Semiannual Report
April 30, 1999
- --------------------------------------------------------------------------------
Foreign Equity Fund
Dear Investor
International stock markets performed well during the six months ended April 30,
and the strong rally that began in October continued for the balance of 1998.
However, as we moved into 1999 leadership changed with the European markets
losing ground and the Far Eastern markets picking up the pace. This change in
leadership is consistent with the relative economic cycles between the two
regions. The large economies of Europe remain becalmed, but in the Far East
there are distinct signs of recovery. Despite the fanfare that surrounded its
launch in January, the euro weakened significantly against the U.S. dollar,
which undercut returns from the Eurozone markets for U.S. investors.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 4/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Foreign Equity Fund 13.81% 6.67%
MSCI EAFE Index 15.44 9.81
Against this background of generally buoyant stock markets, the fund registered
strong absolute returns, particularly over the last six months. Relative results
were more mixed, and fund returns trailed the MSCI EAFE Index over both the 6-
and 12-month periods. This was principally due to an underweighting in Japan and
a low exposure to its banking sector, a large part of the index that recovered
sharply this year. As with the U.S. market, large-cap stocks continued to lead
many international markets. Our positions in non-index stocks impaired our
returns relative to the index.
The broad themes pushing world markets higher were improving sentiment,
recovering capital flows, and falling global interest rates. In Europe there was
the additional stimulus of heavy corporate activity, with transactions in the
first four months of 1999 totaling $641 billion compared with $864 billion for
the whole of 1998. The financial sector was active with the announcement of a
number of major deals that will hasten the consolidation of Europe's banking
industry. As in the U.S., leading telecommunication companies were also making
moves to strengthen their strategic positions in this attractive sector. Perhaps
the surprise in Europe was the weakness of the euro following its launch at the
beginning of the year. A slowdown in the important economies of Germany and
Italy allowed euro interest rates to decline, but the Kosovo situation and the
prospect of extended conflict at Europe's doorstep also cast a shadow over the
new currency. Since January, securities listed on the 11 stock markets of the
Eurozone have been denominated in euros, and a fall of 11% against the dollar
was embarrassing for the authorities and uncomfortable for the dollar-based
investor.
In the Pacific, there were some sharp rallies in the smal-ler markets where
there are signs that a number of economies are successfully introducing
necessary reforms following the traumas of a year ago. Even in Japan there was
some better news on the economy, and investors were encouraged to see the
government take action to recapitalize the banking sector. The Tokyo market
rallied strongly with financial stocks taking the lead. Japan also saw an
increase in corporate activity with Goodyear acquiring Sumitomo Rubber and
Renault buying about 35% of fellow automaker Nissan. For a country that has been
cautious about foreign control of its corporations, these were landmark deals.
Turning to the emerging markets, Latin America showed its usual volatility. The
Brazilian market plunged 28% in January as the authorities let the real (the
Brazilian currency)find its own level rather than risking fast-diminishing
reserves to protect it further. Although damaging at the time, this devaluation
at least cleared the ground for further progress and allowed interest rates to
decline from uncomfortably high levels. A new Central Bank governor, a
continuation of fiscal reforms, and a revised International Monetary Fund (IMF)
package all combined to restore investor confidence and the market has recently
been a strong performer. Mexico also rallied powerfully as economic reforms are
now seen to be taking hold, and a recovery in the oil price improved the
prospects for its current account.
INVESTMENT REVIEW
Europe
There has been a significant divergence within the economies of Europe, by far
our largest commitment at 69% of assets, with the major ones making little
progress and some of the small ones growing quite strongly.
Germany has usually been the locomotive of Europe, but its manufacturing sector
is weak at the moment and low interest rates have failed to get the economy
moving. There have been several wage settlements at levels significantly higher
than inflation, and there is little confidence among Germany's business leaders
in Gerhard Schroeder's new government of the Center Left. His former Finance
Minister, Oskar Lafontaine, was making strident calls for easier money that were
embarrassing for the new European Central Bank, whose mandate requires resolute
independence in the face of political coercion. Perhaps realizing his position
was increasingly difficult, Mr. Lafontaine resigned at the beginning of the
year, enabling Mr. Schroeder to improve his control after a wobbly start.
Germany's poor economic performance was reflected in its stock market, which has
made little progress. Our underweighting here was helpful but some of our larger
positions underperformed. SAP, the business management software company,
suffered from a slowdown in overseas markets and Gehe, the pharmaceutical
wholesaler and retailer, fell prey to regulatory concerns despite continued
sound growth in revenue and profits.
Market Performance
Six Months Local Local Currency U.S.
Ended 4/30/99 Currency vs. U.S. Dollars Dollars
- --------------------------------------------------------------------------------
Australia 17.95% 6.51% 25.62%
France 24.33 -10.37 11.43
Germany 16.48 -10.41 4.35
Hong Kong 28.01 -0.06 27.94
Italy 25.70 -10.49 12.51
Japan 30.14 -2.38 27.05
Mexico 33.09 8.22 44.03
Netherlands 26.16 -10.34 13.12
Norway 11.63 -5.32 5.69
Singapore 60.96 -3.85 54.76
Sweden 29.52 -7.06 20.38
Switzerland 13.74 -11.06 1.16
United Kingdom 21.46 -3.86 16.77
Source: FAME Information Services, Inc., using MSCI indices.
In France, the stock market did better, helped by signs of economic recovery and
continued restructuring in the corporate sector. Banque Nationale de Paris
amazed the financial sector with its audacious bid for both Paribas and Societe
Generale just as they were contemplating a friendly merger. Vivendi, the
utilities-based conglomerate and a key holding, demonstrated its international
ambitions with an $8 billion acquisition of U.S. Filter, and the consumer goods
company Pinault Printemps Redoute, another core holding, intervened in the
hostile bid by LVMH for Gucci by buying a 40% stake in the latter.
The Netherlands was another solid gainer with interest returning to Royal Dutch
Petroleum, a beneficiary of the rising oil price. Our additions to Philips
Electronics proved timely as the stock rallied strongly on the back of global
recovery and demand for technology products, but our position in Wolters Kluwer,
an international publisher with a steady growth record, lagged as investors
turned to more cyclical stocks. The Swiss market was another one where steady
growers such as Nestle (confectionery and food) and Novartis (pharmaceuticals)
were left on the sidelines, particularly as they announced earnings that were
below expectations. However Roche Holdings, the pharmaceuticals major, announced
strong results and pleased investors with the additional good news that the U.S.
FDA had approved its anti-obesity drug.
The U.K. market, which was the largest single country position in the portfolio,
was one of the best in Europe as stocks recently established new highs.
Investors were pleased with steady declines in interest rates and rising
optimism that a hard landing for the economy could be avoided. Stock market
performance was helped by the resilience of sterling, which (unlike the euro)
held up well against the U.S. dollar. Kingfisher performed well following its
deal with France's Castorama to establish Europe's largest do-it-yourself
retailer. In April, it announced a merger with supermarket Asda Group that will
create the U.K.'s largest retailer. This will allow cross-selling opportunities
and greater purchasing power, and will establish a platform to compete
internationally.
Turning to Scandinavia, the star performer was Sweden with Astra, a key
portfolio holding in the pharmaceutical sector, finalizing its merger with
Zeneca of the U.K. The combined group now has the scale to compete with the
largest companies in terms of research and international marketing. Household
appliance manufacturer Electrolux performed well on the back of an improvement
in operating margins and a buoyant U.S. market.
Far East
In Japan the economy remained depressed. GDP declined 2.5% in 1998, and in the
fiscal year ended March 1999 it declined again by a similar amount. Industrial
production was weak with auto production during the last fiscal year falling to
a 20-year low. Consumer spending was also subdued with chain store sales in
March showing one of the largest declines on record. Therefore, the current
picture of the Japanese economy is bleak, but one or two signs have encouraged
the optimists. The government has become more assertive in providing the right
background for the economic recovery, having at last come to grips with banking
sector problems by announcing a $500 billion bailout. The recently established
Financial Supervisory Agency (FSA) acted decisively to bail out both the Long
Term Credit Bank and the Nippon Credit Bank. In addition, we have also seen the
first phase of reform of Japan's archaic tax system, with cuts in corporate
rates that will be welcomed by the country's hard-pressed businesses. Investors,
too, should benefit from lower tax rates and a more rational tax system.
Geographic Diversification
- --------------------------------------------------------------------------------
Europe Far East Latin America Japan Other and Reserves
69 6 5 17 3
Based on net assets as of 4/30/99.
Aside from government initiatives, corporations increasingly recognize the need
for restructuring. Major international corporations such as Sony have announced
extensive rationalization of their manufacturing capacity, which will inevitably
involve layoffs both in Japan and overseas. Announcements like these might be
routine in the U.S., but it must be remembered that Japan has a culture of
lifetime employment and such changes must be handled sensitively. Another
encouraging sign for Japanese industry was stability in the smaller economies of
the Pacific Region. With the prospect of a slowdown in exports to the U.S.,
Japanese exporters will hope to see their regional markets picking up any slack.
Despite this gloomy economic news, the Tokyo stock market rallied strongly in
the six months under review. Perhaps the most important stimulus was the large
recapitalization program that removed much uncertainty from the important
banking sector. Corporate news was also encouraging with numerous announcements
about restructuring and several exporters noting that their regional markets had
shown significant improvement.
Looking at our Japanese portfolio in more detail, announcements of specific
restructuring from NEC and Sony helped performance, and there was foreign
support for a number of our core blue chip holdings. TDK was left behind due to
worries over stronger-than-expected price competition for magneto resistance
heads. The absence of bank stocks in our portfolio, for so long a successful
strategy, hindered results somewhat as the sector moved powerfully ahead
following the government's recapitalization program.
Elsewhere in the Pacific, the smaller stock markets of the region also rebounded
strongly. Investors sensed that the worst might be over for a number of these
economies, and falling interest rates helped sentiment too. As is typical when
markets recover, the rally was led by stocks that performed the worst during the
downturn. These included financial companies where the banks were helped by low
interest rates and the supportive policies of the world central banks. Cyclical
stocks also led the market on the assumption that they would be the most
sensitive to any upturn.
Industry Diversification
Percent of
Net Assets
4/30/99
- --------------------------------------------------------------------------------
Services 29.9%
Finance 20.9
Consumer Goods 19.9
Capital Equipment 12.4
Energy 9.2
Materials 3.4
Multi-industry 1.2
Miscellaneous --
Reserves 3.1
Net Assets 100.0%
Our portfolio structure in the Pacific outside of Japan is fairly conservative.
Hong Kong avoided the traumas of overinvestment and currency collapse that
plagued the rest of the region but still suffered a sharp contraction in its
economy. To protect the link between the Hong Kong and the U.S. dollar, the
authorities maintained a high interest rate policy for most of 1998, but the
price for this was a weak real estate market and deflation. However, Hong Kong
remains a key financial center for the Pacific, and its stock market rallied
strongly as interest rates fell and investors refocused on the region.
Australia seems to have come through the regional crises almost unscathed. The
economy is growing steadily, and there has been a virtuous mix of low inflation
and a strong currency. Unemployment declined moderately and consumer sentiment
remained healthy. In common with a number of Pacific economies, the recent
improvement in commodity prices should help prospects. Thus we have added the
natural resources leader Broken Hill Proprietary, which has also introduced new
management and a restructuring plan that should improve shareholder value.
However, the bulk of the portfolio remained in service sectors such as banks and
telecommunications/ media stocks, which have all done well.
Latin America
Latin America had an extraordinary half year, and Brazil was center stage as
usual. Late last year there was optimism that Brazil was back on the road to
reform. President Cardoso emerged from the October elections unscathed, and by
early November he had announced a new fiscal stability program. It provided a
mix of spending cuts and tax increases but offered a longer-term "Working
Agenda" to tackle the root causes of the structural problems. Such an ambitious
program would require new legislation, but the IMF was confident enough to
release its promised $41 billion financial package. Nevertheless, in early
December, to the surprise and dismay of markets, Congress failed to pass several
fiscal measures on which the IMF package was based. By mid-January the
government faced an overwhelming wave of currency selling and the Central Bank
was forced to stop defending the real, which devalued by over 30% in less than
three weeks. With sky-high interest rates and a massive fiscal deficit, the
question of a government default was openly discussed, but just as all seemed
lost Congress passed the crucial legislation it had rejected earlier. Confidence
was further improved with the appointment of Arminio Fraga, previously a savvy
investor with George Soros, as president of the Central Bank. The big question
for Brazil is whether the currency devaluation will be followed by a surge of
inflation. Opinions on this vary widely, but at present consumer prices remain
stable. Now, after two months of renewed international confidence, the markets
could have great opportunities ahead. However, we should not forget that Brazil
has a poor record for meeting IMF targets and implementing fiscal reform.
With Brazil engulfed by these traumas, the expectation was that Mexico would be
dragged down as well, but this time was different. The Mexican stock market held
up remarkably well during the Brazilian crisis and then performed far better
than other regional markets during the recovery. Due to its close associations
with the U.S. economy, Mexico has clearly been a prime beneficiary of the robust
U.S. growth. Despite low oil prices, its 1998 fiscal deficit was only 1.2% of
GDP, and the government's economic policies remained disciplined and convincing.
The Mexican peso has even strengthened against the dollar, and as a clear
beneficiary from the recent increase in the oil price, it is not surprising that
the stock market was one of the best performers during the six months under
review. The Argentine economy slowed sharply following the Brazilian
devaluation, but the banking system is now far stronger than when confidence was
last tested five years ago. With the Argentine peso maintaining parity with the
U.S. dollar, investor confidence has held. The government was even able to
access international markets and has already covered much of its financing needs
for this year. In Chile the economy is also suffering from a regional slowdown
with declining retail sales and the current account deficit, which is affected
by a weak copper price, remains an ongoing problem. However, based on its
policies of privatization and deregulation, low import tariff barriers, and
disciplined fiscal policy, Chile's economy remains one of the most successful in
the region. After a period of adjustment it should resume its growth path,
particularly if the price of copper has bottomed. Despite the uncertainties,
stock markets of both Chile and Argentina participated in the strong rally
throughout the region.
INVESTMENT POLICY AND OUTLOOK
Our current investment policy is to maintain close to 70% of portfolio assets in
Europe, with the U.K. at 19% the largest single country weighting. Japan at 17%
is second-largest and is somewhat lower than its weighting in the MSCI Index.
Our positions in the balance of the Pacific are just over 6% (in line with the
index weighting). Exposure to Latin America, which is not in the benchmark, was
just under 5% of the portfolio. During the past six months there were no
significant regional shifts, but there were numerous changes to individual
holdings. We sold where individual valuations looked extended but added to
positions or created new ones that fit our criteria of strong businesses, steady
growth, and reasonable valuation.
Going forward, our policy will be to continue to maintain the fund's geographic
mix. Despite the recent volatility in emerging markets, we believe that some
exposure to them is appropriate. The prospects for international markets will
depend significantly on whether the U.S. economy behaves in a way that will
maintain the benign environment of low inflation and stable interest rates. Its
performance over the last five years has been quite remarkable, and this has
been a major positive influence on both the U.S. stock market and investor
sentiment internationally. If the U.S. economy can continue to deliver its
favorable mix of steady growth, negligible inflation, and stable interest rates,
the investment environment will remain positive. In addition, if overseas
economies take over the leadership role, the case for international
diversification becomes compelling. Our country weightings and our preference
for growth stocks with reasonable valuations should help us achieve our goal of
long-term capital growth.
Respectfully submitted,
Martin G. Wade
President
May 21, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
Percent of
Net Assets
Company Country 4/30/99
- --------------------------------------------------------------------------------
National Westminster Bank United Kingdom 2.6%
SmithKline Beecham United Kingdom 1.8
Kingfisher United Kingdom 1.7
Wolters Kluwer Netherlands 1.7
Telecom Italia Italy 1.7
Shell Transport & Trading United Kingdom 1.6
Nestle Switzerland 1.5
ING Groep Netherlands 1.5
Glaxo Wellcome United Kingdom 1.4
Diageo United Kingdom 1.3
Vivendi Finland 1.2
Novartis Switzerland 1.1
Telebras Brazil 1.1
Fortis Netherlands 1.1
UBS Switzerland 1.0
Total France 1.0
Reed International United Kingdom 1.0
Unilever United Kingdom 1.0
Roche Holdings Switzerland 1.0
Telefonica de Espana Spain 0.9
Cable & Wireless United Kingdom 0.9
AstraZeneca Group Sweden 0.9
Nokia Finland 0.9
Nippon Telegraph &
Telephone Japan 0.9
Mannesmann Germany 0.9
- --------------------------------------------------------------------------------
Total 31.7%
- --------------------------------------------------------------------------------
Table excludes reserves
Security Classification
Percent Market
of Net Cost Value
4/30/99 Assets (000) (000)
- --------------------------------------------------------------------------------
Common Stocks and
Rights 95.4% $2,396,276 $3,140,616
Preferred Stocks 1.5 49,795 50,245
Short-Term Investments 2.9 96,918 96,918
Total Investments 99.8 2,542,989 3,287,779
Other Assets Less
Liabilities 0.2 7,666 7,666
Net Assets 100.0% $2,550,655 $3,295,445
- --------------------------------------------------------------------------------
Summary of Investments and Cash
April 30, 1999
Percent of
Equities Cash Total MSCI EAFE
- --------------------------------------------------------------------------------
Europe
Austria -- -- -- 0.3%
Belgium 1.5% -- 1.5% 1.5
Denmark 0.4 -- 0.4 0.8
Finland 0.9 -- 0.9 1.7
France 10.0 -- 10.0 9.2
Germany 6.2 -- 6.2 9.7
Ireland 0.1 -- 0.1 0.5
Italy 5.9 -- 5.9 4.7
Netherlands 9.5 -- 9.5 6.0
Norway 1.1 -- 1.1 0.4
Portugal 0.4 -- 0.4 0.5
Spain 3.1 -- 3.1 3.0
Sweden 3.7 -- 3.7 2.3
Switzerland 6.3 -- 6.3 7.0
United Kingdom 19.4 -- 19.4 22.7
------------------------------------------------------------------------------
Total Europe 68.5% -- 68.5% 70.3%
- --------------------------------------------------------------------------------
Pacific Basin
Australia 3.0% -- 3.0% 3.0%
China 0.4 -- 0.4 --
Hong Kong 1.8 -- 1.8 2.5
India 0.2 -- 0.2 --
Japan 17.1 -- 17.1 23.1
New Zealand 0.3 -- 0.3 0.2
Singapore 0.4 -- 0.4 0.9
South Korea 0.2 -- 0.2 --
------------------------------------------------------------------------------
Total Pacific Basin 23.4% -- 23.4% 29.7%
- --------------------------------------------------------------------------------
Americas
Argentina 0.9% -- 0.9% --
Brazil 2.1 -- 2.1 --
Canada 0.3 -- 0.3 --
Chile 0.1 -- 0.1 --
Mexico 1.6 -- 1.6 --
United States -- 2.9% 2.9 --
------------------------------------------------------------------------------
Total Americas 5.0% 2.9% 7.9% --
- --------------------------------------------------------------------------------
Other Assets
Less Liabilities -- 0.2 0.2% --
- --------------------------------------------------------------------------------
TOTAL 96.9% 3.1% 100.0% 100.0%*
- --------------------------------------------------------------------------------
* Totals may not add to 100.0% due to rounding.
Foreign Equity Fund
4/30/99
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
Foreign Equity Fund
- --------------------------------------------------------------------------------
As of 4/30/99
Foreign MSCI Lipper
Equity EAFE International
Fund Index Funds Average
9/7/89 10,000 10,000 10,000
4/90 8,714 10,111 10,069
4/91 9,124 10,431 10,688
4/92 8,378 10,939 11,338
4/93 10,226 11,894 12,334
4/94 11,959 14,730 15,350
4/95 12,662 14,800 15,623
4/96 14,149 17,282 18,399
4/97 14,065 18,647 19,730
4/98 16,770 22,751 23,124
4/99 18,414 23,137 24,665
MSCI EAFE since 8/31/89.
<TABLE>
Total Return Performance
- --------------------------------------------------------------------------------
<CAPTION>
Periods Ended Calendar Since
4/30/99 1 Month 3 Months Year-to-Date 1 Year 3 Years* 5 Years* 9/7/89*
<S> <C> <C> <C> <C> <C> <C> <C>
Foreign
Equity Fund 3.90% 6.47% 5.17% 6.67% 10.26% 9.95% 9.81%
S&P 500 Index 3.87 4.67 9.05 21.82 29.08 26.89 7.96
MSCI EAFE Index 4.07 5.88 5.60 9.81 9.18 9.02 6.52**
Lipper International
Funds Average 4.59 5.45 6.23 3.23 9.40 8.29 8.80
FT-A Euro
Pacific Index 4.61 7.20 6.76 10.72 8.18 8.27 6.02**
* Average annual compound total return. This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant rate.
** From 8/31/89.
Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than
at original purchase.
</TABLE>
Financial Highlights
Foreign Equity Fund
(Unaudited)
For a share outstanding throughout each period
-----------------------------------------------------------
6 Months Year
Ended Ended
4/30/99 10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of period $ 17.03 $ 16.51 $ 15.62 $ 13.99 $ 14.59 $ 13.32
Investment activities
Net investment
income 0.08 0.28 0.21 0.21 0.18 0.09
Net realized and
unrealized
gain (loss) 2.23 0.93 1.07 1.78 (0.14) 1.48
Total from
investment
activities 2.31 1.21 1.28 1.99 0.04 1.57
Distributions
Net investment
income (0.29) (0.21) (0.22) (0.18) (0.12) (0.09)
Net realized
gain (0.13) (0.48) (0.17) (0.18) (0.52) (0.21)
Total distributions (0.42) (0.69) (0.39) (0.36) (0.64) (0.30)
NET ASSET VALUE
End of period $ 18.92 $ 17.03 $ 16.51 $ 15.62 $ 13.99 $ 14.59
----------------------------------------------------------
Ratios/Supplemental Data
Total return* 13.81% 7.65% 8.30% 14.48% 0.64% 11.96%
Ratio of total
expenses to
average net assets 0.74%! 0.74% 0.75% 0.76% 0.80% 0.82%
Ratio of net
investment
income to
average
net assets 0.86%! 1.58% 1.40% 1.67% 1.69% 1.26%
Portfolio
turnover rate 11.8%! 18.6% 15.9% 13.8% 18.8% 22.0%
Net assets,
end of period
(in millions) $ 3,295 $ 3,204 $ 3,160 $ 2,322 $ 1,560 $ 1,058
* Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
Foreign Equity Fund
April 30, 1999 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
In thousands
ARGENTINA 0.9%
Common Stocks 0.9%
Banco de Galicia Buenos Aires
(Class B) ADR (USD) * 118,059 $ 2,723
Banco Frances del Rio de la Plata
ADR (USD) 107,688 2,773
Telefonica de Argentina (Class B)
ADR (USD) 185,964 6,950
YPF Sociedad Anonima
(Class D) ADR (USD) 397,259 16,685
Total Argentina (Cost $21,062) 29,131
AUSTRALIA 3.0%
Common Stocks 2.7%
Australian Gas Light 659,483 4,670
Brambles Industries 233,500 6,861
Broken Hill Proprietary 405,000 4,579
Colonial Limited 2,259,617 8,508
Commonwealth Bank
of Australia 600,691 10,937
Goodman Fielder 3,015,600 2,914
Lend Lease 354,654 4,781
News Corporation 990,355 8,300
Publishing & Broadcasting 1,315,904 8,845
TABCORP Holdings 755,130 6,141
Telstra 2,085,098 11,314
Westpac Bank 1,536,411 11,729
89,579
Preferred Stocks 0.3%
News Corporation 882,362 6,897
Star City Holdings 3,137,790 3,530
10,427
Total Australia (Cost $69,175) 100,006
BELGIUM 1.5%
Common Stocks 1.5%
Dexia (EUR) * 24,289 3,736
Fortis B (EUR) 444,628 14,913
KBC Bancassurance
Holding (EUR) 395,260 24,510
Societe Europeenne des Satellites
(Class A) (EUR) * 18,927 2,897
UCB (EUR) * 88,170 4,098
Total Belgium (Cost $28,329) 50,154
BRAZIL 2.1%
Common Stocks 1.3%
Pao de Acucar GDR (USD) 184,592 $ 3,219
Telebras ADR (USD) 404,052 36,844
Telecomunicacoes de
Sao Paulo * 967,420 73
Telesp 335,419 0
Unibanco GDR (USD) 117,158 2,907
43,043
Preferred Stocks 0.8%
Banco Bradesco 465,618,322 2,467
Banco Itau 4,882,000 2,587
Cia Cimento Portland Itau 4,882,700 526
Cia Energetica Minas Gerais 104,208,392 2,478
Cia Energetica Minas
Gerais ADR (144a) (USD) 19,838 481
Cia Energetica Minas
Gerais ADR, Cv. (USD) 28,009 679
Cia Energetica Minas
Gerais ADR, Sponsored
Nonvoting (USD) 124,287 3,014
Pao de Acucar GDR (USD) 6,480 113
Petrol Brasileiros 56,381,021 9,131
Telebras ADR (USD) 404,052 32
Telecomunicacoes de
Sao Paulo 33,358,233 4,157
Telecomunicacoes de Sao
Paulo Celular (Class B) * 31,817,420 1,360
27,025
Total Brazil (Cost $78,081) 70,068
CANADA 0.3%
Common Stocks 0.3%
Alcan Aluminum 169,050 5,333
Royal Bank of Canada 60,300 2,940
Total Canada (Cost $5,839) 8,273
CHILE 0.1%
Common Stocks 0.1%
Chilectra ADR (144a) (USD) 80,932 1,791
Compania Cervecerias
Unidas ADS (USD) 9,282 228
Total Chile (Cost $1,695) 2,019
CHINA 0.4%
Common Stocks 0.4%
China Telecom (HKD) 3,608,130 $ 8,239
Huaneng Power International
ADR (USD) * 405,710 5,452
Total China (Cost $15,015) 13,691
DENMARK 0.4%
Common Stocks 0.4%
Den Danske Bank 48,330 5,564
Tele Danmark 44,060 4,541
Unidanmark (Class A) 39,351 2,702
Total Denmark (Cost $9,357) 12,807
FINLAND 0.9%
Common Stocks 0.9%
Nokia (EUR) 379,500 29,306
Total Finland (Cost $3,855) 29,306
FRANCE 10.0%
Common Stocks 10.0%
Alcatel Alsthom (EUR) 113,371 13,917
AXA (EUR) 175,821 22,697
Carrefour (EUR) 27,175 21,531
Cie de St. Gobain (EUR) 85,086 14,606
Credit Commercial
de France (EUR) 128,343 13,558
Danone (EUR) 43,960 11,749
Dexia France (EUR) 37,216 5,209
Dexia France, Bearer (EUR) 18,928 2,649
Elf Aquitaine (EUR) 97,610 15,158
L'Oreal (EUR) 11,085 7,096
Lafarge (EUR) 52,801 5,132
Lapeyre (EUR) 28,440 2,163
Legrand (EUR) 36,849 8,798
Pinault Printemps
Redoute (EUR) 155,225 25,745
Sanofi (EUR) 131,860 20,658
Schneider (EUR) 295,096 19,250
Societe Generale (EUR) 68,862 12,323
Sodexho Alliance (EUR) 120,212 19,722
Television Francaise (EUR) 70,536 13,785
Total (Class B) (EUR) 243,111 $ 33,284
Vivendi (EUR) 172,552 40,303
Total France (Cost $215,262) 329,333
GERMANY 6.2%
Common Stocks 5.8%
Allianz (EUR) 51,030 16,253
Bayer (EUR) 289,714 12,303
Bayerische Vereinsbank (EUR) 356,754 23,253
Deutsche Bank (EUR) 253,874 14,751
Deutsche Bank (EUR) * 28,207 1,579
Deutsche Telekom (EUR) 346,095 13,638
Dresdner Bank (EUR) 355,577 15,326
Gehe (EUR) 351,534 16,154
Hoechst (EUR) 92,840 4,399
Hornbach Baumarkt (EUR) 4,945 125
Mannesmann (EUR) 216,620 28,513
Rhoen Klinikum (EUR) 51,974 5,216
SAP (EUR) 42,130 13,485
Siemens (EUR) 105,571 7,807
Veba (EUR) 239,486 13,130
Volkswagen (EUR) 63,310 4,488
190,420
Preferred Stocks 0.4%
Fielmann (EUR) 26,705 1,044
Fresenius (EUR) 16,580 2,890
SAP (EUR) 23,622 8,859
12,793
Total Germany (Cost $169,104) 203,213
HONG KONG 1.8%
Common Stocks 1.8%
Cheung Kong Holdings 429,670 3,908
CLP Holdings 1,622,500 8,729
Henderson Land Development 1,429,050 8,628
Hong Kong
Telecommunications 1,982,750 5,321
HSBC Holdings 202,810 7,510
Hutchison Whampoa 2,305,660 20,748
Sun Hung Kai Properties 692,400 6,052
Total Hong Kong (Cost $46,565) 60,896
INDIA 0.2%
Common Stocks 0.2%
Mahanagar Telephone
GDR (USD) 303,040 $ 3,152
State Bank of India
GDR (USD) 296,860 2,642
Total India (Cost $7,824) 5,794
IRELAND 0.1%
Common Stocks 0.1%
CBT Group ADR (USD) * 260,878 4,044
Total Ireland (Cost $8,486) 4,044
ITALY 5.9%
Common Stocks 5.9%
Assicurazioni Generali (EUR) 358,500 13,956
Banca Commerciale
Italiana (EUR) 657,060 5,407
Banca di Roma (EUR) 4,028,640 6,639
Banca Popolare di
Brescia (EUR) 218,530 7,514
Credito Italiano (EUR) 3,223,719 16,347
ENI (EUR) 2,937,532 19,333
Gucci Group (USD) 95,755 7,224
Istituto Nazionale delle
Assicurazioni (EUR) 5,747,780 15,180
Italgas (EUR) 716,225 3,185
Mediolanum (EUR) 1,059,845 6,998
Sao Paolo IMI (EUR) 1,084,006 16,261
Telecom Italia (EUR) 5,132,950 54,604
Telecom Italia
Mobile (EUR) 3,466,256 20,652
Total Italy (Cost $126,775) 193,300
JAPAN 17.1%
Common Stocks 17.1%
Alps Electric 307,000 5,206
Amada 267,000 1,677
Canon 1,101,000 26,921
Citizen Watch 439,000 3,639
Daiichi Pharmaceutical 627,000 10,186
Daiwa House 778,000 9,284
DDI 1,544 7,667
Denso 1,103,000 $ 22,398
East Japan Railway 1,711 10,101
Fanuc 167,300 7,285
Fujitsu 535,000 9,161
Hitachi 1,532,000 11,187
Honda Motor 97,000 4,272
Ito-Yokado 192,000 11,785
Kao 662,000 16,797
Kokuyo 379,000 5,697
Komori 328,000 6,070
Kuraray 898,000 10,227
Kyocera 291,000 17,277
Makita 572,000 6,140
Marui 941,000 15,610
Matsushita Electric
Industrial 1,201,000 22,829
Mitsubishi 931,000 6,159
Mitsubishi Heavy Industries 3,823,000 16,743
Mitsui Fudosan 1,780,000 16,396
Murata Manufacturing 367,000 20,990
NEC 1,964,000 23,452
Nippon Telegraph &
Telephone 2,623 28,554
Nomura Securities 1,389,000 14,981
NTT Mobile Communication
Network 316 18,523
Pioneer Electronic 155,000 2,946
Sankyo 819,000 17,180
Sekisui Chemical 1,212,000 8,099
Sekisui House 762,000 8,531
Seven-Eleven Japan 108,000 9,215
Shin-Etsu Chemical 435,000 13,842
Shiseido 509,000 8,013
Sony 295,700 27,609
Sumitomo 1,554,000 11,477
Sumitomo Electric
Industries 1,653,000 20,001
TDK 272,000 20,567
Tokio Marine & Fire
Insurance 410,000 4,776
Tokyo Electronics 177,000 10,079
Toppan Printing 760,000 9,139
Uny 401,000 6,380
Total Japan (Cost $568,241) 565,068
MEXICO 1.6%
Common Stocks 1.6%
Cemex (Class B) 601,010 $ 2,790
Cemex ADR (Represents 2
Participating Certificates)
(USD) 110,980 1,047
Cemex ADR (Represents 2
Participating Certificates)
(144a) (USD) 402,882 3,802
Cemex, Participating
Certificates (Represents 1
Class A share) 18,035 84
Femsa UBD (Represents 1
Class B and 4
Series D shares) * 1,321,690 4,720
Gruma (Class B) 619,238 1,188
Gruma ADR (USD) 150,336 1,165
Grupo Financiero
Bancomer (Class L) 8,116 2
Grupo Industrial
Maseca (Class B) 1,632,317 1,131
Grupo Modelo (Class C) 1,749,006 4,609
Grupo Televisa GDR (USD) * 150,462 6,169
Kimberly-Clark de
Mexico (Class A) 1,159,470 4,518
Telefonos de Mexico
(Class L) ADR (USD) 270,634 20,501
TV Azteca ADR (USD) 190,550 1,334
Total Mexico (Cost $49,076) 53,060
NETHERLANDS 9.5%
Common Stocks 9.5%
KPN (EUR) 94,275 3,934
ABN Amro (EUR) 710,398 16,923
Ahold (EUR) 593,177 22,026
Akzo Nobel (EUR) 82,762 3,738
ASM Lithography (EUR) 353,470 14,899
CSM (EUR) 254,479 13,603
Elsevier (EUR) 1,520,452 22,728
Equant (EUR) 16,880 1,532
Fortis Nl (EUR) 577,134 20,546
ING Groep (EUR) 780,385 48,062
Numico (EUR) 197,080 7,412
Philips Electronics (EUR) 254,360 21,899
Royal Dutch Petroleum (EUR) 413,978 $ 24,097
STMicroelectronics (EUR) * 99,200 10,333
TNT Post Groep (EUR) 94,275 2,540
Unilever (EUR) 229,734 15,726
VNU (EUR) 162,060 6,557
Wolters Kluwer (EUR) 1,276,164 55,543
Total Netherlands (Cost $227,709) 312,098
NEW ZEALAND 0.3%
Common Stocks 0.3%
Telecom Corporation of
New Zealand 1,867,592 9,728
Total New Zealand (Cost $8,505) 9,728
NORWAY 1.1%
Common Stocks 1.1%
Bergesen (Class A) 45,540 682
Norsk Hydro 394,922 17,672
Orkla (Class A) 1,050,820 17,625
Saga Petroleum 84,290 933
Total Norway (Cost $37,292) 36,912
PORTUGAL 0.4%
Common Stocks 0.4%
Jeronimo Martins (EUR) 332,581 10,944
Jeronimo Martins, New (EUR) 113,043 3,720
Total Portugal (Cost $5,098) 14,664
RUSSIA 0.0%
Common Stocks 0.0%
Rao Gazprom ADS (USD) 139,355 1,481
Total Russia (Cost $2,472) 1,481
SINGAPORE 0.4%
Common Stocks 0.4%
Singapore Press 358,969 5,290
United Overseas Bank 892,000 6,889
Total Singapore (Cost $11,664) 12,179
SOUTH KOREA 0.2%
Common Stocks 0.2%
Samsung Electronics 67,426 5,185
Total South Korea (Cost $6,596) $ 5,185
SPAIN 3.1%
Common Stocks and Rights 3.1%
Argentaria Banca de
Espana (EUR) 330,340 7,768
Banco Bilbao Vizcaya (EUR) 393,210 5,882
Banco Popular Espanol (EUR) 56,150 3,974
Banco Santander (EUR) 791,130 17,183
Empresa Nacional de
Electricidad (EUR) 478,928 10,645
Gas Natural (EUR) 94,696 7,648
Iberdrola (EUR) 789,516 11,051
Repsol (EUR) 398,700 6,486
Telefonica de Espana (EUR) 642,165 30,087
Telefonica de Espana
Rights, 5/20/99 (EUR) * 642,165 597
Total Spain (Cost $62,912) 101,321
SWEDEN 3.7%
Common Stocks 3.7%
ABB (Class A) 605,960 8,439
AstraZeneca Group ADR (USD) 759,007 29,597
Atlas Copco (Class B) 329,662 8,674
Electrolux (Class B) 900,765 18,257
Esselte (Class B) 89,370 1,393
Granges 79,808 1,353
Hennes and Mauritz (Class B) 297,315 25,619
Nordbanken Holding 2,780,478 17,466
Sandvik (Class B) 303,020 6,842
Securitas (Class B) 234,115 3,469
Total Sweden (Cost $75,844) 121,109
SWITZERLAND 6.3%
Common Stocks 6.3%
ABB 9,990 14,569
Adecco 39,403 19,860
Credit Suisse Group 88,975 17,641
Nestle 26,193 48,465
Novartis 25,203 36,887
Roche Holdings 2,674 31,442
Swisscom * 14,769 5,421
UBS 99,297 33,713
Total Switzerland (Cost $158,105) $ 207,998
UNITED KINGDOM 19.4%
Common Stocks 19.4%
Abbey National 868,200 19,564
Asda Group 3,717,310 12,349
BG 1,066,352 6,004
British Petroleum 921,652 17,481
Cable & Wireless 2,070,700 29,680
Cadbury Schweppes 1,367,378 18,235
Caradon 2,655,905 6,751
Centrica * 883,800 1,795
Compass Group 1,419,050 14,450
David S. Smith 1,428,370 3,079
Diageo 3,853,848 44,390
Electrocomponents 830,640 7,082
GKN 312,700 5,337
Glaxo Wellcome 1,510,900 44,723
Hays 138,000 1,534
Heywood Williams Group 244,756 1,083
John Laing (Class A) 582,820 2,991
Kingfisher 3,845,954 57,546
Ladbroke Group 1,579,880 7,593
National Westminster Bank 3,581,873 85,741
Rank Group 826,720 3,438
Reed International 3,583,840 32,632
Rio Tinto 1,112,060 19,392
Rolls Royce 796,171 3,692
Safeway 2,094,940 8,729
Shell Transport & Trading 7,168,400 53,853
SmithKline Beecham 4,470,780 58,976
Tesco 5,366,009 15,948
Tomkins 4,181,256 17,892
Unilever 1,788,000 15,935
United News & Media 1,655,020 20,128
Total United Kingdom (Cost $426,133) 638,023
SHORT-TERM INVESTMENTS 2.9%
Money Market Funds 2.9%
Reserve Investment Fund
5.01% # 96,917,774 96,918
Total Short-Term
Investments (Cost $96,918) 96,918
Total Investments in Securities
99.8% of Net Assets (Cost $2,542,989) $3,287,779
Other Assets Less Liabilities 7,666
NET ASSETS $3,295,445
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 12,427
Accumulated net realized gain/loss -
net of distributions 138,752
Net unrealized gain (loss) 744,618
Paid-in-capital applicable to 174,160,628
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares of
the Corporation authorized 2,399,648
NET ASSETS $3,295,445
----------
NET ASSET VALUE PER SHARE $ 18.92
----------
* Non-income producing
# Seven day yield
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers total of such securities at period-end amounts to
0.2% of net assets.
ADR American depository receipt
ADS American depository share
EUR European currency unit
GDR Global depository receipt
HKD Hong Kong dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Foreign Equity Fund
(Unaudited)
In thousands
6 Months
Ended
4/30/99
Investment Income
Income
Dividend (net of foreign
taxes of $3,130) $ 24,080
Interest 1,768
Total income 25,848
Expenses
Investment management 11,303
Custody and accounting 531
Shareholder servicing 20
Registration 18
Legal and audit 14
Directors 5
Prospectus and shareholder reports 2
Miscellaneous 7
Total expenses 11,900
Expenses paid indirectly (1)
Net expenses 11,899
Net investment income 13,949
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 161,295
Foreign currency transactions (970)
Net realized gain (loss) 160,325
Change in net unrealized gain or loss
Securities 247,709
Other assets and liabilities
denominated in foreign currencies (512)
Change in net unrealized gain or loss 247,197
Net realized and unrealized gain (loss) 407,522
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 421,471
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
Foreign Equity Fund
(Unaudited)
In thousands
6 Months Year
Ended Ended
4/30/99 10/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 13,949 $ 53,464
Net realized gain (loss) 160,325 13,925
Change in net unrealized gain or loss 247,197 169,539
Increase (decrease) in
net assets from operations 421,471 236,928
Distributions to shareholders
Net investment income (53,955) (40,559)
Net realized gain (24,187) (92,704)
Decrease in net assets
from distributions (78,142) (133,263)
Capital share transactions*
Shares sold 221,508 688,390
Distributions reinvested 58,441 102,189
Shares redeemed (531,517) (850,415)
Increase (decrease) in
net assets from capital
share transactions (251,568) (59,836)
Net Assets
Increase (decrease) during period 91,761 43,829
Beginning of period 3,203,684 3,159,855
End of period $ 3,295,445 $ 3,203,684
---------------------------------
*Share information
Shares sold 12,346 40,154
Distributions reinvested 3,394 6,463
Shares redeemed (29,718) (49,853)
Increase (decrease)
in shares outstanding (13,978) (3,236)
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
Foreign Equity Fund
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Institutional International Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Foreign Equity Fund (the
fund), a diversified, open-end management investment company, is the sole
portfolio established by the corporation and commenced operations on
September 7, 1989.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities are valued at the last quoted sales price at
the time the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. Expenses paid
indirectly reflect credits earned on daily, uninvested cash balances at the
custodian, used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $187,883,000 and $561,291,000, respectively, for the
six months ended April 30, 1999.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At April 30, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$2,542,989,000. Net unrealized gain aggregated $744,790,000 at period-end,
of which $873,418,000 related to appreciated investments and $128,628,000
to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc. (the
manager), which is owned by T. Rowe Price Associates, Inc. (Price
Associates), Robert Fleming Holdings Limited, and Jardine Fleming Holdings
Limited under a joint venture agreement. The investment management
agreement between the fund and the manager provides for an annual
investment management fee, of which $1,866,000 was payable at April 30,
1999. The fee is computed daily and paid monthly, and is equal to 0.70% of
average daily net assets.
In addition, the fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the
fund receives certain other services. Price Associates computes the daily
share price and maintains the financial records of the fund. T. Rowe Price
Services, Inc. (TRPS) is the fund's transfer and dividend disbursing agent
and provides shareholder and administrative services to the fund. T. Rowe
Price Retirement Plan Services, Inc. provides subaccounting and
recordkeeping services for certain retirement accounts invested in the
fund. The fund incurred expenses pursuant to these related party agreements
totaling approximately $72,000 for the six months ended April 30, 1999, of
which $14,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the six months ended
April 30, 1999, totaled $1,734,000 and are reflected as interest income in
the accompanying Statement of Operations.
During the six months ended April 30, 1999, the fund, in the ordinary
course of business, placed security purchase and sale orders aggregating
$21,192,000 with certain affiliates of the manager and paid commissions of
$34,000 related thereto.
