<PAGE>
[GRAPHIC APPEARS HERE]
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
Annual Report
For the Fiscal Year Ended October 31, 1998
December 15, 1998
Dear Shareholder:
Your Fund produced solid performance in a year marked by significant volatility
throughout world markets. For the fiscal year ended October 31, 1998, your Fund
returned 13.01%. This compared to a return of 9.65% for the benchmark Morgan
Stanley Capital International EAFE (Europe, Australasia, Far East) Index.
Returns in your Fund were driven by strong performance in its holdings in the
insurance, food and household products, and telecommunications industries.
Geographically, European holdings turned in the best results, especially those
securities the Fund owned in France, Italy and Switzerland. While Asia as a
region was weak, the Fund's Hong Kong security holdings were strong performers
over this period.
As you are well aware, over the past year, world markets experienced some of the
more dramatic movement in recent memory. During the fall of 1997, widespread
currency devaluation in Asia set off tremors throughout world financial markets.
By the summer of 1998, aftershocks from that financial quake struck developed
markets in Europe and the United States. Several factors were largely
responsible for the sharp decline in global equity markets in 1998. First,
deteriorating economic fundamentals in Japan threatened to intensify and prolong
the broader economic slump in Asia. Secondly, continued political unrest in
Indonesia, and the imposition of currency restrictions in Malaysia contributed
to investor unease in Asia. Third, political and economic turmoil in Russia
contributed to the widespread sell-off. The devaluation of the Russian ruble
then put pressure on the currencies of Latin American nations, as investors
worried that these countries would not be able to maintain their managed
currency systems. Not even the previously high-flying European markets were
immune to the sweeping bearish sentiment. Concern about exposure of European
banks to defaulted loans in Russia was primarily responsible for that region's
mid-year correction.
By the end of the fiscal year, however, markets the world over began to recover
from the ravages of the summer. These gains generally reflected increased
confidence by investors and expectations of lower interest rates in the U.S. and
in other key markets. Legislative progress in Japan, as well as international
support for Brazil, helped bolster those markets.
<PAGE>
Brandes Institutional International Equity Fund
VALUE INVESTING
How does a value investor approach markets like those we have seen over the past
year? Let us take Brazil as an example. On Thursday, September 11, 1998, the
Brazilian equity market fell by 15.8%, a huge amount considering the year's
previous declines and the country's nearly $600 billion economy. The next day,
prices rebounded 13.4%, and then rallied another 26.5% on the following Monday
and Tuesday. This hyper-volatility raises an important question: Did the
wealth-creating capacity of the Brazilian economy decline by 16% in one day, and
then improve by 40% over the following five days? In our opinion, the answer is
"no." Instead, the significant volatility in Brazilian share prices is a good
reminder that stock prices often fluctuate far more than the actual fundamental,
long-term values of businesses. Over short periods, a company's stock price is
often determined not by long-term business prospects, but by what a few
investors or traders are willing to trade for on that particular day. These
investors are often heavily influenced by short-term or emotional considerations
and, as a result, share prices may significantly deviate from long-term
fundamental value during periods of extreme volatility and global uncertainty.
The Brandes value investment approach requires a steady focus on the long term.
We are bottom-up stock pickers seeking to identify companies that will prosper
over the next decade. We search the globe for businesses that have displayed
sound fundamentals over the long term, and we try to acquire these businesses at
attractive prices. While declines are always painful, downside volatility is
what provides us with the opportunity to buy solid businesses at prices which we
believe are below the long term or intrinsic value of those businesses.
In our view, the root of the recent volatility has been a sharp realignment of
currency values combined with building concerns over the prospect of global
deflation and its potential impact on corporate profits. Although we recognize
that there are important risks to consider, in our opinion prices in some parts
of the world are at bargain levels. By acquiring stocks at these bargain levels,
we believe we can create for your Fund a margin of safety against price declines
over time, and an opportunity for long term profit.
CLOSURE OF FUND TO NEW INVESTORS
Effective September 30, 1998, the Brandes Institutional International Equity
Fund was closed to new investors. Existing investors, as well as participants in
existing retirement plans, may continue to add to their holdings in the Fund if
desired. The closure of the Fund was part of an overall closure of Brandes
Investment Partners' international equity portfolios firm-wide. This decision
was made for two reasons. First, although our international equity portfolios
have continued to produce competitive returns, we have experienced substantial
growth in assets under management and we believe it is prudent to close this
style well in advance of any potential capacity constraints. Second, the
interests of our existing clients will always be our first priority.
2
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
Consistent with our long-term business model, we believe that closing the
international style to new clients will increase our ability to provide
continued high-quality investment advice and service to existing clients.
Brandes' other investment styles remain open to new clients.
We thank you for your confidence in Brandes' long-term value investment approach
and look forward to continuing to serve you.
Sincerely yours,
/s/ Betsy M. Blodgett
Betsy M. Blodgett
President
3
<PAGE>
Comparison of the change in value of a $1,000,000 investment in the
Brandes Institutional International Equity Fund and the Morgan Stanley
Capital International EAFE (Europe, Australasia and Far East) Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Brandes Institutional Morgan Stanley
International Equity Capital International
Fund EAFE Index
--------------------- ---------------------
<S> <C> <C>
January 2, 1997 1000000 1000000
April 30, 1997 1062400 999671.29
July 31, 1997 1227200 1141429.03
October 31, 1997 1165600 1029617.29
January 31, 1998 1239292.96 1075025.02
April 30, 1998 1411462.11 1188564.23
July 31, 1998 1402528.8 1203831.97
October 31, 1998 1317256.35 1128926.16
</TABLE>
Average Annual Total Return For Periods Ending
October 31, 1998
1 Year ................................................ 13.01%
Since Inception (January 2, 1997) ..................... 16.28%
Past performance is not indicative of future performance.
The MSCI EAFE Index is an unmanaged index that is a generally accepted benchmark
for major overseas markets. The MSCI EAFE Index consists of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage commissions,
or other expenses of investing. The Index weightings represent the relative
capitalizations of the major overseas markets included in the index on a U.S.
dollar adjusted basis.
4
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1998
- -------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------
COMMON STOCKS: 98.6%
- -------------------------------------------------------------------
ARGENTINA: 2.8%
YPF Sociedad Anonima
Sponsored ADR................... 152,960 $ 4,426,280
-----------
AUSTRIA: 0.7%
EVN AG............................ 7,805 1,111,890
-----------
BRAZIL: 6.5%
Banco Bradesco S.A.
Preferred Sponsored
ADR............................. 242,000 1,379,521
Centrais Eletricas Brasileiras
S.A. (Electrobras)
Sponsored ADR................... 341,130 3,689,048
Centrais Geradoras do
Sul do Brasil S.A. ADR*......... 20,613 105,409
Companhia Cervejaria
Brahma Preferred
Sponsored ADR................... 190,240 1,831,060
Petroleo Brasileiro S.A.
(Petrobras) ADR................. 195,690 2,460,743
Telecomunicacoes Brasileiras
S.A. (Telebras) ADR............. 13,090 994,022
-----------
10,459,803
-----------
DENMARK: 2.8%
Den Danske Bank Group............. 32,820 4,456,264
-----------
FRANCE: 9.3%
Compagnie Financiere
de Paribas (Paribas)............ 9,700 713,202
Groupe Danone..................... 15,996 4,230,465
PSA Peugeot Citroen,.............. 22,495 3,754,229
Societe Generale Class A.......... 11,732 1,552,438
Societe Nacionale Elf
Aquitaine SA.................... 40,255 4,659,999
-----------
14,910,333
-----------
GERMANY: 5.9%
Daimler-Benz AG................... 38,090 3,001,206
Deutsche Telekom AG............... 236,900 6,407,932
-----------
9,409,138
-----------
HONG KONG/CHINA: 8.4%
Citic Pacific Limited............. 735,000 1,807,953
Hutchison Whampoa
Limited......................... 933,900 6,692,701
Swire Pacific Limited
A Shares........................ 921,000 4,887,747
-----------
13,388,401
-----------
ITALY: 3.4%
Telecom Italia SpA................ 758,900 5,487,682
-----------
JAPAN: 17.6%
Hitachi, Ltd...................... 1,216,800 6,198,988
Japan Tobacco Inc................. 77 646,297
Komatsu, Ltd...................... 411,000 2,224,496
Kyocera Corp. .................... 76,400 3,380,242
Matsushita Electric
Industries...................... 204,000 2,998,657
Mitsubishi Heavy
Industry Ltd.................... 1,191,000 4,604,406
Nippon Oil Co..................... 287,000 998,588
Ono Pharmaceutical
Co, Ltd......................... 49,000 1,464,948
5
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1998
- -------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------
JAPAN, CONTINUED
Tokio Marine & Fire
Insur. Co, Ltd.................. 493,400 $ 5,616,471
-----------
28,133,093
-----------
MEXICO: 3.0%
Telefonos de Mexico SA
Class L Sponsored
ADR............................. 91,720 4,843,963
-----------
NETHERLANDS: 4.3%
ING Groep, NV..................... 101,050 4,886,556
Konin. (Royal) KPN NV ............ 49,213 1,911,236
-----------
6,797,792
-----------
SINGAPORE: 3.7%
Development Bank of
Singapore Ltd................... 690,140 4,334,631
Jardine Matheson
Holdings Ltd.................... 552,530 1,547,084
-----------
5,881,715
-----------
SOUTH AFRICA: 2.6%
De Beers-Cent. Linked
Unit............................ 277,710 3,875,026
Iscor Ltd.*....................... 1,179,110 299,494
-----------
4,174,520
-----------
SOUTH KOREA: 1.6%
Korea Electric Power,
ADR............................. 146,150 1,863,413
Pohang Iron & Steel Ltd........... 41,190 741,420
-----------
2,604,833
-----------
SPAIN: 3.4%
Corporacion Bancaria de
Espana SA (Argentaria).......... 172,380 3,747,386
Union Electrica
Fenosa S.A...................... 105,400 1,708,197
-----------
5,455,583
-----------
SWITZERLAND: 4.9%
Allied Zurich Plc*................ 198,720 2,375,896
Nestle S.A........................ 1,760 3,742,745
Swisscom AG*...................... 5,100 1,728,495
-----------
7,847,136
-----------
UNITED KINGDOM: 16.5%
BOC Group Plc..................... 79,200 1,163,084
British American
Tobacco Plc..................... 273,720 2,472,786
British Steel Plc................. 1,418,000 2,433,855
BTR Plc........................... 2,283,977 3,996,731
Diageo Plc........................ 550,683 5,947,707
HSBC Holdings Plc................. 245,800 5,633,613
Imperial Chemical
Industries Plc.................. 179,940 1,616,527
Reuters Group Plc................. 181,500 1,869,123
Royal & Sun Alliance
Insurance Group Plc............. 135,000 1,236,546
-----------
26,369,972
-----------
VENEZUELA: 1.2%
Compania Anonima
Nacional Telefonos de
Venezuela ADR................... 127,690 1,979,195
-----------
6
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS AT OCTOBER 31, 1998
- ------------------------------------------------------------------------------
Value
- ------------------------------------------------------------------------------
Total Common Stocks
(Cost $162,801,025)............. $157,737,593
------------
Total Investments in Securities
(cost $162,801,025**) 98.6%..... 157,737,593
Other Assets less
Liabilities: 1.4%......................... 2,277,577
------------
Total Net Assets: 100.0%.................... $160,015,170
============
*Non-income producing security.
**At October 31, 1998 the cost basis of securities for federal tax purposes was
the same as for financial reporting.
Net unrealized appreciation consists of:
Gross unrealized appreciation.............. $ 22,840,930
Gross unrealized depreciation.............. (27,904,362)
------------
Net unrealized appreciation ($5,063,432)
============
See accompanying Notes to Financial Statements.
7
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS BY INDUSTRY AT OCTOBER 31, 1998
- --------------------------------------------------------------------------------
Automobile...................................... 4.2%
Banking......................................... 13.7
Beverages and Tobacco........................... 6.8
Broadcasting & Publishing....................... 1.2
Chemicals....................................... 1.7
Drugs........................................... 0.9
Electrical & Electronics........................ 5.8
Energy Sources.................................. 7.8
Food and Household Products..................... 4.9
Industrial Components........................... 2.1
Insurance....................................... 8.8
Machinery & Engineering......................... 4.3
Metals-Steel.................................... 2.2
Misc. Materials and Commodities................. 2.4
Multi-Industry.................................. 11.8
Telecommunications.............................. 14.7
Utilities-Electrical & Gas...................... 5.3
------
Total Investments............................... 98.6
Other Assets less Liabilities................... 1.4
------
Net Assets...................................... 100.0%
======
See accompanying Notes to Financial Statements.
8
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT OCTOBER 31, 1998
================================================================================================
<S> <C>
ASSETS
Investments in securities, at value (cost $162,801,025) .................... $ 157,737,593
Receivable for:
Securities sold ........................................................ 7,119,560
Dividends and interest ................................................. 667,790
Fund shares sold ....................................................... 101,020
Prepaid expenses ........................................................... 17,073
Deferred organization costs ................................................ 10,667
-------------
Total assets ........................................................... 165,653,703
-------------
LIABILITIES
Cash overdraft ............................................................. 3,395,770
Unrealized loss on forward contracts ....................................... 8,135
Payables for:
Securities purchased ................................................... 2,005,821
Fund shares redeemed ................................................... 65,772
Due to investment advisor .................................................. 87,811
Accrued expenses ........................................................... 75,224
-------------
Total liabilities ...................................................... 5,638,533
-------------
NET ASSETS ..................................................................... $ 160,015,170
=============
SOURCE OF NET ASSETS
Paid-in capital ............................................................ $ 150,236,864
Undistributed net investment income ........................................ 2,348,592
Net realized gains on investments and foreign currency ..................... 12,449,561
Net unrealized appreciation (depreciation) on:
Investments ............................................................ (5,063,432)
Foreign currency ....................................................... 43,585
-------------
NET ASSETS ......................................................... $ 160,015,170
=============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE (9,867,222 shares
outstanding; unlimited number of shares authorized without par value) ...... $ 16.22
=============
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED OCTOBER 31, 1998
==========================================================================================================
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (net of withholding tax of $277,709)..................................... $ 3,418,208
Interest........................................................................... 359,705
------------
Total income................................................................... 3,777,913
------------
Expenses:
Advisory fees...................................................................... 1,204,817
Custody fees....................................................................... 123,373
Administration fees................................................................ 112,689
Accounting fees.................................................................... 68,667
Auditing fees...................................................................... 33,023
Transfer agent fees................................................................ 25,444
Printing........................................................................... 25,365
Legal fees......................................................................... 19,338
Registration fees.................................................................. 15,037
Trustees' fees..................................................................... 13,759
Insurance.......................................................................... 2,242
Amortization of deferred organization costs........................................ 2,133
Miscellaneous...................................................................... 7,459
------------
Total expenses................................................................... 1,653,346
Expense reimbursements........................................................... (200,868)
------------
Net expenses..................................................................... 1,452,478
------------
NET INVESTMENT INCOME......................................................... 2,325,435
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments and foreign currency.............................. 12,473,013
Net change in unrealized depreciation on investments and foreign currency.......... (7,148,668)
------------
Net realized and unrealized gain on investments and foreign currency........... 5,324,345
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 7,649,780
============
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
=========================================================================================================
Year January 2, 1997*
ended through
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income .............................................. $ 2,325,435 $ 372,846
Net realized gain on investments and foreign currency .............. 12,473,013 701,444
Net unrealized appreciation (depreciation) on investments and
foreign currency ........................................... (7,148,668) 2,128,821
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... 7,649,780 3,203,111
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................... (349,689) 0
From realized gains ................................................ (724,896) 0
------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........................ (1,074,585) 0
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .......................................... 160,815,973 58,991,562
Net asset value of shares issued on reinvestment of distributions .. 917,917 0
Cost of shares redeemed ............................................ (59,423,431) (11,065,157)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE TRANSACTIONS 102,310,459 47,926,405
------------- -------------
NET INCREASE IN NET ASSETS ................................. 108,885,654 51,129,516
------------- -------------
NET ASSETS:
Beginning of period ................................................ 51,129,516 0
------------- -------------
END OF PERIOD (including undistributed net investment income of
$2,348,592 and $372,846 respectively) ...................... $ 160,015,170 $ 51,129,516
============= =============
CHANGES IN SHARES:
Shares sold ........................................................ 10,048,815 4,293,211
Shares issued on reinvestment of distributions ..................... 61,154 0
Shares redeemed .................................................... (3,752,756) (783,202)
------------- -------------
NET INCREASE ....................................................... 6,357,213 3,510,009
============= =============
</TABLE>
*Commencement of operations
See accompanying Notes to Financial Statements.
11
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
===========================================================================================================
Year January 2, 1997*
ended through
October 31, 1998 October 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period............................ $ 14.57 $ 12.50
----------- -----------
Income from investment operations:
Net investment income....................................... 0.21 0.17
Net realized and unrealized gain on investments
and foreign currency.................................... 1.66 1.90
----------- -----------
Total from investment operations................................ 1.87 2.07
----------- -----------
Less distributions:
From net investment income.............................. (0.07) 0.00
From net capital gains.................................. (0.15) 0.00
----------- -----------
Total distributions............................................. (0.22) 0.00
----------- -----------
Net asset value, end of period.................................. $ 16.22 $ 14.57
=========== ===========
Total return.................................................... 13.01% 16.56%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................... $ 160,015 $ 51,130
Ratio of expenses to average net assets:
Before expense reimbursement............................ 1.37% 1.76%**
After expense reimbursement............................. 1.20% 1.19%**
Ratio of net investment income to average net assets:
Before expense reimbursement............................ 1.75% 0.84%**
After expense reimbursement............................. 1.92% 1.40%**
Portfolio turnover rate......................................... 50.08% 27.40%
</TABLE>
*Commencement of operations.
**Annualized.
+Not annualized.
See accompanying Notes to Financial Statements.
12
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT OCTOBER 31, 1998
================================================================================
NOTE 1 - ORGANIZATION
The Brandes Institutional International Equity Fund (the "Fund") is a
series of shares of beneficial interest of Brandes Investment Trust (the
"Trust"). The Trust is registered under the Investment Company Act of 1940 (the
"1940 Act") as a diversified, open-end management investment company. The Fund
began operations on January 2, 1997. The Fund invests its assets primarily in
equity securities of foreign issuers with market capitalizations greater than $1
billion. The Fund seeks to achieve long-term capital appreciation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles (GAAP).
A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there have been no sales are valued at the mean between the bid and
asked price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith by the Board
of Trustees. Short-term investments are stated at cost, which when combined with
accrued interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60-day period that
this amortized cost basis does not represent fair value.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period.
Interest income is translated at the exchange rates which existed at the
dates the income was accrued. Exchange gains and losses related to interest
income are included in interest income on the accompanying Statements of
Operations.
B. Repurchase Agreements. The Fund may enter into repurchase agreements
with government securities dealers recognized by the Federal Reserve System or
with such other brokers or dealers that meet the credit guidelines established
by the Board of Trustees. The Fund will always receive and maintain, as
collateral, securities whose market value, including accrued interest, will be
at least equal to 100% of the dollar amount invested by the Fund in each
agreement, and the Fund will make payment for such
13
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT OCTOBER 31, 1998 (CONTINUED)
================================================================================
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that the term of any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
C. Forward Foreign Currency Exchange Contracts. The Fund may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates.
D. Security Transactions, Dividends and Distributions. As is common in the
industry, security transactions are accounted for on the trade date. The cost of
securities owned on realized transactions are relieved on the specific
identification basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
E. Federal Income Taxes. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
F. Deferred Organization Costs. The Fund has incurred expenses of $14,570
in connection with its organization. These costs have been deferred and are
being amortized on a straight-line basis over a period of sixty months from the
date the Fund commenced investment operations.
G. Concentration of Risks. As of October 31, 1998 the Fund held a
significant portion of its assets in foreign securities. Certain price and
foreign exchange fluctuations as well as economic and political situations in
the foreign jurisdictions could have an impact on the Fund's net assets. It is
the Trust's policy to continuously monitor these off-balance sheet risks.
H. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Brandes Investment Partners, L.P. (The "Advisor") provides the Fund with
investment management services under an Investment Advisory Agreement. The
Advisor furnishes all investment advice, office space and certain administrative
services, and provides certain personnel needed by the Fund. As compensation for
its services, the Advisor is entitled to a monthly fee at the annual rate of
1.00% based
14
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT OCTOBER 31, 1998 (CONTINUED)
================================================================================
upon the average daily net assets of the Fund. The Fund is responsible for its
own operating expenses. In order to maintain the Fund's operating expenses at
1.20% of average daily net assets, the Advisor has waived fees totaling $200,868
during the year ended October 31, 1998. Any such reductions made by the Advisor
in its fees or reimbursement of expenses are subject to reimbursement by the
Fund. At October 31, 1998, the cumulative fee waiver from the Advisor to the
Fund was $351,678.
Effective October 31, 1998, Brandes Investment Partners, L.P. agreed to
amend the expense reimbursement agreement to limit the period within which
Brandes Investment Partners, L.P. may recoup the above amounts from the Fund, to
no later than October 31, 2003. In addition, the possible recoupment period of
any expense reimbursements in each year subsequent to 1998 will be limited to
five years from the year of the reimbursement. Such recoupments are subject to
the Fund's ability to effect such reimbursement and remain in compliance with
applicable expense limitations.
Investment Company Administration LLC (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, prepares reports and
materials to be supplied to the Trustees; monitors the activities of the Fund's
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Fund's expense accruals. For its
services, the Administrator receives an annual fee at the rate of 0.10 of 1% of
the first $100 million, 0.05 of 1% of the next $100 million and 0.03 of 1% in
excess of $200 million of the Fund's average daily net assets, subject to a
minimum of $40,000 per annum. For the year ended October 31, 1998 the Fund paid
$112,689 in such fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Fund are also officers and/or Trustees of the
Adviser, Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $158,297,264 and
$56,695,692, respectively.
NOTE 5 - FORWARD FOREIGN CURRENCY CONTRACTS
At October 31, 1998 the Fund had entered into forward foreign currency
contracts which obligated the Fund to exchange currencies at specified future
dates. Forward foreign currency contracts are valued at the forward rate, and
are marked to market at the end of each period. At the maturity of a forward
contract, the Fund may either make delivery of the foreign currency from
currency held, if any, or from the proceeds of the portfolio securities sold, or
it may terminate its obligation to deliver the foreign
15
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT OCTOBER 31, 1998 (CONTINUED)
================================================================================
currency at any time by purchasing an offsetting contract. The Fund could be
exposed to the risk that the counterparties to the contracts are unable to meet
the terms of their contracts. Open forward foreign currency contracts at October
31, 1998 were as follows:
Foreign Currency
Currency Delivery Currency to Value in Unrealized
Deliverable Date to be Received U.S. $ Gain/(Loss)
Swiss Franc 11/02/98 1,032,013 $ 765,475 $ 3,187
German Mark 11/02/98 1,388,170 825,791 (395)
French Franc 11/30/98 3,032,542 545,000 1,792
British Pound 11/02/98 871,818 1,450,972 9,259
Hong Kong Dollar 11/02/98 29,884,283 3,830,972 (1,632)
Japanese Yen 11/02/98 197,707,529 1,678,902 (20,346)
---------- ---------
$9,906,497 $ (8,135)
========== =========
NOTE 6 - YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor, administrator or other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 issue." The
advisor, administrator and other service providers are taking steps that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other major service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
16
<PAGE>
BRANDES INSTITUTIONAL INTERNATIONAL EQUITY FUND
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Shareholders of Brandes Institutional
International Equity Fund and the
Board of Trustees of Brandes Investment Trust
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Brandes Institutional International Equity Fund
(the "Fund"), (one of the portfolios constituting Brandes Investment Trust), as
of October 31, 1998, the related statement of operations for the year then
ended, the statement of changes in net assets and the financial highlights for
the year then ended and for the period from January 2, 1997 (commencement of
operations) to October 31, 1997. 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
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Brandes Institutional International Equity Fund as of October 31, 1998, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the year then ended and for the period
from January 2, 1997 (commencement of operations) to October 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
December 7, 1998
17
<PAGE>
- ------
BRANDES [LOGO APPEARS HERE]
- ------
ADVISOR
Brandes Investment Partners, L.P
12750 High Bluff Drive
San Diego, California 92130
1-800-331-2979
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road Value Knows
Suite 261E No Borders
Phoenix, Arizona 85018
TRANSFER AGENT
Investors Bank & Trust Co.
200 Clarendon Street, 16th Floor
Boston, Massachusetts 02110
AUDITORS
Ernnst & Young LLP
515 South Flower Street ANNUAL
Los Angeles, California 90071 REPORT
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP For the
555 South Flower Street Year Ended
Los Angeles, California 90071 October 31, 1998
This report is intended for shareholders of -------
the Brandes Institutional Equity BRANDES
Fund and may not be used as sales -------
literature unless preceded or accompanied
by a current prospectus.
