UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM N-CSR |
CERTIFIED SHAREHOLDER REPORT OF REGISTERED |
MANAGEMENT INVESTMENT COMPANIES |
Investment Company Act File Number: 811-5833 |
T. Rowe Price Institutional International Funds, Inc. |
(Exact name of registrant as specified in charter) |
100 East Pratt Street, Baltimore, MD 21202 |
(Address of principal executive offices) |
David Oestreicher |
100 East Pratt Street, Baltimore, MD 21202 |
(Name and address of agent for service) |
Registrant’s telephone number, including area code: (410) 345-2000 |
Date of fiscal year end: October 31 |
Date of reporting period: October 31, 2008 |
Item 1: Report to Shareholders
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Institutional Africa & Middle East Fund | October 31, 2008 |
The views and opinions in this report were current as of October 31, 2008. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.
Manager’s Letter
T. Rowe Price Institutional Africa & Middle East Fund
Dear Investor
This is our first report for the T. Rowe Price Institutional Africa & Middle East Fund, and we would like to welcome all shareholders. Emerging market stocks plunged as investors fled riskier assets in the six-month period ended October 31, 2008. Equities in Africa and the Middle East held up somewhat better than shares in other developing regions, but our target markets were not immune to the global financial crisis, and returns to investors were sharply negative. Declines in Middle Eastern markets were exacerbated by the departure of speculative short-term investments following the steep drop in oil prices and the realization that countries in the region would not revalue their currencies versus the U.S. dollar.
We are disappointed to report that your fund returned -50.50% in the first six months of operations. As shown in the Performance Comparison table, the fund underperformed its benchmark. We exclude Saudi Arabia because its market is not yet open to overseas investors and Israel because the country’s economy shares more of the characteristics of a developed market than an emerging market.
Results in the last six months reflect poor performance of our holdings in Egypt, whose market fell 58% in part because of rising inflation; in South Africa, where our platinum companies plunged with the price of the commodity; and in Oman and the United Arab Emirates (UAE), where markets dropped about 50% amid profit taking and concerns about a property price bubble, respectively.
Highlights |
• Equities in Africa and the Middle East plunged as the global financial crisis deepened in the six-month period ended October 31, 2008.
• Your fund underperformed its benchmark index since the fund’s inception on April 30, 2008.
• Although financial companies were among the largest performance detractors in the last six months, we still believe that the fundamentals for Middle East commercial banks are strong.
• Despite the brutal global stock market sell-off in recent months, economies in our target regions are strong, and many countries have amassed vast reserves during years of high commodity and oil prices.
We, like you, are shocked by the depth of the downturn and the speed at which the market environment deteriorated in the last few months. We know your investment is very important to you, and we will continue to search on your behalf for the best long-term investment opportunities in our target regions.
WHY INVEST IN AFRICA AND THE MIDDLE EAST?
Although we cannot be sure how long the global financial crisis will weigh on the markets, we continue to believe that these regions offer excellent long-term prospects. We would like to briefly review the case for investing in African and Middle Eastern markets.
Africa
• Excluding South Africa, growth in the sub-Saharan part of the continent has been strong for much of this decade, a marked turnaround from the 1980–1999 period when the region’s expansion lagged the rest of the world.
• The boom in commodity prices in the last few years has improved the terms of trade for many African countries that export oil, precious metals, bulk commodities, and agricultural produce. In addition, China has actively pursued bilateral agreements to secure supplies for its resource-hungry economy, and it is likely to remain a long-term trade partner.
• Many African countries have been able to reduce their debt obligations, thanks in part to favorable cancellation terms offered by creditor nations in the West and by global institutions. This has enabled them to accumulate exchange reserves that help promote currency stability and, in some cases, currency appreciation.
• Many African nations are implementing economic policies that emphasize fiscal restraint and help lower inflation, while the spread of democracy has helped to build political, social, and economic accountability. All of these developments have stimulated investment.
A Word From Our Chairman |
Dear Shareholder,
The past year has seen a substantial and painful decline in the broad stock and bond markets, both domestically and internationally, and our funds have not been immune to the turmoil. Being an investor in these times can be unsettling because there seem to be few safe havens. Prudent risk-management strategies, such as diversification, may have helped to reduce losses, but they did not avoid them.
At times like these, taking a step back to gain perspective can help. Since Thomas Rowe Price, Jr., founded our company in 1937—in the heart of the Great Depression—the firm has witnessed many market downturns, including the long, slow 1973–1974 bear market, the October 1987 crash, and the bursting of the technology bubble in the early 2000s and the subsequent broad market decline. Although the magnitude and duration of the declines have varied, one thing has held true: The markets have always bounced back.
We also know from experience that emotional responses to financial downturns do not produce good results. Now is the time for investors to remain focused on the fundamentals and to maintain a long-term perspective. That’s what we are doing at T. Rowe Price. Our experienced team of analysts and portfolio managers continually examines our portfolios to make sure each fund’s holdings still make sense in the ever-changing environment. And as painful as market downturns are, the indiscriminate selling that accompanies a panic creates opportunities for investors who can see beyond the fear. We are using our rigorous in-house research to position our portfolios for the next upturn.
As always, we remain focused on serving our shareholders. Managing our clients’ assets is our only business, and our long-term success is tied to our clients’ success. We know this period has been difficult for investors, and we thank you for your confidence in T. Rowe Price.
Sincerely,
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Edward C. Bernard
Chairman, T. Rowe Price Mutual Funds
Middle East
• Since prices bottomed in the late 1990s, increased revenues from oil have fueled the economic growth of countries in the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.
• GCC countries have robust economic fundamentals and substantial current account surpluses that we believe are likely to continue expanding, unless the recent decline in oil prices is sustained.
• Although the region has had oil-driven booms in the 1970s and 1980s, what’s different this time is that GCC countries are opening their economies in an attempt to decrease their dependence on crude oil. Specifically, governments are trying to increase non-oil revenues through government-led investment.
• After years of underinvestment in areas such as housing, numerous infrastructure projects in the region are under way. Qatar, for example, has several high-profile projects related to infrastructure, financial services, and tourism. Such projects are encouraging improvements in the political and legislative climate of other GCC countries.
Despite the brutal global stock market sell-off in recent months, economies in our target regions are strong, and many countries have amassed vast reserves during years of high commodity and oil prices. Slower global growth and the recent drop in commodity prices will have an impact on Africa and the Middle East, but regional growth is likely to be underpinned by government spending on infrastructure and investments in many sectors.
PORTFOLIO REVIEW
Middle East
The five GCC countries in which we currently invest—Qatar, the UAE, Oman, Kuwait, and Bahrain—accounted for more than 50% of the fund’s assets at the end of October. Egypt, Jordan, and Lebanon represented more than 16% of assets.
Many of our holdings in the Middle East are financial companies, which were among the largest performance detractors in the last six months. Some companies, such as Dubai Financial Markets, tumbled due to their exposure to the capital markets. Property stocks, such as Emaar Properties and Aldar Properties in the UAE, plunged amid concerns that a speculative property bubble could burst as investors are forced to deleverage their investments. In addition, commercial banks such as National Bank of Oman and Commercial Bank of Qatar were hit by the global credit crisis and concerns about slowing growth. We like commercial banks because lenders often are among the first beneficiaries of an expanding emerging economy, experiencing significant revenue growth as demand for both retail and business credit increases. (Please refer to the fund’s portfolio of investments for a complete listing of holdings and the amount each represents in the portfolio.)
Although liquidity among financial companies has become an issue in some parts of the region, especially Dubai, we continue to believe that the fundamentals for Middle East banks are strong. They are well capitalized, have little or no exposure to “structured” investments such as the ones that have disrupted the U.S. credit market, and should continue to benefit from loan growth, albeit at a slower pace.
Poor performance of companies involved in regional infrastructure development also detracted significantly from our results in the last six months. Construction and engineering companies Orascom Construction (based in Egypt) and Galfar Engineering & Contracting (based in Oman) were among the worst performers in the entire portfolio, hammered by concerns about slower economic growth. Omani companies Raysut Cement and Oman Cement tumbled for the same reason. Despite the global economic downturn and the possibility of financing issues in the near term, we believe that regional infrastructure development will remain a long-term trend. Many infrastructure projects in the Middle East were initiated when oil prices were well below today’s levels and thus are unlikely to be derailed by reduced oil revenues.
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Africa
South African stocks plunged nearly 43% in the last six months. The market was hampered by double-digit inflation and interest rates, a weakening currency, and reliance on external financing to fund a growing trade deficit. Although our weighting in the country was fairly small (about 7% of assets at the end of October), our exposure to platinum mining companies—Aquarius Platinum, Impala Platinum Holdings, and Northam Platinum—contributed to the fund’s poor performance. Demand for platinum, which is used in catalytic converters, fell sharply as global demand for automobiles declined. Production delays and labor strikes have contributed to the mining companies’ woes. We eliminated Northam but maintained our investments in Impala and Aquarius, as we believe they will fare better in this challenging environment than their competitors.
In sub-Saharan Africa, we own only one other stock—Nigerian bank Guaranty Trust Bank. As markets open and new investment opportunities become available, we will look to add to our African exposure.
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OUTLOOK
Investors in emerging markets often have had to brace for a wild ride, but the most recent six-month period has been especially painful, and we, like you, are disappointed with the poor performance of the markets and the fund. But despite the sharp stock market and commodity price declines and signs of liquidity constraints in certain parts of our target regions, we continue to believe in the long-term prospects for Africa and the Middle East.
We expect GDP growth to remain strong, and while earnings growth will slow from the heady pace seen over the last year, growth should remain very attractive in a global context. Valuations are at a slight premium to emerging markets as a whole, but they have fallen significantly and are very attractive. Nevertheless, markets in our target regions are nascent, and periods of high volatility should be expected.
Although the markets and economies in our target regions seemed to be moving in lockstep in the last few years, we are beginning to see signs of differentiation. For example, the economies of Qatar and Oman remain strong, whereas parts of the UAE are showing signs of weakening due to a speculative property market bubble and reliance on external debt funding to support its growth. We will closely monitor this trend and look to take advantage of attractively valued long-term investment opportunities.
The fund remains highly concentrated in the Middle East and has more than 40% of its assets invested in the financials sector. As markets develop and deepen and new opportunities appear, we will seek to diversify the portfolio into African countries and other market sectors over time. We are actively researching new and interesting candidates for investment.
Once again, we would like to welcome all shareholders to the fund, and we thank you for your confidence in our investment management abilities, particularly during this extraordinarily difficult period for the financial markets. In closing, we would like to remind you that, due to the risks and volatility inherent in emerging market stocks, particularly in Africa and the Middle East, this fund is for long-term investors and should represent only a small portion of a well-diversified portfolio.
Respectfully submitted,
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Christopher D. Alderson
Portfolio Manager
November 18, 2008
The portfolio manager has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund’s investment program.
Portfolio Manager Change |
As you may know, Chris Alderson will succeed David Warren as president of T. Rowe Price International at the end of March 2009 and Joseph Rohm will succeed Mr. Alderson as chairman of the Institutional Africa & Middle East Fund’s Investment Advisory Committee, effective March 31, 2009. Mr. Rohm has eight years of investment experience, three of which are with T. Rowe Price, and he currently serves on the fund’s Investment Advisory Committee. Since mid-2007, Mr. Rohm’s research has been entirely focused on Africa and the Middle East. He has worked closely with Mr. Alderson on these markets and has traveled extensively throughout the region. Mr. Alderson will remain on the fund’s Investment Advisory Committee.
Risks of International Investing |
Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Funds investing in a single country, limited geographic region, or emerging market tend to be riskier than more diversified funds. Risks can result from varying stages of economic and political development; differing regulatory environments, trading days, and accounting standards; and higher transaction costs of non-U.S. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Glossary |
S&P/IFCG Middle East & Africa Index: An index created by Standard & Poor’s that measures the performance of the most active stocks in emerging Middle Eastern and African markets. S&P uses data from the International Finance Corporation to create this capitalization-weighted index.
Portfolio Highlights
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Performance and Expenses
T. Rowe Price Institutional Africa & Middle East Fund
Fund Expense Example
As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.
Actual Expenses
The first line of the following table (“Actual”) provides information about actual account values and actual expenses. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table (“Hypothetical”) is based on hypothetical account values and expenses derived from the fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.
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Financial Highlights
T. Rowe Price Institutional Africa & Middle East Fund
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The accompanying notes are an integral part of these financial statements.
Portfolio of Investments ‡
T. Rowe Price Institutional Africa & Middle East Fund
October 31, 2008
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The accompanying notes are an integral part of these financial statements.
Statement of Assets and Liabilities
T. Rowe Price Institutional Africa & Middle East Fund
October 31, 2008
($000s, except shares and per share amounts)
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The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Institutional Africa & Middle East Fund
($000s)
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The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Institutional Africa & Middle East Fund
($000s)
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The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Institutional Africa & Middle East Fund
October 31, 2008
T. Rowe Price Institutional International Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The Institutional Africa & Middle East Fund (the fund), a nondiversified, open-end management investment company, is one portfolio established by the corporation. The fund commenced operations on April 30, 2008. The fund seeks long-term growth of capital by investing primarily in the common stocks of companies located (or with primary operations) in Africa and the Middle East.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Fund management believes that estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the fund ultimately realizes upon sale of the securities.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid on an annual basis. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis.
Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses.
Redemption Fees A 2% fee is assessed on redemptions of fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund, and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share.
New Accounting Pronouncements The fund adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 establishes financial accounting and disclosure requirements for recognition and measurement of tax positions taken or expected to be taken on an income tax return. The adoption of FIN 48 had no impact on the fund’s net assets or results of operations.
In September 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements. FAS 157 defines fair value, establishes the framework for measuring fair value, and expands the disclosure of fair value measurements in the financial statements. It is effective for the fund’s fiscal year beginning November 1, 2008. Management expects adoption of FAS 157 will have no material impact on the fund’s net assets or results of operations.
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, which is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about derivative and hedging activities, including how such activities are accounted for and their effect on financial position, performance and cash flows. Management is currently evaluating the impact the adoption of FAS 161 will have on the fund’s financial statements and related disclosures.
NOTE 2 - VALUATION
The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business.
Equity securities listed or regularly traded on a securities exchange or in the over-the-counter (OTC) market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities.
Investments in mutual funds are valued at the mutual fund’s closing net asset value per share on the day of valuation.
Other investments, including restricted securities, and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund’s Board of Directors.
For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted under the circumstances described below. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. A fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing prices and information to evaluate and/or adjust those prices. The fund cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. As a means of evaluating its security valuation process, the fund routinely compares closing prices, the next day’s opening prices in the same markets, and adjusted prices.
NOTE 3 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospectus and Statement of Additional Information.
Emerging Markets At October 31, 2008, approximately 78% of the fund’s net assets were invested, directly or through its investments in T. Rowe Price institutional funds, in securities of companies located in emerging markets denominated in or linked to the currencies of emerging market countries. Future economic or political developments could adversely affect the liquidity or value, or both, of such securities.
Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $131,874,000 and $25,806,000, respectively, for the period ended October 31, 2008.
NOTE 4 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions are determined in accordance with Federal income tax regulations, which differ from generally accepted accounting principles, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
Reclassifications to paid-in capital relate primarily to nondeductible organizational expenses. Reclassifications between income and gain relate primarily to the character of currency gains and losses. For the period ended October 31, 2008, the following reclassifications, which had no impact on results of operations or net assets, were recorded to reflect tax character:
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There were no distributions in the period ended October 31, 2008. At October 31, 2008, the tax-basis cost of investments and components of net assets were as follows:
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales for tax purposes.
The fund intends to retain realized gains to the extent of available capital loss carryforwards. As of October 31, 2008, all unused capital loss carryforwards expire in fiscal 2016.
NOTE 5 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price International, Inc. (the manager), a wholly owned subsidiary of T. Rowe Price Associates, Inc. (Price Associates), which is wholly owned by T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, equal to 1.00% of the fund’s average daily net assets. The fee is computed daily and paid monthly.
The fund is also subject to a contractual expense limitation through February 28, 2011. During the limitation period, the manager is required to waive its management fee and reimburse the fund for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the fund’s ratio of annualized total expenses to average net assets (expense ratio) to exceed its expense limitation of 1.25%. For a period of three years after the date of any reimbursement or waiver, the fund is required to repay the manager for expenses previously reimbursed and management fees waived to the extent its net assets have grown or expenses have declined sufficiently to allow repayment without causing the fund’s expense ratio to exceed its expense limitation. Pursuant to this agreement, management fees in the amount of $56,000 were waived during the period ended October 31, 2008. At October 31, 2008, there were no amounts subject to repayment by the fund.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share price and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. For the period ended October 31, 2008, expenses incurred pursuant to these service agreements were $102,000 for Price Associates and less than $1,000 for T. Rowe Price Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The T. Rowe Price Reserve Investment Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates and are not available for direct purchase by members of the public. The T. Rowe Price Reserve Investment Funds pay no investment management fees.
Report of Independent Registered Public Accounting Firm
To the Board of Directors of T. Rowe Price Institutional International Funds, Inc. and
Shareholders of T. Rowe Price Institutional Africa & Middle East Fund
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Institutional Africa & Middle East Fund (one of the portfolios comprising T. Rowe Price Institutional International Funds, Inc., hereafter referred to as the “Fund”) at October 31, 2008, the results of its operations, the changes in its net assets and the financial highlights for the period April 30, 2008 (commencement of operations) through October 31, 2008, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at October 31, 2008, by correspondence with the custodian, and confirmation of the underlying fund by correspondence with the transfer agent, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
December 12, 2008
Tax Information (Unaudited) for the Tax Year Ended 10/31/08 |
We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.
For taxable non-corporate shareholders, $24,000 of the fund’s income represents qualified dividend income subject to the 15% rate category.
The fund will pass through foreign source income of $24,000 and foreign taxes paid of less than $1,000.
Information on Proxy Voting Policies, Procedures, and Records |
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC’s Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words “Our Company” at the top of our corporate homepage. Then, when the next page appears, click on the words “Proxy Voting Policies” on the left side of the page.
Each fund’s most recent annual proxy voting record is available on our Web site and through the SEC’s Web site. To access it through our Web site, follow the directions above, then click on the words “Proxy Voting Records” on the right side of the Proxy Voting Policies page.
How to Obtain Quarterly Portfolio Holdings |
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
About the Fund’s Directors and Officers |
Your fund is governed by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Board elects the fund’s officers, who are listed in the final table. At least 75% of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and T. Rowe Price International, Inc. (T. Rowe Price International); “inside” or “interested” directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors | |
Name (Year of Birth) | |
Year Elected* | Principal Occupation(s) During Past Five Years and Directorships of Other Public Companies |
Jeremiah E. Casey (1940) | Director, National Life Insurance (2001 to 2005); Director, The Rouse Company, real estate developers (1990 to 2004) |
2006 | |
Anthony W. Deering (1945) | Chairman, Exeter Capital, LLC, a private investment firm (2004 to present); Director, Under Armour (8/08 to present); |
1991 | Director, Vornado Real Estate Investment Trust (3/04 to present); Director, Mercantile Bankshares (2002 to 2007); |
Member, Advisory Board, Deutsche Bank North America (2004 to present); Director, Chairman of the Board, and Chief | |
Executive Officer, The Rouse Company, real estate developers (1997 to 2004) | |
Donald W. Dick, Jr. (1943) | Principal, EuroCapital Advisors, LLC, an acquisition and management advisory firm (10/95 to present); Chairman, |
1989 | The Haven Group, a custom manufacturer of modular homes (1/04 to present) |
David K. Fagin (1938) | Chairman and President, Nye Corporation (6/88 to present); Director, Golden Star Resources Ltd. (5/92 to present); |
2001 | Director, Pacific Rim Mining Corp. (2/02 to present); Director, B.C. Corporation (3/08 to present); Chairman, Canyon |
Resources Corp. (8/07 to 3/08); Director, Atna Resources Ltd. (3/08 to present) | |
Karen N. Horn (1943) | Director, Eli Lilly and Company (1987 to present); Director, Simon Property Group (2004 to present); Director, Federal |
2003 | National Mortgage Association (9/06 to present); Director, Norfolk Southern (2/08 to present); Director, Georgia |
Pacific (5/04 to 12/05); Managing Director and President, Global Private Client Services, Marsh Inc. (1999 to 2003) | |
Theo C. Rodgers (1941) | President, A&R Development Corporation (1977 to present) |
2006 | |
John G. Schreiber (1946) | Owner/President, Centaur Capital Partners, Inc., a real estate investment company (1991 to present); Partner, |
2001 | Blackstone Real Estate Advisors, L.P. (10/92 to present) |
*Each independent director oversees 126 T. Rowe Price portfolios and serves until retirement, resignation, or election of a successor. | |
Inside Directors | |
Name | |
(Year of Birth) | |
Year Elected* | |
[Number of T. Rowe Price | |
Portfolios Overseen] | Principal Occupation(s) During Past Five Years and Other Directorships of Public Companies |
Edward C. Bernard | Director and Vice President, T. Rowe Price; Vice Chairman of the Board, Director, and Vice President, T. Rowe Price |
(1956) | Group, Inc.; Chairman of the Board, Director, and President, T. Rowe Price Investment Services, Inc.; Chairman of |
2006 | the Board and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services |
[126] | Limited, T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Savings Bank, and T. Rowe Price Services, Inc.; |
Director, T. Rowe Price International, Inc.; Chief Executive Officer, Chairman of the Board, Director, and President, | |
T. Rowe Price Trust Company; Chairman of the Board, all funds | |
Brian C. Rogers, CFA, CIC | Chief Investment Officer, Director, and Vice President, T. Rowe Price; Chairman of the Board, Chief Investment Officer, |
(1955) | Director, and Vice President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust Company |
2006 | |
[72] | |
*Each inside director serves until retirement, resignation, or election of a successor. |
Officers | |
Name (Year of Birth) | |
Title and Fund(s) Served | Principal Occupation(s) |
Christopher D. Alderson (1962) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Executive Vice President, Institutional | International, Inc. |
International Funds | |
Jeffrey W. Arricale, CPA (1971) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vice President, Institutional International Funds | |
R. Scott Berg, CFA (1972) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Executive Vice President, Institutional | |
International Funds | |
Mark C.J. Bickford-Smith (1962) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional | International, Inc. |
International Funds | |
Richard N. Clattenburg, CFA (1979) | Vice President, T. Rowe Price; formerly Financial Analyst, Goldman Sachs |
Vice President, Institutional International Funds | (to 2005) |
Michael J. Conelius, CFA (1964) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price |
Executive Vice President, Institutional | International, Inc., and T. Rowe Price Trust Company |
International Funds | |
Frances Dydasco (1966) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional International Funds | International, Inc. |
Mark J.T. Edwards (1957) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional International Funds | International, Inc. |
Henry M. Ellenbogen (1973) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vice President, Institutional International Funds | |
Roger L. Fiery III, CPA (1959) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price |
Vice President, Institutional International Funds | International, Inc., and T. Rowe Price Trust Company |
Niall P. Gallagher, CFA (1972) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International, |
Vice President, Institutional International Funds | Inc.; formerly European Analyst and Portfolio Manager, Merrill Lynch |
(London) (to 2006) | |
Robert N. Gensler (1957) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price |
Executive Vice President, Institutional | International, Inc. |
International Funds | |
John R. Gilner (1961) | Chief Compliance Officer and Vice President, T. Rowe Price; Vice President, |
Chief Compliance Officer, Institutional | T. Rowe Price Group, Inc., and T. Rowe Price Investment Services, Inc. |
International Funds | |
Gregory S. Golczewski (1966) | Vice President, T. Rowe Price and T. Rowe Price Trust Company |
Vice President, Institutional International Funds | |
M. Campbell Gunn (1956) | Vice President, T. Rowe Price Global Investment Services Limited, |
Vice President, Institutional International Funds | T. Rowe Price Group, Inc., and T. Rowe Price International, Inc. |
Gregory K. Hinkle, CPA (1958) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price |
Treasurer, Institutional International Funds | Investment Services, Inc., and T. Rowe Price Trust Company; formerly |
Partner, PricewaterhouseCoopers LLP (to 2007) | |
Kris H. Jenner, M.D., D.Phil. (1962) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vice President, Institutional International Funds | |
Ian D. Kelson (1956) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price |
Executive Vice President, Institutional | International, Inc. |
International Funds | |
Patricia B. Lippert (1953) | Assistant Vice President, T. Rowe Price and T. Rowe Price Investment |
Secretary, Institutional International Funds | Services, Inc. |
Charles M. Ober, CFA (1950) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vice President, Institutional International Funds | |
David Oestreicher (1967) | Director and Vice President, T. Rowe Price Investment Services Inc., |
Vice President, Institutional International Funds | T. Rowe Price Trust Company, and T. Rowe Price Services, Inc.; Vice |
President, T. Rowe Price, T. Rowe Price Global Asset Management Limited, | |
T. Rowe Price Global Investment Services Limited, T. Rowe Price Group, | |
Inc., T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan | |
Services, Inc. | |
Gonzalo Pángaro, CFA (1968) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional International Funds | International, Inc. |
Jeffrey Rottinghaus, CPA (1970) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vice President, Institutional International Funds | |
Robert W. Sharps, CFA, CPA (1971) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional International Funds | Trust Company |
Robert W. Smith (1961) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price |
Executive Vice President, Institutional | Trust Company |
International Funds | |
Dean Tenerelli (1964) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price |
Vice President, Institutional International Funds | International, Inc. |
Julie L. Waples (1970) | Vice President, T. Rowe Price |
Vice President, Institutional International Funds | |
David J.L. Warren (1957) | Director, T. Rowe Price, T. Rowe Price Global Asset Management Limited, |
President, Institutional International Funds | and T. Rowe Price Global Investment Services Limited; Vice President, |
T. Rowe Price Group, Inc.; Chief Executive Officer, Director, and President, | |
T. Rowe Price International, Inc. | |
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Directors/Trustees has determined that Ms. Karen N. Horn qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Ms. Horn is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant’s principal accountant were as follows:
![](https://capedge.com/proxy/N-CSR/0000852254-08-000049/ariamitems2-12x1x1.jpg)
Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.
(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $2,174,000 and $1,531,000, respectively.
(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.
(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.
(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.
SIGNATURES | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment | |
Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the | |
undersigned, thereunto duly authorized. | |
T. Rowe Price Institutional International Funds, Inc. | |
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | December 19, 2008 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment | |
Company Act of 1940, this report has been signed below by the following persons on behalf of | |
the registrant and in the capacities and on the dates indicated. | |
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | December 19, 2008 |
By | /s/ Gregory K. Hinkle |
Gregory K. Hinkle | |
Principal Financial Officer | |
Date | December 19, 2008 |