-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VRTee/H2ukmPZ6wPM0umfuiqxKyHBhcDv0bNBS7K1CGjRpckUFdbcaSZDNPkYc8+ i73F1LSHLB8tN5YjdkQE8g== 0000852254-97-000006.txt : 19970612 0000852254-97-000006.hdr.sgml : 19970612 ACCESSION NUMBER: 0000852254-97-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970611 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSTITUTIONAL INTERNATIONAL FUNDS INC CENTRAL INDEX KEY: 0000852254 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05833 FILM NUMBER: 97622388 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT STREET STREET 2: LEGAL DEPARTMENT 7TH FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 MAIL ADDRESS: STREET 1: 100 EAST PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21202 N-30D 1 Semiannual Report April 30, 1997 Foreign Equity Fund Fellow Shareholders European and Latin American stock markets posted robust returns in U.S. dollar terms during the past six months. However, a strong dollar that appreciated against most foreign currencies dampened returns for U.S. investors in many regions. Despite the unfavorable currency translation, your fund registered respectable returns during the half. Performance Comparison Periods Ended 4/30/97 6 Months 12 Months _________________________________________________________ Foreign Equity Fund 6.14% 7.23% MSCI EAFE Index 1.72% -0.60% The Foreign Equity Fund maintained its steady progress during the six months ended April 30, 1997. As can be seen from the table, results for this period were well ahead of the unmanaged Morgan Stanley Capital International Europe Australia and Far East (EAFE) Index. The most important reasons for this outperformance were the fund's underweighting in the disappointing Japanese stock market and a significant position in the exuberant markets of Latin America -- particularly Brazil - -- which are not components of the EAFE index. Over the 12-month period the fund's returns were well ahead of the EAFE index. Again, the country weightings compared with that of the index were beneficial -- particularly the underweighting in Japan -- and stock selection in most markets was also positive. INVESTMENT REVIEW Europe The stock markets of Europe posted solid returns. Several got off to a strong start this year, although returns to the U.S. investor were moderated by the strength of the dollar. The core Continental European economies are struggling at the moment, but looser money and weakening currencies should help them recover. In Germany a combination of low growth and high labor costs boosted unemployment to record levels. This in turn has raised questions as to whether the fiscal deficit can meet the Maastricht criteria, but Germany seems as committed as ever to European Monetary Union and a single currency. Despite the dull economy, the stock market has been strong, led by financials such as Deutsche Bank and manufacturers such as Volkswagen; the latter has been helped by a weaker deutschemark and the growing focus on shareholder value. Market Performance Six Months Local Local Currency U.S. Ended 4/30/97 Currency vs. U.S. Dollars Dollars __________________________________________________________ Australia 6.94% -1.44% 5.40% France 23.74 -12.48 8.30 Germany 28.30 -12.62 12.11 Hong Kong -0.04 -0.18 -0.22 Italy 25.88 -11.42 11.50 Japan -3.19 -10.38 -13.23 Mexico 16.85 0.25 17.13 Netherlands 31.15 -12.95 14.17 Norway 25.56 -10.47 12.42 Singapore -4.17 -2.58 -6.64 Sweden 26.05 -16.33 5.47 Switzerland 31.05 -14.57 11.95 United Kingdom 13.06 -0.36 12.66 Source: FAME Information Services, Inc., using MSCI indices. In France the picture was similar, with the economy subdued, unemployment remaining stubbornly high, and consumer sentiment depressed. Despite these difficulties, the government also remains committed to a single currency but it will prove difficult to stimulate the economy without breaching the Maastricht guidelines for economic convergence. Looking for a firmer political base as the country approaches this important transition, President Chirac recently called a general election. At present it looks as though a right-of-center government will be returned, but the majority may not be as high as Mr. Chirac's original expectations. Given these uncertainties, the stock market has been dull but core holdings such as the supermarket chain Carrefour and conglomerate Eaux Cie Generale have been able to make further progress. The picture looks somewhat brighter in Italy. Improve-ment in the debt position is vital for the future of this economy and the outlook here is more encouraging following recent legislation and public sector wage discipline. The lira has now returned to the European exchange rate mechanism but it is still an open question whether Italy will be in the first round of countries to join the single currency. In the U.K. the most important news was the General Election on May 1 which brought the Labour Party under Mr. Blair to power with a massive majority. Given the strength of the economy, it was surprising to many observers that the electorate rejected the Conservative Party so comprehensively. The explanation lies in a deep desire for change after 17 years of Conservative rule, a sense that Mr. Major's party was divided over Europe, and in contrast to previous elections, a much more professional and disciplined campaign by the Labour Party. The new government will at least inherit an economy in good shape with a strong currency, falling unemployment, and inflation at low levels. The administration has already surprised and pleased financial markets by giving more independence to the Bank of England in setting monetary policy, and its much more positive attitude toward Europe has been well received on the Continent. The stock market greeted the incoming government with enthusiasm and pushed on to new highs. International growth stocks such as SmithKline Beecham and Glaxo Wellcome have performed well, and the conversion and public offerings of building societies (mutually owned savings associations) stimulated interest in financial stocks. The recently announced merger between the food and drinks group Grand Metropolitan, which owns Burger King, and the leading wines and spirits company Guinness was welcomed by investors. Both stocks are in our portfolio and each moved sharply ahead after the announcement. Some of the best performance came from Europe's smaller bourses, with Switzerland powering ahead as investors belatedly appreciated that multinationals such as Novartis and Roche Holdings -- both major pharmaceutical groups -- were well positioned following an unprecedented period of Swiss franc weakness. In Spain, where ambition to qualify for Monetary Union is driving widespread reforms, the market also performed well. The sharp rise in stock prices allowed us to take profits in some of our positions, including oil company Repsol. Chart 1 - Geographic Diversification pie chart Far East Stock market performance in the Pacific region was dragged down by the continued poor performance of Japan. Perhaps surprisingly, the economy in Japan is performing much better. Fourth quarter GDP growth of 2.9% was one of the fastest among the leading industrialized countries. Industrial production continued strong into the first quarter of this year with inventories declining and shipments improving significantly. These broad statistics, however, mask a tale of two economies: domestic consumption remains poor with the retail and service sectors depressed, but exports are buoyant, aided by the recent weakness of the yen. Indeed, the trade surplus has started to expand again, which will be embarrassing for Tokyo, particularly if the surplus with the U.S. expands too fast. This contrast in the domestic economy was also reflected in the stock market where the export and technology stocks have performed well, but the financial sector, still struggling to work out problem loans, has dragged the index down. The loan problems facing Japanese banks have not been helped by several real estate transactions in Tokyo at prices some 80% below the peak of the bubble years. However, there are signs that commercial property prices are stabilizing at this level, and the stronger banks can survive provided that the valuation of their loan collateral deteriorates no further. Our strategy in the Tokyo market favored the export and technology sectors with stocks such as NEC (communications and computers), Kyocera (ceramic packaging), and Canon (cameras and office equipment) among our largest positions. In contrast, your portfolio had no exposure to the bank stocks -- the largest sector in the index itself. This combination of positive stock selection and underweighting in the market as a whole made a major contribution to the fund's outperformance. Elsewhere in the Pacific, stock market sentiment was adversely affected by a small rise in U.S. interest rates; many countries in the region link their monetary policies to those of the Federal Reserve so that their currencies will shadow the U.S. dollar. Export performance in the region was also disappointing with countries such as Singapore and South Korea particularly affected by the downturn in the electronic component cycle. The worst performance came from Thailand where the stock market has halved over the last 12 months. The problem here centered on a significant oversupply of commercial property, and subsequent price declines have led to the virtual bankruptcy of one of Thailand's largest finance companies. Turning from economics to politics, the major news was unquestionably the death of China's paramount leader Deng Xiaoping. Although he held no official posts at the time of his death, his influence on Chinese history has been immense. Inheriting a backward economy at the time of his succession from Mao, Deng and his policy of rapid modernization turned the economy into a super-power. In sharp contrast to previous history, the transfer of power has gone smoothly with Jiang Zemin, Deng's hand-picked successor, assuming control. Continued political stability and an open door policy are essential for confidence in Hong Kong, which reverts to Chinese sovereignty on June 30. Although the Hong Kong stock market has been subdued since the beginning of the year, we feel confident that this transition will not affect Hong Kong's position as the dynamic financial center of the region. Latin America As usual, Latin America provided much of the excitement in recent months. Brazil led the way with an advance of over 30% despite fears that a deteriorating trade deficit would put downward pressure on the currency. The government should rise to these challenges, and investors have been impressed by its commitment to reform in areas such as privatization and the deregulation of public sector tariffs. Our positions in the Brazilian market are built around the telecommunications company Telecomunicacoes Brasileiras, which has outperformed handsomely. Although Brazil dominates our Latin American holdings, other countries in the region have also moved along the path of reform and their stock markets have made a useful contribution to fund performance. In Mexico the picture is rather more settled, although the banking system remains fragile and consumer sentiment has been hurt by lower real wages. Confidence is slowly returning and the market performed much better, led by blue chips such as telecommunications company Telefonos de Mexico and retailer Cifra. The stock markets of Argentina and Chile produced double-digit returns this year. Both countries have shown a mix of strong economic recovery, inflation under much better control, and a commitment to economic reform that has attracted the international investor. INVESTMENT POLICY AND OUTLOOK As usual, we have made no dramatic shifts in investment policy but, led principally by our changing expectations for individual companies, there have been some gradual changes in direction. We have been modest net investors in Japan and our new investments were in the domestic sector, which has been neglected recently while the exporters and technology stocks enjoyed the spotlight. Our underweighting in Japan is now at the lowest level of many years, and there are signs that this market has passed its worst. With the yen now stronger, stocks more related to the domestic economy are likely to lead the way, hence our push into this area. To complement this modest increase in Japan, we have been shaving positions in the better-performing markets of Southeast Asia such as Malaysia and Hong Kong. Our holdings in Thailand and Korea are negligible but we are not yet convinced that the problems in each country have been fully addressed. More than half of the portfolio is in Europe where we can find an attractive combination of economies that are beginning to recover, a benign interest rate environment, and an increasing focus on shareholder value. We have been reducing holdings in the U.K. where the economic recovery is mature and the stock market is beginning to look overextended. Valuations look more reasonable in Continental Europe where the potential for company earnings is greater. Latin America will probably continue to provide the excitement going forward, but it must be remembered that these are still developing economies with volatile capital markets. There will always be room for them in an international portfolio but prudence will govern our exposure. Pulling all this together, the fund's portfolio is well diversified by country and individual stock exposure. It gives the investor a reasonable balance between the established economies overseas where we can find quality companies at reasonable valuations and the less-developed markets where there is perhaps more potential but at higher risk. This broad strategy has served the fund well in the past and should continue to do so in the future. Respectfully submitted, Martin G. Wade President May 22, 1997 Portfolio Highlights Industry Diversification Percent of Net Assets 4/30/97 ____________________________________________________ Services 26.9% Finance 16.7 Consumer Goods 17.5 Capital Equipment 13.2 Energy 10.2 Materials 8.2 Multi-industry 3.8 Miscellaneous 0.2 Reserves 3.3 Net Assets 100.0% ____________________________________________________ Exchange Rates to U.S. Dollars Country Exchange Rate 4/30/97 ____________________________________________________ Argentina 0.9999 Australia 1.2823 Austria 12.1825 Belgium 35.7500 Brazil 1.0635 Canada 1.3970 Czech Republic 30.9430 Denmark 6.5907 Finland 5.2004 France 5.8365 Germany 1.7318 Hong Kong 7.7465 Italy 1,712.1750 Japan 126.9350 Malaysia 2.5108 Mexico 7.9465 Netherlands 1.9483 New Zealand 1.4425 Norway 7.1212 Peru 2.6650 Philippines 26.3700 Portugal 173.8500 Singapore 1.4475 South Korea 892.0000 Spain 146.2050 Sweden 7.8447 Switzerland 1.4741 Thailand 26.1225 United Kingdom 0.6170 ____________________________________________________ Security Classification Percent of Market of Net Cost Value 4/30/97 Assets (000) (000) _________________________________________________________ Common Stocks and Warrants 92.6% $2,268,066 $2,599,554 Preferred Stocks 4.1 75,665 115,720 Bonds 0.0 466 754 Short-Term Investments 4.6 127,653 127,653 Total Investments 101.3 2,471,850 2,843,681 Other Assets Less Liabilities -1.3 -35,628 -35,964 _________________________________________________________ Net Assets 100.0% $2,436,222 $2,807,717 _________________________________________________________ Twenty-Five Largest Holdings Percent of Net Assets Company Country 4/30/97 __________________________________________________________ Royal Dutch Petroleum Netherlands 2.1% SmithKline Beecham United Kingdom 1.9 Telecomunicacoes Brasileiras Brazil 1.9 Wolters Kluwer Netherlands 1.7 Elsevier Netherlands 1.6 Novartis Switzerland 1.6 National Westminster Bank United Kingdom 1.5 Eaux Cie Generale France 1.3 Reed International United Kingdom 1.2 Roche Holdings Switzerland 1.1 ING Groep Netherlands 1.1 Shell Transport & Trading United Kingdom 1.1 Canon Japan 1.0 Glaxo Wellcome United Kingdom 1.0 Nestle Switzerland 0.9 ABB Sweden/Switzerland0.9 NEC Japan 0.9 Astra Sweden 0.9 Denso Japan 0.9 Carrefour France 0.9 Orkla Norway 0.9 Kingfisher United Kingdom 0.8 Kyocera Japan 0.8 Sumitomo Electric Industries Japan 0.8 Norsk Hydro Norway 0.8 __________________________________________________________ Total 29.6% __________________________________________________________ Summary of Investments and Cash April 30, 1997 Percent of Equities Cash Total MSCI EAFE ___________________________________________________________ Europe Austria 0.1% -- 0.1% 0.4% Belgium 1.2 -- 1.2 1.3 Czech Republic -- -- -- -- Denmark 0.2 -- 0.2 0.9 Finland 0.2 -- 0.2 0.7 France 8.3 -- 8.3 7.2 Germany 4.5 -- 4.5 8.9 Ireland -- -- -- 0.3 Italy 2.2 -- 2.2 3.2 Netherlands 10.4 -- 10.4 5.0 Norway 1.8 -- 1.8 0.6 Portugal 0.5 -- 0.5 -- Russia -- -- -- -- Spain 2.3 -- 2.3 2.4 Sweden 2.4 -- 2.4 2.4 Switzerland 5.5 -- 5.5 6.4 United Kingdom 16.2 -- 16.2 19.7 ___________________________________________________________ Total Europe 55.8% -- 55.8% 59.4% ___________________________________________________________ Pacific Basin Australia 1.7% -- 1.7% 3.1% China 0.5 -- 0.5 -- Hong Kong 3.8 -- 3.8 3.6 India 0.3 -- 0.3 -- Japan 20.7 -- 20.7 30.0 Malaysia 2.4 -- 2.4 2.4 New Zealand 0.5 -- 0.5 0.4 Philippines 0.3 -- 0.3 -- Singapore 2.0 -- 2.0 1.2 South Korea 0.5 -- 0.5 -- Thailand 0.2 -- 0.2 -- ___________________________________________________________ Total Pacific Basin 32.9% -- 32.9% 40.6% ___________________________________________________________ Americas Argentina 0.9% -- 0.9% -- Brazil 4.3 -- 4.3 -- Canada 0.3 -- 0.3 -- Chile 0.7 -- 0.7 -- Mexico 1.6 -- 1.6 -- Panama -- -- -- -- Peru 0.1 -- 0.1 -- United States -- 4.6% 4.6 -- Venezuela 0.1 -- 0.1 -- ___________________________________________________________ Total Americas 8.0% 4.6% 12.6% -- ___________________________________________________________ Other Assets Less Liabilities -- -1.3 -1.3% -- ___________________________________________________________ TOTAL 96.7% 3.3% 100.0% 100.0%* ___________________________________________________________ * Total may not add to 100.0% due to rounding. Foreign Equity Fund 4/30/97 Performance Comparison 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 a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. Foreign Equity Fund Chart 2 - SEC line graph Total Return Performance Periods Ended 4/30/97 Calen dar Year- 1 3 to- 1 3 5 Since MonthMonths Date Year Years** Years** 9/7/89** ____________________________________________________________ Foreign Equity Fund* 0.81% 1.89% 0.75% 7.23% 8.73% 11.72% 9.30% T. Rowe Price Inter- national Stock Fund 0.65 1.76 0.65 7.11 8.79 11.67 9.46 S&P 500 Index 5.97 2.41 8.81 25.13 24.16 17.10 14.75 MSCI EAFE Index 0.55 2.62 -0.95 -0.60 5.56 10.92 4.55*** Lipper Inter- national Funds Average 0.20 1.81 1.46 5.43 6.42 10.58 8.07 FT-A Euro Pacific Index 0.44 2.16 -1.81 -2.17 4.77 10.61 4.09*** * An "institutional only" no-load mutual fund comparable to the T. Rowe Price International Stock Fund. Net assets $2,807.7 million. Inception 9/7/89. ** Average annual compound total return. This table 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. *** From 8/31/89. Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase.
______________________________________________________________________________________ Financial Highlights Foreign Equity Fund (Unaudited) For a share outstanding throughout each period Ten 6 Months Year Months# Year Ended Ended Ended Ended 4/30/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92 12/31/91 ______________________________________________________________________________________ ______________________________________________________________________________________ NET ASSET VALUE Beginning of period $ 15.62 $ 13.99 $ 14.59 $ 13.32 $ 10.05 $ 10.73 $ 9.54 Invest- ment activi- ties Net invest- ment income 0.09 0.21 0.18 0.09 0.13 0.17 .18* Net real- ized and unreal- ized gain (loss) 0.86 1.78 (0.14) 1.48 3.14 (0.57) 1.28 Total from investment activities 0.95 1.99 0.04 1.57 3.27 (0.40) 1.46 Distributions Net invest- ment income (0.22) (0.18) (0.12) (0.09) -- (0.18) (0.18) Net real- ized gain (0.17) (0.18) (0.52) (0.21) -- (0.10) (0.09) Total distri- butions (0.39) (0.36) (0.64) (0.30) -- (0.28) (0.27) NET ASSET VALUE End of period $ 16.18 $ 15.62 $ 13.99 $ 14.59 $ 13.32 $ 10.05 $ 10.73 Ratios/Supplemental Data Total return 6.14% 14.48% 0.64% 11.96% 32.54% (3.74)% 15.44%* Ratio of expenses to average net assets 0.74%! 0.76% 0.80% 0.82% 0.86%! 0.99% 1.00%* Ratio of net invest- ment income to average net assets 1.32%! 1.67% 1.69% 1.26% 1.65%! 1.49% 1.64%* Portfolio turnover rate 12.8%! 13.8% 18.8% 22.0% 27.4%! 35.1% 46.7% Average commission rate paid $ 0.0008 $ 0.0017 -- -- -- -- -- Net assets, end of period (in thou- sands) $2,807,717 $2,322,469 $1,559,619 $1,058,478 $ 489,389 $ 238,979 $ 143,822 ______________________________________________________________________________________ * Excludes expenses in excess of a 1.00% voluntary expense limitation in effect from 3/1/90 through 12/31/90. ! Annualized. # The fund's fiscal year-end was changed to 10/31. ______________________________________________________________________________________
The accompanying notes are an integral part of these financial statements. Statement of Net Assets Foreign Equity Fund 4/30/97 (Unaudited) Shares/Par Value In thousands ___________________________________________________________ ARGENTINA 0.9% Common Stocks 0.9% Banco de Galicia Buenos Aires (Class B) ADR (USD) 93,992 $ 2,287 Banco Frances del Rio ADR (USD) 109,808 3,335 Enron Global Power & Pipeline (USD) 13,780 407 Perez Companc (Class B) 692,301 5,615 Sociedad Comercial del Plata ADR (144a) (USD) 19,896 604 Telecom Argentina Stet (Class B) 114,560 567 Telecom Argentina Stet (Class B) ADR (USD) 20,037 1,002 Telefonica de Argentina (Class B) ADR (USD) 186,794 6,211 Transportadora de Gas del Sur (Class B) ADS (USD) 32,868 411 YPF Sociedad Anonima (Class D) ADR (USD) 203,225 5,614 Total Argentina (Cost $20,501) 26,053 AUSTRALIA 1.7% Common Stocks 1.6% Australia & New Zealand Bank Group 332,000 2,120 Australian Gas Light Company 828,181 4,747 Boral Limited 200,000 590 Broken Hill Proprietary 354,338 4,996 Coca Cola Amatil 66,411 759 Commonwealth Bank of Australia, Installment Receipts, 11/14/97 386,300 2,892 Fosters Brewing Group 634,000 1,305 Lend Lease 114,017 2,182 National Australia Bank 203,445 2,784 National Mutual Holdings 844,000 1,250 News Corporation 864,931 3,986 Publishing & Broadcasting 627,124 3,311 St. George Bank 411,000 2,526 Tabcorp Holdings 626,000 3,093 Westpac Bank 421,000 2,269 WMC 499,258 2,959 Woodside Petroleum 513,000 4,081 45,850 Preferred Stocks 0.1% News Corporation ADR (USD) 11,750 $ 178 Sydney Harbour Casino Holdings * 1,309,000 2,205 2,383 Total Australia (Cost $39,149) 48,233 AUSTRIA 0.1% Common Stocks 0.1% EVN Energie Versorgung Nieder 6,230 770 Flughafen Wien 15,482 642 Total Austria (Cost $1,545) 1,412 BELGIUM 1.2% Common Stocks 1.2% CLF-Dexia * 13,199 1,310 Generale de Banque 19,238 7,978 Generale de Banque, VVPR Strip 1,524 1 Kredietbank 50,471 19,659 UCB 1,618 4,440 33,388 Convertible Bonds 0.0% Kredietbank, 5.75%, 11/30/03 BEF 14,782,500 754 754 Total Belgium (Cost $23,132) 34,142 BRAZIL 4.3% Common Stocks 0.6% Brazil Fund (USD) 58,780 1,499 Companhia Siderurgica Nacional 49,720,000 1,776 Eletrobras 11,582,768 5,238 Eletrobras ADR (USD) * 20,340 460 Telecomunicacoes Brasileiras 51,992,700 5,598 Telecomunicacoes de Sao Paulo * 967,420 268 White Martins 400,674 1,364 16,203 Preferred Stocks 3.7% Banco Bradesco 465,618,322 3,853 Banco Itau 3,088,000 1,670 Brahma 7,072,250 4,811 Brasmotor 5,547,410 1,330 Cia Cimento Portland Itau 4,882,700 $ 1,722 Cia Energetica de Sao Paulo ADR (USD) * 20,600 327 Cia Energetica Minas Gerais 82,104,577 3,744 Cia Energetica Minas Gerais ADR (144a) (USD) * 16,530 750 Cia Energetica Minas Gerais ADR, Cv. (USD) 23,337 1,059 Cia Energetica Minas Gerais ADR, Sponsored, Nonvoting (USD) * 103,555 4,699 Cia Tecidos Norte de Minas 3,724,770 1,562 Lojas Americanas * 37,644,000 535 Pao de Acucar GDS (USD) 117,940 2,329 Petrol Brasileiros 21,518,917 4,532 Telecomunicacoes Brasileiras 71,618,902 8,215 Telecomunicacoes Brasileiras ADR (USD) 330,229 37,894 Telecomunicacoes Brasileiras ADR (144a) (USD) 2,213 254 Telecomunicacoes de Minas Gerais 10,703,000 1,705 Telecomunicacoes de Sao Paulo 27,902,341 7,923 Telecomunicacoes do Rio de Janeiro 10,080,000 1,678 Unibanco 119,458,000 4,413 Usiminas 3,919,188,000 4,643 Usiminas ADR (USD) 361,810 4,251 Usiminas ADR (144a) (USD) 12,540 147 104,046 Total Brazil (Cost $74,004) 120,249 CANADA 0.3% Common Stocks 0.3% Alcan Aluminium 169,810 5,762 Royal Bank of Canada 61,480 2,458 Total Canada (Cost $5,846) 8,220 CHILE 0.7% Common Stocks and Warrants 0.7% AFP Providia ADR (USD) 10,996 198 Chile Fund (USD) 56,889 1,380 Chilectra ADR (144a) (USD) 33,009 2,030 Chilgener ADS (USD) 58,934 $ 1,680 Compania Cervecerias Unidas ADS (USD) 43,830 975 Compania de Telecomunicaciones de Chile ADR (USD) 94,682 3,065 Empresa Nacional de Electricidad ADS (USD) 140,341 2,702 Enersis ADS (USD) 65,396 2,060 Five Arrows Chile Investment Trust (USD) 663,410 2,159 Five Arrows Chile Investment Trust, Warrants, 5/31/99 (USD)* 36,758 13 Genesis Chile Fund (USD) 66,410 2,955 Santa Isabel ADR (USD) 50,195 1,224 Total Chile (Cost $17,604) 20,441 CHINA 0.5% Common Stocks 0.5% Huaneng Power International (Class N) ADR (USD) * 332,700 8,068 Shanghai Petrochemical (Class H) (HKD) 11,919,000 2,954 Yizheng Chemical Fibre (Class H) (HKD) 8,500,000 1,668 Total China (Cost $12,680) 12,690 CZECH REPUBLIC 0.0% Common Stocks 0.0% SPT Telecom * 8,781 928 Total Czech Republic (Cost $834) 928 DENMARK 0.2% Common Stocks 0.2% Den Danske Bank 37,470 3,241 Tele Danmark (Class B) 13,050 628 Unidanmark (Class A) 40,121 1,984 Total Denmark (Cost $4,504) 5,853 FINLAND 0.2% Common Stocks 0.2% Nokia (Class A) 101,530 6,333 Total Finland (Cost $3,848) 6,333 FRANCE 8.3% Common Stocks 8.3% Accor 18,740 $ 2,687 Alcatel Alsthom 83,300 9,263 Assurances Generales de France 65,582 2,134 AXA 42,973 2,644 Canal Plus 28,830 5,206 Carrefour 39,497 24,660 Chargeurs International * 15,368 908 Cie de St. Gobain 84,886 11,373 CLF-Dexia, Registered 1998 16,696 1,545 CLF-Dexia, Registered 1999 20,520 1,899 Eaux Cie Generale 268,242 37,365 Elf Aquitaine 103,010 9,990 GTM Entrepose 25,080 1,510 Guilbert 32,371 5,047 Havas 22,490 1,684 L'Oreal 10,335 3,667 Lapeyre 58,000 3,498 Legrand 20,839 3,517 LVMH 69,993 17,089 Pathe * 16,728 3,907 Pinault Printemps 41,643 17,516 Primagaz 35,516 3,481 Rexel 7,812 2,081 Sanofi 85,656 7,998 Schneider 171,250 9,653 Societe Generale 14,890 1,668 Sodexho 30,530 14,019 Television Francaise 88,346 8,522 Total (Class B) 231,621 19,208 Total France (Cost $195,373) 233,739 GERMANY 4.5% Common Stocks and Warrants 4.2% Allianz * 54,500 10,574 Allianz, Warrants, 2/23/98 * 13,000 1,012 Altana 1,686 1,305 Bayer * 419,013 16,269 Bayerische Hypotheken und Wechsel Bank 205,208 6,399 Bilfinger & Berger * 74,460 2,769 Buderus 4,012 1,881 Commerzbank 102,930 2,761 Deutsche Bank 168,823 $ 8,899 Deutsche Telekom 134,688 2,923 Gehe 307,714 20,469 Hoechst 70,350 2,762 Hornbach Baumarkt 14,770 469 Mannesmann 12,767 5,021 Praktiker 32,915 528 Rhoen Klinikum 48,040 6,186 SAP 18,940 3,448 Schering 24,562 2,347 Veba 311,366 16,038 Veba, Warrants, 4/6/98 * 9,526 2,761 Volkswagen 5,994 3,794 118,615 Preferred Stocks 0.3% Fielmann 27,225 701 Hornbach Holdings 32,830 2,104 Krones 4,621 1,788 SAP 16,644 3,065 7,658 Total Germany (Cost $109,277) 126,273 HONG KONG 3.8% Common Stocks 3.8% Cathay Pacific Airways 2,799,000 4,354 Dao Heng Bank Group 1,488,000 7,069 First Pacific 6,084,486 7,265 Guoco Group 1,774,000 8,427 Hong Kong Land Holdings (USD) 7,004,719 14,570 Hopewell Holdings 10,541,000 5,477 HSBC Holdings 242 6 Hutchison Whampoa 2,251,000 16,709 New World Development 3,124,505 18,029 Swire Pacific (Class A) 1,530,000 11,801 Wharf Holdings 3,301,000 12,486 Total Hong Kong (Cost $101,237) 106,193 INDIA 0.3% Common Stocks 0.3% State Bank of India GDR (USD) * 302,700 7,340 Total India (Cost $4,283) 7,340 ITALY 2.2% Common Stocks 2.2% Banca Fideuram 1,108,110 $ 2,783 Credito Italiano 1,873,281 2,626 Danieli & Company, Savings Shares 36,820 133 ENI 1,322,107 6,730 Finanziaria Autogrill * 152,088 213 Gucci Group (USD) 36,839 2,556 IMI 472,757 4,018 Industrie Natuzzi ADR (USD) 101,084 2,249 Istituto Nazionale delle Assicurazioni 555,000 736 Italgas 730,325 2,509 Mediolanum 201,080 1,916 Rinascente 202,500 1,080 Seat * 1,895,680 580 Seat, Savings Shares * 829,120 164 Stet 2,061,680 9,785 Stet, Savings Shares 829,120 3,070 Telecom Italia 1,730,258 4,581 Telecom Italia Mobile 4,776,866 14,985 Telecom Italia Mobile, Savings Shares 872,266 1,611 Total Italy (Cost $46,721) 62,325 JAPAN 20.7% Common Stocks 20.7% Advantest 43,670 2,425 Alps Electric 318,000 3,708 Amada 776,000 5,802 Canon 1,212,000 28,740 Citizen Watch 448,000 3,222 Daifuku 126,000 1,449 Daiichi Pharmaceutical 785,000 12,616 DaiNippon Screen Manufacturing 682,000 5,427 Daiwa House 991,000 11,086 DDI 1,551 10,300 Denso 1,085,000 24,703 East Japan Railway 2,303 9,961 Fanuc 184,800 6,304 Hitachi 1,254,000 11,361 Hitachi Zosen 1,097,000 3,811 Honda Motor 79,000 $ 2,452 Inax 331,000 2,055 Ishihara Sangyo Kaisha * 368,000 925 Ito-Yokado 288,000 13,817 Kao 611,000 7,124 Kawada Industries 107,000 392 Kokuyo 357,000 7,762 Komatsu 889,000 6,499 Komori 289,000 6,170 Kumagai Gumi 633,000 848 Kuraray 807,000 7,120 Kyocera 381,000 22,812 Makita 504,000 6,909 Marui 772,000 12,711 Matsushita Electric Industrial 1,093,000 17,480 Mitsubishi 608,000 5,700 Mitsubishi Heavy Industries 3,408,000 22,499 Mitsubishi Paper Mills 458,000 1,458 Mitsui Fudosan 1,659,000 18,951 Mitsui Petrochemical Industries 269,000 1,265 Murata Manufacturing 368,000 13,568 National House Industrial 170,000 2,009 NEC 2,157,000 26,339 Nippon Hodo 176,000 1,244 Nippon Steel 4,634,000 13,215 Nippon Telephone & Telecom 993 7,001 Nomura Securities 1,078,000 12,059 Pioneer Electronic 435,000 7,779 Sangetsu 111,000 1,880 Sankyo 782,000 20,946 Sega Enterprises 109,150 2,872 Sekisui Chemical 1,131,000 10,870 Sekisui House 685,000 6,098 Seven Eleven Japan 98,000 6,215 Sharp 1,110,000 14,429 Shin-Etsu Chemical 617,000 12,444 Shiseido 197,000 2,825 Sony 282,800 20,586 Sumitomo 1,431,000 9,628 Sumitomo Electric Industries 1,672,000 22,656 Sumitomo Forestry 435,000 4,421 TDK 279,000 20,111 Teijin 1,811,000 7,319 Tokio Marine & Fire Insurance 341,000 3,331 Tokyo Electronics 144,100 $ 5,563 Tokyo Steel Manufacturing 325,000 3,482 Toppan Printing 598,000 7,726 Uny 361,000 6,342 Yurtec 154,000 1,480 Total Japan (Cost $619,752) 580,302 MALAYSIA 2.4% Common Stocks 2.3% Affin Holdings 2,451,000 5,906 Berjaya Sports Toto 1,572,000 7,513 Commerce Asset Holdings 771,333 4,608 MBF Capital 2,545,000 3,771 Multi-Purpose Holdings 3,042,000 4,967 Renong 5,284,000 7,240 Resorts World 887,000 3,268 Tanjong 2,061,000 7,470 Technology Resources Industries * 1,381,000 2,530 Time Engineering 1,215,000 2,226 United Engineers 2,299,000 16,298 65,797 Preferred Stocks 0.1% Multi-Purpose Holdings, Cv. Loan Stock, 3.00%, 1/13/02 3,574,000 1,331 Renong, Cv. Loan Stock, 4.00%, 5/21/01 696,200 247 1,578 Total Malaysia (Cost $65,378) 67,375 MEXICO 1.6% Common Stocks 1.6% Cemex (Class B) 478,840 1,760 Cemex ADS (USD) 505,972 3,352 Cifra (Class B) ADR (USD) 3,534,213 5,319 Fomentos Economico Mexicano (Class B) 332,862 1,562 Gruma (Class B) * 608,899 2,873 Gruma (Class B) ADS (USD) * 147,828 2,799 Grupo Financiero Banamex (Class B) * 966,552 2,068 Grupo Financiero Banamex (Class L) * 31,801 64 Grupo Financiero Bancomer (Class L) * 8,266 2 Grupo Industrial Maseca (Class B) * 1,664,467 $ 1,625 Grupo Modelo (Class C) 347,864 2,110 Grupo Televisa GDR (USD) 49,322 1,141 Kimberly-Clark Mexico (Class A) 1,001,310 3,642 Panamerican Beverages (Class A) (USD) 201,428 5,841 Telefonos de Mexico (Class L) ADR (USD) 285,614 11,782 Total Mexico (Cost $51,444) 45,940 NETHERLANDS 10.4% Common Stocks and Warrants 10.4% ABN Amro Holdings 245,640 16,882 Ahold 185,780 12,682 Akzo Nobel 21,098 2,718 Baan Company (USD) 58,260 3,131 CSM 241,579 13,875 Elsevier 2,731,665 43,745 Fortis Amev 264,177 9,966 Hagemeyer 58,930 5,127 ING Groep 716,275 28,125 ING Groep, Warrants, 3/15/01* 149,267 1,354 Koninklijke PTT Nederland 96,125 3,414 Nutricia 38,584 5,854 Otra 45,880 730 Polygram 359,639 17,628 Royal Dutch Petroleum 324,477 57,991 Unilever 104,666 20,355 Wolters Kluwer 394,741 46,782 290,359 Preferred Stocks 0.0% ING Groep 10,797 55 55 Total Netherlands (Cost $215,239) 290,414 NEW ZEALAND 0.5% Common Stocks 0.5% Air New Zealand (Class B) 965,300 2,791 Carter Holt Harvey 499,115 1,107 Fernz 293,080 985 Fletcher Challenge Building 798,544 2,242 Fletcher Challenge Energy 158,044 459 Fletcher Challenge Forests Division 1,720,589 2,374 Fletcher Challenge Paper 520,089 $ 1,154 Telecom Corporation of New Zealand 698,372 3,132 Total New Zealand (Cost $14,319) 14,244 NORWAY 1.8% Common Stocks 1.8% Bergesen (Class A) 46,430 959 Norsk Hydro 464,112 22,615 Orkla (Class A) 287,210 24,078 Saga Petroleum (Class B) 85,950 1,382 Total Norway (Cost $34,865) 49,034 PANAMA 0.0% Common Stocks 0.0% Banco Latinoamericano de Exportaciones (Class E) (USD) 25,252 1,158 Total Panama (Cost $1,243) 1,158 PERU 0.1% Common Stocks 0.1% Credicorp (USD) 54,960 1,154 Telefonica del Peru (Class B) 316,910 764 Telefonica del Peru (Class B) ADS (USD) 83,788 2,011 Total Peru (Cost $3,495) 3,929 PHILIPPINES 0.3% Common Stocks 0.3% Philippine Long Distance Telephone 65,100 3,715 Philippine National Bank * 583,137 3,826 Total Philippines (Cost $9,923) 7,541 PORTUGAL 0.5% Common Stocks and Warrants 0.5% Jeronimo Martins * 235,327 14,078 Jeronimo Martins, Warrants, 9/15/03 * 17,610 319 Total Portugal (Cost $5,749) 14,397 RUSSIA 0.0% Common Stocks 0.0% Rao Gazprom ADS (USD) * 38,080 594 Total Russia (Cost $600) 594 SINGAPORE 2.0% Common Stocks and Warrants 2.0% City Developments 405,000 $ 3,274 DBS Land 1,075,000 3,476 Development Bank of Singapore 290,000 3,446 Fraser & Neave 415,400 3,013 Keppel 237,000 1,031 Keppel (Class A), New * 59,250 252 Overseas Chinese Bank 192,000 2,242 Overseas Union Bank 1,282,000 8,414 Singapore Land 1,218,000 5,680 Singapore Press 497,820 9,217 United Industrial 1,853,000 1,395 United Overseas Bank 1,261,352 11,851 United Overseas Bank, Warrants, 6/17/97 * 72,940 251 Wing Tai Holdings 867,000 2,240 Total Singapore (Cost $60,124) 55,782 SOUTH KOREA 0.5% Common Stocks 0.5% Cho Hung Bank 275,000 1,501 Hanil Securities * 33,000 178 Kook Min Bank 106,430 2,038 Korea Electric Power 166,400 4,962 Pohang Iron & Steel 30,660 2,229 Samsung Electronic 49,299 4,053 Shinhan Bank 14,500 220 Total South Korea (Cost $21,481) 15,181 SPAIN 2.3% Common Stocks 2.3% Aguas de Barcelona 728 29 Argentaria Banca de Espana 82,960 3,700 Banco Bilbao Vizcaya 44,550 2,998 Banco Popular Espanol 33,391 7,080 Banco Santander 131,423 9,888 Centros Comerciales Pryca 91,773 1,594 Empresa Nacional de Electricidad 120,872 8,449 Gas Natural 44,581 9,468 Iberdrola 587,376 6,629 Repsol 192,360 8,065 Telefonica de Espana 262,051 6,712 Total Spain (Cost $49,902) 64,612 SWEDEN 2.4% Common Stocks 2.4% ABB (Class A) 429,500 $ 5,229 Astra (Class B) 637,607 25,318 Atlas Copco (Class B) 259,812 6,442 Electrolux (Class B) 162,757 9,336 Esselte (Class B) 49,870 1,138 Hennes & Mauritz (Class B) 81,991 11,863 Nordbanken 13,300 408 Sandvik (Class A) 40,050 988 Sandvik (Class B) 272,400 6,702 Scribona (Class B) 49,060 610 Total Sweden (Cost $49,566) 68,034 SWITZERLAND 5.5% Common Stocks and Warrants 5.5% ABB 17,440 21,118 Adecco 43,363 14,473 Ciba Specialty Chemicals * 29,943 2,580 Credit Suisse Group 46,155 5,197 Nestle 21,793 26,463 Novartis 33,203 43,742 Roche Holdings 3,734 31,537 Roche Holdings, Warrants, 5/5/98 * 31 2 Schweizerischer Bankverein 41,064 8,970 Total Switzerland (Cost $112,747) 154,082 THAILAND 0.2% Common Stocks 0.2% Advanced Information Service 139,974 932 Bangkok Bank 252,317 2,338 Siam Cement 26,025 697 Thai Farmers Bank 272,576 1,649 Total Thailand (Cost $9,478) 5,616 UNITED KINGDOM 16.2% Common Stocks 16.2% Abbey National 1,200,440 16,635 Argos 1,161,200 12,120 Asda Group 4,778,530 8,906 BG * 901,200 2,629 British Petroleum 855,802 9,806 Cable & Wireless 2,068,200 $ 15,922 Cadbury Schweppes 1,417,578 11,786 Caradon 2,261,350 9,053 Centrica * 901,200 825 Coats Viyella 709,000 1,517 Compass Group 760,000 8,327 David S. Smith 1,183,500 4,297 Electrocomponents 746,000 4,788 GKN 138,000 2,126 Glaxo Wellcome 1,419,650 27,910 Grand Metropolitan 2,436,000 20,412 Guinness 2,078,000 17,109 Heywood Williams Group 249,576 993 Hillsdown Holdings 675,300 1,992 John Laing (Class A) 594,300 3,535 Kingfisher 2,116,977 22,920 Ladbroke Group 1,074,000 4,038 National Westminster Bank 3,625,619 42,838 Rank Group 1,334,000 9,189 Reed International 1,842,570 33,925 Rolls Royce 543,851 2,142 RTZ 977,960 15,502 Safeway 1,772,200 9,737 Sears 504,000 629 Shell Transport & Trading 1,665,000 29,495 SmithKline Beecham 3,416,015 54,700 T & N 1,399,000 3,038 Tesco 1,464,903 8,452 Tomkins 4,234,080 18,254 United News & Media 1,651,620 20,264 Total United Kingdom (Cost $357,160) 455,811 VENEZUELA 0.1% Common Stocks 0.1% Compania Anonima Nacional Telefonos de Venezuela (Class D) ADR (USD) * 51,920 1,558 Total Venezuela (Cost $1,194) 1,558 SHORT-TERM INVESTMENTS 4.6% Commercial Paper 3.8% Abbey National North America, 5.52%, 6/11/97 $ 1,000,000 $ 994 Becton Dickinson, 5.30%, 7/30/97 1,225,000 1,209 Bell Atlantic Financial Services, 5.53%, 5/1/97 10,000,000 10,000 Caisse des Depots et Consignations, 4(2), 5.52%, 5/16/97 5,000,000 4,989 Corporate Asset Funding 4(2), 5.52%, 5/7/97 5,000,000 4,995 Delaware Funding, 4(2), 5.53-5.55%, 5/15-6/2/97 15,000,000 14,940 Du Pont (EI) de Nemours, 5.51%, 5/21/97 4,800,000 4,785 Finova Capital, 5.53%, 5/21/97 12,000,000 11,963 Great Lakes Chemical, 4(2), 5.56%, 5/27/97 4,500,000 4,482 Mobil Australia Finance, 4(2), 5.53%, 5/12/97 2,300,000 2,296 National Australia Funding, 5.51%, 5/21/97 10,000,000 9,969 Preferred Receivables Funding, 5.52%, 5/22/97 10,000,000 9,968 RTZ America, 4(2), 5.53-5.58%, 5/1-6/17/97 9,500,000 9,467 Statoil (Den Norske Stats Oljeselskap), 5.50%, 5/13/97 10,000,000 9,982 Investments in Commercial Paper through a Joint Account, 5.60%, 5/1/97 5,616,191 5,616 105,655 Certificates of Deposit 0.8% Banque National de Paris, 6.07%, 3/24/98 1,000,000 $ 999 Canadian Imperial Bank Commerce, 5.53%, 5/23/97 10,000,000 10,000 Hessische Landesbank, 6.13%, 4/7/98 1,000,000 999 United States National Bank Oregon, 5.53%, 5/19/97 10,000,000 10,000 21,998 Total Short-Term Investments (Cost $127,653) 127,653 Total Investments in Securities 101.3% of Net Assets (Cost $2,471,850) $ 2,843,681 Other Assets Less Liabilities (35,964) NET ASSETS $ 2,807,703 ___________ Net Assets Consist of: Accumulated net investment income - net of distributions $ 15,703 Accumulated net realized gain/loss - net of distributions 27,213 Net unrealized gain (loss) 371,495 Paid-in-capital applicable to 173,578,188 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares authorized 2,393,306 NET ASSETS $ 2,807,717 ___________ NET ASSET VALUE PER SHARE $ 16.18 ___________ * Nonincome producing 4(2) Commercial Paper sold within terms of a private placement memorandum, exempt from registration under section 4.2 of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers -- total of such securities at period-end amounts to 0.13% of net assets. BEF Belgian Franc HKD Hong Kong dollar USD U.S. dollar Statement of Operations Foreign Equity Fund (Unaudited) In thousands 6 Months Ended 4/30/97 Investment Income Income Dividend (net of foreign taxes of $ 3,133) $ 22,955 Interest 3,257 Total income 26,212 Expenses Investment management 8,880 Custody and accounting 448 Registration 92 Shareholder servicing 14 Legal and audit 9 Directors 7 Prospectus and shareholder reports 1 Miscellaneous 6 Total expenses 9,457 Net investment income 16,755 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 34,459 Foreign currency transactions (1,101) Net realized gain (loss) 33,358 Change in net unrealized gain or loss Securities 97,332 Other assets and liabilities denominated in foreign currencies (352) Change in net unrealized gain or loss 96,980 Net realized and unrealized gain (loss) 130,338 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $147,093 _________ The accompanying notes are an integral part of these financial statements. Statement of Changes in Net Assets Foreign Equity Fund (Unaudited) In thousands 6 Months Year Ended Ended 4/30/97 10/31/96 Increase (Decrease) in Net Assets Operations Net investment income $ 16,755 $ 33,107 Net realized gain (loss) 33,358 37,807 Change in net unrealized gain or loss 96,980 178,907 Increase (decrease) in net assets from operations 147,093 249,821 Distributions to shareholders Net investment income (33,767) (21,229) Net realized gain (26,079) (21,229) Decrease in net assets from distributions (59,846) (42,458) Capital share transactions* Shares sold 507,211 772,534 Distributions reinvested 43,555 30,404 Shares redeemed (152,765) (247,451) Increase (decrease) in net assets from capital share transactions 398,001 555,487 Net Assets Increase (decrease) during period 485,248 762,850 Beginning of period 2,322,469 1,559,619 End of period $ 2,807,717 $ 2,322,469 _________________________________________________________ *Share information Shares sold 31,687 51,462 Distributions reinvested 2,750 2,138 Shares redeemed (9,547) (16,389) Increase (decrease) in shares outstanding 24,890 37,211 The accompanying notes are an integral part of these financial statements. Notes to Financial Statements Foreign Equity Fund 4/30/97 (Unaudited) Note 1 - Significant Accounting Policies T. Rowe Price Institutional International Funds, Inc., (the corporation) is registered under the Investment Company Act of 1940. The Foreign Equity Fund (the fund), a diversified, open-end management investment company, is the sole portfolio currently established by the corporation and commenced operations on September 7, 1989. Valuation Equity securities are valued at the last quoted sales price at the time the valuations are made. A security which 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. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Short-term debt securities are valued at amortized cost which approximates fair value. For purposes of determining the fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. Assets and liabilities 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 or under the supervision of the officers of the fund, as authorized by the Board of Directors. Currency Translation Assets and liabilities are translated into U.S. dollars at the prevailing exchange rate at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing exchange rate on the dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains and losses. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. 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 State-ment of Additional Information. Emerging Markets At April 30, 1997, the fund held investments in securities of companies located in emerging markets. Future economic or political developments could adversely affect the liquidity or value, or both, of such securities. Commercial Paper Joint Account The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $529,518,000 and $157,194,000, respectively, for the six months ended April 30, 1997. 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 and distribute all of its taxable income. At April 30, 1997, the aggregate cost of investments for federal income tax and financial reporting purposes was $2,471,850,000, and net unrealized gain aggregated $371,831,000, of which $501,005,000 related to appreciated investments and $129,174,000 to depreciated investments. Note 4 - Related Party Transactions The fund is managed by Rowe Price-Fleming International, Inc. (the manager), which is owned by T. Rowe Price Associates, Inc. (Price Associates), Robert Fleming Holdings Limited, and Jardine Fleming Hold-ings Limited under a joint venture agreement. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $1,575,000 was payable at April 30, 1997. The fee is computed daily and paid monthly, and is equal to 0.70% of average daily net assets. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $64,000 for the six months ended April 30, 1997, of which $11,000 was payable at period-end. During the six months ended April 30, 1997, the fund, in the ordinary course of business, placed security purchase and sale orders aggregating $27,427,000 with certain affiliates of the manager and paid commissions of $98,000 related thereto. Chart 1 - Geographic Diversification - Geographic Diversification pie chart, showing: Europe 56%, Japan 21%, Far East 12%, Latin America 8%, Other and Reserves 3%. Chart 2 - A line chart showing the cumulative growth of $10,000 invested in the Foreign Equity Fund over the past 10 years (or from inception for funds lacking 10-year histories) compared with $10,000 invested in a broad-based index or average over the same period. -----END PRIVACY-ENHANCED MESSAGE-----