n Sit/Kim International Investment Associates, Inc · Interest rates are rising and we expect further actions by both U.S. and European central bankers that will raise short-term

■ Sit/Kim International Investment Associates, Inc. ■

International Investment Outlook & Strategy

January 21, 2000

EXECUTIVE SUMMARY Most global equity markets rose strongly in the fourth quarter of 1999 as the strong performance of the technology and telecommunications sectors added to the markets’ earlier gains. The MSCI World Index rose 16.9% (in U.S. dollars) and the MSCI EAFE Index gained 17.0%. Regional equity markets exhibited similar performance: MSCI U.S. (+16.3%), Europe (+17.4%), Japan (+15.5%), Pacific Asia (+16.1%) and Latin America (+32.8%). For the full year, the MSCI World Index gained 24.9% and the MSCI EAFE Index rose 27.0%. Similarly, the U.S. markets increased 21.9%, Europe 15.9%, Japan 61.5%, Pacific ex-Japan 42.6% and Latin America 55.5%. Global economic growth is now on a solid footing. We look for 1999 global GDP growth of approximately 2.0% and expect year 2000 growth to be over 3.0%. The U.S. economy is growing briskly, while European economic growth is beginning to accelerate, the recession in Japan is coming to an end, other Asian economies are recovering more quickly than expected and stronger commodity prices and lower interest rates are aiding recovery in Latin America. Inflation continues to be relatively well contained in the developed world, with a few areas of concern. We look for no major economic disruptions this year now that the Y2K challenge has been met, and political stability should prevail in most countries since economic growth has resumed. Global interest rates have begun to rise, and we anticipate that U.S. and European central banks will raise short-term interest rates by 25 to 50 basis points during the first half of the year as economic growth accelerates. Our growth-oriented investment strategy remains in place: 1) our target weight in Europe is 57%, based on our positive outlook for corporate earnings growth of at least 12%, a continuation of mergers and acquisitions, corporate restructuring, further tax and market reforms and a stronger euro; 2) our target weight in Japan is unchanged at about 31.0% as we expect a gradual economic recovery to continue; 3) we have raised our non-Japan Asia target weight to 8% from 6.5% due to improving prospects for economic growth and corporate profits; and 4) we are maintaining minimal exposure of 0.5% in Latin America (Mexico) in favor of greater investment opportunities in Europe and Asia. We remain fully invested, with a minimal cash reserve position.

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 2

■ Sit/Kim International Investment Associates, Inc. ■

International Investment Outlook & Strategy

Our economic and financial market conclusions are summarized below: 1. Global equity markets climbed the proverbial “wall of worry” in

1999, with all regions producing large gains. The markets rose in concert in the fourth quarter, as the “new economy” technology and telecommunications growth sectors generated investor interest in corporate consolidations and new equity issuance. Low interest rates and inflation and relatively stable currencies continued to provide a favorable background for equity markets around the world.

2. The global economy remains on track for a solid recovery. We

expect further economic expansion this year, accompanied by an acceleration in corporate earnings growth in Europe and Asia. Interest rates are rising and we expect further actions by both U.S. and European central bankers that will raise short-term interest rates by 25 to 50 basis points in the first half of the year. We view these increases as preemptive moves to keep inflation in check and economic growth modest. We remain fully invested in quality growth companies with dominant market positions and strong earnings growth.

3. In Europe, large equity gains occurred in the fourth quarter as

evidence of “new economy” technology and economic recovery proliferated and Germany, in particular, proposed taxation reforms that will benefit the corporate sector and the stock markets. Our outlook for the European markets continues to be positive. We

expect corporate earnings to increase at least 12% this year. Equities should be able to rise in line with earnings. In addition, we expect the strong merger and acquisition trends to continue to bolster equity valuations along with further corporate restructuring, focus on creating shareholder value, the benefits of EMU monetary and currency integration, and the shift in pension fund orientation toward equities. We think currency gains in the euro will benefit the portfolio this year. Our target weight for Europe in EAFE+ accounts is 57.0% (See Exhibit A).

4. The Japanese equity market finally turned strongly positive in

1999, supported by strong capital inflows, as government fiscal stimulus, a recovery in the banking sector and acceptance of corporate restructuring are bringing the recent recession to an end. Although the Japanese economic recovery remains somewhat fragile and still dependent on government aid, we believe that gradual improvement will continue. We are positive regarding the investment opportunities in Japan, and we are maintaining our target weight at about 31.0%. This is an overweight position relative to the EAFE benchmark weight of 27.4%.

5. Asia Pacific markets produced large returns in 1999 as the

economies rebounded more rapidly than expected, helped by Japan’s economic recovery. We look for strong economic activity and the recovery in corporate earnings to continue in 2000. Its location as a contract manufacturing center for high technology OEMs should continue to attract capital to Southeast Asia. The political tensions in the region have taken a backseat to the focus


on commercial opportunities. We have raised our target weight to 8.0% from 6.5%, versus the current EAFE weight of 6.1%.

6. Equity markets in Latin America all rose in 1999. Latin American

economies are also recovering as commodities prices, particularly oil, have risen and interest rates have declined. Brazil and Argentina are still struggling with budget deficit reductions and

reforms, but political elections have gone smoothly so far. We are retaining our minimal 0.5% exposure to the region.

7. Our remaining 3.0% target weight is allocated opportunistically

among Israel, South Africa and Canada. We are retaining only a small residual cash reserve position.


International Equity Markets Review A Stellar Year for Global Equity Markets

What a difference a year makes! In contrast to 1998, when we witnessed financial turmoil and volatile equity markets, particularly in Asia and Latin America, 1999 saw a return to double-digit investment returns in every major regional equity market in the world as the outlook for economic expansion and corporate earnings became more positive. In addition, investor focus on the “new economy” technology and telecommunications sectors played a major role in the strong performance. For the full-year 1999, the MSCI World Index rose 24.9% (in U.S. dollars), as Japan’s equity market turned in its strongest performance of the decade, rising 61.5%, despite an appreciation of 11.1% by the Japanese yen. The MSCI Pacific ex Japan Index also rose in strong fashion, gaining 42.6%. The gains of the two largest regional equity markets, the U.S. and Europe, were somewhat overshadowed by the rebounding Asian markets, but also produced healthy returns of 21.9% and 15.9%, respectively. Notably, the 1999 returns are the fifth yearly consecutive double-digit returns for both the U.S. and Europe (See Exhibit B). European markets consolidated for the first nine months of the year, following the launch of the euro on January 1, 1999, a period during which the euro lost nearly 14% of its value as capital flowed back to Asia. Among European countries, investment returns for the year were quite mixed, depending on the relative size of their technology and telecommunications sectors and the pace of mergers and acquisitions that were completed. The strongest returns for the year belonged to Finland (+126.2%), Greece (+73.9%), Sweden (+58.3%), Norway (+40.2%), France (+30.2%), Germany (+20.0%), United Kingdom (+14.9%) and the Netherlands (+12.7%). Italy (+4.8%) and Denmark

(+0.3%) produced slightly positive returns, while Spain (-0.1%), Portugal (-5.4%), Austria (-7.8%), Switzerland (-8.6%) and Ireland (-13.4%) all declined. Current and historical returns of European markets are presented in Exhibit C. Japan’s equity market came alive in 1999 as aggressive government fiscal stimulus and reforms in the banking sector are finally bringing the country’s long recession to an end. Equities rose in each of the four quarters, despite the strengthening of the Japanese yen, as government fiscal and reform measures as well as an acceptance of the restructuring process by Japan’s corporate elite produced a 180-degree turn in investor sentiment. Southeast Asian equity markets followed a similar positive upward trend as lower interest rates, currency stabilization and the revival of the Japanese economy contributed positively to economic activity. Full-year returns were highest in South Korea (+93.0%), Indonesia (+91.6%), Singapore (+76.3%), Hong Kong (+68.2%), Malaysia (+38.6%), Taiwan (+35.0%), Thailand (+32.4%) and Australia (+20.6%). New Zealand (+5.2%) and Philippines (+4.9%) produced much smaller gains. All Asian returns are expressed in U.S. dollar terms and are shown in Exhibit D. Latin American markets rebounded strongly in 1999 after their weak performance the previous year. The MSCI Latin America Free Index rose 55.5% in U.S. dollar terms for the full year. Following the devaluation of the Brazilian real in January 1999, investor confidence gradually returned, producing strong equity market gains in Mexico (+87.5%), Brazil (+69.2%), Chile (+28.5%), Argentina (+28.0%) and Peru (+23.7%) (See Exhibit E).


Global Economic Growth Positive Economic Growth Convergence

New Year’s Eve celebrations in the world’s capital cities, broadcast via satellite into hundreds of millions of homes, vividly illustrated the extent of integration as the globalization process unfolds. As midnight approached, viewers cheered along with the celebrants as each city successfully passed the Y2K technology test with not a single notable calamity. Thus, the global economy is off to a healthy start as the new millennium begins. Our estimate for worldwide economic growth is over 3.0% in 2000, following an overall growth rate of about 2.0% plus for 1999 (actual figures are not yet in). Adjustments in trade flows, exchange rates and production schedules have been substantial following the Asian financial crisis, and corporate profits have rebounded faster and more strongly than was previously thought possible. The acceptance of corporate restructuring, reforms in trade policy, taxation, labor markets and banking, and the increased recognition of the Internet Age and technological advances in telecommunications and medicine have also been major catalysts in increasing the prospects for growth. Inflation, for the most part, remains tame. While liquidity conditions are gradually tightening and interest rates have begun rising, the growing supply-side flexibility in both Europe and Asia and increased use of technology will help to keep inflation and interest rate risks more manageable and serve to limit economic disruptions of the type that characterized 1997 and 1998. We expect economic growth of about 3.0% in Euroland this year as economic growth accelerates in its three largest economies – Germany, France and Italy. Inflation should remain at or below 2.0%. The UK economy is also expected to expand at a 3.0% rate in 2000, and inflation should remain modest at about 2.0% (See Exhibit F).

Domestic demand is expected to strengthen in European economies as consumer confidence is being fed by growing employment and incomes. Germany is taking the lead in proposing tax reforms that would eliminate realized capital gains taxes for banks holding corporate shares and reducing the statutory corporate tax rate. These measures will have positive economic growth and employment effects and will benefit share values. The weaker euro has contributed positively to Euroland’s export picture and, with the exception of union labor negotiations, there are few internal economic imbalances that might threaten the growth outlook. The interest rate trend poses the largest risk to growth, and we anticipate actions to raise short-term interest rates by at least another 25 to 50 basis points on the part of both the European Central Bank and the Bank of England, which made a 25 basis-point hike on January 13th to 5.75%. The Asian economies have rebounded beyond expectations. All should have positive rates of growth in 1999 and stronger growth in 2000 with little inflation (See Exhibit G). Currencies have strengthened, trade balances are mainly positive and both investor confidence and capital have returned. One of the main drivers for Asian growth is the turnaround in Japanese economic growth. Secondly, China’s exports rebounded quickly in response to the Asian recovery, which relieved downward pressure on the renminbi. The main risks to continued growth in Asia are rising interest rates in the U.S. and a faltering of economic growth in Japan. Japan is experiencing some improvement in business sentiment and financial conditions, although its economic recovery, largely supported by government fiscal stimulus, remains hesitant and fragile. We expect the gradual upturn to continue in 2000 and look for growth of about 1.0%. The restructuring process has a way to go and the recognition that technological change is required for greater economic efficiency is an additional catalyst for change.


Latin American economies survived economic turmoil at the beginning of 1999 and are in the process of recovery. Higher commodity prices and lower interest rates have helped the recovery process, and the equity markets performed surprisingly well in 1999. Growth is expected to be in the range of +3-4% in 2000 (See Exhibit H). While large budget deficits continue to be a problem in some countries, the private sector is stabilizing and corporate profits are expected to grow robustly. The risks to our outlook are the opposite of what they were last year at this time. Rising interest rates, an overheating U.S. economy with a large trade imbalance that could weaken the value of the U.S. dollar and the possibility of accelerating inflation are the main factors that could negatively impact equity markets.

Market valuations are still reasonable in both Europe and Asia, particularly when viewed relative to the more positive forecasts for earnings growth now that economic recoveries are more certain and reforms conducive to further growth are in the process of being proposed and implemented. We think that equity markets in Europe, Asia and Japan will be able to achieve gains commensurate with earnings growth this year unless interest rates rise substantially from current levels. The Latin American markets remain relatively less expensive. However, greater economic and political uncertainties cause us to maintain our limited exposure to the region. Securities markets’ valuations are presented in Exhibit I.


European Outlook -Key Issues and Implications for Regional Markets-

The year 1999 was one of transition in Europe, beginning with the commencement of the European Monetary Union (EMU) and the introduction of the euro currency. This heralded event was seen as the impetus for an opening of markets and greater stability within the initial 11 member countries (Germany, France, Italy, Netherlands, Belgium, Luxembourg, Finland, Austria, Spain, Portugal and Ireland). The convergence of the Euroland countries called for markets and companies to become more pan-European as well as global. However, this integration transpired at a time when the global economies were still attempting to recover from the Asian and Latin American financial and economic turmoil experienced in 1997 and 1998. With all said and done, establishment of EMU can be deemed a success in its first year, despite the depreciation of the euro. Some of the key events included: • = The ECB, under the guidance of its first President, Wim

Duisenberg, successfully managed the meeting of growth expectations by the Euroland economies in a difficult environment. To achieve this, interest rates were reduced from 3% to 2.5% early in the year, but were increased to 3% by yearend.

• = The euro, initially introduced at $1.1667 on January 1, declined

throughout the year, ending near parity with the U.S. dollar (-14%). We believe the weakness in the euro was largely attributable to a lack of confidence by investors in the ability of Euroland governments to implement much-needed structural reforms, and preferring to hold U.S. dollars and the Japanese yen. That perception is in the process of turning more positive.

• = Merger and acquisition (M&A) activity in Europe more than doubled in 1999 to $1.2 trillion as European companies sought pan-European alliances and cross-border deals with former rivals. This was most evident in the telecommunications and banking sectors (See Exhibit J).

• = Structural reforms and financial deregulation are being proposed

and implemented that should lead to sustainable economic growth. The moves are particularly encouraging for structural changes in Germany directed toward corporate and personal tax reductions, labor and pension reforms and fiscal spending restraints.

As we begin 2000, we continue to believe that the main factors in Europe that we identified throughout 1999 will continue to be positive, including:

1) Continuing recovery in European and global economic growth;

2) The weak, but appreciating, euro will be a boon to European exporters (See Exhibit K);

3) Accelerating progress of EMU countries in addressing structural issues that will make Euroland more competitive globally; and

4) Increases in information technology capital spending as Europe plays “catch-up” to the U.S. and Y2K concerns are put to rest.

Key Issues and Developments Economic Outlook One year after the successful launch of EMU, many of the challenges faced at the start of the year have been met, but the fulfillment of others has yet to be realized. The launch of EMU went smoothly, and

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 8 the ECB has developed into a competent central bank. Member countries have, for the most part, abided by the fiscal and monetary policy constraints imposed upon them. Capital markets have become more integrated and the groundwork for the euro to become the basis for transactions and investments has been laid. The challenge going forward is for the ECB to establish its credibility among financial market participants, which will provide support for the euro. The ECB cannot afford to deviate from a course that provides price stability and encourages progressive economic policies. The Euroland countries appear to be on course for sustained growth. Particularly encouraging is a recent pickup in the laggard economies of Germany and Italy. GDP growth is expected to exceed 2% for all of 1999 with fourth quarter year-over-year growth estimated to be in excess of 1.2%. We anticipate growth to continue to accelerate to about 3% in 2000. The latest economic indicators from Germany support our belief that the German economy, which accounts for one third of Euroland GDP, is now showing signs of gaining momentum (See Exhibit L). The German business confidence or Ifo Index was 98.9 in November, up from 96.1 in October, and much higher than expected. Retail sales and manufacturing production are showing signs of picking up, and the unemployment rate is finally beginning to decline. German companies are benefiting from an increase in exports, supported by the weak euro, as global growth heats up. We are hopeful that this increased export activity will lead to increased domestic demand. An immediate concern in Germany is the proposed 5.5% pay increase by the country’s largest trade union, IG Metall when wage negotiations begin in February. The increase is much larger than an agreement brokered by Chancellor Schroeder under which trade unionists were to show moderation in wage demands in exchange for early retirement concessions. If enacted, a pay increase of that magnitude could ignite inflation and force the ECB to raise rates even higher than anticipated. The Italian economy is also beginning to pick up steam, although at a slower pace than the other

Euroland countries. Growth is expected to reach the Italian government’s forecast of 1.3% in 1999. Strong export growth was reported in the third quarter after four consecutive quarters of declines. Notably, there is no sign of an acceleration in the core inflation rate. Economic growth in France, which has been a leader in Euroland, is expected to remain strong in 2000, despite the government’s failure to fully address structural unemployment problems. Outside Euroland, UK growth should also be sustainable, in spite of the strong sterling, as business and consumer confidence remain high. The strength of the economy will likely put upward pressure on interest rates as a way of fending off inflationary pressures. The Bank of England increased rates slightly by 25 basis points to 5.75% on January 13, 2000. With our improving European economic outlook and our global growth forecast of roughly 3%, we now think earnings across Euroland in 2000 will increase at about 12.0%, higher than the 9-10% growth rate in 1999 (See Exhibit M). The UK and continental Europe should both experience earnings improvement. The recent evidence that economic conditions are improving across Europe makes it nearly a certainty that both the European Central Bank (ECB) and the Bank of England (BOE) will raise interest rates further this year. The continued growth in the money supply, combined with stronger output and evidence of higher inflation, also supports an increase in interest rates. We believe the ECB will raise interest rates by at least 25 basis points by the end of the first quarter to be followed by another 25-50 basis point rise later in the year. This will bring the repro rate for Euroland to 3.50-3.75%, up from its low of 2.5% in April 1999. The ECB meets again in early March. Likewise, the BOE will likely raise rates another 25 basis points over the course of the year, in addition to the 25 basis-point increase in January, to ensure that growth remains sustainable and inflation stays within the government’s 2.5% target. We view these actions as preemptive strikes, keeping the economies on controlled growth paths

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 9 with inflation in check. We are comfortable that inflation will remain under control because oil prices appear to have reached a plateau, companies still have minimal pricing flexibility, and global unemployment remains high. Euro Outlook The euro has declined nearly 14% since its launch, with much of this decline coming in the first and fourth quarters (See Exhibit N). The weakness in the first quarter can be ascribed to low growth prospects in Euroland, a lack of confidence in the ECB, acquisition activity outside euroland, and increased investment opportunities in Asia, which led to a net outflow of capital. The increased volatility in the fourth quarter can largely be attributed to pessimistic sentiment toward free market policies and “safe haven” of the yen and dollar. The state-aided bailout of Philipp Holzmann AG, a German construction company, and political criticism of Vodafone’s hostile takeover bid for Mannesmann AG added to the skepticism as to whether Germany was willing to make the necessary structural reforms. This, along with regard for the U.S. dollar as a “safe haven” in the event of Y2K problems, moved the euro to its recent lows. We think many of the concerns expressed in 1999 have been overdone. The euro is fundamentally undervalued at its current near-parity level relative to the dollar, and over the next 12 months we think it should appreciate to the $1.10 area. The improving European economic picture, growing confidence in the ECB, and a reversal of capital flows back to Europe should favor the euro. Europe Structural Reforms Structural reforms are becoming evident throughout Euroland. France has been adamant about labor reform in striking a balance with union demands, and unit labor costs have been the focus to combat unemployment and wage inflation pressures. The government

accepted a shorter work week in exchange for moderate wage increases. The focus in Spain has been deregulation and liberalization of the telecommunications and energy markets. Consumers pay considerably higher rates in Spain for telephone and utility services than its Euroland counterparts. Rates are expected to fall dramatically as the European Commission applies pressure to liberalize these sectors. The Spanish government has recently granted permits to several foreign power companies to encourage competition. This is also true in Italy with the privatization of Enel, the government-operated power company, last year. These structural changes and others are a few examples of the positive changes occurring in Euroland as these countries open and encourage competition in their markets. We are becoming more optimistic that Germany will make the structural reforms that are necessary to propel the economy forward. Last month Chancellor Gerhard Schroder’s Social Democratic Party proposed far-reaching reforms to abolish tax barriers by eliminating capital gains taxes on the sale of companies’ cross holdings. The current high capital gains tax rate in excess of 50% discourages German financial institutions, in particular, from selling their cross holdings, making mergers and acquisitions more complicated and, hence, less feasible. A dismantling of the current tax structure would encourage industry consolidation and lead to higher economic growth and employment as is transpiring across Europe. The capital gains tax reforms, plus other reforms directed toward reducing corporate and personal income taxes, improving labor flexibility, and balancing the budget, indicate that Germany is finally changing. While these are positive steps, we do not expect rapid strides in structural reforms, but rather slow, evolutionary progress. The proposals are likely to be modified, given the Christian Democrats’ opposition to tax cuts that only benefit large corporations. The fact that the government has made these proposals does increase the confidence that restrictions on labor and capital markets will continue to be eliminated despite

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 10 political difficulties. Chancellor Schroeder remains firm on implementing structural changes, while compromising with other party factions and the business sector. There is also increased focus on the creation of shareholder value by European companies, which is being driven by the need to stay competitive or face extinction as globalization proceeds. This will lead to more merger and acquisition activity, which will support the market.

Increased Technology Capital Spending The European economy appears to be moving rapidly toward the same services, knowledge and information base that has transformed the U.S. economy over the last decade. Europeans seem determined to close the technology gap with the U.S. An increasing proportion of consumption is shifting toward services and technology-based products. This shift to services, information and knowledge, we believe, will create value-added growth in the European software, information technology consulting and telecommunications sectors in the next decade. Market Valuations The rally in European equities in the fourth quarter has brought valuations closer to fair value versus bonds. Although equities can no longer be viewed as inexpensive, we believe earnings expectations will continue to rise, and as long as bond yields do not surprise on the upside, equities prices should also increase. The benchmark 10-year bond yield is currently at 5.15% versus 3.9% at the beginning of 1999 and the ratio of the Euro-STOXX 50 Index earnings yield to the bond yield is now 0.6 as shown in Exhibit O. Even though historical comparisons now suggest equities are more fairly valued, this does not take into account that the cost of equity has fallen over time along with the downward trend of inflation. At the same time, the return on equity has risen as corporations have restructured. The gap between the return on equity and cost of equity is at a 20-year high (See Exhibit P).

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 11 The price/earnings multiple estimates are at about 23x for 1999 and 22-23x for the year 2000 (See Exhibit Q). These compare with a ten-year average of 17-18x. However, a comparison of equity returns with the cost of capital suggests that the higher P/E multiples are justified. Finally, European economic growth in the 3% area, 3.5% short-term interest rates, 5.1% bond yields, and a 10% appreciation of the euro relative to the dollar should support 15% earnings growth for Europe. These assumptions are consistent with P/E multiples in the mid-20s. The rapid pace of technological change, higher global growth, low inflation, structural reforms, and an increase in the flow of capital back into Europe also support the argument for higher absolute multiples than experienced in earlier cycles. Investment Strategy As we begin a new year and a new millenium, our 12-month outlook for improving economic conditions, an appreciating euro, and an end to Y2K issues have bolstered our upbeat expectations for the European equity markets. This positive outlook is further enhanced by longer-term, positive investment factors that we believe will drive European equities the next several years. These include: 1) The shift to information and knowledge products and services as

Europe moves to close the technology gap with the U.S. (See Exhibit R);

2) Corporate restructuring, mergers, acquisitions and consolidations, and share buybacks;

3) Deregulation and liberalization of industry, labor and capital markets; and

4) Impact of the emergence of the internet and e-commerce markets, i.e. business to business.

The European weighting target in our EAFE+ portfolios is 57%, approximating a 10.0% underweight compared with the MSCI EAFE Index weight. This underweight is the result of our UK target at 9.9%

versus 19.2% for the index. We believe this underweight is appropriate to take near-term advantage of the more immediate and greater opportunities unfolding in Asia and our belief that the UK is further along in its profit growth. We are positive on the longer-term EMU effects and the corporate restructuring process in Euroland. Our sector preferences are those that have long-term growth opportunities in technology, services, and telecommunications. We believe these secular growth opportunities will provide companies with upside earnings growth revisions. Companies we favor include telecom equipment and services, telecommunication service providers, semiconductor equipment, information technology consulting, software, business services, and media. We continue to think that the prices of financial and pharmaceutical stocks, that have been market underperformers, offer attractive values when compared with their growth rates. Our focus in Europe is Euroland, which now may be entering the “Goldilock's Economy” that the U.S. has enjoyed for much of the decade of the 90s, with improving earnings growth prospects and few inflationary pressures. With this positive backdrop, the euro should strengthen, further benefiting the Euroland portfolio. We remain focused on the Netherlands, Finland, France, Germany and Italy. As mentioned, we are now underweight in the UK (target weight 9.9% versus EAFE Index weight of 19.2%) because that country is further ahead in its economic expansion, and we think that likely interest rate increases and potential inflation could negatively affect the future strength of the economy and corporate earnings. GERMANY Along with several other European bourses, the German market took investors for a breathtaking ride to life-time highs in the final month of 1999. The DAX reached a record 6992.92 on December 27th, and finished the year with a 39% year-over-year increase in euro terms.

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 12 The strong performance was driven by further indications that economic recovery has taken hold and by the positive reaction to the proposed Finance Ministry’s Tax Reform 2000. Germany’s PMI for December rose to 56.4 (versus November’s 55.3), the highest level in two years. The positive sentiment was also evident in the November Ifo survey at 98.9, up from 96.1 in the previous month. Although still high, the unemployment rate in November dropped to a three-year low of 10.4% as rising factory orders and increased production stimulated new hiring. Inflation remains under control; industrial prices in November rose only 0.1% despite higher energy prices, and the preliminary CPI for December showed a 0.2% rise month-on-month (1.1% year-on-year). The disclosure of one element of the Tax Reform 2000 bill unleashed a wave of euphoria in the market. Effective January 1, 2001, the corporate tax rate would be reduced to 25% compared to the current 40% rate for retained profits and 30% for distributed profits. Also, depreciation rules will become much stricter. The surprise came from the Finance Minister’s proposal to eliminate capital gains taxes on profits from shares held in other companies. If this proposal becomes a reality, the restructuring process in Germany would speed up immensely as cross shareholdings could be unwound and capital redeployed into higher-yielding investments. Liquidity would improve and M&A activity would certainly increase. The most obvious beneficiaries of such reform are the banks and insurers. While the measure most likely will not be approved in its original form, it is very clear that corporate restructuring will accelerate in Germany. During the quarter, we added Epcos to our portfolio, an initial public offering of Siemens’ passive ceramic component business. Epcos’ major customers include European and Asian mobile handset manufacturers and its growth potential is driven by the increasing

numbers of handsets being produced every year. Mannesmann became the target of a hostile bid by Britain’s Vodafone Airtouch during the quarter and the outcome of the tender offer will be known by early February. Allianz is a beneficiary of the proposed tax reforms discussed above, and SAP is becoming rediscovered as an internet stock. Finally, Deutsche Telekom shares are fully participating in the strong global demand for telecom stocks. FRANCE The French economy will continue as a leader in Euroland’s economic growth. Although the economy slowed slightly from 1998’s +2.9% GDP growth, the slowdown largely occurred in the first half of the year prior to a pick up in exports. Growth in the third and fourth quarters exceeded 3%, and should continue in 2000 at about 3.3%. The December storms that caused heavy damage and millions of dollars in insured losses will likely provide further impetus to the economy as repairs are made to the infrastructure in the first half of the year. Inflation is expected to increase only marginally in 2000 to the 1.2% area. Confidence in both the business and consumer sectors remains very high and the export market continues to exhibit strength. The projected strong growth should continue to generate new jobs, with the unemployment level forecast to fall below the important psychological 10% level over the next twelve months. Although the structural problems in the labor market have not been fully addressed, progress has been made toward more flexibility and lower labor costs. The impact of the new legislative 35-hour work week needs to be monitored, as any further tightening of work legislation could dampen labor reform progress and, in turn, economic growth. We made no changes to our holdings in the fourth quarter. Our largest holding is STMicroelectronics, a leader in semiconductors used in a

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 13 variety of telecom and consumer products. We also retain exposure to the robust consumer spending through our holdings in Carrefour, Danone, and L’Oreal, telecommunications through France Telecom, and financial services through Axa. ITALY The Italian economy, long considered the “sick child” of Euroland, reported better-than-expected growth in the second half 1999, led by a recovery in exports as domestic consumption has yet to kick in. The government is optimistic that its growth target of +1.3% in 1999 is achievable and +2.5% or higher GDP growth in 2000 is possible. If achieved, the economy could be brought into line with the other Euroland economies in 2000. The government has also been pleased with the improvement made in reducing its budget deficit. Earlier in the year, Italy was reluctantly granted the right to exceed Euroland’s budget deficit target of 2% of GDP with expectations of hitting 2.4%. When the European finance minister first announced that Italy would be allowed to miss the target, the euro slumped. At year end, Italy surprising stated that the deficit would be below the 2% target with the deficit half that of 1998 when the budget deficit was 2.7% of GDP. We are encouraged by Italy’s improving economy. Expectations are for continued increases in industrial production, rising exports, and a resumption in consumer spending to sustain the recovery in the coming quarters. We added a position in Enel, the state-owned electrical utility generator, which was privatized in the fourth quarter. We also continue to hold telecommunication companies Telecom Italia and Telecom Italia Mobile, and Banca Fideuram, a company well positioned to take advantage of the growing mutual funds industry.

NETHERLANDS The Dutch economy is likely to run the risk of overheating and would welcome higher interest rates in Euroland. GDP growth in the low 3% area in 1999 should be sustained in 2000. However, with the unemployment rate among the lowest in Europe, pressure is mounting in the labor market. The tight labor market and the strength of domestic demand increase the likelihood of higher inflation if interest rates are not increased. Earnings could surprise on the upside in 2000 given the Netherlands’ exposure to exports in the global markets. We increased our weighting in the Netherlands during the quarter by adding to our holdings in United Pan Europe (UPC), a provider of communications services such as cable television, telephone, and internet/data services. SCANDINAVIA Finland and Sweden are forecast to be near the top of Europe‘s growth economies, while Denmark will be one of the slowest. Domestic demand and strong export growth on the back of strengthening global activity are behind the growth in both countries. As with Finland (an EMU member), interest rates will likely increase amid concerns of a tight labor market and rising imported inflation. The gap in both Denmark and Norway’s economies relative to their Scandinavian neighbors is lower domestic demand. Our largest holdings in Finland and Sweden are Nokia and Ericsson, which should continue to benefit from their leadership positions in supplying cellular handsets and telecommunication equipment globally. We have no positions in Denmark or Norway. SWITZERLAND Economic activity appears to have accelerated in the second half of 1999. GDP growth for the full year is forecast to be around 1.3%, and

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 14 is expected to increase to 2% in 2000. The pickup in growth is mainly tied to increasing exports with domestic demand showing only a modest rise. Despite growth lagging that of Euroland and no signs of inflationary pressures, the Swiss National Bank is expected to increase interest rates in response to any rate increases in Euroland. Our holdings in Switzerland are focused on pharmaceuticals (Novartis and Roche) and financial services (United Bank of Switzerland and Zurich Allied). Both sectors were weak in 1999, but we expect the sentiment to shift in 2000 as valuations are attractive. These sectors are also going through restructuring and consolidation. UNITED KINGDOM In the absence of any significant economic slowdown, the most prevalent issue is how much higher interest rates could go. The labor market in the UK remains tight, and strengthening economic activity increases the likelihood that the Bank of England will continue to raise rates as a pre-emptive strike against inflation. The most recent increase was 25 basis points to 5.75% on January 13, 2000. Real wage growth is the strongest in seven years as companies are having to pay more to recruit and retain workers. The strength of sterling has also been worrisome. Whereas the strong sterling is favorable from a deflationary standpoint, it has added to the appetite consumers have for imports, driving up the balance-of-payment deficit. With the economy running flat out, interest rates will likely have to be increased further to keep inflation below the 2.5% target and to maintain the economic recovery. We increased our weighting in the telecommunications sector by adding Orange and Thus to our portfolios to take advantage of the growth as well as consolidation in the sector. We sold our holdings in

Carlton Communications and the Granada Group, maintaining an underweight in the UK. SPAIN The Spanish economy grew 3.7% in the third quarter, continuing its outperformance compared to its European neighbors. Import growth of 24% in October again outpaced export growth of 14%. Domestic demand will continue to drive economic growth, but the prospect of higher interest rates in 2000 indicates a slowing of household spending. Also, the unemployment rate remains stubbornly high at nearly 10%, despite ongoing job creation. The reduction in personal withholding taxes, an incentive for personal consumption spending in 1999, will have worked itself out of the comparative base. We expect that the foreign sector will continue to expand based on improved economic conditions in both Europe and Latin America. Europe accounts for about two thirds of Spain’s exports. All in all, while slowing modestly from the 1999 rate of 3.7%, GDP growth for 2000 should continue to be brisk. The outlook for inflation should also improve this year due in part to the lower contribution of domestic demand to total GDP. Energy prices will be helped by new competition in the electricity market. The political elections to be held in the first quarter should not bring any unpleasant surprises as the incumbent Partido Popular currently has a 41% lead to the Socialists’ 36%. During the quarter we initiated a position in Terra Networks, the spinoff of Telefonica’s internet activities, which is one of the leading content and service providers in Latin America. Our bank, Argentaria, completed its merger agreement with Banco Bilbao Vizcaya to form the new entity BBVA. We continue to hold Telefonica and have been selectively reducing our position in electricity generator Endesa.


Asia Pacific Outlook -Key Issues and Implications for Regional Markets-

The Asian stock markets posted large gains in the fourth quarter as investor sentiment turned bullish in the wake of continued optimism toward economic restructuring in Japan, higher-than-expected GDP and export growth figures across the region (See Exhibit S), and evidence of buoyant economic growth accompanied by low inflation in the OECD countries. The quarter's biggest story was the global surge in technology and telecom shares, and Asian stocks in these sectors enjoyed substantial gains: stocks such as China Telecom and NTT Data (both in our EAFE+ portfolios) doubled in price within the quarter. Much of the buying interest in these sectors has stemmed from optimistic expectations of the growth potential that internet expansion will provide for these companies, and as we have mentioned previously, this past year Asia has seen an internet stock boom similar to the one we have seen in the U.S. Our EAFE+ portfolios have benefited from our overweight exposure to these sectors, and we have deliberately focused on established companies with strong earnings bases--not the numerous pure-play internet companies without earnings. Still, euphoric market rallies like the recent one often overshoot and raise the possibility of sudden sharp declines. In keeping with our risk control discipline, we are periodically taking profits in the more high-flying names in our portfolio and selectively diversifying into some underperforming sectors where we see good earnings growth potential. We maintain an overweight position in Japan in the EAFE+ portfolios, and in response to indications that the strength of the regional recovery is exceeding expectations, we are also adding to our slightly overweight position in Asia ex-Japan. While we have no exposure tonon-index markets such as Indonesia and the Philippines, we continue to be invested in South Korea, Taiwan, and Thailand.

In November, the U.S. and China finally reached a WTO agreement, which calls for relaxation of China's restrictions on foreign investment in its telecom and financial sectors and a bilateral reduction of import tariffs. The agreement, which still requires ratification by the U.S. Congress, is positive for the Asian markets. WTO accession for China under these terms would create numerous investment opportunities for firms in the region. Taiwanese and Hong Kong companies with substantial China investment experience, such as Cheung Kong and Hon Hai, would be particularly well positioned to benefit. The resulting foreign domestic investment inflows would induce accelerated restructuring in the inefficient state-owned enterprise system and expansion of the domestic private sector, both of which would bode well for the long-term health of the Chinese economy. In future years, China could become an increasingly important source of export demand for the rest of Asia. In addition, the successful WTO negotiations and China's recent decision to resume high-level military contacts with the U.S. suggest that the PRC government has retreated from its militant diplomatic rhetoric of several months ago. An economically engaged, less hawkish China reduces the security risks in the region. Japan Japan ended the year as one of the top-performing international markets of 1999 (See Exhibit T). With the contribution from yen appreciation acting in concert with strong international demand for Japanese assets for most of the year (the yen appreciated against the U.S. dollar 4.1% for the quarter, 11.0% for the year), the Topix rose an impressive 18.9% for the quarter, 76% for the year. The Nikkei had an almost equally strong showing, rising 11.9% for the quarter, 51.2% for the year (all gains are in U.S. dollar terms).

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 16 Key Issues and Developments The underlying Japanese economy, on the margin, is seeing positive improvements, which suggests that the governmental stimulus, financial reforms, and corporate restructuring actions are having a positive impact. We do continue to believe that the improvement will resemble a “stair step” function as the economy is still in a tentative transition from contraction to recovery. The latest economic figures released for the third calendar quarter (July-September), revealed negative growth of –1.0%, following two consecutive quarters of impressive growth, +2% and +1%, respectively. Real household spending in November was unchanged for the month, but fell 2.9% from last year. The monthly decline in October was 0.7%. Meanwhile, the Economic Planning Agency said the index of leading economic indicators rose to 57.1 in November from 55.6 the prior month. The index forecasts activity six months in the future. The index of current activity fell to 62.5 from 70. Exports, rose 4.7%, driven mostly by improving Asian demand. The current strong yen, however, could hamper future improvement. The equity market appears to have discounted this tentative economic transition and is taking an optimistic view of the future, especially the “New Japan” economy, (i.e., telecommunications, internet, and service-related industries). Both foreign and domestic investors have driven these sectors to significant outperformance. Capital inflows and scarcity of issues have been major supporting factors. Investment Outlook and Strategy Current macroeconomic conditions and positive market sentiment will probably continue into the early part of the new year. Economic forecasts for the year ending in March of +0.5% actually take into account further negative GDP growth in the current quarter. A return to positive growth will depend on renewed public spending when the supplemental fiscal budget is activated.

Be that as it may, the current equity market focus, as it had been for most of 1999, is not on the underlying economy per se, but rather on the changing Japanese corporate economy in terms of restructuring and reform, and the growing importance of the aforementioned “New Japan.” We are also optimistic about the economic recoveries being experienced in the Asian region, a development that will continue to benefit Japan’s export sectors. (See Exhibit U) Postal Savings could create huge cash inflows This year, a large amount of the giant savings pool is starting to mature and open for other investment instruments. The postal savings plan started in the early 1990s. Roughly 35 million people opened deposit accounts at their local post office because of its image as a strong government institution and interest rates greater than 6%. The bank of Japan estimates that more than ¥80,000 billion (U.S. $761 billion) is coming up for grabs this year and ¥106,000 billion over the next two years (See Exhibit V). According to the Ministry of Posts and Telecommunications, ¥8,000 billion will be earmarked as taxes, while another ¥17,000 billion will definitely leave the post office coffers because of a regulatory ceiling on the size of new individual accounts. This leaves ¥81,000 billion of postal savings available for investment. A fair amount of the savings will probably be reinvested in postal savings because most people with postal savings accounts tend to be middle-aged or elderly, risk-averse investors, who are likely to roll over their maturing deposits despite the meager 6.2% interest rate currently offered on new accounts. So far, the government predicts that 70% of the outflow will flow back into the post office. Many private estimates, including a recent survey by Dentsu, Japan’s largest advertising agency, agree that the post office will get the lion’s share of the outflow. However, the sheer size of the overall outflow means that even a small shift to equities or dollar-denominated savings accounts could have a significant impact on Japan’s stock and foreign exchange markets. Goldman Sachs predicts that as much as ¥10,000

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 17 billion to ¥15,000 billion could be used to purchase equities. This easily exceeds the ¥8,500 billion of foreign investment in Japanese equities in 1999, which helped push the benchmark Nikkei 225 Index up almost 40% over the year. And some economists predict that a large move toward dollar-denominated deposits could also weaken the yen. Strategy By being heavily invested in the telecommunications and service-related sectors (including internet companies), our Japanese portfolio has greatly benefited by the price appreciation in these sectors. Going forward, we intend to maintain our presence in these areas, while: 1) broadening the portfolio by diversifying among additional names in these sectors, and 2) taking opportunistic positions in economically-sensitive sectors that have underperformed the market in the past year and will benefit from the recovery. Despite the view that the economy is not experiencing a robust recovery, on the margin, we believe conditions are improving. We are wary of the stretched valuations in these sectors, a phenomenon that is not limited to Japan in this global bull market, but we believe valuations are justified since we think we are early in the recovery. We are maintaining our current weight in the Japan portfolio (slightly overweight versus the benchmark weight). We are not surprised to see the current correction of the high-flying telecom/internet-related sectors as these sectors performed very well in 1999. We view the correction as an opportunity to add to existing positions and upgrade our portfolio. Hong Kong/China Encouraging economic news helped to push Hong Kong's Hang Seng Index to a 33.2% gain in 4Q99. The economy expanded 4.5% year over year in the third quarter, a surprisingly robust figure considering that just two quarters ago GDP growth was still negative. Other recent statistics confirmed that the economy is enjoying a solid rebound: exports grew by 10.3% year over year in November, retail sales rose

3.0% year over year by quantity in October, and tourist arrivals were up 17%. The accelerated economic activity reflected an improvement in conditions in China, where export growth reached 28.8% year over year in October. Another contributing factor to the quarter's strong stock performance was a big rally in telecom and technology shares--particularly those perceived as being internet-related, which paralleled the runup in these sectors globally. The intense interest in these shares among Hong Kong investors as of late is a departure from what we have seen historically, when the interest rate-sensitive banking and property sectors tended to lead the way when the market rallied. Some observers have argued that a long-term fundamental shift toward technology companies is now underway in the Hong Kong market. The government has done its part to encourage such a trend through the establishment of a NASDAQ-style Growth Enterprise Market aimed at young startups and the launching of a U.S. $645 million Innovation and Technology Fund. We believe that these developments could help foster entrepreneurship and technological innovation, but it is important to remember that Hong Kong's technology sector remains small and undeveloped. Furthermore, the traditional emphasis on commerce and finance among the population and the relatively small number of technology-oriented universities means that Hong Kong lacks the human capital to evolve into a research and development center on the scale of Hsinchu in Taiwan or Bangalore in India anytime soon. Still, there is considerable opportunity for existing companies to profit from internet- and technology- related investments, and our holdings Cheung Kong and CITIC Pacific have both seen sharp appreciation in anticipation of such activities. Although macroeconomic and company-specific fundamentals continue to improve, lofty share valuations and the potential for rate hikes in the U.S. lead us to maintain a benchmark weighting in Hong Kong.

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 18 Taiwan The earnings outlook for our Taiwan holdings continues to be positive in the current environment of healthy domestic demand, recovering export growth driven by the regional recovery, and low inflation--December CPI rose only 0.1% year over year. Electronics exports, which make up a fifth of Taiwan's total exports, have demonstrated particularly strong growth, expanding by 22% year over year in December. This has driven strong sales growth at domestic electronics firms such as semiconductor foundry TSMC, whose sales increased 149% year over year in December. This past quarter provided further evidence that China-Taiwan relations are stabilizing. In November, Taiwan announced that it would withdraw troops from the Spratlys Islands, a territory over which it has had a long-standing sovereignty dispute with China. In the same week, Chinese officials made renewed calls for opening up direct transportation links across the Taiwan Strait. China's WTO agreement with the U.S. also suggests a reduced possibility of military tensions: the PRC is unlikely to embark upon hostile action in the Strait and risk jeopardizing its efforts to gain entry into the WTO. Meanwhile, the economic ties between the two countries remain as strong as ever. Trade between Taiwan and China grew 13% year-over-year to U.S. $21 billion during the first ten months of 1999, and China took up 17% of Taiwan's total exports. However, one wild card remains: the presidential elections on March 18th. Chen Shui-bian, the candidate from the Taiwanese independence-leaning Democratic Progressive Party is now the front runner in some polls in the wake of a corruption scandal surrounding the candidate James Soong, a former member of the ruling KMT party. Victory for Chen would introduce a new element of uncertainty into cross-strait relations that could dampen investor sentiment.

We are seeking to increase our exposure in EAFE+ portfolios to this non-index market, concentrating on companies in the technology sector that will benefit from global outsourcing. Singapore The recovery in the Singapore economy continues to be stronger than expected, as the city-state posted 6.7% year-over-year GDP growth in the third quarter, demonstrating that the second quarter's +6.7% figure was not just a one-time upward spike. Inflation remains tame at 1.2% year over year (in November), and mirroring the trend elsewhere in Asia, export growth has been strong (non-oil exports rose 24.5% year over year in November), driven by regional demand and electronics. A vote of confidence in the sustainability of the Asian recovery can be seen in the recent actions taken by DBS Bank, the largest bank in Singapore. DBS has recently acquired a 20% stake in a leading bank in the Philippines, and management has stated its intentions to make more acquisitions in the Southeast Asia. The bank will therefore be well positioned to benefit from a further rebound in the regional economies, and DBS remains a core holding in our EAFE+ portfolios. We maintain an overweight position in Singapore. Thailand The Thai economy continues to recover as third quarter GDP expanded 7.7% year over year. We have revised upward 1999 and 2000 GDP growth to 4.5% (from 3.5%) and 4.0% (from 3%), respectively. Manufacturing production is rising, domestic consumption is increasing and exports are growing. Thailand is benefiting from Asia’s economic recovery as about 45% of Thai exports are destined for the rest of Asia. Thailand still faces many structural problems. The pace of corporate restructuring is slow and the financial sector is stagnant, with a massive burden of problem loans and lengthy debt restructuring. The Bank of Thailand reported that the percentage of nonperforming loans

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 19 has declined from a peak of 47.7% in May to 42.3% in November and loan growth remains absent. We continue to hold the cellular operator Advanced Info Services, which is benefiting from the consumer-led economic recovery. Malaysia Malaysia benefited from a strong economy in 1999. The country’s macroeconomic outlook is promising. Third quarter’s GDP growth was 8.2%, and estimates are for over 4% growth for 1999 and 5% for 2000. Manufacturing production surged 33% year over year in November, faster than the 14% increase in the previous month. Malaysia will have a current account surplus of about 13% of GDP in 1999 and interest rates remain low. The elections resulted in Prime Minister Mahathir losing two key states, but his ruling Barisan National party retained its two thirds majority in parliament. His new cabinet yielded no surprises and his authoritarian style of governing is losing support. The resolution of the Singapore Credit Limit Order Book (CLOB) market, worth $4.3 billion, will be a test for Prime Minister Mahathir. A favorable outcome for investors could result in more positive sentiment and investment in the Malaysian market. We remain positive on Malaysia in 2000. We expect the market to benefit from a positive resolution of the CLOB, economic growth, greater liquidity and re-inclusion of Malaysia in the Morgan Stanley Composite Index (MSCI) in May. We own economic beneficiaries in our specialty accounts -- Resorts World (gaming), Commerce Asset (bank) and Malayan Bank. Philippines The Philippine equity market was an underperformer in the region, gaining only 4.9% in U.S. dollar terms in 1999. The market’s sluggishness is attributable to a slower-than-expected pace of economic recovery and lack of measures to address the budget deficit.

Third quarter GDP growth showed that there was still no evidence of a pickup in private consumption, which comprises 80% of GDP. Economic growth has been driven by agriculture and electronics exports. We have revised downward our estimates for GDP growth for 1999 to 2.8% from 3.0% and for 2000 to 3.0% from 3.5%. The Estrada administration has not addressed the large budget deficit, which is 4% of GDP. The government’s expectations for budget revenue are unrealistic as the Comprehensive Tax Reform Package (CTRP) has failed to deliver tax revenues due to tax evasion, taxing of the poor agricultural sector and tax subsidies granted to the electronics sector. President’s Estrada’s popularity rating has dipped from a high of 67% in March to 5% in December. The passage of the Retail Trade Act, passage of the Omnibus Power Bill and further privatization should help to improve market sentiment. The Retail Trade Act allows foreign companies to own retail businesses. The Omnibus Power Bill privatizes the power sector, which could aid in resolving the budget deficit. We are uninvested in the Philippine market in the EAFE accounts. Indonesia The market finished 1999 up 91.6% in U.S. dollar terms with the currency appreciating 12.3%. The elections of Abdurrahman Wahid as President and Megawati Sukarnoputri as Vice President were viewed as fair. President Wahid’s new cabinet is not connected to the previous Suharto and Habibie regimes, signaling his commitment to a clean government. The military’s role, which was dominant with previous Presidents, has been reduced in his administration. Despite the market’s euphoria over the peaceful elections, there are two concerns -- the desire for independence in Aceh and lack of financial reform. Aceh is seeking independence from Indonesia as did East Timor. However, Aceh is more important to the Indonesian economy, since it produces about half of Indonesia’s natural gas. The

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 20 government’s credibility is at stake as other provinces could also seek independence. The absence of financial reform will also undermine the economic recovery. The $72 million Bank Bali scandal has yet to be resolved, and the government’s Supreme Audit Board has revealed the central bank was near insolvency and that it had mishandled government funds. The International Monetary Fund is calling for Bank Indonesia to take corrective action on this problem. We remain uninvested in Indonesia in the EAFE accounts. Korea The Korean economy ended the year much stronger than anticipated when 1999 commenced. Gross domestic product for 1999 is forecast to be 10%, with the fourth quarter estimated to have grown nearly 14% compared to a year earlier. The main driver for growth was higher-than-expected industrial growth driven by a strong recovery in DRAM demand and prices, an appreciating yen that benefited won-based exports, and positive structural changes in the aftermath of the 1997 regional financial crisis. These factors, along with continued foreign direct investment and a surge in consumer demand, are expected to push GDP up 7% in 2000. The Korean won has been a direct beneficiary of the recovering economy, appreciating over 6.4% during 1999. The strength of the won was less than that of the yen, providing a competitive advantage for Korean exports. Exports jumped to a record high in 1999, exceeding $8 billion (a 20% increase over 1998), and pushing foreign reserves to their highest level ever. However, imports surged on increased demand for consumer and capital goods, and the higher cost of oil imports caused a net drop in the overall trade surplus. The appreciation of the won against the dollar also has a positive effect on inflation as the cost of won-denominated imports decline. Official inflation forecasts have been lowered from 3.8% to 3.2% in 2000, following an abnormally low inflation rate of 0.8% in 1999. The

government is committed to achieve an inflation target below 3% by maintaining a tight budget and flexible monetary policy. Resolution of the Daewoo crisis is one step closer with the government’s announcement that Korea Asset Management Corp.

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 21 (KAMCO) will purchase 18 trillion won ($16 billion) of Daewoo paper now held by the investment trust companies (ITC). Yet to be resolved is the purchase price KAMCO will pay the ITCs for the paper, which will be based on due diligence of Daewoo companies. Regardless of the price paid, the sale of the Daewoo paper should be positive for the ITCs and for the Korean economy in the longer term. In addition, the introduction of new bond funds (i.e. high yield and junk bonds) has been extremely popular. The new bond funds, which are marked to market, have absorbed over 5 trillion won ($4.5 billion) in book value-accounted bond funds so far. As the new bond funds replace the old, the fundamental problems of the ITC industry will be resolved. Our only EAFE account holding remains Samsung Electronics, which has regained its position as a leader in DRAM production. The demand and pricing outlook for DRAMs this year continues to be favorable. The outlook for Samsung’s cellular handset business is also bright, given the increasing global penetration forecast. Australia/New Zealand Economic growth in Australia re-accelerated in the third quarter after a brief slowdown. The rebound was led by business spending on equipment and machinery as well as continued strong consumer spending. The economy is also receiving a boost from a rebound in

global growth and firming commodity prices. The implementation of a General Sales Tax (GST) on July 1, 2000 will continue to drive consumer spending ahead of the tax increase. The GST is expected to add a one time 2-3% increase in inflation. However, accelerating inflation is not a concern at this time. Interest rates are expected to increase modestly over the next few quarters to slow growth and insure against any inflationary surprises. The outlook for the Australian dollar is positive going into 2000. We reduced our Australian holdings during the fourth quarter by selling Cable & Wireless Optus. Our investment strategy continues to favor telecommunications (Telstra Corporation) and diversified financials (Colonial Limited). The growth forecast for New Zealand continues to be favorable for the equity markets. GDP for the fiscal year ending March 2000 is expected to be in the 3.5% area following zero growth in fiscal 1999. The merchandise trade deficit continues to be of concern, with the likelihood that the current account deficit reached 8% of GDP in the December quarter. Although we believe the economy should continue on the upswing and earnings growth is expected to accelerate over the next 12-18 months, the negative implications of monetary tightening and the new government’s tendency to slow deregulation have caused us to withdraw from the market. We have sold our only New Zealand holding, Telecom New Zealand.


Latin American Outlook -Key Issues and Implications for Regional Markets-

Economic growth continues to rebound, fueled by higher commodity prices and recovering global demand. Latin America’s regional GDP declined by 0.1% in 1999, but is expected to grow by 3.5% in 2000. Mexico’s economic growth has been higher than expected because of a strong U.S. economy and a recovery in the price of oil. Brazil’s economy managed to grow in 1999, in contrast to earlier expectations of contraction. Inflation is expected to remain low with the potential for interest rates to decline, which would also attract fixed-income pension funds to the equity market. Corporate earnings are also expected to recover as the economies grow stronger and commodity prices rise. We also expect foreign direct investment to rebound from earlier years because of declining country risk premiums and accelerating global growth. Political uncertainties have abated with an orderly election in Argentina and smooth primary election in Mexico. We expect an uneventful Mexican election in July 2000. The risks to our outlook include the impact of higher U.S. interest rates, inflationary spikes in Brazil, Brazil’s ongoing political frustration with economic reform, and Argentina’s large fiscal deficit. We are maintaining a minimal equity exposure in Latin America as we take advantage of more favorable investment opportunities in Asia. ARGENTINA The economy is showing some signs of improvement. For example, the industrial production index declined 0.5% in October, the

smallest drop since June 1998. The economy should rebound from the 3.2% decline in 1999 to 3.0% growth in 2000. But President-elect De la Rua’s primary focus will be the fiscal deficit, which exceeded its IMF target of $5.1 billion for 1999. Economic weakness and lower tax revenues have forced the government to maintain a tight fiscal policy, hence, dampening the economy’s ability to recover in 2000. Valuations are expensive relative to markets elsewhere in Latin America. We remain uninvested in this market. BRAZIL We have become more positive on Brazil’s equity market in 2000 because of its economic recovery. GDP growth for 1999 has been revised up to 0.2%, from -1.0%, and GDP growth in 2000 is estimated at +3.0%. We also expect low inflation and a stable currency, following the year-ago devaluation of the real. Policymaking in Brazil is becoming more transparent, stable and proficient. The country risk is declining and Moody’s has upgraded Brazil’s government bond rating. Investment risks include the ongoing frustration of economic reform. Congress passed into law taxation of the pension income of retired government workers in 1999, only to have it ruled unconstitutional by the Supreme Court. The government’s focus will be on passing key fiscal reforms affecting taxation and the social security system. We expect the market to be volatile, but to improve as fiscal reform progresses. We are uninvested in this market.

Sit/Kim International Investment Associates, Inc. January 21, 2000Investment Outlook and Strategy Page 23 CHILE The economy is finally showing signs of recovery after a worse-than-expected recession. Third quarter GDP fell 1.5%, but was up 1.2% in seasonally adjusted terms over second quarter. Industrial production rose 1.1% in September, the first positive number in 12 months. Chile’s economic recovery is dependent upon the a higher price for copper. The October CPI rose only 0.4%, but the wholesale price inflation was 2.1%, highlighting the weakness in the peso. The central bank may have to start raising interest rates to support the peso and hold inflation in check. The Presidential election resulted in a victory for the Socialist candidate Ricardo Lagos in a close runoff vote on January 16th. The major focus for the new president and the governing Socialist-Christian Democrat coalition will be Chile’s fiscal account deficit, which is 1.1% of GDP. Valuations are unattractive relative to the other Latin American markets. We remain uninvested in Chile.

MEXICO Mexico continues to benefit from the robust U.S. economy, higher oil prices and decreased political risk. Third quarter GDP growth was 4.6% with solid growth in both the industrial and service sectors. Estimates for GDP growth have been revised upward to 3.3% for 1999 and 3.5% for 2000. Mexico will benefit from growth in domestic demand and economic recoveries in the other Latin American countries. Inflation should end 1999 at 12.3%. We expect Mexico’s country risk to decline. The current yield spread between the Mexican Brady bond and the U.S. long bond yield is about 450 basis points compared to 600 basis points for Argentina and 700 basis points for Brazil. Moody’s has upgraded Mexico’s sovereign credit rating and S&P has upgraded Mexico’s credit outlook. The government’s nominal fiscal deficit is in line with the official target of 1.25% of GDP for 1999. The risks for the Mexican market are rising U.S. interest rates and the possibility that the winning political party will be unable to gain a majority in congress in July’s presidential election. Our investment remains in Telmex. This analysis contains collective options of our analysts and portfolio managers, and is provided for informational purposes only. While the information is deemed accurate at the time of writing, such information is subject to change at any time without notice.

Exhibit A��Sit/Kim International Investment Associates, Inc. �

Sit/Kim EAFE+ Representative PortfolioCountry Allocation

1Based on EAFE+ Representative Portfolio.2Morgan Stanley Capital International , December 31, 1999.

12/31/99 3/31/00 EAFE 12/31/99 3/31/00 EAFE 12/31/99 3/31/00 EAFE ACTUAL1 TARGET INDEX2 ACTUAL1 TARGET INDEX2 ACTUAL1 TARGET INDEX2

Austria 0.0 % 0.0 % 0.2 % Argentina 0.0 % 0.0 % 0.0 %Australia 1.3 % 1.3 % 2.5 % Belgium 0.4 0.4 0.9 Brazil 0.0 0.0 0.0Hong Kong 2.4 2.5 2.3 Finland 7.3 7.3 3.0 Chile 0.0 0.0 0.0Japan 28.9 31.0 27.4 France 6.6 7.0 10.3 Mexico 0.5 0.5 0.0New Zealand 0.0 0.0 0.2 Germany 6.8 6.8 10.5Singapore 1.6 1.6 1.1 Ireland 2.2 2.1 0.4 Israel 0.7 % 0.5 % 0.0 %

Italy 4.8 4.8 4.2 South Africa 0.5 0.3 0.0Netherlands 10.3 10.3 5.2 Canada 2.3 1.7 0.0

India 0.0 % 0.0 % 0.0 % Portugal 0.0 0.0 0.5 TOTAL 4.0 3.0 0.0Indonesia 0.0 0.0 0.0 Spain 3.9 3.9 2.7Malaysia 0.0 0.0 0.0Philippines 0.0 0.0 0.0 Denmark 0.0 % 0.0 % 0.8 %South Korea 1.5 1.5 0.0 Norway 0.0 0.0 0.4Taiwan 0.6 0.6 0.0 Greece 0.0 0.0 0.0Thailand 0.6 0.5 0.0 Sweden 1.5 1.5 2.7 12/31/99 3/31/00 EAFE

Switzerland 3.0 3.0 5.7 ACTUAL1 TARGET INDEX2

U.K. 10.2 9.9 19.2 CASH 2.2% 1.0% 0.0%EQUITY 97.9% 99.0% 100.0%

TOTAL 36.9 % 39.0 % 33.5 % TOTAL 57.0 % 57.0 % 66.6 % TOTAL 100.0% 100.0% 100.0%

SKI Weights SKI Weights

Asia Pacific Europe Others

Cash and Total

SKI Weights

SKI Weights

Exhibit B��Sit/Kim International Investment Associates, Inc. �

International Market Index Performance

Source: Morgan Stanley Capital International, December 31, 1999.

MSCI MSCI PACIFIC MSCI MSCI MSCI MSCI PACIFIC JAPAN EX JAPAN EUROPE EAFE US WORLD

1st Quarter 1999 11.2 % 12.2 % 7.5 % (2.1)% 1.4 % 5.5 % 3.6 %2nd Quarter 1999 9.6 % 7.6 % 17.2 % (0.3)% 2.5 % 6.6 % 4.8 %3rd Quarter 1999 11.4 % 15.8 % (5.0)% 1.2 % 4.4 % (6.8)% (1.5)%4th Quarter 1999 16.1 % 15.5 % 19.2 % 17.4 % 17.0 % 16.3 % 16.9 %

1999 57.6 % 61.5 % 42.6 % 15.9 % 27.0 % 21.9 % 24.9 %1998 2.4 % 5.0 % (8.2)% 28.5 % 20.0 % 30.1 % 24.3 %1997 (25.5)% (23.7)% (31.0)% 23.8 % 1.8 % 33.4 % 15.8 %1996 (8.6)% (15.5)% 20.5 % 21.1 % 6.0 % 23.2 % 13.5 %1995 2.8 % 0.7 % 13.0 % 21.6 % 11.2 % 37.1 % 20.7 %1994 12.8 % 21.4 % (14.3)% 2.3 % 7.8 % 1.1 % 5.1 %1993 35.7 % 25.5 % 79.8 % 29.3 % 32.6 % 9.1 % 22.5 %1992 (18.4)% (21.5)% 6.5 % (4.7)% (12.2)% 6.4 % (5.2)%1991 11.3 % 8.9 % 35.6 % 13.1 % 12.1 % 30.1 % 18.3 %1990 (34.4)% (36.1)% (11.0)% (3.9)% (23.5)% (3.2)% (17.0)%1989 2.5 % 1.7 % 15.1 % 28.5 % 10.5 % 30.0 % 16.6 %

Average AnnualTotal Return 1989 - 1999 0.5 % (0.6)% 9.8 % 15.3 % 7.3 % 19.2 % 11.9 %

Cumulative Total Return 1989 - 1999 5.7 % (6.7)% 180.4 % 378.2 % 117.7 % 587.6 % 243.9 %

Exhibit C��Sit/Kim International Investment Associates, Inc. �

Local European Market Index Performance(Figures Are Stated in Percent Change)

SOURCE: THE WALL STREET JOURNAL AND BLOOMBERG L.P.

COUNTRY US$ LOCAL US$ LOCAL

Austria (ATX) 1.0 7.3 (5.8) (7.8) 6.9 (13.7)Belgium (Bel-20) 2.3 8.6 (5.8) (18.0) (5.0) (13.7)Finland (HEX) 77.8 88.8 (5.8) 126.2 162.0 (13.7)France (CAC) 22.2 29.8 (5.8) 30.2 51.1 (13.7)Germany (DAX) 27.2 35.1 (5.8) 20.0 39.1 (13.7)Ireland (IRISH) 0.1 6.3 (5.8) (13.4) 0.4 (13.7)Italy (BCI) 15.3 22.4 (5.8) 4.8 22.2 (13.7)Netherlands (CBS) 15.5 22.7 (5.8) 12.7 30.7 (13.7)Portugal (BVL30) 14.2 21.3 (5.8) (5.4) 10.2 (13.7)Spain (Madrid) 10.8 17.6 (5.8) (0.1) 16.2 (13.7)

Denmark (KFX) 11.5 18.4 (5.7) 0.3 16.6 (14.0)Greece (ASE) (8.2) (2.3) (6.2) 73.9 102.2 (14.5)Norway (Ind) 14.5 19.2 (4.2) 40.2 48.9 (4.8)Sweden (General) 34.5 40.5 (4.2) 58.3 66.4 (4.6)Switzerland (Swiss) 3.0 9.6 (6.1) (8.6) 5.7 (11.2)United Kingdom (FT-100) 12.9 14.9 (1.9) 14.9 17.8 (2.7)

EXCHANGE RATESFROM PRIOR QTR

STOCK MARKET

FOURTH QUARTER 1999

EXCHANGE RATES12/31/98 - 12/31/99

STOCK MARKET

1999

Exhibit D��Sit/Kim International Investment Associates, Inc. �

Local Asian Market Index Performance(Figures Are Stated in Percent Change)



Hong Kong (HSI) 33.1 33.2 (0.1) 68.2 68.8 (0.3)Japan (Topix) 18.7 14.3 4.1 75.6 58.4 11.1Singapore (STI) 25.0 22.6 2.0 76.3 78.0 (0.8)South Korea (KSCI) 31.3 23.0 7.1 93.0 82.8 5.9Taiwan (TWI) 12.6 11.2 1.2 35.0 31.6 2.6

Indonesia (JSI) 44.4 23.5 19.1 91.6 70.1 12.3Malaysia (KLCI) 20.3 20.3 (0.0) 38.6 38.6 (0.0)Philippines (PCI) 3.9 2.2 1.5 4.9 8.9 (2.9)Thailand (SET) 35.0 23.7 8.7 32.4 35.4 (3.0)

Australia (AOI) 10.2 9.4 0.6 20.6 12.1 7.1New Zealand (NZ40) 9.7 9.1 1.0 5.2 6.9 (1.0)

12/31/98 - 12/31/99EXCHANGE RATESFROM PRIOR QTR

STOCK MARKETFOURTH QUARTER 1999 1999

STOCK MARKET EXCHANGE RATES

Exhibit E��Sit/Kim International Investment Associates, Inc. �

Local Latin American Market Index Performance(Figures Are Stated in Percent Change)



Argentina (Merval) 3.0 3.0 0.0 28.0 28.0 (0.0)Brazil (Ibovespa) 65.7 53.9 7.2 69.2 151.9 (33.5)Chile (General) 12.2 11.9 0.1 28.5 43.8 (10.8)Mexico (Bolsa) 39.0 41.2 (1.1) 87.5 80.1 4.6Peru (General) (2.3) (1.0) (1.3) 23.7 37.4 (10.5)

1999STOCK MARKET EXCHANGE RATES

12/31/98 - 12/31/99

FOURTH QUARTER 1999STOCK MARKET EXCHANGE RATES

FROM PRIOR QTR

Exhibit F��Sit/Kim International Investment Associates, Inc. �

Key European Economic and Investment Variables

Source:: Goldman, Sachs & Co., Lehman Brothers, J.P. Morgan, Merrill Lynch and SKI estimates, 12/31/99.

COUNTRY 2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998Austria 2.4 2.2 2.9 1.7 1.5 1.5 3.5 3.0 3.0 9.0 8.0 12.0Belgium 2.9 2.0 2.8 1.3 1.0 1.0 3.5 3.0 3.0 13.0 4.0 3.0Finland 4.0 3.0 4.9 1.7 1.1 1.4 3.5 3.0 3.0 23.0 10.0 12.0France 3.3 2.8 2.9 1.2 1.0 0.7 3.5 3.0 3.0 15.0 11.0 10.0Germany 3.0 1.4 2.2 1.2 0.7 0.9 3.5 3.0 3.0 19.0 6.0 10.0Ireland 6.0 8.0 8.0 2.5 2.2 2.0 3.5 3.0 3.0 10.0 10.0 13.0Italy 2.5 1.3 1.4 1.8 1.6 1.7 3.5 3.0 3.0 10.0 9.0 10.0Netherlands 3.2 3.3 4.2 2.2 2.2 2.0 3.5 3.0 3.0 21.0 16.0 10.0Spain 3.5 3.7 3.8 2.5 2.6 1.8 3.5 3.0 3.0 17.0 13.0 10.0

Denmark 2.2 1.6 2.8 2.5 2.5 1.8 4.0 3.3 3.7 9.0 5.0 2.0Greece 3.8 3.3 3.2 2.4 2.5 3.9 5.0 7.0 9.5 16.0 18.0 38.0Norway 3.0 1.5 2.0 2.0 2.3 2.3 4.7 5.4 5.3 27.0 5.0 2.0Sweden 3.5 3.5 2.8 1.8 0.5 0.4 4.0 3.3 3.0 25.0 6.0 10.0Switzerland 2.0 1.3 2.0 1.5 0.8 0.0 1.8 1.1 0.5 11.0 14.0 10.0United Kingdom 3.0 1.7 2.1 2.0 2.3 2.7 6.5 5.5 6.3 13.0 8.0 6.0

GDP (%) INFLATION (%)SHORT-TERM

INTEREST RATES (%)EPS (%)

Exhibit G��Sit/Kim International Investment Associates, Inc. �

Key Asian Economic and Investment Variables

A JAPAN FISCAL YEARS END IN THE FOLLOWING YEAR.

Sources: Bloomberg, Jardine Flemings, ING Barings Securities, JP Morgan, Salomon Smith Barney, S.B. Warburg, Indosuez W.I. Carr, SG Securities and SKI estimates 12/31/99.

2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998

Hong Kong 5.0 2.0 (5.0) 1.0 (1.5) 2.5 9.0 8.5 9.0 18.0 15.0 (20.0)Japan (Mar Year)a 1.0 0.5 (2.5) 0.0 (0.5) (1.0) 3.0 3.0 2.5 15.0 15.0 (25.0)Singapore 6.3 6.0 1.5 1.5 0.0 (0.3) 6.5 5.8 6.0 20.0 (150.0) (60.0)South Korea 7.0 10.0 (5.8) 3.2 1.5 7.5 8.0 6.5 7.5 30.0 90.0 (33.0)Taiwan 6.5 5.5 4.8 2.0 0.5 1.7 8.0 7.5 7.9 30.0 25.0 0.0

China 7.8 7.1 7.8 2.0 (1.5) (0.8) 6.5 5.9 5.1 10.0 15.0 (10.0)Indonesia 4.0 0.0 (13.7) 8.0 24.1 58.5 18.0 20.0 34.8 20.0 160.0 N/AMalaysia 5.0 4.3 (7.5) 3.5 2.7 5.3 6.5 65.0 8.1 12.0 395.0 (70.0)Philippines 3.0 2.8 (0.5) 6.0 7.0 9.7 12.0 11.5 17.0 15.0 5.0 (10.0)Thailand 4.0 4.5 (10.0) 2.5 0.3 8.1 8.5 8.5 11.5 N/A N/A N/A

Australia (Jun Year) 4.0 4.2 3.9 2.8 1.4 1.5 6.5 6.0 5.6 13.0 10.0 5.6New Zealand (Mar Year) 3.5 0.0 2.3 2.0 1.5 1.3 7.0 6.5 7.0 18.0 5.0 8.5

GDP (%) INFLATION (%)PRIME LENDING

RATES (%)EPS (%)

Exhibit H��Sit/Kim International Investment Associates, Inc. �

Key Latin American Economic and Investment variables

Source: Santander Investment, Goldman, Sachs & Co., latinvest, Bear Stearns, Merrill Lynch, Salomon Smith Barney and SKI estimates, 12/31/99.

COUNTRY 2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998 2000E 1999E 1998

Argentina 3.0 (3.2) 3.9 0.5 (1.5) 0.7 7.0 6.0 8.5 12.0 (5.0) (11.0)Brazil 3.0 0.2 0.2 8.0 8.9 1.7 17.0 19.0 29.0 30.0 (10.0) (18.0)Chile 5.0 (1.0) 3.4 4.0 2.3 4.7 6.0 5.0 6.0 15.0 (10.0) (15.0)Mexico 3.5 3.3 4.8 11.0 12.3 18.6 20.0 22.0 30.0 25.0 50.0 (35.0)Peru 4.0 2.3 0.7 5.0 3.7 6.0 14.0 14.0 18.5 49.0 (42.0) (40.0)

SHORT-TERM INTEREST RATES (%)

EPS (%)INFLATION (%)GDP (%)

Exhibit I��Sit/Kim International Investment Associates, Inc. �

Selected Markets' Securities Valuation

a REPRESENTS LOCAL MARKET INDEX IN USD.Source: Bloomberg, Jardine Fleming, Merrill Lynch, Salomon Smith Barney, Goldman, Sachs & Co, SBC

Warburg Dillon Read, W.I. Carr Securities, BZW Securities, Latinvest, Morgan Stanley Capital International, ING Barings Securities and SKI estimates, 12/31/99.

2000E 1999E 2000X 1999X

EUROPEFrance 51.1 29.8 15.0 11.0 22.6 27.3Germany 39.1 35.1 19.0 6.0 24.7 28.2Netherlands 30.7 22.7 21.0 16.0 21.8 25.0Switzerland 5.7 9.6 11.0 14.0 20.1 21.2United Kingdom 17.8 14.9 13.0 8.0 23.1 25.4

ASIAHong Kong 68.8 33.2 18.0 15.0 21.0 25.5Japan 58.4 14.3 55.0 15.0 40.0 50.0Singapore 78.0 22.6 20.0 (150.0) 22.0 27.0South Korea 82.8 23.0 30.0 90.0 14.0 19.0Taiwan 31.6 11.2 30.0 25.0 23.0 31.0Indonesia 70.1 23.5 20.0 160.0 10.9 13.3Malaysia 38.6 20.3 12.0 395.0 16.4 18.0Philippines 8.9 2.2 15.0 5.0 19.0 20.0Thailand 35.4 23.7 N/A N/A N/A N/A

LATIN AMERICAArgentina 28.0 3.0 12.0 (5.0) 14.9 17.1Brazil 151.9 53.9 30.0 (10.0) 9.1 11.8Chile 43.8 11.9 15.0 (10.0) 18.0 21.0Mexico 80.1 41.2 25.0 50.0 12.9 16.0

1999 12/31/99

1.7

Estimated EPS % Change

Estimated P/ECurrent Dividend

Yield (%)% Change

Quarter

1999

1.51.4

1.22.4

3.00.72.31.01.01.41.61.3

3.03.02.0

0.6

3.6

Exhibit J��Sit/Kim International Investment Associates, Inc. �

European M&A ActivityContinues to Rise

Exhibit K��Sit/Kim International Investment Associates, Inc. �

European ExportsHelped by Weak Euro

Source: S G Cowen

Exhibit L��Sit/Kim International Investment Associates, Inc. �

European Economic Indicators

Exhibit M��Sit/Kim International Investment Associates, Inc. �

A Profit Forecasting Model for Europe:Actual and Expected EPS Growth

Exhibit N��Sit/Kim International Investment Associates, Inc. �

Euro Declined in 1999

Exhibit O��Sit/Kim International Investment Associates, Inc. �

Market Valuations Against Bonds and Cash

Exhibit P��Sit/Kim International Investment Associates, Inc. �

Return on Equity and Cost of EquitySpread in Europe Highest in 20 Years

Exhibit Q��Sit/Kim International Investment Associates, Inc. �

Comparative Equity Market Data

Exhibit R��Sit/Kim International Investment Associates, Inc. �

Investment in Communications & TechnologyIntensity1 by Component, 1997

Exhibit S��Sit/Kim International Investment Associates, Inc. �

Asian Export Prices Start to Rebound

Exhibit T��Sit/Kim International Investment Associates, Inc. �

Japan’s Equity Market Recovered in 1999

Source: S G Cowen

Exhibit U��Sit/Kim International Investment Associates, Inc. �

Japan’s Economic Relationship with Asia

Exhibit V��Sit/Kim International Investment Associates, Inc. �

Japan Postal Savings Deposit

Documents

n Sit/Kim International Investment Associates, Inc · Interest rates are rising and we expect further actions by both U.S. and European central bankers that will raise short-term