Examination of Financial Statements of the Overseas Private Investment Corporation, Fiscal Years 1976 and 1975

Published by the Government Accountability Office on 1977-09-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUBE
03453 - [ 2513645]

Examination of Financial Statements of the Overseas Private
Investment Corporaticn, Fiscal Years 1976 and 1975. ID-77-24;
B-173240. September 7, 1977. 25 pp. + 4 enclosures (12 pp.) + 2
appendices (6 pp.).
Report to the Congress; by Elmer B. Staats, Comptroller General.
Issue Area: Accounting and Financial Reporting (2800).
Contact: International Div.
Budget Function: International Affairs: Foreign Economic and
    financial Assistance (151).
Organization Concernedr Overseas Private Investment Corp.
CoLgressional Relevance: House committee on International
    Relations; Senate Committee on Foreign Relations; Congress.
Authority: Foreign Assistance Act of 1969 (P.L. 91-175).
    Overseas Private Investment Corporation Amendments Act of
    1974 (P.L. 93-390).
         In order to encourage the investment of U.S. capital
and resources in developing countries, the Overseas Private
Investment Corporation's (O'IC's) Investment Insurance Program
insures U.S. investors against political risks of loss from
expropriation, inconvertibility of currency, and war,
revolution, or insurrection.   Findings/Conclusions: As of June
30, 1976, OPIC's maximum contingent liability fur insurance was
$6.2 billion. The Corporation's management believes that a more
accurate representation of its maximum potential exposure to
insurance claims is $3.08 billion. At June 30, 1976, the
Corporation's insurance reserve for losses amounted to S204.7
million. The potential charges against this reserve for claims
filed totaled S395.5 million. As of June 30, 1976, OPIC also had
outstanding guarantees totaling $157 million and outstanding
loans totaling S22 Billion. Except for the adequacy of.the
amount reserved for losses, the financial statements present
fairly the financial position of the OPIC at June 30, 1976 and
1975, and the results of its operations and changes in its
capital and reserves and the changes in its financial position
for the years then ended, in conformity with generally accepted
accounting principles. (Author/SC)


Examination Of Financial Statements
Of The Overseas Private Investment
Corporation, Fiscal Years
1976 And 1975

This report comments on the cperations of
the Overseas Private Investment Corporation
for fiscal year 1976. GAO qualified its opin-
ion on the Corporation's financial statements
because the adequacy of the amount re-
served for losses could not be determined.
The qualification carries no adverse criticism
of the Corporation's management practices.
GAO concludes that the remaining items on
the financial statements are stattd fairly.

ID-77-24                                 SEPTEMBER 7, 1977
                          WASHINGTON, D.C.   ZOUd


To the President of the Senate and the
Speaker of the House of Representatives
     This report, which is reauired by the Government
Corporation Control Act, shows the financial condition of
the Overseas Private Investment Corporation at June 30,
1976, and discusses pertinent aspects of its operations.

     We are sending copies of this report to the Director,
Office of Management and Budget; the-Secretary of the
Treasury; the Administrator, Agency for International
Development; and the President, Overseas Private Investment

                                 Comptroller General
                                 of the United States
                                        PRIVATE INVESTMENT CORPORATION
                                        FISCAL YEARS 1976 and 1973

             The Overseas Private Investment Corporation's
             Investment Insurance Program is designed to
             encourage the investment of U.S. capital and
             resources in developing countries. To accom-
             plish this, the Corporation insures U.S.
             investors against political risks of loss from
             expropriation, inconvertibility of currency,
             and war, revolution, or insurrection.

             As of June 30, 1976, the Overseas Private
             Investment Corporation's maximum contingent
             liability for insurance was $6.2 billion.
             The Corporation's management believes that a
             more accurate representation of its maximum
             potential exposure to insurance claims is
             $3.08 billion.  (See pp. 3 and 4.)
             At June 30, 1976, the Corporation's insurance
             reserve for losses amounted i $204.7 million.
             Potential charges against this reserve for
             claims filed totaled $395.5 million. (See
             p. 5 to 7.)

            The Overseas Private Investment Corporation
            Amendments Act of 1974 requires that the Cor-
            poration eventually become a reinsurer only
            and that the private sector directly insure
            overseas investment. The Corporation's
            endeavors to comply with the legislation
            include establishing the Overseas Investment
            Insurance Group, an organization through which
            private insurance companies join with the
            Corporation as insurers and also reinsure the
            Corporation for previously issued insurance.
            The Corporation also plans to establish a tWar
            Risk Insurance Reciprocal. In addition, the
            Corporation has continued a previously exist-
            ing contract for reinsurance with Lloyd's of
            London. (See ch. 3.)

ter hee. Upon removal, the report
conr dif should be noted hereon.    i                       ID-77-24
In addition to insuring U.S. investors against
political risk loss, the Corporation supports
U.S. private investors by

-- guaranteeing loans and other investments,
-- making loans from its own resources, and

-- providing preinvestment assistance.
As of June 30, 1976, the Corporation had out-
standing guarantees totaling $157 million and
outstandinrg loans totaling $22 million. (See
ch. 4.)

Due to the many uncertainties affecting claims
as well as those affecting other liabilities
(see notes 7 and 8 to the financial statements),
GAO is not able to express an opinion on the
adequacy of the amount reserved for losses the
Corporation may suffer because of its insurance
and guaranty contracts.
In GAO's opinion, except for the adequacy of the
amount reserved for losses, the financial state-
ments in the report present fairly the financial
position of the Overseas Private Investment
Corporation at June 30, 1976 and 1975, and the
results of its operations, the changes in its
capital and reserves, and the changes in its
financial position for the years then ended, in
conformity with generally accepted accounting
principles applied on a consistent basis.   (See
ch. 5.)


DIGEST                                                      i
   1       INTRODUCTION                                     1
   2       INVESTMENT INSURANCE PROGRAM                     3
               Recorded and potential claim charges to
                 the insurance reserve                      5
               Overseas Investment Insurance Group        10
               Lloyd's of London reinsurance agreement    13
               War Risk Insurance Reciprocal              14
   4       INVESTMENT FINANCING PROGRAM                   17
               Investment guarantees                      17
               Loan program                               19
               Preinvestment surveys                      22
             STATEMENTS                                   24
   1       Statement of income for the years ended
             June 30, 1976 and 1975                       29
   2       Balance sheet as of June 30, 1976 and 1975     30
   3       Statement of changes in capital and reserves
             for the two years ended June 30, 1976        32
   4       Statement of changes in financial position
             for the years ended June 30, 1976 and 1975   33
           Notes to the financial statements              34

      I    Principal officials of the Overseas Private
             Investment Corporation at December 31,
             1976                                         41
  II       Overseas Private Investment Corporation
             Board Members at December 31, 1976           43

AID        Agency for International Development
GAO        General Accounting Office
OPIC       Overseas Private Investment Corporation
                             CHAPTER 1


     The Overseas Private Investment Corporation (OPIC) was
created by the Foreign Assistance Act of 1969 (Public Law
91-175, Dec. 30, 1969) to mobilize and facilitate the par-
ticipation of U.S. private capital and skills in the
economic and social development of developing friendly
countries. OPIC accomplishes its mission primarily by
insuring U.S. investors against political risks.  It also
guarantees repayment of U.S. investments, makes loans, and
finances preinvestment surveys.  Before OPIC's creation,
these functions were performed by the Agency for
International Development (AID).

     Since OPIC's inception, the Congress has provided over
$204 million to establish and augment capital and reserves.
The capital has been designated as a direct investment fund
for making loans. The reserves have been established te pay
claims under insurance and guaranty contracts. The amounts
provided for each purpose are shown below:

                  Funds Provided By The Conqress

Fiscal                     Insurance       Guaranty
 year      Capital          reserve        reserve         Total
1970     $20,000,000    $ 54,490,484      $40,871,000   $115,361,484
1971      20,000,000      15,509,516        3,240,484     38,750,000
1972          -           12,500,000           -          12,500,000
1973          -           12,500,000           -          12,500,000
1974          -           25,000,000           -          25,000,000
1975          -

197E          -

Total    S40,000,000    $120,000,000      $44,111,484   $204,111,484

     OPIC has supplemented these amounts with retained earn-
ings and also has the authority to borrow up to $100 million
from the U.S. Treasury to pay insurance claims. If OPIC is
unable to meet its obligations, additional appropriations

would be required because all its obligations are backed by
the full faith and credit of the U.S. Government.
     The Overseas 1rivate Investment Corpozation Amendments
Act of 1974 (Public Law 93-390, Aug. 27, 1974) made OPIC
ineligible for ruture appropriations to augment the insurance
reserve unless the reserve falls below $25 million. The act
also included a congressional k.zndat~ that OPIC eventually
transfer its insurer role to private insurance companies
and limit its participation to that of reinsurer.

     OPIC management is vested in a board of 11 directors.
Six directors, appointed by the President with the consent
of the Senate, are selected from the private sector, and
at least one of these directors is to be experienced in
small business, one in organized labor, and one in coopera-
tives. The other five directors, appointed by the President,
are to be U.S. Government officials, including the Adminis-
trator of AID, who is the board chairman, and the president
of OPIC.

     The principal officials and board members of OPIC at
December 31, 1976, are included as appendixes I and II.
OPIC officials have informally reviewed this report, and
their views have been incorporated where appropriate.

                           CHAPTER 2


     OPIC's Investment Insurance Program is designed to
encourage the investment of U.S. capital and resources in
developing countries. The theory behind the program is that
providing modest cost insurance coverage aaainst the princi-
pal political risks likely to be encounterl   in developing
countries will encourage U.S. private business institutions
to participate in foreign-based enterprises. This partici-
pation is expected to augment the production of wealth,
expand employment, create new markets, increase livinq
standards, and thereby increase ti'e productive and self-
sustaining capacities of the developing countries, whicxh,
in return, will also benefit the U.S. economy.
     The Investment Insurance Program is to -rovide protec-
tion against the three forms of political risk commonly
associated with foreign investment.- These risks are (a)
inconvertibility of currency, (b' expropriation, And (c)
war, revolution, or insurrection.

     As of June 30, 1976, the maximum and current exposure
under OPIC's insurance contracts (including those issued
by the Overseas Investment Insurance Group described in
ch. 3) was:

                              Maximum             Current
     Expropriation          $3,506,737          $2,621,685
     Inconvertibility        3,091,087             936,863
     War risk                2,909{763           2,149,214
         Total              $9,507,587          5 707762
The difference between maximum and current coverage
represents standby coverage which provides an investor the
right to purchase current insurance for investment increases
and retained earnings. The standby portion hay be converted
to current coverage on the anniversary date of the contract.
     Although the face amount of outstanding insurance was
$9.5 billion, OPIC's maximum exposure to political losses
was less because many contracts insure the same investment
for more than one type of coverage. Elimination of duplicate
coverage where OPIC's liability is limited to the highest
single maximum coverage prodices a maximum contingent

 liability at June 30, 1976, of $6.2 billion. OPIC believes
 that a more accurate representation of its liability  can be
 obtained by assuming that only one claim would be brought
 under each contract for no more than the highest of the
 various types of coverage currently in force. Based on this
 assumption, OPIC has computed: its maximum potential liability
 at June 30, 1976, to be $3.08 billion, which would be further
 reduced by its risk-sharing arrangements with private

     As of June 30, 1976, OPIC's insurance Program encompassed
1,880 contracts with 469 parent companies and individuals in
80 countries. This included 1,043 older contr-acts-written byh
AID, 686 contracts written by OPIC, and 151 contracts written
by the Overseas Investment Insurance Group.

     More than 60 percent of the insurance coverage provided
by these contracts was for investments in the nine countries
shown below. Each has more than four percent of the world-
side exposure in at least one risk category. The remaining
coverage was spread among the other 71 countries.

                                   Maximum coverage     _
                     Inconvertibility   Expropriation   War Risk
Argentina                   5.0             2.3              2.0
Brazil                     11.5            12.3
Republic of China                                            6.0
                            4.1             4.2              4.5
Dominican Republic         10.0             9.2             10.8
India                       4.4             3.4
Indonesia                                                    3.2
                            6.7             6.2              6.0
Jamaica                     1.5            12.9             15.5
Korea                      10.7             8.7             13.4
Philippines                 7.5             6.4              5.5
    Total                  61.4            65.6             66.9
     An earlier GAO report noted that both AID and OPIC tended
to concentrate insurance coverage in a few countries. The
report also pointed out that this condition would continue to
exist for many years due to the length of the contract's
terms. OPIC has worked to alleviate this, and there has been
a significant reduction in the levels of concentration in
Jamaica and Chile, although the reduction in Chile was
partially attributable to expropriation actions by that
country. OPIC does not currently insure new projects in
these countries.


     OPIC does not record insurance claim charges to its
insurance reserve until it pays them, and then records only
the amounts paid. Accordingly, all unpaid claims represent
potential claim charges. At June 30, 1976, potential claim
charges exceeded recorded claim charges.

     OPIC records claim charges by reducing its insurance
reserve each time a claim payment is made. After makinq the
payment, it strives to recover from the country and, when
successful,- restores each collected amount to the reserve.
     Since OPIC's inception through June 30, 1976, claims
paid net of recoveries have totaled $70.2 million. That
amount was almost 60 percent of all insurance reserve funds
provided by the Congress, and about 25 percent of all funds
set aside for the insurance reserve. Sources of the
insurance reserve and the effect of claim payments as of
June 30, 1976, are shown below:

Insurance reserve funds provided
  by the Congress                                  $120.0
Additional funds provided from earnings             154.9
    Total funds provided                            274.9
Claim payments net of recoveries of
  $24.3 million                                      70.2
    Reserve balance at June 30, 1976              $204.7
     At June 30, 1976, potential claim charges totaled $395.5
million, which exceeded the $204.7 million reserv- shown
above. In addition, OPIC monitors contracts covering invest-
ments when it learns of a host government's action which could
lead to claims; but the probability that these contracts will
result in claims is not determinable.
     As shown below, much of the potential claim charges
pertained to claim settlements (including settlements where
OPIC guaranteed payments owed U.S. investors by host govern-
ments) while the balance pertained to claims not yet settled.


     Future payments owed on claim settlement      $ 39.1
     Claim settlement guarantees                    121 7
         Settled claims                             160.8
     Disputed cl&ims                                154.0
     Pending claims                                  80.7
         Total potential claim charges             $395.5
     On March 31, 1977, the disputed claims shown above as
$154 million were settled for $95.1 million. These claims
had been filed in 1973 by the Anaconda Company and a subsi-
diary, whose copper mine investments in Chile had been ex-
propriated. OPIC settled the claims by making a cash payment
of $47.5 million, for which OPIC received $27.5 million in
promissory notes acquired by an Anaconda subsidiary from the
Chilean government in 1974. In addition, OPIC guaranteed
the payment of Chilean notes for $47.6 million. Thus, OPIC
will remain liable for the half of the settlement covered by
guarantees and, if Chile does not meet its obligations as
they become payable, OPIC will be required to pay Chile's
obligations and will charge the reserve for each payment as
it is made.

     At June 30, 1976, as shown above, OPIC had a contingent
liability of $121.7 million for guarantees covering claim
settlement obligations that had not yet become payable.
OPIC had previously been required to pay $36.4 million on a
guarantee issued as part of a claim settlement with the
Government of Chile. The amount paid has been rescheduled
and OPIC is recovering from Chile.

     OPIC's largest pending claim at June 30, 1976, was an
expropriation claim for $66.5 million covering a bauxite
investment in Jamaica. The Government of Jamaica had not
formally expropriated U.S. bauxite investments in the
country but had imposed a bauxite production tax levy and
also announced its intention to acquire an interest in the
bauxite projects. The investor filing the claim has
asserted that the tax has prevented a necessary expansion
of operations, but OPIC's counsel believes that the claim
has no merit.

     Other significant pending claims at June 30, 1976,
involved four investments in Vietnam totaling $12.3 million
which stemmed from loss of control of the insured enterprise
produced by the change in government.

                           CHAPTER 3


     In accordance with provisions of the Overseas Private
Investment Corporation Amendments Act of 1974, OPIC has been
achieving private participation in its insurance contracts.
Most contracts issued on and after January 1, 1975, have been
issued by the members of the Overseas Investment Insurance
Group--an organization through which private insurance com-
panies participate with OPIC as direct insurers, and also
reinsure OPIC for its liability under prior contracts. In
addition to establishing the Group OPIC has continued a
previous contract for reinsurance with Lloyd's of London.
     All participation by private companies, as both insurers
and reinsurers, has been limited to expropriation and incon-
vertibility coverage. OPIC plans to achieve private parti-
cipation in its war risk coverage by establishing a War Risk
Insurance Reciprocal, but as of June 30, 1976, the Reciprocal
had not yet been established.

     The following examples illustrate the private participa-
tion achieved by OPIC as of June 30, 1976, by showing the
extent that private companies would share in various annual
expropriation 'osses incurred in a single country.

Expropria-             Paid by     Paid by      Total     Percent of
tion loss Paid by      private     Lloyd's     paid by     private
 in one     OPIC      companies    as rein-    private     partici-
 country   (net)      in Group     surance    companies     pation


$ 20.0    $     8.8     $3.9          $ 7.3     $11.2        56.2
  40.0         17.9      7.8           14.3      22.1        55.2
  60.0         37.9      7.8           14.3      22.1        36.8
  80.0         57.9      7.8           14.3      22.1        27.6
 100.0         77.9      7.8           14.3      22.1        22.1
 120.0         97.9      7.8           14.3      22.1        18.4
 140.0        117.9      7.8           14.3      22.1        15.8
 160.0        137.9      7.8           14.3      22.1        13.8
 180.0        157.9      7.8           14.3      22.1        12.3
 200.0        177.9      7.8           14.3      22.1        11.0

     While these examples apply only to expropriation losses
in a single country, they demonstrate a principal applicable
to all private participation achieved to date; namely, the
maximum limits on the private companies' liability cause
their participation to decrease as the loss increases over a

certain amount. The same pattern applies to inconvertibility
losseo, although the percentages of participation are much
lower because Lloyd's reinsures very little of those losses.
The maximum limits shown above apply also when losses in one
country consist of both types of loss.

     Similarly, maximum limits have been established on the
private companies' annual worldwide liability when either ex-
propriation or inconvertibility losses, or both, are incurred
in more than one country. The following examples show the
maximum limits on the private companies' annual liability:

 annual                 Paid by        Paid by      Total     Percent of
loss in      Paid by    private        Lloyd's     paid by     private
all coun-     OPIC     companie.       as rein-    private     partici-
 tries        (net)    in Group        surance    companies    pation
$ 40.0      $ 17.5      $ 7.8           $14.7      $22.5       56.2
  80.0        35.0       15.6            29.4       45.0       56.2
 120.0        57.6       15.6            46.8       62.4       52.0
 160.0        97.6       15.6            46.8       62.4       39.0
 200.0       137.6       15.6            46.,8      62.4       31.2
 240.0       177.6       15.6            46.X-      62.4       26.0
 280.0       217.6       15.6            46.8       62.4       22.3
 320.0       257.6       15.6            46.8       62.4       19.5
 360.0       297.6       15.6            46.8       62.4       17.3
 400.0       337.6       15.6            46.8       62.4       15.6
     Thus, as of June 30, 1976, the maximum annual amounts
payable by the private companies were $22.1 million per
country and $62.4 million for all countries, which would be
reached when losses totaled $40 million and $120 million,
respectively. The actual amounts payable on losses of this
magnitude could be less than maximum whenever (1) losses in-
clude an inconvertibility loss, (2) multicountry losses in-
clude a country loss over $40 million, (3) Lloyd's of London
becomes eligible for a "burning cost" adjustment to premiums
(see p. 13), and (4) some losses are in partially excluded

     At June 30, 1976, expropriation or inconvertibility in-
surance coverage in 17 countries exceeded the private com-
panies' individual country loss limit of $40 million. Expro-
priation coverage in these countries averaged $126 million
per country, with a top amount of $404 million. Four coun-
tries also had inconvertibility coverage over $40 million,

averaging $105 million per country, with a top amount of
$140 million. The possibility therefore exists that numerous
losses could be incurred in which participation by private
companies would be relatively small.

     The examples above also show that, with respect to ex-
propriation and inconvertibility coverage, OPIC has made
progress in achieving the private participation mandated by
its 1974 legislation. However, the legislation requires that
OPIC eventually cease being an insurer or a manager for other
insurers, but at June 30, 1976, OPIC was the principal insurer
as well as the manager of the Group. The initial termination
dates specified in the legislation are December 31, 1979, in
the case of expropriation and inconvertibility coverage and
December 31, 1980, in the case of war risk coverage, after
which OPIC is required to act solely as a reinsurer .f new
contracts and a manager of its own existing contracts.

     OPIC made some changes after June 30, 1976, which
expanded its private participation achievements, but the
basic status of its efforts remained essentially the same.
The additional changes are described in the following de-
tailed descriptions of each aspect of private participation.

     OPIC organized the Overseas Investment Insurance Group
in response to its legislative mandate that insurance activi-
ties be transferred to private insurance companies. The
Group was established on February 14, 1975, and at inception
was composed of OPIC and 13 private insurers. During fiscal
year 1976 the Group's membership increased to 17, including
15 U.S. and 2 European insurers (Lloyd's of London and Zurich
Insurance Company).

     The Group participates in most expropriation and incon-
vertibility coverage, whether written by AID, OPIC, or the
Group, in the same percentage and with the same limits. This
is accomplished by its direct underwriting of most new in-
convertibility and expropriation insurance coverage and by
its reinsurance of these two coverages under existing con-
tracts written prior to the Group's inception (except those
written in Ethiopia, Jamaica, and the Dominican Republic
and those contracts under which pending claims arose prior
to January 1, 1975).
     The minimum term of participation in the Group is 1 year.
New members may join at the beginning of the fiscal year which
commences on December 1. On giving 90 days prior notice, any

will raise the private participants' share to 25.5 percent
of the Group for its fiscal year 1977 operations.
     The Group issues insurance and reinsures policies, with
each member assuming only its respective share of the risk.
The Group's annual stop-loss limits are $40 million per coun-
try and $80 million worldwide. Because OPIC assumed 80.5 per-
cent of Group activities, this means that private members'
maximum share of annual losses was $7.8 million per country
and $15.6 million worldwide, with OPIC covering the remainder.
OPIC also assumes annual losses exceeding the stop-loss limits.

     OPIC serves as manager of the Group, providing it under-
writing and administrative services. Six OPIC representa-
tives serve on the Group's 12-member board of governors. The
remaining members are representatives of the private insurers.
      Foreign companies, although fewer in number, have agreed
to  risk larger sums of money in the Group. During fiscal
year  1976,  the two foreign companies' shares amounted to 12.5
percent,  or  64 percent of the private interest in the Group.
This share   will increase to 16.9 percent, or 66' percent of
the  private  interest for fiscal year 1977, because of in-
creased  participation  by the two foreign companies and the
addition of two other foreign companies.
      The Group's overall underwriting policy is designed to
carry out OPIC's legislative mandate. Among the policies
adopted by the board of governors are that the Group shall
(1) insure investments made by eligible investors in develop-
ing countries that are friendly to the United States, (2) re-
quire the insured investor to bear the risk of loss of at
least 10 percent of the total investment covered under the
insurance policies issued by the Group members, (3) give pre-
ferential consideration to investment projects involving busi-
r.esses of not more than $2.5 million net worth or total assets
not exceeding $7.5 million and to investment projects in de-
veloping friendly countries which have per capita incomes of
$450 or less in 1973 U.S. dollars, and (4) decline to issue
insurance on behalf of its members to any investment if the
manager, OPIC, determines that the investment is likely to
cause the investor to significantly reduce U.S. emplolient
due to U.S. production being replaced by production from
such investment which involves substantially the same product
for the same market as the U.S. production.

     As of June 30, 1976, the Group had issued 151 contracts
amounting to maximum inconvertibility coverage of $271.6 mil-
lion, and maximum expropriation coverage of $324.0 million.

      The table below shows the countries in which the Group
 has greatest exposure on the contracts it has written. The
 Group's remaining exposure is divided among 29 countries.

          Inconvertibility                        'xpropriation
                                                   E            .
                        Percent-                                Percent-
                        age of                                    age of
              Maximum    port-                        Maximum      port-
  Country     coverage    folio            Country    coverage     folio
            (000 omitted)                         (000 omitted)
Indonesia $ 38,214           14.1        Korea      $ 84,432       26.1
Trinidad                                 Indonesia    37,843       11.7
  and                                    Jordan       29,627        9.1
  Tobago    30,143           11.1        Liberia      27,291        8.4
Liberia     27,291           10.0        Trinidad
Jordan      21,914            8.1          and
Republic                                   Tobago      24,891       7.7
  of China  20,226            7.4        Republic
Thailand    13,027            4.8          of China    20,226       6.2
Brazil      12,496            4.6        Brazil       .12,496       3.9
Korea      _11378             4.2
    Total     174,689        64.3                     236,806      73.1
Worldwide    $271,640       100.0                   $323,964      100.0
     During its first 18 months of operation, OPIC has paid
the private Group members $4 million in premiums. As of
June 30, 1976, the Group had paid $125,000 on claims, of which
$122,000 had been recovered. The Group also has possible li-
ability for potential losses of $10.17 million on claims ac-
tually filed against OPIC and the Group.

      In addition to its membership in thi Group, Lloyd's of
London also has a separate reinsurance agreement with OPIC.
Under the agreement in effect in 1976, Lloyd's assumes li-
ability for 5 percent of OPIC's inconvertibility losses and
45.6 percent of OPIC's expropriation losses, up to maximum
losses of $40 million in any one country and $120 million
worldwide. This means that if OPIC sustains losses equal to
loss limitF, OPIC could recoup from $2 million in any country
and $6 million worldwide (assuming all inconvertibility
losses) to $18.3 million in any country and $54.8 million
worldwide (assuming all expropriation losses). Lloyd's cover-
age applies to all OPIC losses, including those which OPIC
incurs as a member of the Group. Lloyd's maximum liability

as a reinsurer, however, is reduced by the amount of its
liability as a member of the Group.

     Lloyd's liability as a reinsurer can also be partially
offset by OPIC's payment to Lloyd's of additional premium
income under a provision called "burning cost" adjustment.
A burning cost adjustment is paid whenever Lloyd's losses in
any year exceed its premium income for that year. The maxi-
mum amount of this adjustment was about $685,900 during 1976.

     Since inception of the reinsurance agreement in January
1972, through June 30, 1976, CPIC has paid Lloyd's reinsurance
premiums amounting to $11.0 i.llion. During that period,
Lloyd's paid one claim amounting to approximately $93,000 and
established a letter of credit of $5 million to assure payment
of a claim settlement. Lloyd's has possible liability for
potential losses of $26.1 million on claims actually filed
against OPIC.

     A new 3-year reinsurance agreement has been negotiated
to cover OPIC from January 1, 1977, to December 31, 1979.
The annual maximum liability that Lloyd's will assume for
expropriation coverage has increased to $24.75 million per
country and $74.25 million worldwide. However, the burning
cost adjustment provision was also increased. There was no
change in the amount of inconvertibility coverage.

     OPIC officials have concluded that no suitable under-
writing capacity for war risk insurance presently eyists
in the private insurance industry. Accordingly, OPIC has
begun organizing an association for this purpose called the
War Risk Insurance Reciprocal. However, OPIC has been
hampered in its endeavor to begin operations tecause it bas
been unable to obtain a license from the D.C. Superintendent
of Insurance to operate the Reciprocal as an unincorporated
insurance association.

     The superintendent had declined to act on the applica-
tion because he lacks authority to issue the requested
certificate. It was his opinion that since, in the absence
of congressional consent, only Federal officials are empowered
to regulate OPIC activities, a reciprocal of which it is a
subscriber could not be regulated by the District of Columbia.
In response to this judgment, OPIC sought an opinion from the
Department of Justice's Office of Legal Counsel. That office
concluded that OPIC and the Reciprocal are separate entities
and that the Reciprocal could register with the District of
Columbia since it was not a Federal organization. This
opinion will strengthen OPIC's position.

      The planned Reciprocal is a reciprocal insurance
in which the insureds insure each other's risks. The exchange
cal is to be composed of OPIC and U.S. investors, eligible for
OPIC insurance coveriage, who agree to participate in the
Reciprocal, whereby the investor (subscriber) pays war risk
insurance premiums and makes an advance cash deposit with the
Reciprocal equal to a specified portion of the insurance
premium on each contract. This cash will become part of the
Reciprocal's assets which will be used to cover its losses.
The subscribers liability will be limited to its proportional
share of the Reciprocal's assets. During the initial stage,
OPIC is to assume 60 percent of the liability on each policy
issued; the Reciprocal is to assume 40 percent.

     The Reciprocal's exposuze to liability on the insurance
policies issued by it and OPIC and its reinsurance of some
of OPIC's existing coverage is to provide it the same per-
centage of risk and the same loss limits on both insured
and reinsured policies. The annual stop-loss limits in this
insurance and reinsurance is to be $12.5 million per country
and $25 million worldwide. OPIC is to assume all annual
losses above these limits.

     The insurance/reinsurance relationship between OPIC and
the Reciprocal will be similar to that between OPIC and the
Group. Under both arrangements OPIC protects the organiza-
tion against annual losses above specified limits on its
insurance and reinsurance.  Some difference between the
Group and the proposed Reciprocal are:

     -- The Reciprocal will underwrite war risk insurance.
        The Group does not.
     -- Members of the Reciprocal are not insurers or
        reinsurers by trade, whereas Group members are.

     --The Reciprocal will write insurance for its members.
       The Group issues insurance policies to nonmember

     --Each individual Group member is regulated by some
       governing authority, whereas the Reciprocal, rather
       than its members, will be regulated by the D.C.
       Superintendent of Insurance if OPIC's attempts to
       gain a license are successful.
      Although the Reciprocal will be writing only war risk
coverage, its bylaws would enable the association to write
and reinsure inconvertibility and expropriation coverage as

     As part of the war risk insurance contract's terms,
the investor will be required to participate in the Recipro-
cal.  OPT- has included in its new insurance contracts
provisi-ns which will bring about the transfer of a portion
of its existing contractual liability on war risk contracts
issued since January 1, 1976, to the Reciprocal if and when
the Reciprocal begins operations. The Reciprocal will also
reinsure 40 percent of OPIC's war riak policies written
between July 1, 1972, and December 31, 1975. An investor's
failure to become a member of the Reciprocal may r sult in
terminating the war risk insurance contract.

                          CHAPTER 4
     To complement its program for insuring U.S. investors
against political risk of loss, OPIC supports U.S. invest-
ment overseas under its investment financing program by
(1) guaranteeing loans and other investments made by private
U.S. entities, (2) making loans from its own resources, and
(3) providing preinvestment assistance.

     Amendments to OPIC legislation in 1974 provided that on
December 31, 1979, the Corporation will cease operating these
pi grams; thereafter, the President of the United States is
authorized to transfer them to other agencies.


     OPIC is authorized to issue to eligible investors guar-
antees on loans and other investments, insuring against busi-
ness and political risks upon such terms and conditions as
OPIC may determine.

     The Congress has authorized OPIC to have a maximum of
$750 million of guarantees,of which a maximum of $1.25 mil-
lion shall be for credit union investiment. OPIC, however,
at the time a guaranty is committed, must have a reserve
equivalent to 25 percent of he amount of guarantees then
issued or committed to pay for any losses incurred under the
program. The reserve at June 30, 1976, was $81.3 million,
enabling the Corporation to issue up to a maximum of
$325 million in guarantees if so desired.

     As of June 30, 1976, OPIC had guarantees covering
23 projects, with $157 million at risk. Following is a
summary of the amounts guaranteed by country.

                               OPIC Ouarantees by Country

                        Nu#ber of       Projeot                    Guaranty       Currently
            Country     Ir   cts       dglcrition                  ommitment       at risk
    Antigua                1        Hotel                      $    1,155,032 8    1,155,602
    DBrlil                 4        Pertiliser plant,              20,410,375     20,410,375
                                    soybean processing,
                                    paper ana pulp mill,
                                    hygenic paper production
    Costa Rica             1        Polyester filament              4,000,000           -
    Ghana                  2        Aluminum saeltert              13,250,000      5,650,000
                                    rice, grain, sorghum,
                                    and soybean production
    Haiti                  1        Resort                            262,106        262,106
    India                  2        PertiliZer complex             17,400,450     17,400,450
    Indonesia              3        Copper extraction,             62,985,000     45,485,000
                                    textile manufacturing,
                                    cement plant
    Korea                  2        Power and topping plant,       44,00000,000   44,000,000
                                    nylon filament yarn
    Nicaragua              1        Hotel                           1,569,000      1,598,000
    Nigeria                1        Expansion of fishing              494,116           -
                                    trawler fleet
    Philippines            I        Develop nickel deposit         16,1,666       16,291,666
    Sudan                  1        Cement plant                   12,500,000           -
    Thailand               1        Pulp and paper                  4,075,000      4,075,000
    Zaire                  1        Hotel                             462,615        482,615
        Latin America      I        Intermediate credit             1,250000        -
           Regional                 institutions
               Total      23                                   $200,S5210 $1S           .011,094

     Guaranty commitments for three of the above projects in
Costa Rica, Nigeria, and Sudan amounting to $17 million were
issued during fiscal year 1976.

     Guaranteed loans generally range from $2 million to
$25 million. OPIC charges a guaranty fee from 1-3/4 to
2-3/4 percent per year on the outstanding principal amount
depending upon the risk assessment.

     In addition to guaranteeing loans, OPIC has the authority
to guarantee equity. Presently, no such guaranties are being
issued. The last equity guaranty issued was duting fiscal
year 1973 for $525,000. Equity guarantees are rarely issued
because OPIC expects the project sponsor to be fully at risk
to encourage project success. When OPIC has issued this
guaranty, the equity has come from an investor on whom OPIC
was not relying to be active in managing the project.

         guaranty program originally was established in
fiscal year 1964 and was transferred to OPIC when it began

     From the inception of the program through fiscal ye'A
1976, fees collected, including commitment fees, have totaled
$16.8 million and claims paid have totaled $21.4 million.
OPIC has collected $15.7 million in fees, paid $14 million
in claims, and received $1.6 million in claim recoveries.
During fiscal year 1976 OPIC paid $800,000 for defaults on
interest payments. In the fiscal year 1977 transition quarter
OPIC paid $5 million for guaranteed promissory notes on one
project in Indonesia. An Indian company will take over the
project and OPIC is scheduled to begin recovering its outlay
starting in 1979.

     As of June 30, 1976, OPIC's outstanding guarantees mature
from 1979 through 1993 (1993 is the date of the final loan re-
payment on its longest guaranty). OPIC was committed to issue
guarantees amounting to $43.1 million for six projects. The
guaranty agreements for three of these commitments had not
been signed.

     During the Corporation's formative years, OPIC officials
projected that outstanding guarantees would reach approxi-
mately $750 million over the first 5 years of operations.
Since June 30, 1972, OPIC's outstanding guarantees have
decreased from $160 million at June 30, 1970, to $157 million
at June 30, 1976. The program has not increased signifi-
cantly, according to OPIC management, because of efforts to
place emphasis on small businesses. Also, the larger older
guarantees are being reduced because of repayments on the
guaranteed loans.

     At June 30, 1976, guarantees currently at risk applying
to commitments made under pre-OPIC authority totaled
$40.5 million. Guarantees at risk issued under OPIC's
authority amounted to $116.5 million.

     In establishing OPIC, the Congress provided that OPIC
may make direct dollar and foreign currency loans to firms
privately owned or firms having a mixed public and private
ownership. A revolving fund called the Direct Investment
Fund was established for this purpose. The Congress pro-
vided the fund with $40 million paid in as Corporation capi-
tal for which OPIC was required to issue an equivalent amn
of capital stock to the Secretary of the U.S. Treasury.

     During fiscal year 1976 OPIC increased the fund by
$10 million in connection with a transfer of $10 million
from retained earnings to capital held by the U.S. Treasury.
The Corporation issued a $10 million stock certificate to
the Secretary of the Treasury.
     Direct investment fund loans are to be repaid within
5 to 20 years and are generally to range from $200,000 to
$3 million with varying commercial interest rates, depending
on OPIC's assessment of the financial risk. As of June 30,
1976, OPIC's commitments providing direct investment fund
loans amounted to $34 million, of which $22 million was out-
standing. Thirteen loans totaling $10.7 million were au-
thorized in fiscal year 1976. The following schedule shows
the concentration of direct loans at June 30, 1976.

                        OPIC Direct Loans at Jung _0.     1?76
                          lumber of            Proaect                     Loan
           2ountrvy                                                                        Outstanding
                          D~oiocta           descri~n                  c3,mtcment             loan
 Afghanistan                       1    Leather tanning factory       $     450,000 $             450,000
 Belise                         1       Rosin and turpentine                243,250               243,250
 Bolivia                        1       Polystyrene plant                 1,000,000                     -
 Brasil                         5       Manufacturing facility for        7,931,250         7,380,990
                                        drilling equipment, cheese
                                        and butter plant and milk
                                        processing, paper and pulp
                                        mill, soybean production
 Costa Rica                     2       Vegetable processing and          2,502,000         1,502,000
                                        freexing facility, polyes-
                                        ter filament plant
 Ecuador                        I       Tourist cruise vessel               500,000                    -
Ghana                           3       Rice, grain, sorghum, and         2,157,500              307,500
                                        soybean production; tuna
Guatemala                      2       Metal culvert manufacturing        1,000,000              200,000
                                       facility, nursery operation
Haiti                          2       Furniture manufacturing,             562,106              262,106
Indonesia                      3       Coconut plant, textile          2,000,000           1,500,000
Kenya                          1       Impala farm ranch, addi-              65
                                                                                  ,000            65,000
                                       tional cattle
Korea                          2       Parts for integrated cir-           735,000               735,000
                                       cuits, debt and equity
Nigeria                        1       Expansion of fishing                705,884                 -
                                       trawler fleet
Pakistan                    1          Vial and ampoule production     1,250,000                    -
                                       (glass products)
Panama                      1          Expansion of fish catch         1,400,000           1,000,000
Rwanda                      1          Tea factory                         535,000                 -
Sudan                       1          Construction operation of       2,675,000                   -
                                       cement plant
Republic of China           1          Motorcycle assembly                  62,500               62,500
    Africa Regional         2          Subloans to flour millas       3,291,506             3,291,506
                                       lease financing
   East Asia Regional      1           Private subloans               1,888,889             1,888,889
   Latin Amrica           -1           Private subloans
     Regional             --                                          ;3i000i000            3;000;000
          Total           34                                         $31954885           $21;a         ;741

      OPIC had received proceeds from the sale of participation
 certificates in four of the above loans. The unpaid balance
 on such certificates amounted to $3 million at June 30, 1976.
 OPIC has guaranteed full payment of the participated portion
 of the loans. This liability for outstanding participation
 certificates is included in the amount of investment guaranty
 currently at risk.

      Interest rates on outstanding loans ranged from 7 to
 12 percent. Final repayments of principal and interest on
 these loans become due during fiscal years 1979 through 1988.

      Since inception of the program through fiscal year
 interest earned under the program amounted to $5 million,1976,
OPIC has not written off any loans. However, several proj-
ects have encountered financial difficulties and operating
problems. Of 21 projects on which disbursements have been
made, OPIC has identified 6, involving $5.4 million in dis-
bursed funds, as being problem loans. Five of these projects,
totaling $3.9 million, were delinquent on loan principal or
interest payments as of June 30, 1976. Past due payments for
four of these projects totaled $600,000. The fifth project
has been in liquidation since January 1975. Principal and
interest involved amounts to over $2 million. After fiscal
year 1976 management authorized the recording of loan losses
estimated to be $800,000 by December 31, 1976. This estimate
was expected to be increased to $2 million by the end of
fiscal year 1977.


     OPIC's preinvestment survey program seeks to increase
investment by U.S. private enterprise in developing countries
by encouraging U.S. investors to survey investment opportuni-
ties. Preinvestment assistance consists essentially of shar-
ing the cost of identifying suitable investment opportunities,
of proving their feasibility, and of determining their accept-
ability to the host government. OPIC will pay up to 50 per-
cent of the survey costs ($50,000 maximum) of an investment
opportunity if, after making the survey, the U.S. investor
determines that it is unwilling to make the investment and
reports to OPIC on its survey results. If, on the other
hand, the investor decides to undertake the project surveyed,
it must bear the full survey cost.

     The program has been designed to stimulate investment in
countries where the per capita income is less than $450 and
in small business investment in all less-developed countries.
Therefore, OPIC makes its funds for surveys available to

smaller U.S. firms in all less-developed countries and to
larger U.S. firms only in the poorest countries.
     During fiscal year 1976 there were 16 surveys in prog-
ress. Of these surveys, six resulted in negative decisions
and three resulted in positive decisions to undertake the
project surveyed. Decisions had not yet been reached for
the others. Under the cost-sharing arrangement, OPIC's
share of the expenses on the 16 surveys was $168,592, cover-
ing disbursements made over the past several years.

                          CHAPTER 5

                      SCOPE OF AUDIT AND


     We have examined the balance sheet of the Overseas
Private Investment Corporation as of June 30, 1976, and the
related statements of income, changes in capital and reserves,
and changes in financial position for the year then ended.
This examination was made pursuant to the Government Corpora-
tion Control Act (31 U.S.C. 841 et seq.) and in accordance
with generally accepted auditing standards, and included such
tests of the accounting records and such other auditing pro-
cedures us we considered necessary in the circumstances. We
previously examined and reported on the Corporation's finan-
cial statements for fiscal year 1975.

     The Overseas Private Investment Corporation insures and
guarantees U.S. investors against potential risks of loss of
their overseas investments due to expropriation; inconverti-
bility of currency; and war, revolution, or insurrection.
As of June 30, 1976, the Corporation's insurance reserve for
such losses amounted to $204.7 million. However, as explained
in note 7 to the financial statements, potential charges
against this reserve for claims filed totaled $395.5 million,
consisting of direct liabilities related to claim settlements
($39.1 million), claim settlement guaranties ($121.7 million),
pending claims ($80.7 million), and unresolved disputed claims
($154.0 million).  In March 1977, OPIC settled the unresolved
disputed claims for $95.1 million.

     Section 237(c) of the Foreign Assistance Act of 1961,
as amended (22 U.S.C. 2197(c) (Sup. V, 1975)) provides that
the full faith and credit of the United States is pledged
for the full payment and performance of obligations incurred
by the Overseas Private Investment Corporation under its
insurance and guaranty contracts. Thus, if claim settle-
ments exceed available reserves, the Corporation will be
required to either borrow funds from the U.S. Treasury or
request supplementary funds from the Congress to pay the

     The Corporation can augment its reserves with retained
earnings, but it does not use its earnings solely for that
purpose. During fiscal year 1976, it increased funds ear-
marked for making loans by transferring $10 million from
retained earnings to the Direct Investment Fund.  (See
note 4.) Accordingly, that amount was no longer available

for transfer to the insurance and guaranty reserves should
augmentation be needed.
     Due to the many uncertainties affecting the foregoing
claims, as well as those affecting liabilities the Corpora-
tion has on other insurance and guaranty contracts (see
notes 7 and 8 to the financial statements), we are not able
to express an opinicn on the adequacy of the amount reserved
for losses the Corporation may suffer because of its insurance
and guaranty contracts.
     In our opinion, except for the adequacy of the amount
reserved for losses, the accompanying financial statements
present fairly the financial position of the Overseas Private
Investment Corporation at June 30, 1976 and 1975, and the
results of its operations, the changes in its capital and
reserves, and the changes in its financial position for the
years then ended, in conformity with generally accepted ac-
counting principles applied on a consistent basis.

SCHEDULE 1                                                               SCHEDULE 1

                                STATEMENT OF INCOME

Overseas Private Investment Corporation                   For the year ended June 30

                                                              1976             1975

Political risk insurance premiums                         $ 32.570.017    $ 30,280,937
  Less-Premiums on shared risks                              5.2o7.549       4,149,573
                                                            27,282.468      26,131.364
Investment guaranty fees                                     2.68.494        2,787,188
Direct investment interest                                   1.419.522       1,248,756
Other fees                                                     540.356         126,185
                                                            31,910.840      30,293,493

Interest                                                    21.851,944      17,948,471

  Revenues                                                  53,762.784      48,241,964

Administrtive Expenses
Salaries & benefits                                          2777,740        2,657,831
Contractual services                                         1.067.528       1,389,871
Rent, communications & utilities                               392,722         325,869
Travel & representation                                        177,047         265,836
Printing, reproduction & supplies                              136.754         171,830
Depreciation & amortization                                     19.831          24,035

  Admiristrative Expenses                                    4,571,622       4,835,272

Net izcome                                                S 49,191,162    $ 43,406,692

The accompanyngnotes
                 m are n integralpartof this statement.

SCHEDULE 2                                                                SCHEDULE 2

                                    BALANCE SHEET

Overseas Private Investment Corporation                      For the year ended June 30

Assets                                                         1976            197
Cash and Investments:
  Cash                                                     $103.075.830    $105,347,456
  U.S. obligations at cost plus accrued interest (which
    approximates market--Nte 3)                             254278.749      202,858,955
  Foreign currency (UJ.S. equivalent-Note 9)                                 13,213,859
                                                            357.354,579     321,420,270
Direct investment Fund loans outstanding (Note 4)            21.888,741      2i,132,371
Accrued interest & fees                                       2891.293        2,804,669
Accounts receivable                                            6690.259       7,070,238
Prepaid reinsurance premiums                                  1.320.252       1,178,216
Furniture, fixtures and leasehold improvements (at cost
     less depreciation and amortization of $121,694 in
     1976 and $164,323 in 1975)                                 164.206          91,678
Assets acquired in claims settlements (net of provision
    for unrealizable assets of $78,302,574 in 1976 and
    $86,113,529 in 1975--Note 5)                             43,160,538      43,160,538
Total Assets                                              . 433,469,868    $396,857,980

SCHEDULE 2                                                                  SCHEDULE 2

                                                            For the year ended June 30

Liabilities, Capital & Reserves                                1978              1rss

Accounts payable 6 accrued expenses                           1.372.824      S 1,577,7G3
Claims payable                                                  860,000        7,851,176
Direct liabilities related to claims settlements (Note 5)    4,160,538        43,160,538
Participations in DIF loans                                   24.21.481        4,127,665
Fees held pending claims determinations                         224008           105,020
Unearned premiums                                            17.582,749       16,489,943
                                                               ,6.121,600     73,312,125
Contingent liabilities (Notes 6, 7 & 8)

Capital & ResrvCS:
Capital held by U.S. Treasury (Note 4)                       50000.000         40,000,000
Insurance reserve (Notes 6 & 7)                             204,661,986       176,492,185
Guaranty reserves (Notes 6 & 8)                              81.346,147        81,690,838
Retained earnings                                            31.340.135        12,148,973
Foreign currency allocation from U.S. Treasury (Note 9)                        13,213,859
                                                            .37,34.888        323,545,855
Total Liabilitie, Capital & Reserves                        3A8460,88        $396,857,980

The accompanyingnotes a an integrlprtof this statement

   SCHEDULE 3                                                                                                          SCHEDULE 3

                                            STATEMENT O                 CHANGES
                                     IN CAPITAL AND RESERVES

 Overeas Private Investment Corporation                                       For the Two Yen' Ended June 30, 1976

                                             hmurauce          Guarcaty         N Wd          Cuawaay
                               Caped           eWeye           B yen            Earinga       Alatie            Teod
 June 30.1974                 $40,000.000    $180,593,820     $80,533.667      S 8,742.dl                    8309,869,768
 Net income                                                                     43,406.692                     43,406,692
Payments on claims
settlements                                   (41,814,.485)     (7,047,309)                                   (48,861,794)
Recoveries on prior years'
claims settlements                              5,712,850         204,480                                       5,917.330

Transfers from retained
earnings                                      32,00C.000        8,000,000      (40.000.000)

Foreign currency allocation
from U.S. Treasury                                                                            $13,213.859      13.213,859

June 30,1975                  4P.000,000      176,492,185      81,690.838      12,148.73       13,213,859    323,545.855
Net income                                                                     49,191 162                     49.191.162

Payments on claims
settlements                                     (860.000)        (816.954)                                     (1.676.954)
Recoveries on prior years'
claims settlements                             9,029.801          472.263                                      9,502,064
Transfers from retained
earnings                      10.000,000      20,000,000                      (30,000.000)

Foreign currency returned
to U STreasury                                                                                (1;,'13,859)   (13.213,859)

June 30, 1)76                $50,000,000    S204,661.986      S81,346.147     $31,340,135        -0--        367,348,268

SCHEDULE 4                                                                  SCHFDULE 4

                                 STATEMENT OF CHANGEs

                               IN FINANCIAL POSITION

Overseas Private Investment Corporation                      For the year ended June 30

                                                               197r            1975
Source of Funds:
  Net Income                                                         "
                                                            $ 49.191.1t     $ 43,406.692
  Depreciation and amortizatior.                                  19.831          24,035
  Net recoveries (payments) oni clair settlementt              7825.110      (42,944,464)
  Increase (decrease) in:
    Unearned premiums                                          .. 09206        1,4 0, 160
    Fees helo p ending claims determinations                      11 ,998     (2,898,487)
  Decrease (increase) in:
    Accounts receiva),ie                                        379.879       (5,550,963)
                                                              58.627.76       (6,553,027)

Application of Funds:
  Foreign currency allocation returned to (received from)
    U.S. Treasury                                             13.213.859     (1 ,213,859)
 Additions to furniture & fixtures                                92.359          14,167
 Increase (riecrease) in:
    DIF loans outstanding                                       75 6 .17O       (874,192)
    Prepaid reinsurance                                         142.036          (71,044)
    Accrued interest & fees                                      86824         1,234.688
  Decrease (increase) in:
    Accounts payable & accrued expenses                         204859          (15,951)
    Claims payable                                            6.1.176          4,302,620
    Participations in DIF loans                               1120184            37!.809
                                                             221.s.59 7       (8,571,762)

Increas in Cash and Investments                              35.934.#U9         ,018.735

The dcc ompnJmngnotes are en integrlpart o this st tement

                         NOTES TO THE FINANCIAL


Note 1: Background of Ceprotmfo                   the time a payment is made or the payment
Title IV of the Foreign Assistance Act of 1961,   obligation is irrevocably established. All
, amended by the Foreign Assistance Act           recoveries made in the course of liquidating
of 1969 (Public Law 91-175) (hereinafter          assets acquired in the settlement of claims
called the 'FAA"), authorized the creation        are credited to the Reserve against which
of the Overseas Private Investment Corpora.       the related claims were charged.
fton (hereinafter called OPIC) as a wholly-         Assets ad Direct labilities Rhlated to
owned U.S. (Government corporation. The in-       Claim Settlements: OPIC may acquire as-
torim administration of the programs and          sets, or an interest in assets, us a result of
activities of OPIC was delegated to the           claims settlements For assets acquired by
Agency for International Development from         reason of claims payments charged to the
December 30. 1969 to January 19. 1971. at         Insurance or Guaranty Reserve, full pro-
which time Executive Order 11579 trans-           vision has been made for the possibility that
terred to OPIC all obligations, assets and re-    value may not be realized. To the extent
lated rights and responsibilities of predeces-    that OPIC has interests in assets derived by
sor programs and authonties                       virtue of OPIC's undertakings to make claims
   The Overse -s Private Irvestment Corpora-      payments in advance of receipt of the pay-
tion Amendments Act of 1974 (Public Law           ments to which OPIC is subrogated. corre-
93-390), which was snacted on August 27,          spondirg liabilities are reflected in the finan-
1374. amends OPIC legislation in several          cial statements.
respects Among its provisions are an
authorization for OPIC to borrow up to $100
million from the United States Treasury to        Note 3 Investments in U.S Obliiations
discharge OPIC insurance or reinsurance           In conformance with Section 239(d) of the
liabilities and an expression of intent that      FAA. OPIC's investments in U.S. obligations
entities other than OPIC participate in the       are limited to funds derived from fees and
di, "ct underwriting of political risk insur-     other revenues The funds available for in
ane. Pursuant to this mandate, OPIC (1)           vestment were $249.506.660 at June 30. 1976
p.rticipates with private insurers in the         and $198,978.108 at Tune 30. 1975 Of these
Overseas Investment Insurance Group, which        funds $248.825,315 and $197 454.099. respec-
functions as a first-loss pool covering expro-    t-vely. represent the cost of investments in-
priation and inconvertibility i isks on new       cluded in the Balance Sheet
insurance and most of OPIC's existing insur-
ance portfolio and (2) is organizinrl a sepa-
rate unincorporated insurance association         Note 4: Direct Investment Fund
of insureds to underwrite certain war risk        The FAA authorized the establishlment of a
insurance.                                        Direct Investment Fund (DIF), that consisted
                                                  initially of the 4U,'J00,000 paid in as capital
                                                  of the corporation, to be used to make loans
Note 2LSummary of Principal Accounting            repayable in United States dollars This fund
        Policies                                  is charged with realized losses and credited
The significant policies are summarized           with realized gains and such additional
below:                                            sums as determined by the Board of Direc-
   Income Recognition: Revenue from politi        tors During 1976 OPIC increc.sed the DIF by
cal risk insurance contracts is recognized as     S10,000.000 in connection with the transfer of
income ratably over the contract year All         $10,000,000 from retained earnings to capi-
other revenue is recognized when earned in        tal held by U S. Treasury
accordance with generally accepted account-          The status of DIF on Tune 30. 1976 and
ing principles                                    1975 was as follows.
   Depreciation and Amortisation: Furniture
and fixtures are depreciated on a straight-                                          ls      1975
line basis over a 10-year life Leasehold im-                                            oeiDollw)
provements are amortized over the life of           DIF Capital                      50     40
the related lease.                                  Less uncommitted                 19      15
   Payments to Insred oen Ca":m- Selb.              Outstanding 'commitments         31      25
ments Payments to investor: on claims               Less undisbursed portion         12        8
settlements are charged direc::    to the ap-       Net loans outstanding            1g     17
plicable Insurance or Guaranty ieserve at

   Procd received by OPIC from the sale           decessor guaranty authoitv Both Reserver
of participations were credited to the DIF        may be replenished or increased at any time
for further lending in accordance with Sec-       by transfers from OPICs retained earnings
tions 231(c). 235(b) and 239(d) of the FAA.      or by new Congressional appropriations.
The figures above are net of such participa-      OPIC's retomed earnings as of June 30, 1976,
tions, which caounted to $3 million in 1976       available for transfer to the Insurance or
and $4million in 1975. Pursuant to provisions    Guaranty Reserve, were $31,340,135.
of Sections 239(d) and 234(b) of the FAA,           Should OPIC's funds not be sufficient at
CPIC has guaranteed full payment of the          any time to discharge OPIC'w obligations
participated portion of DIF loans This lia-      arising under investment insurance or guatc-
bility for outstanding participations is in-     anties, as the case may be, Congress would
cluded in the amount of investment guaz mty       have to appropriate funds to fulfill the pledge
outstanding (Note 8).                            of full faith and credit to which such obliga-
                                                 tions are entitled Standing authority for such
     N            d _D
                     ireet Lk""es |         d    appropriations is contained in Section 235(f)
                    to Ck.m Settlesib            of the FAA,
                                                    All investment insurance given by OPIC,
 As a result of claims settlements, OPIC owns    all guaranties given by OPIC in connection
or has an Interest in certain assets (primar-    with the settlement of claims under invest-
il- notes receivable) having a value, based      ment insurance, and all guaranties referred
 upon the related claims payment, of $121,-      to in the first paragraph above constitute
463.112. Of these assets, $78,302,574 were       obligations of the United States of America
acquired by reason of claims puyments            The full faith and credit of the United States
charged to the Insurane and Guaranty Re-         of America is pledged for the full payment
serves cad full provision has been made on       and performance of such obligations.
OPIC's books for the possibility that their
value may not be realized. OPIC has re-
ceived partial recoveries on claims to which     Noee 7?Obligatim laAked by hmarumoe
these asets relate, and management in-                       -lieo
tinds to exercise legal remedies ncesry          The Insurance Reserve as of Jume 30, 1976
to collect on thse assets.                       totaled $204.661.906 and OPIC has cash and
   The balance of OPIC's claims-related as-      U.S. obligations substantially in exces of
sets, valued at $43,160,538, represents an in-   this amount. Claims against the Insurance
terest in future payments due under certain      Reserve could arise from certain liabilities
promissory notes guaranteed by OPIC under        shown on OPIC's Balance Sheet and certain
claims settlements and its guaranty author-      contingent liabilities.
ity OPIC will have to make payments under           Direct liabilities related to claims settle-
these guaranties prior to receipt of payment     ments and chargeable against the Insurance
from the obligors. OPIC payment obliga-          Reserve amount to $39,085,538 as of June 30,
tions are reflected in the liability section     1976. OPIC will be required to make pay-
of the Balance Sheet and their due dates         ments to discharge these liabilities in the
are shown in Note 7 and 8 Approximately          following fiscal years and in the following
S36 million of this sum represents an intere',   amounts:
in notes of Sociedad Minera El T*niente S.A
to be purchaed by OPIC from the holder             Fiscal Year(s)               OPIC Liability
In 197.. and o to which the Republic of            1978                          836008,718
Chile is obligated to make payments in             1980-1982                       3.076.820
semi-annual installments through June 1986

NoteSIs JS_ ay1           s dM     Fl1             Contingent obligations of OPIC which
         oll 001                                 could give rise to future additional cims on
Section 235(c) of the FAA establishea sepa-      the Insurance Reserve include obligation
rat fund known a the Imuram Reserve              urder (A) guaranties      ued In settlement of
and th Guanty Reserve for the reelpetive         claims arsing under investent I            _nawm
di     rog d i llhbilitie under investment in-   contracts (B) pending dcla wder Invet-
suranme cld under guaranties Iued under          ment neurance oontraw,         (C) uvesolved
Section 234(b) of the FAA and similhr pr         disputed claims and (Di out             invest-

 ment insurance contracts. These four cate-       and the other under inconvertibility. OPIC
 gories of contingent claims are discussed in     has not made the necessary final determina-
 more detail in the balance of this Note.         tions as to any of these claims.
                                                     In addition to requiring formal applica-
                                                  tions for claimed compensation, the OPIC
  (A) Claims Settlement Guaranties                contracts require investors to notify OPIC
    Pursuant to Sections 237(i) and 239(d) of     promptly of host government action which
 the FAA. OPIC has in some instances settled      the investor has reason to believe is or may
 claims arising under investment insurance        become an expropriatory action. Careful In-
 contracts by issuing payment guaranties in       vestor compliance with this notice provision
 substitution for the insurance obligations       will sometimes result in their filing notice of
 being discharged. These claims settlement        events that do not mature into expropriatory
 guaranties represent contingent obligations      actions.
 of OPIC backed by the Insurance Reserve.            The highly speculative nature of these
    The contingent liability of OPIC as of Tune   notices both as to the likelihood that the
 30, 1976 under these guaranties, including       event referred to will constitute, expropria-
 liability as to interest, was $121,676,169. If   tory action and the amount of compensation,
 the principal obligors default in full, and if   if any, that may become due leads OPIC to
 OPIC does not exercise certain prepayment        follow a consistent policy bf making no
 rights, OPIC would be liable during the          reference to such notices in its financial state-
 following fiscal years for the following         ment. Any claims that might arise from these
 amounts:                                         situations are, of course,' encompassed in
                                                  management's estimate that maximum po-
    Fiscal Year(s)           Amount of Liability  tential exposure, prior to reinsurance, under
    1977                        S 20,693,714      existing investment insurance contracts is
    1971J-1982                    76$213,328      $3,080 million (Note 7D).
    I 983-1908                    21o769.27          In addition to the foregoing :here is a
                                  983-198 24769127pending against OPIC that is believed tosuit   be
                                $121,676,169      without merit. In the unlikely event of re-
                                                  covery thereunder no inaterial adverse effect
    Of the totall OPIC cor'ngent liability under  6n OPICs financial position would result.
 claims settlemaen guaranties, $104,571,471
 represents guaranties of obligations either
 incurred by the Governmenrt of Chile in corm-    (C) Unresolved Disputed Claims
 pensaticn agreements with O1IC insureds or          Two expropriation claims totalling $154
 recognized by the Governrment of Chile in        million submitted in 1972 by The Anaconda
 respect of debt previously insured by OPIC.      Company and a subsidiary remain unre-
                                                  solved and are in litigation. Because of ap-
                                                  parent bias or undue influence in the arbi-
 (B) Pending Claims                               tral proceedings. OPIC is seeking to set aside
    OPIC follows a policy of recording invest-    an arbitral deciL;on finding OPIC liable
ment insurance contract claims as financial       (with the amount to be determined by
liabilities only upon determinations that such    further proceedings). OPIC, upon the advice
claims are valid. In the case of most expro-      of legal counsel, believes that it is reason-
priation claims, the expropriatory action         able to expect that the arbitration award
must continue for a period of one year be-        heretofore entered will be vacated and that
fore the claim matures. Formal applications       the question of OPIC's liability will be pre-
for compensation are generally filed only         sented to a new arbitration panel. If OPIC is
with respect to mature claims and specify         required to pay compensation, it would be
the particular events which have occurred         entitled to a proportional share in the sub-
and which, in the opinion of the investor,        stantial payment in cash and notes received
subject OPIC to liability. OPIC has six           by Anaconda in a 1974 settlement with the
months, from the date the investor's applica-     Government of Chile.
tion for compensation is complete, to process
the claim and make its determination.
   The total amount of -ompensation re-          (D) Political RiskL Investment Insurance
quested from OPIC in connection with claims         OPIC issues investment insurance under
so filed, but not yet determined, is $80.7       limits fixed by the legislative authorization
million, arising out of nine claims, eight of     in the FAA and prior authorities. The utiliza-
which were under expropriation coverage          tion of these authorized amounts as of June

 30, 1976 (excluding obligations under guar-                this maximum exposure is further reduced
 anties issued in settlement of claims) was as              to $3,019 million.
                                                             atwe   Obligntim! Backed by <Cwu ty
                AulwqatiOam   Umoin-mItd outfRamdi                       r
                         (tel,.of Dloum)                    Section 235 of the FAA requires OPIC to
 Prior                                                      have, at the time OPIC commits itself to Isue
   Authorities 3,012              -           3,012        any guaranty under Section 234(b) of the
 FAA Section                                                FAA, a Guaranty Reserve equal to at least
   235         7,500            4,354         3,146        25 percent of guaranties then issued and
                                                           outstanding or committed under 234(b) and
                10.512          4,354         6,158        prior authorities. As of June 30, 1976, the
                                                           $81,346,147 Guaranty Reserve (representing
   Since OPIC may and often does insure the                cash and marketable securities, except for
same investment against three different risks              miscellaneous items which in the aggregate
(inconvertibility of currency; expropriation;              were not material) exceed by $31,307,345 the
and war, revolution or insurrection) it is                 required minimum reserve. (See Note 6 for
theoretically possible that an investor could              description of the Guaranty Reserve and full
make successive claims under more than                     faith -Und credit status of OPIC guaranties.)
one coverage with respect to the same in-                  Guaranties under prior authorities and Sec-
vestment. The outstanding amount reflects                  tion 234(b) of the FAA include guarantise
thi theoretical possibility and in addition                of debt, equity, and participation in DIF
includes provisions for insurance as to which              loans. The outstanding commitments at June
OPIC is not currently at risk but is contrcc-              30, 1976 are shown in the chart below:
                               Legislative                            Outstanding  Currently at Risk
                              Authorization      Uncommitted          Commitments (Net of Repayments)
Prior Authorities             S 40,537,865                            S 40,537,865    S 40,537,865
FAA 23:b) and 235               750.000,000       $590,382,655          159,617,345       116,473,229
                               $790.537,865        5590.382,655        3200,155.210      $157.011,094

 tually obligated to provide upon the in-                     In July 1976 OPIC acquired $5.000.000 prin-
 vestor's future request to cover increases in             cipal amount of OPIC guaranteed promis-
 investment and retained earnings.                         sory notes, together with accrued interest
   Thd outstanding amount pursuant to Legis-               thereon, resulting in a charge against Guar-
 lative Authorizations is of little use in *valuat-        anty Reserve. In August 1976 the OPIC
ing realistically OPIC's maximum exposure                  Board of Directors voted to allocate $6,000,-
as of June 30, 1976 to insurance claims, be-               000 to the Guaranty Reserve from Retained
cause it includes insurance for which OPIC                 Earnings.
is not currently at risk and because it is im-                The Balance Sheet and foregoing tabula.
probable that multiple payments would be                   tions include a direct liability of $4.075,000
made for each investment. Management be-                   chargeable against the Guaranty Reserve.
lieves that a more accurate representation                 This liability is payable in ten semiannual
of OPIC's maximum potential exposure to                    principal installments of $407.500 beginning
future claims arising from existing invest-                December 31, 1976. When OPIC makes pay-
ment insurance contracts can be obtained                   ments, it will acquire notes which have been
by assuming that only one claim would be                   rescheduled pursuant to an agreement with
brought under each contract and that the                   the foreign enterprise.
coverage under which the claim would be
brought would be the coverage with the
highest amount of current insurance in                     Note 9: Foreign Currency Allocation
force. Based on this assumption, manage-                   The allocation of 31,817,200 Pakistani rupees
ment believes OPIC's maximum potential                     (U.S. equivalent $3,213,859) and 5,556,000
liability to claims as of June 30, 1976 is                 Egyptian pounds (U.S. equivalent 10,000,-
$3.080 million. After giving effect to OPIC's              000) made available to OPIC in 1975 from
risk sharing arrangements with the Over-                   excess currencies held by the U.S. Treasury
 eas Investment Insurance Group (Note 1)                   were returned to the Treasury during fiscal
and reinsurance with LUoyd's of London,                    1976.


 APPENDIX I                                             APPENDIX I

                    PRINCIPAL OFFICIALS OF'THE

                       AT DECEMBER-31,-1976

                                                  Tenure of office
Board-of Directors           Position              From       To
Daniel Parker               Chairman          a/10-12-73     Present
Marshall T. Mays            Director             9-26-73     Present
Charles W. Robinson         Director             1-22-75    11-09-76
Charles A. Cooper           Director            10-29-74    11-15-75
James A. Baker              Director            10-20-75     5-07-76
Allie C. Felder, Jr.        Director             1-19-71     Present
Gustave M. Hauser           Director             1-19-71     Present
James A. Suffridge          Director             1-19-71     Present
Donley L. Brady             Director            11-26-73     Present
Wallace F. Bennett          Director             6-20-75     Present
Herbert Salzman             Director             9-26-73     Present
Edwin H. Yeo III            Director             6-30-76     Present
William D. Rogers           Director            11-09-76
Edward O. Vetter                                             Present
                            Director             9-23-76     Present
Marshall T. Mays       President and Chief
                          Executive Officer       9-26-73   Present
David GLegg III        Executive Vice
                          President              11-19-73   Present
Cecil Hunt             General Counsel
                          (acting)                8-15-76   Present
Gerald Mcrgan          General Counsel           11-23-75   8-14-76
Hilliard A. Zola       Vice President for
                          Insurance              9-28-76    Present
George R. Cooper       Vice President for
                         Insurance               7-16-73    7-31-76
Anthony J. Hope        Vice President for
                         Finance                 1-11-75    Present
Erland H.              Vice President for
  Heginbotham            Development             1-27-76    Present
Howard E. Houston      Vice President for
                         Development             4-14-75    9-08-75
Robert L. Jordan       Director for Public
                         Affairs                 7-01-76    Present

                           4b/4 1
APPENDIX I                                        APPENDIX I

                                             Tenure of office
   Officers               Position            From       To
Thomas A. Sedlar     Vice President for      7-06-71   6-30-76
                       Public Affairs
Paul J. Muller       Treasurer               4-09-73   Present
a/Member of the Board since Jan. 19, 1971. Became ex officio
  Chairman upon appointment as Administrator of the Agency for
  International Development.

APPENDIX II                                            APPENDIX II

                           BOARD MEMBERS
                       AT DECEMBER-31;-1976
Daniel Parker            Administrator, Agency for International
Marshall T. Mays         President and Chief Executive Officer,
                           Overseas Private Investment Corpora-
Allie C. Felder, Jr.     Vice President, Cooperative League of
                           the U.S.A.
Gustave M. Hauser        President, Warner Cable Corporation
James A. Suffridge       President Elmeritus, Retail Clerks
                           International Association
Donley L. Brady          Attorney and business executive
Wallace F. Bennett       United States Senator (retired)
Herbert Salzman          Former Executive Vice President
                           Overseas Private Investment
Edwin H. Yeo III         Under Secretary of Treasury for
                           Monetary Affairs
William D. Rodgers       Under Secretary of State for Economic
Edward 0. Vetter         Under Secretary of Commerce