April 1, 2004 — As terrorism cast a shadow over global economies, mutual funds investing in overseas stocks generally posted modest returns in the first quarter, driven by improving corporate fundamentals, mild inflation, and moderate interest rates.

The two top-performing international equity portfolios for the first quarter, Third Millennium Russia Fund (TMRFX) and ING Russia Fund/A (LETRX), invest exclusively in the commodity-dominated Russian economy, and are boldly adding to big gains from last year. These portfolios soared 73.7% and 75.9%, respectively, in 2003.

The top-performing foreign stock portfolio of 2003, the Eaton Vance Greater India/A (ETGIX), which soared a mighty 113.8%, is basically flat for the first quarter of 2004. While Western Europe managed tepid gains, Eastern Europe and Japan flourished. Funds investing in these two regions scored the highest returns for the quarter.

Eastern Europe & Russia

Wendy Trevisani, associate portfolio manager of Thornburg International Value Fund/A (TGVAX), sees significant potential in the emerging markets, particularly Eastern Europe. “May 2004 marks the entry of ten new countries to the European Union,” she said. “Long term, this is an unprecedented opportunity. Many industries which are mature in the developed world, like mobile telecom and healthcare, are still in a rapid growth phase in much of the developing world. We believe that as long as valuations remain compelling and growth remains well above average, there is upside and opportunity when investing in the emerging markets.”

Prague-based Ivo St. Kovachev, co-manager of the Driehaus International Discovery Fund (DRIDX), marvels at the sustained strength and durability of Eastern Europe and Russia. “In Russia, the continuing high price of oil, commodities and metals clearly outweighs any political uncertainties for the time being,” he noted. “Eastern Europe, of course, benefits from the convergence with the EU; however, we think many of these stocks may have already had their run.”

Japan Charging Ahead

Japanese markets have risen nearly 10% during the first quarter amid a climate of optimism over the country’s economy recovery and a robust domestic sector.

Among global equity funds — those with the latitude to invest in both U.S, and foreign markets — the quarter’s top performer was the $2.9-billion Oppenheimer Global Opportunities/A (OPGIX), which currently has a 11.7% stake in Japan.

The strength of the yen, which just reached a four-year high versus the U.S. dollar, remains a concern. While a strong local currency is good for Japanese retail consumers, it will likely hurt the earnings of the large-cap exporters, which depend greatly on the U.S. consumer.

Ed Maran, associate portfolio manager of Thornburg International Value Fund, is bullish on Japan. “A return to rising prices for assets and consumer goods could have an extremely positive impact on the economy, and on banks and insurance companies in particular,” he said. “A stabilizing or weakening yen would positively impact major exporters such as Toyota and Canon.”

Western Europe: Cautious on Security Fears, Economic Growth

Western European markets, which enjoyed a big January rally fueled by confidence of a global economic recovery, finished the quarter essentially flat. They incurred massive selloffs on the heels of the Madrid terrorist bombing in mid March. “While fourth quarter 2003 numbers reported by most companies were very strong, people are wary of a potential sequential decline in first quarter 2004,” Kovachev said. “Also, we saw some rather disappointing macroeconomic figures in some Western European countries.”

The strengthening euro has hurt exporters, and makes local producers more vulnerable to imports, explained Maran. “The fiscal policy in Europe has not been stimulative, with short-term interest rates about 100 basis points higher than those in the U.S.,” he noted.

Kovachev added that while small-cap stocks have had a great rally in the last two years, the recent correction in Europe has hurt the small-cap sector, too. “The liquidity effect helps small-caps on the way up, but may hurt them more on the way down,” he said.

Looking ahead, Trevisani believes it will be a stock-picker’s market. “We still like investment prospects in the emerging markets,” she said. “Particular examples would include blue chips, which are leaders in their respective industries and are gaining share globally, such as Samsung Electronics Co. Ltd. in Korea, or Embraer-Empresa Brasil ADS (ERJ), the regional jet manufacturer based in Brazil. Also, companies with ample steady dividend streams, particularly in Western Europe, look very attractive. Examples include Lloyds TSB Group plc ADS (LYG), ING Groep ADS (ING), Kingfisher PLC, Cadbury Schweppes ADS (CSG) and Tesco Corp (TESOF).

International Equity Funds

Best Performers First Quarter 2004 Returns (%) Worst Performers First Quarter 2004 Returns (%)

Third Millennium Russia Fund (TMRFX) +31.6 Hallmark

Equity Srs Trust Intl Small Cap/R (HISRX) -4.2

ING Russia Fund/A (LETRX) +27.3

Babson-Stewart Ivory International Fund (BAINX) -3.4

DFA Invest Grp Japanese Small Company Port (DFJSX) +26.5

Rydex Srs Tr:Large Cap Europe Fund/C (RYCEX) -2.7

US Global Accolade Fds:Eastern European Fund (EUROX) +25.3

Eaton Vance Asian Small Companies/B (EBASX) -1.7

Japan Smaller Companies Fund +21.4 California Investment:European Gth & Income (EUGIX) -1.6

Global Equity Funds

Best Performers First Quarter 2004 Returns (%) Worst Performers First Quarter 2004 Returns (%)

Oppenheimer Global Opportunities/A (OPGIX) +10.8

Prudent Global Income Fund (PSAFX) -1.8

Ivy Fund: Cundill Global Value Fund/Adv (ICDVX) +10.3

Citizens Funds:Global Equity/Retail (WAGEX) -0.9

Hartford Global Leaders Fund/Y (HGLYX) +9.5

Dreyfus Premier Worldwide Growth Fund/B (PGWBX) -0.6

Seligman Global Growth Fund/A (SHGOX) +9.3

Purisima Total Return Fund (PURIX) -0.5

Hartford Global Leaders Fund/C (HGLCX) +9.2

GAM Global Fund/D (GAGDX) -0.3

Source: Standard & Poor’s. Total returns are in U.S. dollars and include reinvested dividends. Data as of 3/31/04.