DREYFUS INTERNATIONAL EQUITY FUND, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
It is my pleasure to introduce Ronald Chapman, who took over management
of Dreyfus International Equity Fund April 1, 1996, replacing M&G Investment
Management Limited, of London. Ron, who is based in New York, now heads up
all international equity investing for Dreyfus.
Prior to joining our staff last January, Ron was actively involved in
international research and portfolio management at the Northern Trust Company
for the past ten years. He was instrumental in building that organization's
highly competitive products and performance record in international equities.
Earlier in his career, Ron served as an energy industry analyst in the
investment research departments of Northern Trust and Continental Illinois
Bank.
Ron brings to Dreyfus a disciplined approach to asset allocation and
portfolio construction. We have great confidence in his ability to manage
international investments for the benefit of the Fund's shareholders.
Sincerely,
[Stephen E. Canter signature logo]
Stephen E. Canter
Chief Investment Officer
The Dreyfus Corporation
DREYFUS INTERNATIONAL EQUITY FUND, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
Dreyfus International Equity Fund produced a total return of 12.74% for
the year ended May 31, 1996,* well ahead of the 10.67% total return of the
Morgan Stanley Capital International Europe, Australasia, Far East (MSCI
EAFE(R)) Index for the period.** During the same time span, the Standard &
Poor's 500 Composite Stock Price Index, composed entirely of U.S. listed
stocks, returned 28.41%.***
NEW INVESTMENT APPROACH
As the new manager of your Fund since April 1996, I would like to take
this opportunity to lay out my investment approach before explaining my
current strategy for the Fund in the latter part of this letter.
During my 12 years in the international equity management business, I
have developed an investment process designed to deliver to shareholders a
portfolio that includes a wide variety of holdings in 15 to 25 markets around
the world, exposure to rapidly growing emerging markets when they are
attractive for investment, and active currency management.
The crucial challenge for an international investor is how to judge the
relative attractiveness of various markets when there are scores to choose
from. I address this challenge by evaluating inputs on growth, valuation,
interest rates, liquidity, technical factors and currency in each of the
world's major markets. My work in these areas is driven by PC-based tools I
have developed over time. Markets and industry sectors will be overweighted,
underweighted or market weighted relative to those of the MSCI EAFE Index.
Markets and industry sectors are overweighted or underweighted by no more
than 70%, with two exceptions. First, the largest market in the MSCI EAFE
Index, Japan, has a 50%-150% weighting band. Second, while emerging markets
comprise only 7% of the EAFE Index, the Dreyfus International Equity Fund may
invest up to 30% of its assets in this area when significant opportunities
present themselves. The reason for this policy is twofold. First, emerging
markets have the highest secular growth rates in the world for Gross Domestic
Product and earnings per share. An international portfolio should offer
shareholders substantial exposure to this long-term opportunity. Second,
emerging markets often reach valuation extremes seldom seen in more developed
equity markets. Making a significant investment at the appropriate time can
position the Fund to benefit from these extraordinary opportunities.
In the investment process I have developed, stocks are managed in a
disciplined way. I search for stocks expected to have higher earnings growth
rates than the market in which they trade. Attractive companies often have
made a corporate change in management, strategy or business structure that
should positively alter their future growth rate. Stocks purchased also need
to have attractive valuations relative to both their own history and that of
the local market. Companies are sold when growth is forecast to fall below my
own or consensus estimates, and the valuation target is reached or the
weighting in that market reduced as a result of an asset allocation decision.
Foreign currencies are at least partially hedged, where practicable, when
I believe that a given currency has 10% or more downside risk against the
U.S. Dollar over the next 12 to 18 months.
PORTFOLIO CHANGES
What does my work reveal about the international investment picture at
the moment and what have I done to position your Fund to benefit?
First, the relatively low interest rates prevailing around the world over
the last several years are finally producing (as they nearly always do) a
period of fairly strong growth. I believe that economic growth will
be quite strong in the latter half of 1996 and into 1997. It appears to me
that the European economies bottomed in the second quarter of 1996 after a
slowdown that began in late 1994. Growth across Europe should strengthen
throughout the second half of 1996 and extend well into 1997, if not beyond.
Meanwhile Japan, the world's second largest economy, is finally climbing out
of the deep, deep four-year recession that followed the collapse in 1990 of
that country's 1980s boom. Emerging markets should of course continue to grow
as they generally do year in and year out. This bullish outlook has led me to
eschew many of the stable growth companies that have performed so well over
the last several years of low economic growth and falling interest rates.
Areas such as pharmaceuticals and European stable growth stocks have been sold
in favor of more economically sensitive equities such as Japanese retailers and
consumer electronics issues, engineering companies in Europe and Japan, and
rapidly growing emerging market stocks in Asia and Latin America.
OUTLOOK IN JAPAN
Japan remains a major focus of investment in your Fund. The Fund's
Japanese holdings have been increased substantially since April. While the
stock markets of most major countries around the world have been advancing
quite strongly over the course of the 1990s, Japan's Nikkei Index appears to
be in the very early stages of a new bull market. Even before the Japanese
economy began to grow again, Japanese nonfinancial companies recorded very
strong earnings growth in the fiscal year ending March 31, 1996 due to
extensive cost cutting and restructuring. They are set to record strong gains
again in the current year as demand drives revenues higher and margins
further expand. As a result, the price-earnings ratio on the Japanese market
is dropping rapidly against a still relatively benign interest rate
environment.
Other market factors I evaluate, including liquidity and technical
analysis, also look strong in Tokyo. Japanese investors are slowly returning
to the market six years after the market began its retreat from the all-time
high of late 1989. The Japanese market is climbing a wall of worry and this
does not surprise me after the difficult times investors, businesses and
consumers have experienced in the first half of the nineties. Americans need
only look to the period after the 1929 crash in U.S. market history to find a
parallel. It took U.S. investors 15 years until the mid-forties to begin a
strong new bull market. Things move along faster these days, leaving me
confident that Japanese investors are slowly opening their eyes to what lies
ahead - a bright new century in which companies listed on the Tokyo exchange
should benefit enormously from renewed growth in their own economy and
participate handsomely in the very rapid growth of the emerging markets that
surround them.
THE EUROPEAN PORTFOLIO
On the opposite side of the world there are two areas of concentration in
the European portion of Dreyfus International Equity Fund. These are, as
mentioned above, economically sensitive stocks, and the vast number of
European companies that are in the process of restructuring. Although the
popular press on this side of the Atlantic has paid little attention to this
trend, financial return targets are being more sharply defined and, in most
cases, raised in a large number of European companies; underperforming and
non-core assets are being sold, excess employment reduced, and shareholders
raised in stature. Your Fund has investments in a significant number of these
companies. Overall, while Europe's share of the portfolio remains roughly the
same size, the content has changed substantially since April.
ASIA, LATIN AMERICA AND EASTERN EUROPE
Emerging markets in Asia, Latin America and Eastern Europe began 1996
with sharp rises. Many are now consolidating. I believe the consolidation
period may last a bit longer, but that many emerging markets will end 1996 a
good deal higher than they currently stand. As investors become acclimated to
a world of high growth and, unfortunately, somewhat higher interest rates,
they will also realize that in previous periods of strong global growth
emerging markets performed quite well. I am currently increasing your Fund's
investments in emerging markets which are reasonably priced and growing as
fast as ever.
Lastly, trends in U.S. interest rates compared to those of Europe point
toward a period of somewhat weaker European currencies. Dreyfus International
Equity Fund's European currency exposure has been partially hedged as a
result.
Ownership of the Dreyfus International Equity Fund offers investors the
opportunity to increase your long-term capital through ownership of
growth-oriented companies and economies outside the U.S. I will continue to
manage the Fund toward that goal.
Sincerely,
[Ronald Chapman signature logo]
Ronald Chapman
Portfolio Manager
June 25, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**SOURCE: LIPPER ANALYTICAL SERVICES, INC. - The Morgan Stanley Capital
International Europe, Australasia, Far East (EAFE(R)) Index is an unmanaged
index composed of a sample of companies representative of the market
structure of European and Pacific Basin countries. The return indicated
includes net dividends reinvested. The Index is the property of Morgan
Stanley & Co., Incorporated.
***SOURCE: LIPPER ANALYTICAL SERVICES, INC. - Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
DREYFUS INTERNATIONAL EQUITY FUND, INC. MAY 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS INTERNATIONAL
EQUITY FUND, INC. AND THE MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST (EAFERegistration Mark) INDEX
[Exhibit A:
Dollars
$13,398
Morgan Stanley Capital
International Europe,
Australasia, Far East
(EAFERegistration Mark) Index*
$12,713
Dreyfus International
Equity Fund
*Source: Lipper Analytical Services, Inc.]
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FROM INCEPTION (6/29/93)
MAY 31, 1996 TO MAY 31, 1996
________ _____________
12.74% 8.56%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment in Dreyfus International Equity
Fund, Inc. on 6/29/93 (Inception Date) to a $10,000 investment made in the
Morgan Stanley Capital International Europe, Australasia, Far East
(EAFERegistration Mark) Index on that date. For comparative purposes, the
value of the Index on 6/30/93 is used as the beginning value on 6/29/93. All
dividends and capital gain distributions are reinvested. The Fund's
performance shown in the line graph takes into account all applicable fees
and expenses. The Morgan Stanley Capital International Europe, Australasia,
Far East (EAFERegistration Mark) Index, which is the property of Morgan
Stanley & Co. Incorporated, is an unmanaged index composed of a sample of
companies representative of the market structure of European and Pacific
Basin countries and includes net dividends reinvested. The Index does not
take into account charges, fees and other expenses. Further information
relating to Fund performance, including expense reimbursements, if
applicable, is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
<TABLE>
<CAPTION>
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF INVESTMENTS MAY 31, 1996
COMMON STOCKS-98.8% SHARES VALUE
_______ _______
<S> <C> <C>
AUSTRALIA-2.1% Boral.................................. 800,000 $ 2,103,758
______
CANADA-1.1% Ranger Oil............................. 150,000 1,125,000
______
FINLAND-1.0% Cultor Oy.............................. 22,000 1,030,599
______
FRANCE-7.0% Elf Aquitaine.......................... 14,000 1,015,960
Groupe Danone.......................... 6,500 952,972
Lafarge................................ 13,500 891,186
Michelin, Cl. B........................ 16,000 808,300
Rhone-Poulenc, Cl. A................... 39,000 974,149
Sanofi................................. 18,100 1,396,331
Societe Television Francaise 1......... 10,000 1,169,398
______
7,208,296
______
GERMANY-4.9% Adidas................................. 13,000 977,453
Continental............................ 60,000 1,035,773
Deutsche Bank.......................... 20,000 940,597
Thyssen................................ 6,000 1,111,782
Veba................................... 18,500 969,626
______
5,035,231
______
HONG KONG-3.8% HKR International...................... 596,800 682,723
Hong Kong Electric Holdings............ 300,000 961,712
Hong Kong Land Holdings................ 375,000 825,000
Melco International Development........ 42,500 13,185
Shun Tak Holdings...................... 850,000 565,846
Swire Pacific, Cl. A................... 100,000 888,679
______
3,937,145
______
INDONESIA-1.1% PT Indofood Sukses Makmur............ 150,000 680,210
PT Telekomunikasi Indonesia, A.D.R...(a) 15,000 457,500
______
1,137,710
______
IRELAND-1.2% Independent Newspapers................. 80,000 635,000
Irish Continental Group................ 70,000 600,075
______
1,235,075
______
ITALY-3.0% Credito Italiano....................... 600,000 746,259
Fiat................................... 300,000 1,054,480
Parmalat Finanziaria................... 1,000,000 1,256,073
______
3,056,812
______
JAPAN-34.4% Alpine Electronics..................... 29,000 536,391
Amada.................................. 52,000 538,611
Bank of Tokyo-Mitsubishi............... 54,000 1,278,461
Circle K Japan......................... 22,000 984,741
DDI.................................... 180 1,558,124
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) MAY 31, 1996
COMMON STOCKS (CONTINUED) SHARES VALUE
_______ _______
JAPAN (CONTINUED) Daikin Industries...................... 82,000 $ 887,265
Daiwa House Industry................... 38,000 579,858
Daiwa Securities....................... 40,000 536,391
East Japan Railway..................... 130 715,343
Fuji Photo Film........................ 19,000 590,400
Hitachi................................ 164,000 1,516,693
Hitachi Credit......................... 66,000 1,220,753
Hitachi Zosen.......................... 93,000 515,185
I-O Data Device........................ 10,000 406,918
Ishikawajima-Harima Heavy Industries... 194,000 889,892
Isuzu Motors........................... 160,000 870,064
JGC.................................... 46,000 587,071
JUSCO.................................. 35,000 1,035,790
Kato Denki............................. 25,000 492,463
Kawasaki Heavy Industries.............. 100,000 522,519
Komori................................. 50,000 1,294,738
Maruzen................................ 30,000 520,207
Matsushita Electric Industrial......... 100,000 1,720,152
Mitsubishi Materials................... 293,000 1,707,112
Mitsui & Co............................ 88,000 809,766
Mitsui Fudosan......................... 42,000 532,137
NKK....................................(a) 175,000 511,421
Nippon Express......................... 85,000 848,978
Nippon Steel........................... 167,000 566,808
Nippon Yakin Kogyo..................... 100,000 479,978
Nissan Chemical Industries............. 54,000 386,535
Nissan Motor........................... 17,000 139,767
Nomura Securities...................... 28,000 528,253
P.S. .................................. 400 7,694
Ricoh.................................. 84,000 846,759
Rohm................................... 8,000 499,399
Royal.................................. 16,000 494,220
Sanyo Electric......................... 169,000 1,004,966
Shiseido............................... 99,000 1,226,857
Sony................................... 18,000 1,143,623
Sumitomo Bank.......................... 60,000 1,181,911
Sumitomo Metal Mining.................. 100,000 934,061
TDK.................................... 9,000 511,884
Tokyo Style............................ 6,000 105,984
Toyota Motor........................... 46,000 1,050,772
______
35,316,915
______
MALAYSIA- 3.0% Commerce Asset Holdings................ 80,000 538,526
DCB Holdings........................... 150,000 498,858
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) MAY 31, 1996
COMMON STOCKS (CONTINUED) SHARES VALUE
_______ _______
MALAYSIA (CONTINUED) Edaran Otomobil Nasional............... 75,000 $ 670,153
Metacorp............................... 107,667 293,359
R.J. Reynolds.......................... 100,000 304,524
Renong................................. 490,000 816,765
______
3,122,185
______
MEXICO-2.6% Cemex, Ser. B......................... 125,000 496,978
Fomento Economico Mexicano, Ser. B.... 173,000 510,054
Grupo Carso, Ser. A1..................(a) 67,000 491,363
Grupo Financiero Bancomer, Ser. B.....(a) 1,075,000 475,050
Groupo Televisa, A.D.R. ..............(a) 24,000 738,000
______
2,711,445
______
NETHERLANDS-4.4% Ahrend Groep........................... 25,000 1,114,827
Ahrend Groep (Rights).................. 25,000 11,148
Koninklijke Bijenkorf Beheer........... 15,000 1,179,370
OCE-Van Der Grinten.................... 12,000 1,175,849
Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit....................... 60,000 985,742
______
4,466,936
______
NORWAY-2.4% Schibsted Group...................... 115,000 1,536,559
Uni-Storebrand, Cl. A................(a) 200,000 967,549
______
2,504,108
______
SINGAPORE-1.8% DBS Land............................... 314,000 1,044,064
Overseas Union Bank.................... 110,000 781,528
______
1,825,592
______
SPAIN-2.0% Iberdrola.............................. 110,000 1,118,775
Repsol................................. 26,000 891,591
______
2,010,366
______
SWEDEN-6.1% Ericsson (LM) Telephone, Cl. B, A.D.R. 50,000 1,153,125
Scania, Ser. A.......................(a) 22,000 622,422
Scania, Ser. B.......................(a) 42,000 1,188,261
Skandia Forsakring..................... 39,000 995,950
Sparbanken Sverige, Cl. A.............. 90,000 1,058,713
Svenskt Stal, Ser. B................... 90,000 1,152,523
Tornet Fastighets...................... 9,000 77,728
______
6,248,722
______
SWITZERLAND-3.8% ABB.................................... 800 958,206
Elektrowatt, Cl. B..................... 2,700 1,020,336
Roche Holding.......................... 125 960,769
Sandoz................................. 900 935,308
______
3,874,619
______
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) MAY 31, 1996
COMMON STOCKS (CONTINUED) SHARES VALUE
_______ _______
UNITED KINGDOM- 13.1% Asda Group............................. 700,000 $ 1,286,140
Barclays............................... 100,000 1,164,425
British Steel.......................... 330,000 871,110
British Telecommunications............. 255,000 1,405,567
Cookson Group.......................... 300,000 1,416,382
Great Universal Stores................. 100,000 1,053,565
Lloyds TSB Group....................... 206,520 1,002,255
Lucas Industries....................... 300,000 1,139,617
Royal Bank of Scotland Group........... 130,000 1,052,169
TeleWest Communications................ 450,000 1,262,882
United Utilities....................... 75,000 6 77,375
Williams Holdings...................... 225,000 1,159,968
______
13,491,455
______
TOTAL COMMON STOCKS
(cost $95,470,313)................... $101,441,969
======
PREFERRED STOCKS-2.1%
BRAZIL- 1.0% Banco Bradesco......................... 29,000 $ 337,108
Companhia Energetica de Minas Gerais... 12,900 341,923
Petroleo Brasileiro.................... 2,800 338,110
______
1,017,141
______
GERMANY-1.1% Henkel KGaA Vorzug..................... 2,700 1,136,889
______
TOTAL PREFERRED STOCKS
(cost $2,047,237).................... $ 2,154,030
=======
TOTAL INVESTMENTS (cost $97,517,550)........................................ 100.9% $103,595,999
==== =======
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (.9%) $ (885,617)
==== =======
NET ASSETS.................................................................. 100.0% $102,710,382
==== =======
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
See notes to financial statements.
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1996
ASSETS:
Investments in securities, at value
(cost $97,517,550)-see statement...................................... $103,595,999
Cash.................................................................... 176,823
Receivable for investment securities sold............................... 2,528,846
Net unrealized appreciation on forward currency exchange contracts-Note 3(a) 838,117
Dividends receivable.................................................... 521,122
Prepaid expenses........................................................ 83,089
______
107,743,996
LIABILITIES:
Due to The Dreyfus Corporation and subsidiaries......................... $ 77,401
Due to Distributor...................................................... 66,818
Payable for investment securities purchased............................. 4,729,391
Accrued expenses........................................................ 160,004 5,033,614
______ _____
NET ASSETS.................................................................. $102,710,382
=======
REPRESENTED BY:
Paid-in capital......................................................... $ 95,246,883
Accumulated undistributed investment income-net......................... 444,797
Accumulated undistributed net realized gain on investments.............. 104,798
Accumulated net unrealized appreciation on investments
and foreign currency transactions..................................... 6,913,904
______
NET ASSETS at value applicable to 6,630,032 shares outstanding
(300 million shares of $.001 par value Common Stock authorized)......... $102,710,382
=======
NET ASSET VALUE, offering and redemption price per share
($102,710,382 / 6,630,032 shares)....................................... $15.49
=======
See notes to financial statements.
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 1996
INVESTMENT INCOME:
INCOME:
Cash dividends (net of $376,549 foreign taxes withheld at source)..... $ 2,757,332
Interest.............................................................. 287,687
_____
TOTAL INCOME...................................................... $ 3,045,019
EXPENSES:
Management fee-Note 2(a).............................................. 859,453
Shareholder servicing costs-Note 2(b,c)............................... 1,097,909
Custodian fees........................................................ 144,901
Professional fees..................................................... 84,480
Directors' fees and expenses-Note 2(d)................................ 55,286
Prospectus and shareholders' reports-Note 2(b)........................ 37,981
Registration fees..................................................... 30,166
Miscellaneous......................................................... 25,643
_____
TOTAL EXPENSES.................................................... 2,335,819
_____
INVESTMENT INCOME-NET............................................. 709,200
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments and foreign currency
transactions-Note 3(a)................................................ $10,297,222
Net unrealized appreciation on investments and foreign currency
transactions.......................................................... 3,566,028
_____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................... 13,863,250
=======
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $14,572,450
=======
See notes to financial statements.
DREYFUS INTERNATIONAL EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31,
_________________________________
1995 1996
_______ ______
OPERATIONS:
Investment income-net................................................... $ 144,098 $ 709,200
Net realized gain (loss) on investments................................. (9,638,920) 10,297,222
Net unrealized appreciation (depreciation) on investments for the year.. (2,647,103) 3,566,028
_______ ______
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....... (12,141,925) 14,572,450
_______ ______
DIVIDENDS TO SHAREHOLDERS:
From investment income-net.............................................. (144,098) --
In excess of investment income-net...................................... (207,897) --
From net realized gain on investments................................... (2,933,301) --
_______ ______
TOTAL DIVIDENDS....................................................... (3,285,296) --
_______ ______
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 514,593,936 418,554,429
Dividends reinvested.................................................... 3,064,914 --
Cost of shares redeemed................................................. (544,228,996) (468,325,648)
_______ ______
(DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS.............. (26,570,146) (49,771,219)
_______ ______
TOTAL (DECREASE) IN NET ASSETS.................................... (41,997,367) (35,198,769)
NET ASSETS:
Beginning of year....................................................... 179,906,518 137,909,151
_______ ______
End of year [including distributions in excess of investment income-net;
($237,568) in 1995 and undistributed investment income-net;
$444,797 in 1996]..................................................... $ 137,909,151 $ 102,710,382
======= ======
SHARES SHARES
_______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 35,280,834 29,117,194
Shares issued for dividends reinvested.................................. 217,216 --
Shares redeemed......................................................... (37,294,477) (32,523,537)
_______ ______
NET (DECREASE) IN SHARES OUTSTANDING.................................. (1,796,427) (3,406,343)
======= ======
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS INTERNATIONAL EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information
has been derived from the Fund's financial statements.
YEAR ENDED MAY 31,
________________________________
PER SHARE DATA: 1994(1) 1995 1996
___ ___ ___
<S> <C> <C> <C>
Net asset value, beginning of year.................................... $12.50 $15.20 $13.74
___ ___ ___
INVESTMENT OPERATIONS:
Investment income-net................................................. .05 .01 .09
Net realized and unrealized gain (loss) on investments................ 2.74 (1.19) 1.66
___ ___ ___
TOTAL FROM INVESTMENT OPERATIONS.................................... 2.79 (1.18) 1.75
___ ___ ___
DISTRIBUTIONS:
Dividends from investment income-net.................................. (.02) (.01) --
Dividends in excess of investment income-net.......................... (.04) (.02) --
Dividends from net realized gain on investments....................... (.03) (.25) --
___ ___ ___
TOTAL DISTRIBUTIONS................................................. (.09) (.28) --
___ ___ ___
Net asset value, end of year.......................................... $15.20 $13.74 $15.49
==== ==== ====
TOTAL INVESTMENT RETURN................................................... 22.32%(2) (7.81%) 12.74%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................... 1.71%(2) 1.92% 2.04%
Ratio of net investment income to average net assets.................. .11%(2) .09% .62%
Decrease reflected in above expense ratios due to undertakings by Dreyfus .16%(2) -- --
Portfolio Turnover Rate............................................... 51.32%(2) 40.15% 96.45%
Net Assets, end of year (000's Omitted)............................... $179,907 $137,909 $102,710
____________________
(1) From June 29, 1993 (commencement of operations) to May 31, 1994.
(2) Not annualized.
</TABLE>
See notes to financial statements.
DREYFUS INTERNATIONAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus International Equity Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company. The Fund's investment objective is to provide
investors with capital growth. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's investment adviser. Dreyfus is a direct subsidiary of Mellon Bank,
N.A. Effective April 1, 1996, M&G Investment Management Limited ("M&G") no
longer serves as the Fund's sub-investment adviser. Premier Mutual Fund
Services, Inc. (the "Distributor") acts as the distributor of the Fund's
shares, which are sold to the public without a sales load.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange. Forward currency exchange contracts are
valued at the forward rate.
(B) FOREIGN CURRENCY TRANSACTIONS: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions, the difference between
the amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities other than investments in
securities, resulting from changes in exchange rates. Such gains and losses
are included with net realized and unrealized gain or loss on investments.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers it is the policy of the
Fund not to distribute such gain.
Dividends and distributions from net investment income and realized
capital gains are determined in accordance with Federal Income Tax
regulations which may differ from net investment income and net
DREYFUS INTERNATIONAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
realized capital gains as determined in accordance with generally accepted
accounting principles. These differences, which have resulted from the
classification of gains/losses recognized on foreign currency transactions
and Passive Foreign Investment Companies have been reclassified within the
capital accounts based on their Federal tax-basis treatment. To reflect these
reclassifications, during the year ended May 31, 1996, the Fund credited
paid-in capital $167,356 and charged accumulated undistributed net investment
income and accumulated net realized loss on investments $26,835 and $140,521
respectively. During the year ended May 31, 1995, the Fund charged paid-in
capital $253,131, and credited accumulated undistributed net investment
income and accumulated net realized loss on investments $68,998 and $184,132
respectively. These reclassifications had no effect on net investment income,
net realized gains and net assets.
(E) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with Dreyfus, the
management fee is computed at the annual rate of .75 of 1% of the value of
the Fund's average daily net assets and is payable monthly. The Agreement
provides for an expense reimbursement from Dreyfus should the Fund's
aggregate expenses, exclusive of interest, taxes, brokerage and extraordinary
expenses, exceed the expense limitation of any state having jurisdiction over
the Fund. The most stringent state expense limitation applicable to the Fund
presently requires reimbursement of expenses in any full fiscal year that
such expenses (excluding distribution expenses and certain expenses as
described above) exceed 2 1/2% of the first $30 million, 2% of the next $70
million and 1 1/2% of the excess over $100 million of the average value of the
Fund's net assets in accordance with California "blue sky" regulations. No
expense reimbursement was required for the year ended May 31, 1996.
Prior to April 1, 1996, a Sub-Investment Advisory Agreement was in effect
between Dreyfus and M&G. The sub-advisory fee was computed at the annual rate
of .30 of 1% of the value of the Fund's average daily net assets and was
payable monthly by Dreyfus.
(B) Pursuant to the Fund's Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Act, the Fund (a) reimburses the Distributor for
payments to certain Service Agents (a securities dealer, financial
institution or other industry professional) for distributing the Fund's
shares and (b) pays the Manager, Dreyfus Service Corporation, a wholly-owned
subsidiary of Dreyfus, and any affiliate of either of them for advertising
and marketing relating to the Fund, at an aggregate annual rate of .50 of 1%
of the value of the Fund's average daily net assets. The Distributor may pay
one or more Service Agents in respect of distribution services. The
Distributor determines the amounts, if any, to be paid to Service Agents
under the Plan and the basis on which such payments are made. The fees
payable under the Plan are payable without regard to actual expenses
incurred. The Plan also separately provides for the Fund to bear the costs of
preparing, printing and distributing certain of the Fund's prospectuses and
statements of
DREYFUS INTERNATIONAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
additional information and costs associated with implementing and operating
the Plan, not to exceed the greater of $100,000 or .005 of 1% of the Fund's
average daily net assets for any full fiscal year. During the year ended May
31, 1996, $589,143 was charged to the Fund pursuant to the Plan.
(C) Pursuant to the Fund's Shareholder Services Plan, the Fund pays the
Distributor an annual rate of .25 of 1% of the value of the Fund's average
daily net assets for the provision of certain services. The services provided
may include personal services relating to shareholder accounts, such as
answering shareholder inquiries regarding the Fund and providing reports and
other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the year ended May 31, 1996, the Fund was charged an aggregate
of $286,484 pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $62,940 for the period from
December 1, 1995 through May 31, 1996.
(D) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and forward currency exchange contracts,
during the year ended May 31, 1996 amounted to $112,546,967 and $147,430,268,
respectively.
In addition the following summarizes open forward currency exchange
contracts at May 31, 1996:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
CURRENCY APPRECIATION
FORWARD CURRENCY SALE CONTRACTS AMOUNT PROCEEDS VALUE (DEPRECIATION)
___________________ ------- --------- ------ -----------
<S> <C> <C> <C> <C>
Dutch Guilders, expiring 6/10/96............. 7,500,000 $ 4,479,216 $ 4,404,096 $ 75,120
French Francs, expiring 7/9/96............... 28,264,276 5,612,000 5,493,276 118,724
German Deutsche Marks, expiring 7/9/96....... 7,468,422 5,074,001 4,915,699 158,302
Italian Lira, expiring 6/24/96............... 3,246,563,000 2,083,200 2,099,216 (16,016)
Japanese Yen, expiring 6/24/96............... 1,519,548,900 14,524,914 14,128,110 396,804
Swedish Krona, expiring 6/10/96.............. 30,000,000 4,448,399 4,468,741 (20,342)
Swiss Francs, expiring 6/10/96............... 6,000,000 4,937,459 4,811,934 125,525
____
$838,117
=====
</TABLE>
The Fund enters into forward currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. When executing forward currency exchange
contracts, the Fund is obligated to buy or sell a foreign currency at a
specified rate on a certain date in the future. With respect to sales of
forward currency exchange contracts, the Fund would incur a loss if the value
of the contract increases between the date the forward contract is opened and
the date the forward contract is closed. The Fund realizes a gain if the
value of the contract decreases between
DREYFUS INTERNATIONAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
those dates. With respect to purchases of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract decreases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency
exchange contracts which is typically limited to the unrealized gains on such
contracts that are recognized in the Statement of Assets and Liabilities.
(B) At May 31, 1996, accumulated net unrealized appreciation on
investments and forward currency exchange contracts was $6,916,566,
consisting of $9,091,982 gross unrealized appreciation and $2,175,416 gross
unrealized depreciation.
At May 31, 1996, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
DREYFUS INTERNATIONAL EQUITY FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS INTERNATIONAL EQUITY FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Dreyfus International Equity Fund, Inc., including the statement of
investments, as of May 31, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and financial highlights for each of the
years indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 1996 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus International Equity Fund, Inc. at May 31, 1996, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
July 8, 1996
[Dreyfus lion "d" logo]
DREYFUS INTERNATIONAL
EQUITY FUND, INC.
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903
Further information is contained
in the Prospectus, which must
precede or accompany this report.
Printed in U.S.A. 095AR965
[Dreyfus logo]
International
Equity Fund, Inc.
Annual Report
May 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
DREYFUS INTERNATIONAL EQUITY FUND, INC. AND THE MORGAN
STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR
EAST (EAFE(R)) INDEX
EXHIBIT A:
_____________________________________________________________
| | | MORGAN STANLEY |
| | DREYFUS | CAPITAL |
| PERIOD | INTERNATIONAL | INTERNATIONAL EUROPE,|
| | EQUITY | AUSTRALASIA, FAR EAST|
| | FUND | (EAFE(R)) INDEX * |
|-----------|----------------- | ---------------------|
| 6/29/93 | 10,000 | 10,000 |
| 5/31/94 | 12,232 | 11,537 |
| 5/31/95 | 11,277 | 12,106 |
| 5/31/96 | 12,713 | 13,398 |
|------------------------------------------------------------|
* Source: Lipper Analytical Services, Inc.
