Item 1. Report to Shareholders
October 31, 2004
Annual Report
Institutional Foreign Equity Fund
T. Rowe Price
The views and opinions in this report were current as of October 31, 2004. 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 of 2002, 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.
T. Rowe Price Institutional Foreign Equity Fund
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Fellow Shareholders
International stocks rose during the six and 12 months ended October 31, 2004,
with Latin American markets leading the way in both periods. Japan was weakest,
posting a loss during the past six months but gaining over the year. European
stocks produced steady returns, bolstered by the strength of the euro versus the
sagging dollar, which enhanced results for U.S. investors.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 10/31/04 6 Months 12 Months
- --------------------------------------------------------------------------------
Institutional Foreign
Equity Fund 3.35% 12.96%
MSCI EAFE Index 5.94 19.27
Lipper International Large-Cap
Core Funds Average 4.19 14.63
The fund gained ground during the six months ended October 31, 2004, falling
short of the results for the unmanaged MSCI EAFE Index and the Lipper
International Large-Cap Core Funds Average in both periods, as shown in the
table. Stock selection in various sectors was the major impediment to relative
performance versus the index during the six-month period. In Japan and the U.K.,
value stocks were especially favored as investors sought higher-yielding stocks
and were unprepared to pay for growth. Quality stocks were favored during the
past three months, the reverse of the first three months of the period. As a
result, the overall picture was somewhat muddied. Typically, with relative stock
valuations at these levels and with the economic indicators pointing to a
moderating pace of recovery, we would expect to see growth stocks returning to
favor over value, which would favor the fund's investment style. Until recently,
small-cap stocks had been outperforming large-caps for several years, but the
trend could be reversing as investors seek to reduce their risk.
MARKET REVIEW
Market Performance
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Six Months Local Local Currency U.S.
Ended 10/31/04 Currency vs. U.S. Dollars Dollars
- --------------------------------------------------------------------------------
France 3.34% 6.11% 9.65%
Germany -0.36 6.11 5.73
Hong Kong 10.22 0.21 10.45
Italy 7.14 6.11 13.69
Japan -7.06 3.92 -3.42
Mexico 15.95 -1.12 14.66
Netherlands -0.37 6.12 5.72
Singapore 8.25 2.17 10.60
Sweden 3.75 7.40 11.43
Switzerland -6.81 7.92 0.57
United Kingdom 4.13 3.32 7.60
Source: RIMES Online, using MSCI indices.
European markets performed reasonably well. However, while stock valuations are
attractive, economic growth in the region has been lackluster. European stock
market returns were less volatile during the period compared with other markets,
largely because they are less affected by the outlook for China (see special
report on China in this letter). Among the markets in the region, Italy, Spain,
and Norway were particularly strong.
Japan was the only market to register negative results over the past six months,
but the Japanese market was positive during the 12 months ended October 31.
Japan's fortunes were influenced by the progress of its economic recovery and
the transparency of banking sector reforms, but high oil prices had a negative
impact due to the country's heavy manufacturing bias. Stocks here are also
sensitive to developments in China since exports to that vast market are
essential to Japan's recovery.
Latin American markets far outpaced other regions, thanks partly to anticipated
debt reduction in some countries and partly to the area's resource-driven
exposure to China. Brazil, in particular, has benefited from the global interest
rate picture; since interest rates are not expected to rise as sharply as
previously thought, the outlook for the Brazilian economy is much improved.
Standard & Poor's and Moody's raised their credit ratings for the country's
securities, reflecting Brazil's economic rebound
and improved fiscal management. Brazilian energy and materials stocks, which
make up about half of the market, surged on news of better-than-expected
economic growth, industrial production, jobless rates, and trade surpluses.
Emerging markets overall returned about 9% since the end of April and 19% for
the past 12 months, although the pattern was uneven with stocks doing well in
the first quarter of 2004 but suffering in the second on concerns about slowing
Chinese growth and rising oil prices.
China: A Powerful Global Growth Engine
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China has increasingly become the growth engine for Asia, and T. Rowe Price
investment managers believe that it will have an expanding impact on the global
economy. Investing in China, however, presents unique challenges that warrant a
cautious investment approach.
China's economy has grown rapidly over the past year, fueled by massive
fixed-asset investment by the government, high levels of foreign investment, and
the rapid emergence of its urban middle class. In December 2003, money supply
was growing at a 30% annual pace, and the supply of raw materials could not keep
pace. China currently consumes 25% of the world's raw materials, and this will
continue to rise.
Over the past year, the Chinese government has attempted to cool this boom, and
the continuing challenge will be achieving a manageable rate of growth. We
believe the next stage of China's modernization must be to tackle its financial
architecture. Due to the lack of a functioning bond market, interest rate
inflexibility, and a rigid foreign exchange structure, the government has had to
rely on administrative measures to slow the economy.
The secular rise in inflation is another growing concern. The country is
reaching the limit of its ability to supply domestic raw materials to its
industries, meaning that growth will have to be met by imported raw materials
and paid for with hard currency. These trends probably mean that China's low
interest rates are likely to climb further, which could have major implications
for its economy and potentially for inflation trends around the world. (The
government edged rates higher in October for the first time in nearly a decade.)
More importantly, it raises some question about the long-term sustainability of
China's blistering growth.
Accordingly, we have remained cautious about the quality of investment
opportunities in China, almost exclusively focusing on industry leaders that we
believe are capable of achieving sustained profitability through economic peaks
and troughs. An alternative strategy has been to invest in non-Chinese companies
that we believe will benefit from accelerating Chinese demand. While we are
pleased that more high-growth, privately owned mainland companies are starting
to be listed, we remain extremely selective and seek to avoid owning Chinese
companies with opaque ownership structures and a lack of corporate transparency.
[GRAPHIC OMITTED]
Will China's GDP Growth Slow?
Real GDP Growth
'97 10.29%
'98 6.39
'99 3.14
'00 8.96
'01 7.3
'02 6.74
'03 14.16
'04* 9.2
'05* 8
*Estimates
Sources: FactSet Research Systems, OECD, Consensus Economics Inc.
PORTFOLIO PERFORMANCE AND STRATEGY
Europe
German stock selection was strong, mainly due to Hypo Real Estate, which sold a
large amount of its nonperforming real estate loans, thereby boosting the
overall quality of its loan portfolio. Results were also strong in Spain, with
Banco Bilbao Vizcaya Argentaria (BBVA) and Telefonica, which is sensitive to
Spain's high GDP growth rate, both adding value. Other major European holdings
include the U.K.'s GlaxoSmithKline and Vodafone, France's Total and
Sanofi-Aventis, and Switzerland's UBS and Nestle.
GEOGRAPHIC DIVERSIFICATION
- --------------------------------------------------------------------------------
Periods Ended 4/30/04 10/31/04
- --------------------------------------------------------------------------------
Europe 66.6% 64.5%
Japan 21.3 21.5
Pacific Rim 8.0 8.1
Latin America 2.3 3.5
Middle East 0.4 0.2
North America 0.2 0.0
Other and Reserves 1.2 2.2
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Total 100% 100%
Japan
Soft economic data in Japan induced a round of profit-taking. Nomura Holdings
was the largest detractor from performance. Sectors leading the decline included
financials, technology, and basic materials. UFJ Holdings performed poorly after
it unexpectedly announced $5 billion worth of bad loans, inciting fears that
reforms in the industry were not as transparent as investors had hoped. We
continue to add a mix of domestic and export-oriented firms, including software
company Trend Micro, chemical company JSR, and building products company Daikin
Industries, all of which should benefit from Japan's expected recovery. In April
we had added wireless telecom equipment company KDDI; the shares have recently
sold off but the company's earnings margins are growing.
Asia ex-Japan and Pacific Rim
Australia was strong, mainly due to the country's bias toward commodities and
basic resources industries and its geographical proximity to Asia. Inflation
picked up across much of the region as commodities prices rose. An overweight
position in BHP Billiton (mining and metals) helped results as second-half
profits more than doubled, thanks to Chinese demand, which accounted for 9% of
sales in the period. South Korea detracted both relatively and in absolute
terms. Samsung Electronics soared earlier in the year but has since struggled
because of a poor earnings outlook.
Emerging Markets
Russian holdings hurt performance because of our exposure to YUKOS, which has
been involved in controversy with Vladimir Putin's government. India added
value, and we favor this market because of potential growth in its service
sector. Brazil and Mexico were both positive contributors during the period as
Brazilian oil company Petroleo Brasileiro (Petrobras) did well, and Mexico's
Grupo Televisa, which is sensitive to media growth, and America Movil, a
wireless telecom company with good growth potential, delivered solid results.
SECTOR REVIEW
Sector Diversification
Percent of Percent of
Net Assets Net Assets
4/30/04 10/31/04
- --------------------------------------------------------------------------------
Financials 23.0% 23.2%
Consumer Discretionary 17.5 17.2
Telecommunication Services 9.9 10.0
Industrials and
Business Services 8.3 8.9
Information Technology 9.6 8.9
Health Care 9.2 8.3
Energy 7.6 8.0
Consumer Staples 8.5 7.7
Materials 3.8 4.0
Utilities 1.4 1.6
Other and Reserves 1.2 2.2
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Total 100.0% 100.0%
Energy
Energy stocks were among the best contributors to absolute performance during
both the 6- and 12-month periods as rising oil prices drove share prices higher.
French oil giant Total is our largest position in the sector, and the company
projects annual earnings growth into 2008. Our emerging oil holdings also did
well, with Petrobras and PetroKazakhstan returning more than 30% in the last six
months--the latter company boosted by its China pipeline. YUKOS, on the other
hand, hurt both absolute and relative performance because of its tax problems
with the Kremlin. We were sanguine about the company at first since its earnings
prospects still looked attractive even in a worst-case scenario. However, it has
become clear that the issue is more personal than tax-related, making the
company's future impossible to judge from a rational investment standpoint. As a
result, we eliminated the stock from the portfolio.
Consumer Discretionary
Stocks in this sector detracted from results, largely because of U.K. catering
stock Compass, which issued a profit warning following financial problems at a
leading distributor. Philips Electronics of the Netherlands struggled in the
face of a potential glut in LCDs and
decelerating growth in semiconductors. However, the stock remains attractively
valued in our view. British Sky Broadcast was weighed down by speculation that
its chairman, Rupert Murdoch, might pursue growth at the expense of
profitability. Over the past 12 months, stock selection in the consumer
discretionary sector detracted most from relative performance.
Investment Technology
IT stocks were among the worst performers during the past year, reflecting a
somewhat mundane economic outlook and cyclical weakness in the semiconductor
cycle. In addition, the rise in raw material prices for electronic makers that
use thin steel sheet and cobalt hurt manufacturers who could not pass on costs
to consumers accustomed to prices falling over time. Japanese tech company NEC
detracted from results due to its exposure to China. Samsung announced shrinking
margins in the LCD component, and next year's earnings estimates for most
semiconductor companies leave little room for disappointment if the global
economy slows.
Financials
Financial stocks were good absolute contributors, although they detracted on a
relative basis. Commercial banks led the way, with BBVA, Hypo Real Estate, and
Credit Agricole among the leaders. Banks are sensitive to interest rates, which
affect net interest margin. The relatively benign outlook for European interest
rates, along with the attractive valuations for financial stocks, has helped
boost results in the sector during both the 6- and 12-month periods. Japanese
financials, however, struggled recently after performing well earlier in the
year. Nomura Holdings did poorly compared with other Japanese financials because
of falling fixed-income revenue and potential competition from new entrants in
the securities business.
INVESTMENT OUTLOOK
Valuation multiples have consolidated since 2000, and quality growth companies
that have generated respectable results have been unduly punished. Large-caps
look less expensive relative to small-caps, and growth stocks trade comparably
to value stocks, indicating that value's dominance may finally have played
itself out. The economic environment going forward should be more supportive for
quality growth stocks as global GDP levels off and earnings growth decelerates
in 2005.
Europe is currently the most attractive region in terms of stock valuation as
investors await an upswing in domestic growth. Global interest rates are
expected to rise in 2005, but the environment in Europe is comparatively benign
as growth has been more tempered. The direction and pace of interest rates can
have a significant impact on the prospects for banks and capital market
companies. We own European and globally diversified banks due to their
valuations, the rising rate of merger and acquisition activity, and the
favorable interest rate background.
Japan should continue to enjoy positive economic growth and is currently
experiencing its first sustained recovery in 15 years. Government deregulation,
accommodative monetary policy, corporate restructuring, a healthier financial
system, and the global (and Chinese) economic cycle have revived the Japanese
economy. The influence of China and India on the global economy will continue to
grow in emerging markets. Both countries are experiencing rapid economic growth,
but India's economy is based more on services than on manufacturing. We continue
to gain exposure to China by investing in companies that are benefiting from
rapid growth and demand via exports. In India, domestic companies are also
attractive, offering prudent management and capital allocation in a
profit-driven atmosphere.
Respectfully submitted,
David J.L. Warren
President, T. Rowe Price International Funds, Inc.
November 12, 2004
T. Rowe Price Institutional Foreign Equity Fund
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Risks of International Investing
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Funds that invest overseas generally carry more risk than funds that invest
strictly in U.S. assets. Funds investing in a single country or in a limited
geographic region 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
- --------------------------------------------------------------------------------
Lipper averages: The averages of available mutual fund performance returns for
specified periods in defined categories as tracked by Lipper Inc.
MSCI EAFE Index: Widely accepted as the benchmark for international stock
performance (EAFE refers to Europe, Australasia, and Far East). The index
represents the major foreign markets of the world.
Price/earnings ratio: Calculated by dividing a stock's market value per share by
the company's earnings per share for the past 12 months or by expected earnings
for the coming year.
PORTFOLIO HIGHLIGHTS
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
Percent of
Net Assets
Country 10/31/04
- --------------------------------------------------------------------------------
GlaxoSmithKline United Kingdom 3.0%
Total France 2.5
Vodafone United Kingdom 2.5
Royal Bank of Scotland United Kingdom 2.4
Shell T&T/Royal Dutch United Kingdom/
Netherlands 2.0
Sanofi-Aventis France 1.8
UBS Switzerland 1.8
Nestle Switzerland 1.6
Kingfisher United Kingdom 1.3
ENI S.p.A. Italy 1.3
AstraZeneca United Kingdom 1.2
BNP Paribas France 1.1
Adecco Switzerland 1.1
Canon Japan 1.1
Securitas Sweden 1.1
Reed Elsevier United Kingdom/
Netherlands 1.1
France Telecom France 1.1
Telefonica Spain 1.0
Nokia Finland 1.0
Banco Bilbao Vizcaya
Argentaria Spain 1.0
ING Groep GDS Netherlands 1.0
UniCredito Italiano Italy 1.0
Credit Agricole France 1.0
Sumitomo Mitsui Financial Japan 1.0
Credit Suisse Group Switzerland 0.9
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Total 35.9%
Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund
and collateral for securities lending.
T. Rowe Price Institutional Foreign Equity Fund
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SUMMARY OF INVESTMENTS AND CASH
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October 31, 2004
Percent of
Equities Cash Total MSCI EAFE
- --------------------------------------------------------------------------------
EUROPE
- ------
Austria -- -- -- 0.3%
Belgium 0.3% -- 0.3% 1.3
Denmark 0.6 -- 0.6 0.8
Finland 1.0 -- 1.0 1.5
France 13.8 -- 13.8 9.4
Germany 3.1 -- 3.1 6.8
Greece -- -- -- 0.5
Ireland -- -- -- 0.8
Italy 4.9 -- 4.9 4.0
Luxembourg -- -- -- --
Netherlands 4.2 -- 4.2 4.8
Norway 0.3 -- 0.3 0.6
Portugal -- -- -- 0.4
Russia 1.1 -- 1.1 --
Spain 4.5 -- 4.5 3.8
Sweden 2.6 -- 2.6 2.5
Switzerland 5.9 -- 5.9 6.7
United Kingdom 21.8 -- 21.8 25.2
- --------------------------------------------------------------------------------
Total Europe 64.1% 0.0% 64.1% 69.4%
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PACIFIC BASIN
- -------------
Australia 1.7% -- 1.7% 5.4%
China 0.4 -- 0.4 --
Hong Kong 1.2 -- 1.2 1.7
India 1.1 -- 1.1 --
Japan 21.5 -- 21.5 22.3
Malaysia 0.4 -- 0.4 --
New Zealand -- -- -- 0.2
Singapore 0.9 -- 0.9 0.8
South Korea 1.5 -- 1.5 --
Taiwan 0.9 -- 0.9 --
Thailand -- -- -- --
- --------------------------------------------------------------------------------
Total Pacific Basin 29.6% 0.0% 29.6% 30.4%
- --------------------------------------------------------------------------------
Percent of
Equities Cash Total MSCI EAFE
- --------------------------------------------------------------------------------
MIDDLE EAST
- -----------
Egypt -- -- -- --
Israel 0.2% -- 0.2% --
Turkey -- -- -- --
- --------------------------------------------------------------------------------
Total Middle East 0.2% 0.0% 0.2% 0.0%
- --------------------------------------------------------------------------------
AMERICAS
- --------
Argentina -- -- -- --
Brazil 1.3% -- 1.3% --
Canada -- -- -- --
Chile -- -- -- --
Mexico 2.2 -- 2.2% --
Panama -- -- -- --
Peru -- -- -- --
United States -- 1.7 1.7 --
Venezuela -- -- -- --
- --------------------------------------------------------------------------------
Total Americas 3.5% 1.7% 5.2% 0.0%
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SOUTH AFRICA
- ------------
South Africa -- -- -- --
- --------------------------------------------------------------------------------
Total South Africa 0.0% 0.0% 0.0% 0.0%
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Other Assets Less
Liabilities 0.5% 0.5%
- --------------------------------------------------------------------------------
TOTAL* 97.9% 1.7% 99.6% 99.8%
- --------------------------------------------------------------------------------
* Total may not add to 100.0% due to rounding.
T. Rowe Price Institutional Foreign Equity Fund
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Growth of $10,000
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[GRAPHIC OMITTED]
INSTITUTIONAL FOREIGN EQUITY FUND
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As of 10/31/04
Institutional Foreign Equity Fund $14,312
MSCI EAFE Index $15,305
Lipper International Large-Cap Core Funds Average $15,227
Lipper
Institutional MSCI International
Foreign EAFE Large-Cap Core
Equity Fund Index Funds Average
- --------------------------------------------------------------------------------
10/94 $ 10,000 $ 10,000 $ 10,000
10/95 10,064 9,993 10,133
10/96 11,521 11,072 11,363
10/97 12,477 11,617 12,703
10/98 13,432 12,773 13,356
10/99 16,224 15,758 16,673
10/00 16,622 15,338 17,051
10/01 11,964 11,553 12,534
10/02 10,357 10,060 10,892
10/03 12,670 12,833 13,274
10/04 14,312 15,305 15,227
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
Periods Ended 10/31/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Institutional Foreign
Equity Fund 12.96% -2.48% 3.65%
MSCI EAFE Index 19.27 -0.58 4.35
Lipper International
Large-Cap Core
Funds Average 14.63 -2.42 4.07
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
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.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying tables. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
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.
T. Rowe Price Institutional Foreign Equity Fund
- --------------------------------------------------------------------------------
Expenses
Beginning Ending Paid During
Account Account Period*
Value Value 5/1/04 to
5/1/04 10/31/04 10/31/04
- --------------------------------------------------------------------------------
Actual $ 1,000 $ 1,033.50 $ 3.92
Hypothetical
(Assumes 5% return
before expenses) 1,000 1,021.28 3.89
* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.77%), multiplied by the average account value over the period,
multiplied by the number derived by dividing the number of days in the most
recent fiscal half-year (184) by the days in the year (366) to reflect the
half-year period.
QUARTER-END RETURNS
- --------------------------------------------------------------------------------
Periods Ended 9/30/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Institutional Foreign
Equity Fund 14.86% -2.50% 3.50%
MSCI EAFE Index 22.52 -0.51 4.34
Lipper International
Large-Cap Core
Funds Average 17.26 -2.28 4.26
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information or to request a prospectus or a
fund profile, each of which includes investment objectives, risks, fees,
expenses, and other information you should read carefully before investing,
please visit our Web site (troweprice.com) or contact a T. Rowe Price
representative at 1-800-225-5132.
This table provides returns through the most recent calendar quarter-end rather
than through the end of the fund's fiscal period. It shows how the fund would
have performed each year if its actual (or cumulative) returns for the periods
shown had been earned at a constant rate. Average annual total return figures
include changes in principal value, reinvested dividends, and capital gain
distributions. Returns do not reflect taxes that the shareholder may pay on fund
distributions or the redemption of fund shares. When assessing performance,
investors should consider both short- and long-term returns.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
T. Rowe Price Institutional Foreign Equity Fund
For a share outstanding throughout each period
------------------------------------------------------------
Year
Ended
10/31/04 10/31/03 10/31/02 10/31/01 10/31/00
NET ASSET VALUE
Beginning of
period $ 12.82 $ 10.65 $ 12.70 $ 19.16 $ 20.08
Investment
activities
Net investment
income (loss) 0.26 0.23 0.18 0.39 0.13
Net realized
and unrealized
gain (loss) 1.38 2.11 (1.81) (5.35) 0.46
Total from
investment
activities 1.64 2.34 (1.63) (4.96) 0.59
Distributions
Net investment
income (0.25) (0.15) (0.42) (0.11) (0.17)
Net realized gain (0.02) (0.02) -- (1.39) (1.34)
Total distributions (0.27) (0.17) (0.42) (1.50) (1.51)
NET ASSET VALUE
End of period $ 14.19 $ 12.82 $ 10.65 $ 12.70 $ 19.16
------------------------------------------------------------
Ratios/Supplemental Data
Total return^ 12.96% 22.33% (13.43)% (28.02)% 2.45%
Ratio of total
expenses to
average net assets 0.76% 0.76% 0.75% 0.74% 0.74%
Ratio of net
investment
income (loss) to
average net assets 1.35% 1.64% 1.06% 2.25% 0.57%
Portfolio
turnover rate 28.8% 27.8% 20.0% 21.4% 39.7%
Net assets,
end of period
(in millions) $ 743 $ 1,061 $ 1,168 $ 1,903 $ 3,138
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions and payment of no redemption or account fees.
The accompanying notes are an integral part of these financial statements.
PORTFOLIO OF INVESTMENTS (1)
T. Rowe Price Institutional Foreign Equity Fund
October 31, 2004
Shares Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
AUSTRALIA 1.7%
Common Stocks 1.0%
BHP Billiton 528,751 5,469
Brambles Industries LTD (ss.) 379,800 2,011
7,480
Preferred Stocks 0.7%
News Corporation 628,279 4,927
4,927
Total Australia (Cost $8,265) 12,407
BELGIUM 0.3%
Common Stocks 0.3%
Fortis 46,584 1,182
UCB 22,803 1,204
Total Belgium (Cost $830) 2,386
BRAZIL 1.3%
Common Stocks 1.3%
Petrobras ADR (USD) 170,760 5,567
Tele Norte Leste ADR (USD) 301,100 3,938
Total Brazil (Cost $6,884) 9,505
CHINA 0.4%
Common Stocks 0.4%
China Telecom, 144A (HKD) * 7,016,000 2,254
China Telecom (H shares)
(HKD) 2,198,000 706
Total China (Cost $2,721) 2,960
DENMARK 0.6%
Common Stocks 0.6%
Novo Nordisk, Series B 83,351 4,140
Total Denmark (Cost $2,405) 4,140
FINLAND 1.0%
Common Stocks 1.0%
Nokia 500,659 7,716
Total Finland (Cost $878) 7,716
FRANCE 13.8%
Common Stocks 13.8%
AXA 199,944 4,300
BNP Paribas 122,536 8,334
Compagnie de Saint-Gobain 86,004 4,720
Credit Agricole (ss.) 249,024 7,292
France Telecom * 273,600 7,827
Groupe Danone 42,960 3,593
Hermes International (ss.) 25,995 5,010
L'Oreal 37,165 2,532
Lafarge 10,290 938
LVMH (ss.) 70,316 4,813
Sanofi-Aventis 186,840 13,648
Schneider Electric, Series A 77,899 5,154
Societe Generale 40,189 3,725
Societe Television Francaise 1 (ss.) 175,636 5,282
Sodexho Alliance (ss.) 122,979 3,106
Thomson 94,655 2,141
Total 90,157 18,734
Vivendi Universal * 59,097 1,613
Total France (Cost $56,162) 102,762
GERMANY 3.1%
Common Stocks 3.1%
Allianz 19,629 2,087
Bayer 41,284 1,169
Depfa Bank 83,600 1,269
Deutsche Bank 37,586 2,855
E.On 27,006 2,196
Hypo Real Estate * 143,504 5,364
Rhoen-Klinikum 29,020 1,620
SAP 21,520 3,663
Siemens 37,808 2,812
Total Germany (Cost $15,469) 23,035
HONG KONG 1.2%
Common Stocks 1.2%
Cheung Kong Holdings 433,000 3,588
Li & Fung 1,498,000 2,223
Sun Hung Kai Properties 348,000 3,219
Total Hong Kong (Cost $7,112) 9,030
INDIA 1.1%
Common Stocks 1.1%
I-Flex Solutions 146,900 1,929
National Thermal Power, 144A * 224,200 307
Oil & Natural Gas 55,500 964
Oil & Natural Gas
(Regulation S shares) 45,400 789
Zee Telefilms 1,226,300 4,042
Total India (Cost $7,563) 8,031
ISRAEL 0.2%
Common Stocks 0.2%
Check Point Software
Technologies (USD) * 67,916 1,536
Total Israel (Cost $1,255) 1,536
ITALY 4.9%
Common Stocks 4.9%
Alleanza Assicurazioni 350,050 4,128
Banca Intesa 456,910 1,870
Banco Popolare di
Verona e Novara 96,900 1,717
ENI S.p.A. 433,131 9,828
Mediaset 143,381 1,634
Mediolanum (ss.) 207,535 1,302
Telecom Italia 185,136 616
Telecom Italia Mobile 780,566 4,597
Telecom Italia-RNC 1,349,964 3,356
UniCredito Italiano 1,363,593 7,318
Total Italy (Cost $17,635) 36,366
JAPAN 21.5%
Common Stocks 21.5%
Canon 163,400 8,061
Credit Saison (ss.) 56,300 1,800
Dai Nippon Printing 305,000 4,174
Daikin Industries 100,300 2,441
Daito Trust Construction (ss.) 100,800 4,259
Daiwa Securities 506,000 3,102
Denso 102,300 2,451
Fanuc 73,100 4,413
Fujisawa Pharmaceutical 56,000 1,463
Funai Electric 25,100 3,281
Hoya 31,100 3,192
JSR (ss.) 152,100 2,766
KDDI 1,166 5,609
Keyence 11,600 2,613
Kirin Brewery 203,000 1,823
Kyocera 40,800 2,959
Leopalace21 80,200 1,465
Marui (ss.) 172,300 2,160
Matsui Securities 52,300 1,386
Mitsubishi 572,300 6,321
Mitsubishi Estate (ss.) 225,000 2,375
Mitsui Fudosan (ss.) 581,000 6,165
Mitsui Trust 374,000 2,572
NEC 586,000 3,250
Nidec (ss.) 15,500 1,678
Nissan Motor 410,600 4,628
Nomura 525,000 6,437
NTT DoCoMo 840 1,482
Oji Paper (ss.) 318,000 1,815
Orix (ss.) 32,000 3,752
Rohm 31,100 3,192
Secom 161,500 5,865
Sega Sammy Holdings *(ss.) 31,600 1,466
Seven-Eleven Japan 163,200 4,726
Shin-Etsu Chemical 115,700 4,398
SMC 17,900 1,916
Softbank 32,500 1,471
Sumitomo Metal Industries 1,095,000 1,322
Sumitomo Mitsui Financial (ss.) 1,088 7,071
Suzuki Motor (ss.) 173,000 3,058
T&D Holdings *(ss.) 51,150 2,258
Takefuji 28,200 1,782
Teijin 537,000 2,087
Toyota Motor 145,100 5,652
Trend Micro (ss.) 45,500 2,180
UFJ * 436 2,023
Uniden 112,000 2,424
USS 15,680 1,268
Yamanouchi Pharmaceutical 116,100 4,260
Yamato Transport (ss.) 130,000 1,752
Total Japan (Cost $137,243) 160,064
KAZAKHSTAN 0.4%
Common Stocks 0.4%
PetroKazakhstan (USD) 87,063 3,213
Total Kazakhstan (Cost $2,351) 3,213
MALAYSIA 0.4%
Common Stocks 0.4%
Astro All Asia
(Ordinary shares) * 1,260,100 1,724
Astro All Asia
(Regulation S shares) * 810,000 1,109
Total Malaysia (Cost $2,412) 2,833
MEXICO 2.2%
Common Stocks 2.2%
America Movil ADR
Series L (USD) 111,100 4,888
Grupo Financiero Banorte 120,700 567
Grupo Modelo, Series C 1,106,000 2,835
Grupo Televisa ADR (USD) 57,400 3,157
Wal-Mart de Mexico, Series V 1,401,773 4,586
Total Mexico (Cost $11,115) 16,033
NETHERLANDS 4.2%
Common Stocks 4.2%
Akzo Nobel 13,241 498
ASML Holding * 263,330 3,750
Fortis (Unified shares) 57,607 1,465
ING Groep GDS 287,920 7,616
Koninklijke Numico * 132,136 4,450
Philips Electronics 208,183 4,923
Reed Elsevier 87,810 1,153
Royal Dutch Petroleum 44,729 2,428
Royal KPN 437,700 3,499
STMicroelectronics 97,652 1,799
Total Netherlands (Cost $17,896) 31,581
NORWAY 0.3%
Common Stocks 0.3%
Orkla, Series A 71,395 2,027
Total Norway (Cost $606) 2,027
RUSSIA 1.1%
Common Stocks 1.1%
AO VimpelCom ADR (USD) * 22,100 2,519
JSC MMC Norilsk
Nickel ADR (USD) 45,500 2,810
Lukoil ADR, 144A (USD) 22,290 2,792
Total Russia (Cost $6,036) 8,121
SINGAPORE 0.9%
Common Stocks 0.9%
United Overseas Bank 647,060 5,251
Venture Manufacturing 186,000 1,766
Total Singapore (Cost $5,807) 7,017
SOUTH KOREA 1.5%
Common Stocks 1.5%
Hyundai Motor GDR, 144A (USD) 118,100 2,802
Kookmin Bank * 54,380 1,815
Samsung Electronics 8,393 3,292
South Korea Telecom 19,650 3,078
Total South Korea (Cost $7,528) 10,987
SPAIN 4.5%
Common Stocks 4.5%
Banco Bilbao Vizcaya
Argentaria (ss.) 491,453 7,706
Banco Santander Central
Hispano (ss.) 445,463 4,969
Endesa (ss.) 154,479 3,133
Gas Natural (ss.) 121,180 3,293
Inditex (ss.) 141,700 3,598
Repsol 128,843 2,791
Telefonica 336,489 5,551
Telefonica ADR (USD) 45,107 2,248
Total Spain (Cost $19,815) 33,289
SWEDEN 2.6%
Common Stocks 2.6%
Hennes & Mauritz, Series B 175,060 5,093
LM Ericsson, Series B *(ss.) 746,233 2,165
Sandvik, Series A (ss.) 14,170 530
Securitas, Series B (ss.) 582,135 7,955
Tele2, Series B (ss.) 106,200 3,523
Total Sweden (Cost $16,608) 19,266
SWITZERLAND 5.9%
Common Stocks 5.9%
Adecco 169,420 8,149
Credit Suisse Group * 200,620 6,855
Nestle 51,133 12,085
Roche Holding
(Participation certificates) 39,100 3,993
UBS 180,732 13,014
Total Switzerland (Cost $20,927) 44,096
TAIWAN 0.9%
Common Stocks 0.9%
Chinatrust Financial * 87,793 100
E.Sun Financial 2,849,000 1,945
Quanta Computer 1,087,000 1,757
Taiwan Semiconductor
Manufacturing 2,052,456 2,691
Total Taiwan (Cost $6,773) 6,493
TURKEY 0.0%
Common Stocks 0.0%
Turkiye Is Bankasi (Isbank) 41,858,500 173
Total Turkey (Cost $156) 173
UNITED KINGDOM 21.8%
Common Stocks 21.8%
AstraZeneca 210,851 8,634
Autonomy * 123,128 405
British Sky Broadcasting 282,474 2,635
Cadbury Schweppes 180,527 1,499
Capita 174,100 1,123
Carnival 33,667 1,780
Centrica 619,389 2,736
Compass 1,656,450 6,838
David S. Smith 307,694 787
Diageo 340,399 4,549
Electrocomponents 436,220 2,327
GlaxoSmithKline 1,071,321 22,544
Hays 1,535,154 3,626
Hilton Group 260,940 1,234
Kesa Electricals 259,315 1,294
Kingfisher 1,805,503 10,012
MFI Furniture Group 892,500 1,678
Reed Elsevier
(Ordinary shares) 757,240 6,759
Rio Tinto (Ordinary shares) 219,487 5,734
Royal Bank of Scotland 605,344 17,824
Shell Transport & Trading 1,545,054 12,153
Standard Chartered 133,300 2,381
Tesco 908,804 4,785
Tomkins 677,866 3,097
Unilever N.V. 515,136 4,338
United Business Media 285,389 2,497
Vodafone 7,291,957 18,662
William Morrison Supermarkets 798,400 3,318
WPP Group 653,260 6,550
Total United Kingdom (Cost $123,376) 161,799
SHORT-TERM INVESTMENTS 1.7%
Money Market Funds 1.7%
T. Rowe Price Reserve Investment
Fund, 1.81% #+ 12,633,156 12,633
Total Short-Term Investments
(Cost $12,633) 12,633
SECURITIES LENDING COLLATERAL 8.2%
Money Market Pooled Account 8.2%
Investment in money market pooled
account managed by JP Morgan Chase
Bank, London, 1.788% # 61,104,295 61,104
Total Securities Lending
Collateral (Cost $61,104) 61,104
Total Investments in Securities
107.7% of Net Assets (Cost $579,565) $ 800,603
(1) Denominated in currency of country of incorporation unless otherwise
noted
# Seven-day yield
* Non-income producing
(ss.) All or a portion of this security is on loan at October 31, 2004 - See
Note 2
+ Affiliated company - See Note 5
144A Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration only to
qualified institutional buyers--total value of such securities at
period-end amounts to $8,155 and represents 1.1% of net assets
ADR American Depository Receipts
GDR Global Depository Receipts
GDS Global Depository Shares
HKD Hong Kong dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
T. Rowe Price Institutional Foreign Equity Fund
October 31, 2004
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
Affiliated companies (cost $12,633) $ 12,633
Other companies (cost $566,932) 787,970
Total investments in securities 800,603
Other assets 5,104
Total assets 805,707
Liabilities
Obligation to return securities lending collateral 61,104
Other liabilities 1,488
Total liabilities 62,592
NET ASSETS $ 743,115
--------------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 12,278
Undistributed net realized gain (loss) (348,319)
Net unrealized gain (loss) 221,103
Paid-in-capital applicable to 52,385,778 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 858,053
NET ASSETS $ 743,115
--------------------
NET ASSET VALUE PER SHARE $ 14.19
--------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
T. Rowe Price Institutional Foreign Equity Fund
($ 000s)
Year
Ended
10/31/04
Investment Income (Loss)
Income
Dividend (net of foreign taxes of $2,336) $ 19,152
Securities lending 792
Interest (net of foreign taxes of $1) 49
Other 2
Total income 19,995
Expenses
Investment management 6,645
Custody and accounting 442
Registration 51
Legal and audit 41
Shareholder servicing 15
Directors 6
Prospectus and shareholder reports 5
Miscellaneous 28
Total expenses 7,233
Net investment income (loss) 12,762
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 111,545
Foreign currency transactions (8)
Payment from investment manager 87
Net realized gain (loss) 111,624
Change in net unrealized gain (loss)
Securities (6,971)
Other assets and liabilities
denominated in foreign currencies 41
Change in net unrealized gain (loss) (6,930)
Net realized and unrealized gain (loss) 104,694
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 117,456
--------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
T. Rowe Price Institutional Foreign Equity Fund
($ 000s)
Year
Ended
10/31/04 10/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 12,762 $ 18,927
Net realized gain (loss) 111,624 (37,680)
Change in net unrealized gain (loss) (6,930) 253,179
Increase (decrease) in net
assets from operations 117,456 234,426
Distributions to shareholders
Net investment income (18,935) (16,127)
Net realized gain (1,515) (2,150)
Decrease in net assets from distributions (20,450) (18,277)
Capital share transactions *
Shares sold 163,466 256,719
Distributions reinvested 17,964 14,775
Shares redeemed (596,441) (594,653)
Increase (decrease) in net assets from capital
share transactions (415,011) (323,159)
Net Assets
Increase (decrease) during period (318,005) (107,010)
Beginning of period 1,061,120 1,168,130
End of period $ 743,115 $ 1,061,120
---------------------------------------
(Including undistributed net investment
income of $12,278 at 10/31/04 and
$18,451 at 10/31/03)
*Share information
Shares sold 11,790 23,184
Distributions reinvested 1,369 1,413
Shares redeemed (43,551) (51,540)
Increase (decrease) in shares outstanding (30,392) (26,943)
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
T. Rowe Price Institutional Foreign Equity Fund
October 31, 2004
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Institutional International Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act). The
Institutional Foreign Equity Fund (the fund), a diversified, open-end
management investment company, is one portfolio established by the
corporation. The fund commenced operations on September 7, 1989. The fund
seeks long-term growth of capital through investments primarily in the
common stocks of established, non-U.S. companies.
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.
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
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 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. In the course of
making a good faith determination of a security's fair value, the fund
reviews a variety of factors, including market and trading trends and the
value of comparable securities, such as unrestricted securities of the
same issuer.
Most foreign markets close before the close of trading on the NYSE. 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, which in turn will
affect the fund's share price, the fund will adjust the previous closing
prices to reflect the fair value of the securities as of the close of the
NYSE, as determined in good faith by the T. Rowe Price Valuation
Committee, established by the fund's Board of Directors. A fund may also
fair value securities in other situations, such as when a particular
foreign market is closed but the fund is open. In deciding whether to make
fair value adjustments, 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. The fund
uses outside pricing services to provide it with closing market prices and
information used for adjusting those prices. The fund cannot predict how
often it will use closing prices and how often it will adjust those
prices. As a means of evaluating its fair value process, the fund
routinely compares closing market prices, the next day's opening prices in
the same markets, and adjusted prices.
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 less than 90 days to
deter short-term trading and 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 have the
primary effect of increasing paid-in capital. The fees may cause the redemption
price per share to differ from the net asset value per share.
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. 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.
Other
In the normal course of business, the fund enters into contracts that
provide general indemnifications. The fund's maximum exposure under these
arrangements is dependent on claims that may be made against the fund in
the future and, therefore, cannot be estimated; however, based on
experience, the risk of material loss from such claims is considered
remote.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the
following practices to manage exposure to certain risks or 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, 2004, approximately 11% of the fund's net assets were invested in
securities of companies located in emerging markets or denominated in or linked
to the currencies of emerging markets. Future economic or political developments
could adversely affect the liquidity or value, or both, of such securities.
Restricted Securities
The fund may invest in securities that are subject to legal or contractual
restrictions on resale. Although certain of these securities may be readily
sold, for example, under Rule 144a, others may be illiquid, and their sale may
involve substantial delays and additional costs, and prompt sale at an
acceptable price may be difficult.
Securities Lending
The fund lends its securities to approved brokers to earn additional income. It
receives as collateral cash and U.S. government securities valued at 102% to
105% of the value of the securities on loan. Cash collateral is invested in a
money market pooled account managed by the fund's lending agent in accordance
with investment guidelines approved by fund management. Collateral is maintained
over the life of the loan in an amount not less than the value of loaned
securities, as determined at the close of fund business each day; any additional
collateral required due to changes in security values is delivered to the fund
the next business day. Although risk is mitigated by the collateral, the fund
could experience a delay in recovering its securities and a possible loss of
income or value if the borrower fails to return the securities. Securities
lending revenue recognized by the fund consists of earnings on invested
collateral and borrowing fees, net of any rebates to the borrower and
compensation to the lending agent. At October 31, 2004, the value of loaned
securities was $58,120,000; aggregate collateral consisted of $61,104,000 in the
money market pooled account.
Other
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $265,378,000 and $688,110,000, respectively, for
the year ended October 31, 2004.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue 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. Federal income tax regulations differ from
generally accepted accounting principles; therefore, distributions
determined in accordance with tax regulations 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. Financial records
are not adjusted for temporary differences.
Distributions during the year ended October 31, 2004 totaled $20,450,000
and were characterized as ordinary income for tax purposes. At October 31,
2004, the tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation $ 239,769,000
Unrealized depreciation (18,666,000)
Net unrealized appreciation (depreciation) 221,103,000
Undistributed ordinary income 12,286,000
Capital loss carryforwards (348,327,000)
Paid-in capital 858,053,000
Net assets $ 743,115,000
--------------------
The fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. During the fiscal year ended
October 31, 2004, the fund utilized $111,545,000 of capital loss carryforwards.
As of October 31, 2004, the fund had
$94,844,000 of capital loss carryforwards that expire in fiscal 2009,
$214,055,000 that expire in fiscal 2010, and $39,428,000 that expire in
fiscal 2011.
At October 31, 2004, the cost of investments for federal income tax
purposes was $579,565,000.
NOTE 4 - FOREIGN TAXES
The fund is subject to foreign income taxes imposed by certain countries
in which it invests. Foreign income taxes are accrued by the fund as a
reduction of income.
Gains realized upon disposition of certain Indian securities held by the
fund are subject to capital gains tax in India, payable prior to
repatriation of sale proceeds. The tax is computed on net realized gains,
and realized losses in excess of gains may be carried forward eight years
to offset future gains. In addition, the fund accrues a deferred tax
liability for net unrealized gains on Indian securities when applicable.
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 0.70% of the fund's average daily net assets. The fee is computed
daily and paid monthly. At October 31, 2004, investment management fee payable
totaled $448,000.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price).
Price Associates computes the daily share price and maintains the financial
records of the fund. T. Rowe Price Services, Inc., provides shareholder and
administrative services in its capacity as the fund's transfer and dividend
disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides
subaccounting and recordkeeping services for certain retirement accounts
invested in the fund. For the year ended October 31, 2004, expenses incurred
pursuant to these service agreements were $107,000 for Price Associates, $18,000
for T. Rowe Price Services, Inc., and $0 for T. Rowe Price Retirement Plan
Services, Inc. At period-end, a total of $10,000 of these expenses was payable.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the
T. Rowe Price Government Reserve Investment Fund (collectively, the
Reserve Funds), open-end management investment companies managed by Price
Associates and affiliates of the fund. The Reserve 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 Reserve Funds pay no
investment management fees. During the year ended October 31, 2004,
dividend income from the Reserve Funds totaled $148,000, and the value of
shares of the Reserve Funds held at October 31, 2004 and October 31, 2003
was $12,633,000 and $1,000, respectively.
On September 29, 2004, Price Associates fully reimbursed the fund for an
$87,000 loss realized on the sale of foreign currency sold in error. The
reimbursement had no impact on total return for the year ended October 31,
2004.
NOTE 6 - INTERFUND BORROWING
Pursuant to its prospectus, the fund may borrow up to 33 1/3% of its total
assets. The fund is party to an inter-fund borrowing agreement between
itself and other T. Rowe Price-sponsored mutual funds, which permits it to
borrow or lend cash at rates beneficial to both the borrowing and lending
funds. Loans totaling 10% or more of a borrowing fund's total assets are
collateralized at 102% of the value of the loan; loans of less than 10%
are unsecured. During the year ended October 31, 2004, the fund had
outstanding borrowings on 29 days, in the average amount of $11,517,000,
and at an average annual rate of 1.60%. There were no borrowings
outstanding at October 31, 2004.
T. Rowe Price Institutional Foreign Equity Fund
- --------------------------------------------------------------------------------
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 Foreign Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio 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 Foreign Equity Fund (one of the portfolios
comprising T. Rowe Price Institutional International Funds, Inc.,
hereafter referred to as the "Fund") at October 31, 2004, and the results
of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, 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 audits. We conducted our audits of
these financial statements in accordance with the auditing 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 audits, which included confirmation of
securities at October 31, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 22, 2004
T. Rowe Price Institutional Foreign Equity Fund
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Tax Information (Unaudited) for the Tax Year Ended 10/31/04
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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.
The fund's distributions to shareholders included $1,515,000 from short-term
capital gains.
For taxable non-corporate shareholders, $9,504,000 of the fund's income
represents qualified dividend income subject to the 15% rate category.
The fund will pass through foreign source income of $13,810,000 and foreign
taxes paid of $969,000.
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
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
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 Record" at the bottom of
the Proxy Voting Policy 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.
T. Rowe Price Institutional Foreign Equity Fund
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About the Fund's Directors and Officers
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, compliance matters, advisory fees and expenses, and
other business affairs, and is responsible for protecting the interests of
shareholders. The majority of the fund's directors are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T.
Rowe Price. The Board of Directors elects the fund's officers, who are listed in
the final table. The business address of each director and officer is 100 East
Pratt Street, Baltimore, MD 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) Principal Occupation(s) During Past 5 Years and
Year Elected* Directorships of Other Public Companies
- --------------------------------------------------------------------------------
Anthony W. Deering Director, Chairman of the Board, and Chief Executive
(1945) Officer, The Rouse Company, real estate developers;
1991 Director, Mercantile Bank (4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an acquisition
(1943) and management advisory firm
1989
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(1938) Resources Corp. (5/00 to present), and Pacific Rim
2001 Mining Corp. (2/02 to present); Chairman and
President, Nye Corporation
Karen N. Horn Managing Director and President, Global Private
(1943) Client Services, Marsh, Inc.(1999-2003); Managing
2004 Director and Head of International Private Banking,
Bankers Trust (1996-1999)
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc.,
(1934) consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a
(1946) real estate investment company; Partner, Blackstone
2001 Real Estate Advisors, L.P.
* Each independent director oversees 111 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 Principal Occupation(s) During Past 5 Years and
Portfolios Overseen] Directorships of Other Public Companies
- --------------------------------------------------------------------------------
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(1943) Chairman of the Board, Director, and Vice President,
2002 T. Rowe Price Group, Inc.; Chairman of the Board and
[111] Director, T. Rowe Price Global Asset Management
Limited, T. Rowe Price Global Investment Services
Limited, T. Rowe Price Investment Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and
T. Rowe Price Services, Inc.; Chairman of the Board,
Director, President, and Trust Officer, T. Rowe
Price Trust Company; Director, T. Rowe Price
International, Inc.; Chairman of the Board,
Institutional International Funds
** 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,
Vice President, Institutional T. Rowe Price Group, Inc., and
International Funds T. Rowe Price International, Inc.
Mark C.J. Bickford-Smith (1962) Vice President, T. Rowe Price Group,
Vice President, Institutional Inc., and T. Rowe Price
International Funds International, Inc.
Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price,
Vice President, Institutional T. Rowe Price Group, Inc., and
International Funds T. Rowe Price Trust Company
Joseph A. Carrier (1960) Vice President, T. Rowe Price,
Treasurer, Institutional International T. Rowe Price Group, Inc., T. Rowe
Funds Price Investment Services, Inc., and
T. Rowe Price Trust Company
Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price,
Vice President, Institutional T. Rowe Price Group, Inc., T. Rowe
International Funds Price International, Inc., and
T. Rowe Price Trust Company
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and
Vice President, Institutional T. Rowe Price Trust Company
International Funds
Henry H. Hopkins (1942) Director and Vice President, T. Rowe
Vice President, Institutional Price Group, Inc., T. Rowe Price
International Funds Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe
Price Trust Company; Vice President,
T. Rowe Price, T. Rowe Price
International, Inc., and T. Rowe
Price Retirement Plan Services, Inc.
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe
Secretary, Institutional International Price and T. Rowe Price Investment
Funds Services, Inc.
George A. Murnaghan (1956) Vice President, T. Rowe Price,
Vice President, Institutional T. Rowe Price Group, Inc., T. Rowe
International Funds Price International, Inc., T. Rowe
Price Investment Services, Inc., and
T. Rowe Price Trust Company
R. Todd Ruppert (1956) Vice President, T. Rowe Price,
Vice President, Institutional T.Rowe Price Group, Inc., T. Rowe
International Funds Price Retirement Plan Services, Inc.,
and T. Rowe Price Trust Company;
Chief Investment Officer, Director,
and President, T. Rowe Price Global
Asset Management Limited and T. Rowe
Price Global Investment Services
Limited
James B.M. Seddon (1964) Vice President, T. Rowe Price Group,
Vice President, Institutional Inc., and T. Rowe Price
International Funds International, Inc.
Julie L. Waples (1970) Vice President, T. Rowe Price
Vice President, Institutional
International Funds
David J.L. Warren (1957) Director and Vice President, T. Rowe
President, Institutional Price; Vice President, T. Rowe Price
International Funds Group, Inc.; Chief Executive Officer,
Director, and President, T. Rowe
Price International, Inc.; Director,
T. Rowe Price Global Asset Management
Limited and T. Rowe Price Global
Investment Services Limited
William F. Wendler II, CFA (1962) Vice President, T. Rowe Price,
Vice President, Institutional T. Rowe Price Group, Inc., and
International Funds T. Rowe Price International, Inc.
Edward A. Wiese, CFA (1959) Vice President, T. Rowe Price,
Vice President, Institutional T. Rowe Price Group, Inc., and
International Funds T. Rowe Price Trust Company; Chief
Investment Officer, Director, and
Vice President, T. Rowe Price Savings
Bank
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 Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin 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:
2004 2003
Audit Fees $15,070 $16,676
Audit-Related Fees 1,410 1,016
Tax Fees 6,399 4,971
All Other Fees 124 --
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, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. 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 $849,000 and $819,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(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. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
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/ James S. Riepe
-----------------------------------
James S. Riepe
Principal Executive Officer
Date December 17, 2004
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/ James S. Riepe
-----------------------------------
James S. Riepe
Principal Executive Officer
Date December 17, 2004
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date December 17, 2004