe's history, also
provided additional focus. Nordic markets also benefited from falling interest
rates. In Spain, declining interest rates and optimism regarding currency
convergence drove the market significantly higher in the final quarter of the
year. The portfolio's tenth-largest holding as of year end, Compania Telefonica
Nacional de Espana SA, rose 24.5% in the last three months for a total gain of
65.4% this year. And the U.K. market turned in strong 1996 performance with a
gain of 27.4%, propelled by takeover activity and a buoyant consumer outlook.
Asian markets were mixed. Japan's market returned -15.5% for the year,
falling beneath the 19,000 level for the first time in more than a year while
the yen fell to a 45-month low against the dollar. Concerns about the feeble
economic recovery and the absence of domestic investors from the market
contributed to selling pressures. Korea's market fell 38.1% troubled by
corporate earnings, a widening trade gap, a depreciating currency, and a
collapse in the prices of semiconductors, which account for an important part of
national output. As concerns about the 1997 handover to China faded, improved
prospects for the local economy and property market caused the Hong Kong market
to rally 12.2% in the final quarter, contributing to a total return of 33.1% for
the year. Brazil continued its spectacular ascent, gaining another 7.3% in the
fourth quarter for a total gain of 53.2% this year, driven by an improving
macroeconomic backdrop, continued
6
<PAGE>
positive news on the privatization front, and the perception Brazilians are
likely to experience an extended period of low -- even single digit -- inflation
for the first time since the 1940s.
Portfolio Strategy
In Europe, we believe moderate growth and a benign inflation environment
will provide the basis for corporate profit growth in 1997. Industry
consolidation and corporate restructuring are being propelled by the forces of
global competition and the trend toward deregulation. Against this backdrop, we
continue to seek out companies with sound management strategies positioned to
benefit from these structural changes. The restructuring theme is most notable
in Germany at present, with strong performance from German-based holdings
Hoechst, BASF, and Daimler-Benz, all of which benefited from restructuring
efforts. But restructurings are also evident elsewhere in Europe. A prime
example is U.K.-based Pearson, which over the past three years has transformed
itself from a disparate group of businesses into a focused media company
featuring properties such as the Financial Times, the Economist, Penguin Books,
and Addison-Wesley. Pearson has taken steps to increase subscriptions to the
well-regarded Financial Times, including the use of electronic distribution
sites, and is using the paper's image to increase sales in the Penguin Books
division. Addison-Wesley, ranking in third place among U.S. educational
publishers, is also pursuing business expansion via electronic publishing
opportunities. With underworked intellectual property, Pearson is a potential
takeover target for a handful of European media empire builders.
Industry consolidation continues to be a successful theme in the portfolio.
Holding Carrefour rose substantially in the wake of a bid for 33% of Cora, the
eighth largest retailer in France. Consolidation of the retail sector in France
has been hastened by government restrictions on building new sites. Carrefour's
takeover bid for competitor Cora will enable the company to expand its
distribution network and become the predominant food retailer in France.
Consolidations are also reshaping the engineering sector in the United Kingdom,
as evidenced in portfolio holding General Electric Company. The company is a
recognized leader in the defense arena, and is considered the most likely
partner for U.S. defense companies seeking a foothold in Europe. GE also is
positioned to emerge as one of the few surviving players in global power
generation, and has a successful joint venture in power systems with Alcatel
Alsthom.
Japanese portfolio holdings constituted 21% of the portfolio as of
year-end, versus 31% at mid-year. Economic recovery remains elusive, marked by a
sluggish consumer environment, although the weakening yen should help reflate
the economy. Against this backdrop, we continue to seek out companies with
unique franchises and high-quality global blue chip stocks benefiting from a
weaker yen. One such unique franchise in the portfolio is supermarket operator
Jusco, which continued to outperform. The company has a very successful strategy
of establishing joint ventures with strong international
7
<PAGE>
firms such as Body Shop, Laura Ashley and Talbots, a factor underpinning strong
earnings growth. Jusco has also recently established joint ventures with
U.S.-based Sports Authority and Office Max to introduce the country's first
superstores, which are being introduced via lower-cost leasing of premises in
modestly priced shopping locations. Exposure to high-quality blue chip stocks
was rewarded by excellent performance from Canon, a Japanese leader in office
automation with impressive growth due to strong sales of copiers, steppers, and
printers. With 78% of sales overseas, the company is also a beneficiary of a
depreciating yen.
Our strategy in Asia has been to identify well-run, financially strong
companies in a good position to benefit from the opportunities created by
ongoing economic development in the Pacific Basin. Growth expectations are more
subdued than in prior years, due primarily to pricing problems in semiconductors
and consumer electronics, the falling yen's negative effect on Asian export
competitiveness, and weak demand in industrial countries. But we believe the
long-term growth story in Asia remains intact. We like players such as First
Pacific and HSBC in Hong Kong, which feature good managements and intra-regional
business strength. We are also invested in companies benefiting from strong
consumer spending and rising disposable incomes, including such standouts as
mall operator SM Prime in the Philippines and HM Sampoerna in Indonesia.
Looking Ahead
The core investment strategies for your portfolio remain essentially
unchanged. In Europe, we will continue to focus on structural change at the
industry and corporate level. In Japan, we have reduced exposure to domestic
growth and plan to focus on current or emerging globally oriented blue chip
companies. Expectations are limited for a sustained growth resurgence in Europe
or Japan, and as a result, we intend to avoid investments that we believe are
exposed to near-term cyclical economic risk.
Thank you for your interest in the Institutional International Equity
Portfolio.
/s/Carol L. Franklin /s/J. Gregory Garret
Lead Portfolio Manager Portfolio Manager
Carol L. Franklin J. Gregory Garrett
- --------------------------------------------------------------------------------
A Team Approach to Investing
Lead Portfolio Manager Carol L. Franklin has been responsible for setting the
Portfolio's investment strategy and overseeing security selection since the
Portfolio's inception. Ms. Franklin, who has 20 years of experience in finance
and investing joined Scudder in 1981. J. Gregory Garrett, Portfolio Manager,
joined Scudder in 1990, and the Portfolio's team in 1997. Mr. Garrett
specializes in international client service and international equity management
and has over ten years of investment experience.
- --------------------------------------------------------------------------------
8
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio
December 31, 1996
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
---------- ---------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 9.9%
Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at $1,760,655
on 1/2/97, collateralized by a $1,737,000 U.S. Treasury
Note, 6.375%, 3/31/01 (Cost $1,760,000) ................................... 1,760,000 1,760,000
-------------
CONVERTIBLE BONDS -- 0.2%
Japan
Softbank Corp., 0.5%, 3/29/02 (Cost $63,199) ....................... JPY 5,000,000 40,152
-------------
Shares
----------
PREFERRED STOCKS -- 1.8%
Germany
RWE AG (Producer and marketer of petroleum and chemical products) ......... 5,000 168,903
SAP AG (Computer software manufacturer) ................................... 1,100 153,636
-------------
Total Preferred Stocks (Cost $299,949) 322,539
-------------
COMMON STOCKS -- 88.1%
Argentina 0.9%
YPF S.A. "D" (ADR) (Petroleum company) .................................... 6,500 164,125
-------------
Brazil 4.3%
Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility) .......... 520,000 193,167
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) ...... 6,000,000 204,408
Petroleo Brasileiro S/A (pfd.) (Petroleum company) ........................ 1,300,000 207,054
Usinas Siderurgicas de Minas Gerais S/A (pfd.) (Non-coated
flat products and electrolytic galvanized products) .................... 150,000,000 153,017
-------------
757,646
-------------
Canada 1.1%
Canadian Pacific Ltd. (Ord.) (Transportation and natural resource
conglomerate) ........................................................... 7,523 198,015
-------------
</TABLE>
See notes to financial statements.
9
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
France 6.8%
Carrefour (Hypermarket operator and food retailer) ........................ 300 195,257
Christian Dior (Leading fashion house) .................................... 1,000 161,365
Compagnie Financiere de Paribas (Finance and investment company) .......... 3,060 207,009
Lafarge SA (Leading producer of cement, concrete and aggregates) .......... 1,300 78,020
Pinault-Printemps, SA (Distributor of consumer goods) ..................... 500 198,381
Rhone-Poulenc SA "A" (Medical, agricultural and consumer chemicals) ....... 516 17,598
Schneider SA (Manufacturer of electronic components and
automated manufacturing systems) ....................................... 4,164 192,586
Total SA "B" (International oil and gas exploration, development
and production) ........................................................ 2,052 166,945
-------------
1,217,161
-------------
Germany 12.0%
Adidas AG (Manufacturer of sport shoes, clothing and equipment) ........... 1,200 103,680
BASF AG (Leading international chemical producer) ......................... 6,500 250,313
Bayer AG (Leading chemical producer) ...................................... 5,700 232,540
Bayerische Vereinsbank AG (Commercial bank) ............................... 3,500 143,697
Commerzbank AG (Worldwide multi-service bank) ............................. 6,300 160,022
Daimler-Benz AG (Automobile and truck manufacturer)* ...................... 2,500 172,151
Deutsche Telekom AG (Telecommunication services)* ......................... 1,698 35,794
Deutsche Telekom AG (ADR) (Telecommunication services)* ................... 2,268 46,211
Hoechst AG (Chemical producer) ............................................ 6,000 283,366
Mannesmann AG (Bearer) (Diversified construction and technology
company) ............................................................... 600 259,980
Schering AG (Pharmaceutical and chemical producer) ........................ 2,000 168,773
Siemens AG (Leading electrical engineering and electronics
company) ............................................................... 2,500 117,745
VEBA AG (Electric utility, distributor of oil and chemicals) .............. 2,800 161,887
-------------
2,136,159
-------------
Ghana 0.5%
Ashanti Goldfields Co. Ltd. (ADS) (Leading gold producer) ................. 7,000 86,625
-------------
Hong Kong 4.6%
First Pacific Co. Ltd. (International management and investment company) .. 100,000 129,937
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
HSBC Holdings Ltd. (Bank) ................................................. 10,130 216,758
Hutchison Whampoa Ltd. (Container terminal and real estate
company) ............................................................... 22,000 172,797
Kerry Properties, Ltd. (Real estate company)* ............................. 54,000 148,012
Television Broadcasts Ltd. (Television broadcasting) ...................... 38,000 151,813
-------------
819,317
-------------
Indonesia 1.4%
Darya Varia Laboratoria (Foreign registered) (Producer of medicines
and pharmaceuticals) ................................................... 68,960 110,943
HM Sampoerna (Foreign registered) (Tobacco company) ....................... 26,000 138,696
-------------
249,639
-------------
Italy 2.5%
Ente Nazionale Idrocarburi SPA (Exploration and production of oil,
natural gas and chemicals) ............................................. 32,000 164,062
Luxottica Group SPA (ADR) (Manufacturer and marketer of
eyeglasses) ............................................................ 2,000 104,000
Telecom Italia Mobile SPA (Cellular telecommunication services) ........... 70,000 176,792
-------------
444,854
-------------
Japan 19.0%
Bridgestone Corp. (Leading automobile tire manufacturer) .................. 10,000 189,966
Canon Inc. (Leading producer of visual image and information
equipment) ............................................................. 8,000 176,841
DDI Corp. (Long distance telephone and cellular operator) ................. 18 119,057
East Japan Railway Co. (Railroad operator) ................................ 15 67,481
Fujitsu, Ltd. (Leading manufacturer of computers) ......................... 15,000 139,884
Hitachi, Ltd. (General electronics manufacturer) .......................... 12,000 111,907
Ishikawajima-Harima Heavy Industries Co. Ltd. (Comprehensive
heavy machinery manufacturer in aerospace and defense fields) .......... 21,000 93,386
Itochu Corp. (Leading general trading company) ............................ 19,000 102,046
Japan Associated Finance Co. (Venture capital company) .................... 2,000 158,017
Jusco Co. Ltd. (Major supermarket operator) ............................... 5,000 169,674
Kajima Corp. (Leading contractor engaged in large-scale civil
engineering projects) .................................................. 13,000 92,945
Kawasaki Steel Corp. (Major integrated steelmaker) ........................ 40,000 115,016
</TABLE>
See notes to financial statements.
11
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Keyence Corp. (Specialized manufacturer of sensors) ....................... 1,000 123,478
Kokuyo Corp. (Leading manufacturer of paper stationery) ................... 5,000 123,478
Komori Corp. (Leading manufacturer of offset printing machines) ........... 6,000 127,450
Kyocera Corp. (Leading ceramic package manufacturer) ...................... 2,000 124,687
Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) ....................... 1,000 50,341
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of
consumer electronic products) .......................................... 9,000 146,879
Matsushita Electric Works, Inc. (Leading maker of building materials
and lighting equipment) ................................................ 5,000 43,045
Mitsubishi Heavy Industries, Ltd. (Diversified heavy machinery
manufacturer and leading shipbuilder) .................................. 16,000 127,105
Pioneer Electronics Corp. (Leading manufacturer of audio
equipment) ............................................................. 7,000 133,581
Ricoh Co., Ltd. (Leading maker of copiers and information
equipment) ............................................................. 13,000 149,296
SMC Corp. (Leading maker of pneumatic equipment) .......................... 2,000 134,531
Secom Co., Ltd. (Electronic security system operator) ..................... 2,000 121,060
Sumitomo Electric Industries, Ltd. (Leading manufacturer of
electric wires and cables) ............................................. 11,000 153,873
Sumitomo Metal Industries, Ltd. (Leading integrated crude steel
producer) .............................................................. 45,000 110,742
Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper
mining company) ........................................................ 14,000 94,413
THK Co., Ltd. (Manufacturer of linear motion systems for industrial
machinery) ............................................................. 6,000 82,376
-------------
3,382,555
-------------
Korea 0.7%
Pohang Iron & Steel Co., Ltd. (ADR) (Leading steel producer) .............. 5,800 117,450
-------------
Malaysia 1.5%
Malayan Banking Berhad (Leading banking and financial services
group) ................................................................. 12,000 133,043
Renong Berhad (Holding company involved in engineering,
construction, financial services, telecommunication and
information technology) ................................................ 72,000 127,721
-------------
260,764
-------------
</TABLE>
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Netherlands 4.2%
AEGON Insurance Group NV (Insurance company) .............................. 3,000 191,190
Elsevier NV (International publisher of scientific, professional,
business and consumer information books) ............................... 9,000 152,119
Getronics NV (Provider of computer installation and maintenance
services) .............................................................. 5,000 135,737
Heineken Holdings N.V. "A" (Brewery) ...................................... 700 109,400
Wolters Kluwer CVA (Publisher) ............................................ 1,200 159,412
-------------
747,858
-------------
New Zealand 0.9%
Telecom Corp. of New Zealand (Telecommunication services) ................. 33,000 168,438
-------------
Philippines 3.0%
C & P Homes, Inc. (Home construction company) ............................. 247,500 127,044
Manila Electric Co. "B" (Electric utility) ................................ 19,500 159,411
Metropolitan Bank and Trust Company (Commercial bank and trust
company) ............................................................... 4,625 114,306
SM Prime Holdings Corp. (Leader in commercial center
operations) ............................................................ 552,000 142,722
-------------
543,483
-------------
Portugal 1.0%
Portugal Telecom SA (Telecommunication services) .......................... 6,500 185,295
-------------
Spain 2.1%
Acerinox, S.A. (Stainless steel producer) ................................. 1,200 173,403
Compania Telefonica Nacional de Espana SA (ADR)
(Telecommunication services) ........................................... 3,000 207,750
-------------
381,153
-------------
Sweden 4.3%
AGA AB "B" (Free) (Producer and distributor of industrial and
medical gases) ......................................................... 8,600 128,632
Astra AB "A" (Free) (Pharmaceutical company) .............................. 1,600 79,068
Hennes & Mauritz AB "B" (Free) (Clothing and cosmetics retailer
throughout Europe) ..................................................... 2,000 276,855
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of
cellular telephone equipment) .......................................... 7,000 211,313
</TABLE>
See notes to financial statements.
13
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
S.K.F. AB "B" (Free) (Manufacturer of roller bearings) .................... 3,000 71,047
-------------
766,915
-------------
Switzerland 7.2%
ABB AG (Bearer) (Manufacturer of electrical equipment) .................... 120 149,160
Adecco SA (Bearer) (Personnel and temporary employment company) ........... 600 150,504
CS Holdings (Registered) (Provider of bank services, management
services and life insurance) ........................................... 1,500 153,975
Clariant AG (Registered) (Manufacturer of color chemicals) ................ 328 140,309
Elektrowatt AG (Bearer) (Holding company: owner of electric
plants and interests in hydro and nuclear power plants) ................ 375 149,216
Holderbank Financiere Glaris AG (Bearer) (Cement producer) ................ 200 142,740
Novartis AG (Registered) (Pharmaceutical company) ......................... 190 217,447
SGS Holdings SA (Bearer) (Trade inspection company) ....................... 70 171,930
-------------
1,275,281
-------------
Thailand 0.0%
Thai Farmers Bank FRN Warrants (expire 9/15/02)* .......................... 750 709
-------------
United Kingdom 10.1%
BOC Group PLC (Producer of industrial gases) .............................. 11,000 164,592
British Petroleum PLC (Major integrated world oil company) ................ 16,287 195,183
Carlton Communications PLC (Television post production products
and services) .......................................................... 25,500 223,344
General Electric Co., PLC (Manufacturer of power, communications
and defense equipment and other various electrical components) ......... 25,000 163,924
Pearson PLC (Diversified media and entertainment holding
company) ............................................................... 14,000 178,562
PowerGen PLC (Electric utility) ........................................... 16,478 161,363
RTZ Corp. PLC (Mining and finance company) ................................ 10,000 160,586
Reuters Holdings PLC (International news agency) .......................... 12,000 154,183
WPP Group PLC (Advertising agency) ........................................ 46,000 199,243
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Zeneca Group PLC (Holding company: manufacturing and marketing
of pharmaceutical and agrochemical products and specialty
chemicals) ............................................................. 7,000 197,137
-------------
1,798,117
-------------
Total Common Stocks (Cost $14,829,632) ....................................... 15,701,559
-------------
- ----------------------------------------------------------------------------------------------------------------
Total Investments -- 100.0% (cost $16,952,780) (a) ........................... $ 17,824,250
=============
</TABLE>
* Non-income producing security.
(a) Cost for federal income tax purposes was $16,954,977. At December 31, 1996,
net unrealized appreciation for all securities based on tax cost was
$869,273. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,730,239 and unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $860,966.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
----------------------
JPY Japanese Yen
Sector breakdown of the Portfolio's equity securities is noted on page 5.
15
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C> <C>
Assets
Investments, at market (identified cost $16,952,780) (note 2) ................ $ 17,824,250
Receivable for Portfolio shares sold ......................................... 44,593
Dividend and interest receivable ............................................. 10,166
Foreign tax recoverable ...................................................... 11,100
Deferred organizational expenses (note 2) .................................... 24,587
Due from manager (note 5) .................................................... 80,840
-------------
Total assets ........................................................... 17,995,536
Liabilities
Accrued expenses (note 5) .................................................... $ 97,627
Other payables ............................................................... 401
----------
Total liabilities ...................................................... 98,028
-------------
Net assets, at market value .................................................. $ 17,897,508
=============
Net Assets
Net assets consist of:
Distributions in excess of net investment income .......................... $ (853)
Net unrealized appreciation on investments ................................ 871,470
Accumulated net realized loss ............................................. (162,805)
Paid-in capital ........................................................... 17,189,696
-------------
Net assets, at market value .................................................. $ 17,897,508
=============
Net asset value, offering and redemption price per share
($17,897,508 / 1,433,768 outstanding shares of
Capital Stock, $.001 par value, 100,000,000
shares authorized) ........................................................ $12.48
======
</TABLE>
See notes to financial statements.
16
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Operations
For the period April 3, 1996* to December 31, 1996
<TABLE>
<S> <C> <C>
Investment Income
Dividend (net of foreign taxes withheld of $18,811) .......................... $ 147,755
Interest ..................................................................... 106,448
-----------
254,203
Expenses:
Management fee (note 5) ...................................................... $ 104,861
Custodian and accounting fees (note 5) ....................................... 84,453
Shareholder services (note 5) ................................................ 18,182
Directors' fees and expenses (note 5) ........................................ 5,328
Registration fees ............................................................ 32,409
Auditing ..................................................................... 27,557
Reports to shareholders ...................................................... 12,351
Amortization of organization expenses (note 2) ............................... 4,155
Legal ........................................................................ 3,211
Miscellaneous fees ........................................................... 3,640
----------
Total expenses before reductions ............................................. 296,147
Expense reductions (note 5) .................................................. (185,701)
Expenses, net ............................................................. ---------- 110,446
-----------
Net investment income ........................................................ 143,757
-----------
Net realized and unrealized gain (loss) on investments
Net realized loss from:
Investments ............................................................... (162,805)
Foreign currency related transactions ..................................... (11,452) (174,257)
----------
Net unrealized appreciation from investments ................................. 871,470
-----------
Net gain on investments ...................................................... 697,213
-----------
Net increase in net assets resulting from operations ......................... $ 840,970
===========
</TABLE>
* Commencement of operations
See notes to financial statements.
17
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statements of Changes in Net Assets
For the period
April 3, 1996
(commencement of
operations) to
December 31, 1996
-----------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ......................................... $ 143,757
Net realized loss on investments .............................. (174,257)
Net unrealized appreciation on investments during the period .. 871,470
-----------
Net increase in net assets resulting from operations .......... 840,970
-----------
Distributions to shareholders from net investment income ...... (156,525)
-----------
Capital Stock Transactions:
Proceeds from sale of shares .................................. 17,436,410
Reinvestment of distributions ................................. 88,761
Cost of shares redeemed ....................................... (313,308)
-----------
Net increase in assets from Portfolio share transactions ...... 17,211,863
-----------
Increase in net assets ........................................ 17,896,308
-----------
Net Assets:
Beginning of period ........................................... 1,200
-----------
End of period (including distributions in excess of net
investment income of $853) ................................. $17,897,508
===========
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ..................... 100
-----------
Shares sold ................................................... 1,451,638
Shares issued to shareholders in reinvestment of
distributions .............................................. 7,199
Shares redeemed ............................................... (25,169)
-----------
Net increase in Portfolio shares .............................. 1,433,668
-----------
Shares outstanding at end of period ........................... 1,433,768
===========
See notes to financial statements.
18
<PAGE>
International International Equity Portfolio/Barrett International Shares
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
For the period
April 3, 1996
(commencement of
operations) to
December 31, 1996
-----------------
Net asset value, beginning of period .......................... $ 12.00
-------
Income from Investment Operations:
Net investment income ......................................... .11
Net realized and unrealized gain (loss) on investments ........ .48
-------
Total from investment operations .............................. .59
-------
Less distributions from income ................................ (.11)
-------
Net asset value, end of period ................................ $ 12.48
=======
Total return (%) (b) .......................................... 4.93**
Ratios and Supplementary Data
Net assets, end of period ($ millions) ........................ 18
Ratio of operating expenses, to average daily net assets (%)... .95*
Ratio of operating expenses before expense reductions,
to average daily net assets (%).............................. 2.55*
Ratio of net investment income, to average daily net assets (%) 1.24*
Portfolio turnover rate (%).................................... 10.1*
Average commission rate paid (c)............................... $ .0004
(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 National Association of
Securities Dealers Automatic Quotation ("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 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 period April 3, 1996 (commencement of operations) to December 31,
1996, purchases and sales of securities (excluding short-term investments)
aggregated $16,433,501 and $1,077,915, 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 April 30, 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 period April 3, 1996
(commencement of operations) to December 31, 1996, Scudder did not impose any of
its fee amounting to $104,861. In addition, Scudder reimbursed expenses
amounting to $80,840.
Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Portfolio's shareholder service, transfer and dividend disbursing agent. For the
period April 3, 1996 (commencement of operations) to December 31, 1996, the
amount charged by SSC aggregated $17,723 of which $ 2,292 is unpaid at December
31, 1996.
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 period
April 3, 1996 (commencement of operations) to December 31, 1996, the amount
charged to the Portfolio by SFAC aggregated $36,458, all of which is unpaid at
December 31, 1996.
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 period April 3, 1996 (commencement of operations) to
December 31, 1996, directors' fees and expenses amounted to $3,452. The
accumulated balance of deferred directors' fees and interest thereon relating to
the Portfolio aggregated $1,876, 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
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
SCUDDER INSTITUTIONAL FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Institutional International
Equity Portfolio, a portfolio of Scudder Institutional Fund, Inc. (hereafter
referred to as the "Portfolio") at December 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
period April 3, 1996 (commencement of operations) through December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
- --------------------------------------------------------------------------------
Federal Tax Status of 1996 Dividends (Unaudited)
The total amount of dividends declared in 1996 for Scudder Institutional
International Equity Portfolio is taxable as ordinary dividend income for
Federal income tax purposes. None of this amount qualifies for the dividends
received deduction available to corporations.
The Fund paid foreign taxes of $18,811 and recognized $103,592 of foreign
source income during the period ended December 31, 1996. Pursuant to section 853
of the Internal Revenue Code, the fund designates $0.013 per share of foreign
taxes and $0.073 per share of income from foreign sources as having been paid in
the period ended December 31, 1996.
- --------------------------------------------------------------------------------
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
Sullivan & Cromwell
New York, New York
- --------------------------------------------------------------------------------
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
---------------------
ANNUAL REPORT
DECEMBER 31, 1996
