N-30D 1 0001.txt Semiannual Report April 30, 2000 Foreign Equity Fund Dear Investor International stock markets provided solid gains during the six months ended April 30, 2000. Strength in various technology sectors drove telecommunications, media, and technology stocks sharply higher prior to a dramatic reversal in mid-March. While investors refocused their attention on value, cyclical, and more defensive growth stocks late in the quarter, stocks connected to technology and the so-called New Economy dominated the period. Performance Comparison --------------------------------------------------------------------------- Periods Ended 4/30/00 6 Months 12 Months --------------------------------------------------------------------------- Foreign Equity Fund 14.11% 21.11% MSCI EAFE Index 6.84 14.17 Lipper International Funds Average 14.17 24.75 Your fund provided robust returns for the 6- and 12-month periods shown in the table. Performance was well ahead of the MSCI EAFE Index and in line with the Lipper International Funds Average for the past six months, and a bit behind Lipper for the past year. Our exposure to several buoyant markets such as Brazil, Mexico, and Sweden, and underweighting of weaker ones including the U.K., Japan, and Switzerland helped results relative to the EAFE index. Substantial positions in the technology and media sectors also lifted performance, as did successful stock selection in several countries (Japan, Hong Kong, Italy) and sectors (telecom, banking). Your fund's combination of more reasonably valued telecommunications, media, and technology stocks and less dynamic steady-growth holdings in other sectors helped performance when leadership changed in March. The strength of New Economy stocks and sectors contrasted sharply with those of other industries. Telecom and Internet-related companies and their suppliers soared, while established enterprises such as food manufacturers and utilities were left far behind. Performance was divided between big winners and some significant losers. However, sector leadership changed as an abundant supply of new issues reduced the value of Internet-related investments and investors grew concerned about valuations. Pharmaceuticals, consumer cyclicals, and financials started to recover. Performance in technology-related sectors became increasingly selective and volatile with investors growing concerned about stocks with great potential, perhaps, but no signs of earnings. Improving international economies provided a supportive backdrop for stocks. Europe enjoyed stronger-than-expected growth, with further consolidation in the telecom and banking sectors. The euro's 13% decline against the dollar over the past six months had several causes: investments flowing out of the euro zone as European companies acquired U.S. companies, the persistent gap between exceptionally strong U.S. growth compared with moderate growth in Europe, and higher interest rates in the U.S. In Japan, while stronger capital expenditure and steadily improving industrial production signaled a reviving economy, unemployment remained high and the consumer sector weak. The economic recovery continued throughout the rest of the Pacific. The possible entry of China into the World Trade Organization encouraged investment there. In Latin America, economies also improved. Mexico's debt rating was raised to investment grade, further boosting regional prospects. INVESTMENT REVIEW At the end of April, Europe represented 59% of net assets, down from 64% in October. Within the region, the U.K. remained the largest country exposure at 17%. Japan was the largest country weighting overall at 20% of net assets, off two percentage points from six months ago. In the Far East, our exposure was stable at 8%. In Latin America, we split most of the portfolio between Mexico and Brazil. Your fund was underweighted in Europe and Japan relative to the EAFE index, but overweighted in the rest of Asia and Latin America. These shifts were due to regional differences in performance and to some holdings in Asia. Our purchases focused on selected New Economy stocks with strong potential and on more traditional stocks, including banks and pharmaceuticals, which appeared oversold based on their growth prospects. Geographic Diversification --------------------------------------------------------------------------- Europe Japan Far East Latin America Other and Reserves 59 20 8 4 9 Based on net assets as of 4/30/00. Europe Country performance varied considerably, depending more on each country's component of technology issues than on local factors. The Swedish and Finnish markets were strongest, up 53% and 81% in U.S. dollar terms, respectively, due mostly to the gains of technology leaders LM Ericsson and Nokia. Stocks in Germany rose 16% (more than 33% in local currency terms) as its large technology and telecom stocks soared. The weak euro sharply reduced returns for U.S. investors in the euro zone. In France, technology and media accounted for much of the market's 15% rise in dollar terms and 32% in local currency. The U.K. and Switzerland, with fewer technology and telecom companies, were the weakest major markets, falling 3% and 8%, respectively. Poorer performance from financial services companies and pharmaceuticals held back their returns. Market Performance --------------------------------------------------------------------------- Six Months Local Local Currency U.S. Ended 4/30/00 Currency vs. U.S. Dollars Dollars --------------------------------------------------------------------------- Australia 0.79% -8.43% 1.44% France 32.23 -13.30 14.64 Germany 33.25 -13.30 15.53 Hong Kong 12.27 - 0.25 11.99 Italy 26.37 -13.30 9.56 Japan 7.07 - 3.44 3.39 Mexico 18.45 2.19 21.04 Netherlands 17.19 -13.30 1.60 Singapore 2.22 - 2.56 - 0.40 Sweden 66.38 - 7.98 53.09 Switzerland 4.18 -11.44 - 7.73 United Kingdom 1.57 - 4.64 - 3.14 Source: RIMES Online, using MSCI indices. Mobile telecom revenues are expected to rise in Europe as Internet-compatible mobile telephones are introduced and customer usage increases. The biggest news in the sector was U.K.-based mobile telecom Vodafone Airtouch's acquisition of Germany's second largest telecom, Mannesmann. The deal reinforced Vodafone's preeminence as the leading global mobile business. The initial public offerings (IPOs) of Terra Networks, controlled by Spanish telecom Telefonica, and T-Online, controlled by Deutsche Telekom, were hugely oversubscribed and their prices soared accordingly. U.K.-based Cable & Wireless, which carries about a third of the world's Internet traffic, and United Pan-Europe Communications of the Netherlands, with cable networks throughout Europe, both performed strongly due to cable networks' potential for high-speed broadband transmission. Media companies surged because of their popular content, which can be provided to Internet users. Another stimulus was the prospect for further growth as Internet access via digital/interactive TV develops. Winners included Italy's Telecom Italia and Television Francaise. Telecom Italia's announcement that it would combine its dominant Internet subsidiary with Seat, and acquire that company in the process, propelled Seat even higher, while the continued ascent of Television Francaise reflected increasing advertising demand, market leadership, and the potential for Internet-related growth. T. Rowe Price Becomes Sole Owner of International Investment Manager --------------------------------------------------------------------------- As an international investor, you may be aware that the T. Rowe Price international and global stock and bond funds have always been managed by Rowe Price-Fleming International, Inc., a joint venture formed in 1979 between T. Rowe Price Associates and London-based Robert Fleming Holdings, Limited. On April 11, 2000, T. Rowe Price announced an agreement to purchase the 50% of the joint venture owned by Flemings, thus becoming the sole owner of the management company. In due course, the name of Rowe Price-Fleming International will be changed to reflect its new status. The change in ownership structure will not affect the investment approach or operations of our international funds. We expect Rowe Price-Fleming's leadership and professional staff to remain in place, together with the substantial resources and expertise built up over the past 20 years. Likewise, there will be no change in the offices in London, Hong Kong, Tokyo, Singapore, Buenos Aires, Paris, and Baltimore. Under the U.S. securities laws, the assignment of the funds' investment management contract to a new entity is subject to shareholder approval. Accordingly, after the purchase is concluded later this year, we will set a date for a shareholder meeting and send you a proxy with voting information. The formation of Rowe Price-Fleming 20 years ago opened the way for T. Rowe Price to expand the investment services offered to shareholders and clients. As an integral part of T. Rowe Price, this very successful international investment manager will provide significant opportunities to enhance those services. Technology stocks rocketed as markets for mobile telecom handsets, network infrastructure, and other communications equipment mushroomed. Nokia and LM Ericsson both benefited as demand for their telecom equipment and infrastructure escalated, and we increased our holdings in LM Ericsson during the past six months. STMicroelectronics in France, Germany's Siemens, and Philips Electronics and ASM Lithography in the Netherlands all performed strongly due to the demand for telecom, broadcasting, and Internet products. As sector leadership changed in March, neglected energy producers, financials, basic materials, and pharmaceuticals rebounded, although they still trailed far behind technology stocks. Energy producers Royal Dutch Petroleum/Shell Transport & Trading (Netherlands/U.K.) and TotalFina (France) made tangible progress with restructuring. The latter became more optimistic about its prospects for cost reductions and various synergies as the merger between the two previously independent companies progressed further. After a dull period, the earnings outlook for pharmaceutical giant Glaxo Wellcome improved and we added to the stock. The company's agreement to merge with SmithKline Beecham enhanced its prospects for growth. The banking sector consolidated as Royal Bank of Scotland Group won a battle against Bank of Scotland to acquire National Westminster Bank. Finnish/Swedish Nordic Baltic Holding acquired its Danish neighbor Unidanmark, and U.K.-based HSBC acquired French/Belgian bank CCF. Unfortunately, the fund had its share of losers as well. We were disappointed by investors' failure to reward companies with histories of solid, long-term earnings growth while favoring many New Economy stocks with little or no earnings. Food and beverage and some financial stocks were particularly hard hit. Among them were Unilever of the U.K. and Belgian/Netherlands insurer Fortis. Far East and Other In Japan, performance peaked early in 1999 and lagged during the past six months. However, the sedate 3% rise in dollar terms masked volatile swings and a wide disparity among sector performances. Our holdings in established, fundamentally sound technology and consumer electronics companies performed well in an environment of surging demand for their products. Sony rose sharply following an announcement of its intention to provide Internet banking, launch an Internet-compatible product, and split its shares. Restructuring, robust demand, and plans for Internet alliances and services drove the shares of NEC and Toshiba higher. Canon's successful range of digital products and its strengthening position in the semiconductor production equipment market accounted for its buoyancy. Murata Manufacturing, best known for leadership in mobile handset components, and Kyocera for handset production, also rose. Telecom and media were other leading sectors. The agreement among DDI, IDO, and KDD to merge marked the first step in the consolidation of telecom companies, and Kyocera's sharp gain partly reflected its status as the largest shareholder in the proposed new entity. The strong performance of Japan's dominant mobile telecom, NTT DoCoMo, reflected the success of its Internet- compatible services. We added to this position during the period. Media company Fuji Television Network climbed due to its popular programs, advertising growth, and potential to provide viewers with Internet access. Outside technology, your fund's low exposure to declining banking stocks helped performance. Brokerage firms, in contrast, registered strong gains due to record launches of stock funds. Nomura Securities, which surged in this environment, expects to benefit as savings accounts containing over $1 trillion mature during the next two years. A significant percentage of this money is likely to be invested into equity funds. Perceiving that bank stocks had been oversold during the period, we added to Sumitomo Bank and established a new position in Fuji Bank. Despite the high-flying technology sectors, Japan's economy remained lackluster. Fourth-quarter GDP was off 1.4% from the third quarter, and unemployment rose to a postwar high of 4.9%. While industrial production strengthened, worries about future job losses depressed consumer spending and retail sales as company restructuring and bankruptcies increased. Underfunding of corporate pensions and planned cuts to national pension benefits also hurt consumption. Industry Diversification --------------------------------------------------------------------------- Percent of Net Assets 4/30/00 --------------------------------------------------------------------------- Services 38.9% Capital Equipment 17.5 Finance 15.9 Consumer Goods 14.1 Energy 5.8 Multi-industry 1.5 Materials 1.4 Reserves 4.9 Total 100.0% Technology-related stocks also led markets in Asia outside of Japan. Singapore and South Korea were weaker since lagging financial, natural resources, and industrial companies dominate those markets. In contrast, Hong Kong, Taiwan, and India registered double-digit gains because of their exposure to technology-related issues. Hong Kong's leading performers were Internet company Pacific Century CyberWorks, China Telecom (Hong Kong), and diversified Internet portal holding company Hutchison Whampoa. Rapidly growing demand, impressive results, and the possible admission of China to the World Trade Organization stimulated China Telecom, one of the world's largest cellular phone operators, which provides mobile telecom services in China. Hutchison's announcements of several Internet-related deals drove its performance. Among our laggards in this region, Henderson Land Development fell in price as property values failed to recover as expected. In the region's emerging markets, South Korean technology giant Samsung Electronics, with significant market positions in semiconductors, flat panel screens, and mobile handsets, rose rapidly through the quarter and we added to this position. In Taiwan, two of the world's leading electronic component producers, Taiwan Semiconductor Manufacturing and Hon Hai Precision Industry, performed extremely well. Indian finance company ICICI was one of the region's best performers, helped by the company's focus on returns, beneficial government reforms, and the potential for increased market share versus the state-owned banks. Despite overall weakness in the Australian market, our media holdings there were winners. Both News Corporation and Publishing & Broadcasting have valuable content and Internet businesses. NewsCorp's interests extend globally and range from film to digital television and program content production, and we added to these holdings. On the losing side of the ledger, telecom Telstra suffered from a rapid decline in its core business and the slow pace of the company's Internet development. Latin America Further economic advances in Brazil and Mexico, coupled with the buoyancy ofregional technology stocks, pushed Brazil up 38% and Mexico 21% in dollar terms. Brazilian investors contributed to gains there as they switched from bonds to stocks when interest rates fell from over 30% early in 1999 to around 19%. However, Brazil's need to fund its fiscal deficit and Mexico's close trade links with the U.S. make their markets sensitive to changes in U.S. interest rates, economic growth, and stock performance. Your portfolio's largest positions in the region, Telebras in Brazil and Telmex in Mexico, performed well. Both have significant growth prospects because market penetration is low and improving economic conditions encourage consumer spending. They also carry more attractive valuations than their peers in developed markets. In this market, we added to media company Grupo Televisa. Brazil's major energy stock, Petrobras, was another market leader as the company's restructuring raised returns and earnings. Its growth potential and the possibility of further deregulation also encouraged investors. INVESTMENT POLICY AND OUTLOOK Accelerating deregulation, restructuring, and consolidation in Europe are key catalysts for earnings growth. The convergence of information and communication technologies and their application to traditional businesses are additional stimuli for further market gains. If Japan's growth potential is to be fully realized, it will need to complement its leading position in New Economy technology with a willingness to alter traditional ways of doing business. In the rest of Asia, the slow but steady pace of reform, coupled with economic recovery, could fuel growth of traditional and Internet-related sectors. The region's enthusiastic embracing of the New Economy should also stimulate markets. Around the world, the extent to which companies can increase shareholder value by integrating new technologies and the Internet with traditional businesses, or by providing networks and software, will benefit their earnings outlooks. Competition drives prices down, bringing rewards to consumers and to the shareholders of companies that compete best. Following a year of speculation in Internet and technology stocks, we welcome a return to selectivity and a focus on financial fundamentals. After this period of volatility and consolidation among technology companies is over, the firms that can compete and flourish in this changing environment will emerge as winners over time. With this transition taking place and interest rates rising, we expect the stock market volatility to continue during the next few months. Your fund contains the stocks of diverse companies with solid fundamentals and leading market positions across a wide range of industries and international markets. We believe this approach will continue to serve our shareholders well over the long term. Respectfully submitted, Martin G. Wade Chairman John R. Ford President May 19, 2000 New President of T. Rowe Price International Funds After more than 20 years as president of T. Rowe Price International Funds, Inc., Martin G. Wade has passed the baton to his colleague, John R. Ford. John Ford has been associated with T. Rowe Price's international investment management arm since 1984. He currently serves on the Investment Advisory Committees of all the T. Rowe Price international equity funds. Mr. Wade was instrumental in the launching of T. Rowe Price's first foreign stock offering, the International Stock Fund, in 1980, and played a key role thereafter in the company's increasing presence as an international asset manager. He remains associated with the International Funds as chairman and is also a member of the Board of Directors of T. Rowe Price Associates. Portfolio Highlights Twenty-Five Largest Holdings -------------------------------------------------------------------------------- Percent of Net Assets Company Country 4/30/00 -------------------------------------------------------------------------------- Vodafone Airtouch United Kingdom 3.1% Nokia Finland 3.0 Glaxo Wellcome United Kingdom 1.8 Sony Japan 1.7 Television Francaise France 1.6 Murata Manufacturing Japan 1.5 News Corporation Australia 1.5 Vivendi France 1.5 TotalFina France 1.4 NTT DoCoMo Japan 1.4 Shell Transport & Trading United Kingdom 1.3 Cable & Wireless Hong Kong/ United Kingdom 1.3 Kyocera Japan 1.3 Nippon Telegraph & Telephone Japan 1.3 Philips Electronics Netherlands 1.3 Telecom Italia Mobile Italy 1.3 NEC Japan 1.2 Canon Japan 1.2 Adecco Switzerland 1.2 LM Ericsson Sweden 1.2 Royal Bank of Scotland Group United Kingdom 1.1 Telebras Brazil 1.1 ING Groep Netherlands 1.1 Samsung Electronics South Korea 1.0 VNU Netherlands 1.0 Total 36.4% -------------------------------------------------------------------------------- Note: Table excludes reserves Security Classification -------------------------------------------------------------------------------- Percent Market of Net Cost Value 4/30/00 Assets (000) (000) -------------------------------------------------------------------------------- Common Stocks 93.5% $2,335,943 $3,406,050 Preferred Stocks 1.6 51,283 59,989 Short-Term Investments 4.5 162,168 162,168 Total Investments 99.6 2,549,394 3,628,207 Other Assets Less Liabilities 0.4 15,495 15,495 Net Assets 100.0% $2,564,889 $3,643,702 -------------------------------------------------------------------------------- Summary of Investments and Cash -------------------------------------------------------------------------------- April 30, 2000 Percent of Equities Cash Total MSCI EAFE Europe Austria -- -- -- 0.2% Belgium 0.6% -- 0.6% 0.7 Denmark 0.2 -- 0.2 0.7 Finland 3.0 -- 3.0 3.6 France 10.5 -- 10.5 10.8 Germany 4.3 -- 4.3 9.1 Ireland 0.3 -- 0.3 0.4 Italy 4.9 -- 4.9 4.1 Netherlands 7.1 -- 7.1 5.1 Norway 0.2 -- 0.2 0.3 Portugal 0.1 -- 0.1 0.4 Spain 2.8 -- 2.8 2.7 Sweden 3.5 -- 3.5 3.5 Switzerland 3.6 -- 3.6 5.4 United Kingdom 17.3 -- 17.3 20.3 Total Europe 58.4% -- 58.4% 67.3% -------------------------------------------------------------------------------- Pacific Basin Australia 3.1% -- 3.1% 2.3% Hong Kong 3.0 -- 3.0 2.2 India 1.2 -- 1.2 -- Japan 20.3 -- 20.3 27.2 New Zealand 0.2 -- 0.2 0.1 Singapore 0.5 -- 0.5 0.9 South Korea 1.5 -- 1.5 -- Taiwan 1.5 -- 1.5 -- Total Pacific Basin 31.3% -- 31.3% 32.7% -------------------------------------------------------------------------------- Americas Argentina 0.1% -- 0.1% -- Brazil 2.1 -- 2.1 -- Canada 1.1 -- 1.1 -- Chile -- -- -- -- Mexico 2.1 -- 2.1 -- Panama -- -- -- -- Peru -- -- -- -- United States -- 4.5% 4.5 -- Venezuela -- -- -- -- Total Americas 5.4% 4.5% 9.9% -- -------------------------------------------------------------------------------- Other Assets Less Liabilities -- 0.4 0.4 -- TOTAL 95.1% 4.9% 100.0% 100.0%* -------------------------------------------------------------------------------- * Total may not add to 100.0% due to rounding. Foreign Equity Fund 4/30/00 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 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. Foreign Equity Fund -------------------------------------------------------------------------------- Lipper Foreign MSCI International Equity EAFE Funds Fund Index Average 4/30/90 10.000 10.000 10.000 4/91 10.615 10.471 10.308 4/92 11.261 9.6150 10.778 4/93 12.250 11.735 11.737 4/94 15.245 13.724 14.469 4/95 15.517 14.531 14.563 4/96 18.273 16.238 16.977 4/97 19.595 16.141 18.320 4/98 22.966 19.245 22.329 4/99 24.497 21.132 22.748 4/00 29.668 24.128 26.974
Total Return Performance -------------------------------------------------------------------------------- Calendar Periods Ended 4/30/00 1 Month 3 Months Year-to-Date 1 Year 3 Years* 5 Years* 10 Years* -------------------------------------------------------------------------------- Foreign Equity Fund -5.91% 0.57% -5.41% 21.11% 14.83% 13.84% 11.49% S&P 500 Index -3.01 4.46 -0.78 10.13 23.69 25.26 18.78 MSCI EAFE Index -5.24 1.12 -5.29 14.17 14.34 10.67 9.21 Lipper International Funds Average -6.31 -0.02 -5.66 24.75 15.37 13.15 10.15 FT-A Euro Pacific Index -4.95 0.24 -6.45 14.33 13.95 10.03 8.75 * 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. 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 ----------------------------------------------------------- 6 Months Year Ended Ended 4/30/00 10/31/99 10/31/98 10/31/97 10/31/96 10/31/95 NET ASSET VALUE Beginning of period $ 20.08 $ 17.03 $ 16.51 $ 15.62 $ 13.99 $ 14.59 Investment activities Net investment income (loss) 0.03 0.21 0.28 0.21 0.21 0.18 Net realized and unrealized gain (loss) 2.74 3.26 0.93 1.07 1.78 (0.14) Total from investment activities 2.77 3.47 1.21 1.28 1.99 0.04 Distributions Net investment income (0.17) (0.29) (0.21) (0.22) (0.18) (0.12) Net realized gain (1.34) (0.13) (0.48) (0.17) (0.18) (0.52) Total distributions (1.51) (0.42) (0.69) (0.39) (0.36) (0.64) NET ASSET VALUE End of period $ 21.34 $ 20.08 $ 17.03 $ 16.51 $ 15.62 $ 13.99 ---------------------------------------------------------- Ratios/Supplemental Data Total return (diamond) 14.11% 20.79% 7.65% 8.30% 14.48% 0.64% Ratio of total expenses to average net assets 0.74%! 0.74% 0.74% 0.75% 0.76% 0.80% Ratio of net investment income (loss) to average net assets 0.31%! 1.08% 1.58% 1.40% 1.67% 1.69% Portfolio turnover rate 52.7%! 18.2% 18.6% 15.9% 13.8% 18.8% Net assets, end of period (in millions) $ 3,644 $ 3,361 $ 3,204 $ 3,160 $ 2,322 $ 1,560 (diamond) 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. ! Annualized The accompanying notes are an integral part of these financial statements. Portfolio of Investments Foreign Equity Fund April 30, 2000 (Unaudited) Shares Value -------------------------------------------------------------------------------- In thousands ARGENTINA 0.1% Common Stocks 0.1% Telefonica de Argentina (Class B) ADR (USD) 139,084 $ 4,885 Total Argentina (Cost $3,653) 4,885 AUSTRALIA 3.1% Common Stocks 2.3% Brambles Industries 314,500 8,853 Broken Hill Proprietary 384,362 4,139 Commonwealth Bank of Australia 556,691 8,479 Lend Lease 396,494 4,297 News Corporation 2,003,055 25,438 Publishing & Broadcasting 1,108,904 8,613 TABCORP Holdings 703,130 3,764 Telstra 2,201,098 9,435 Telstra, Installment receipts 511,000 1,307 Westpac Banking 1,269,411 8,103 82,428 Preferred Stocks 0.8% News Corporation 2,738,362 29,457 29,457 Total Australia (Cost $90,152) 111,885 BELGIUM 0.6% Common Stocks 0.6% Dexia (EUR) 59,701 7,739 Fortis B (EUR) 359,338 9,072 Societe Europeenne des Satellites (Class A) (EUR) 16,676 2,534 UCB (EUR) 40,015 1,346 Total Belgium (Cost $13,911) 20,691 BRAZIL 2.1% Common Stocks 1.4% Embratel Participacoes ADR (USD) 151,000 3,397 Pao de Acucar GDR (USD) 113,848 3,245 Telebras ADR (USD) 346,052 40,899 Unibanco GDR (USD) 114,158 2,847 50,388 Preferred Stocks 0.7% Banco Itau 46,901,000 3,507 Petrol Brasileiros 77,206,021 $ 18,392 Telesp-Telecomunicacoes de Sao Paulo 137,633,024 3,430 Telesp Celular 145,075,041 2,603 27,932 Total Brazil (Cost $68,172) 78,320 CANADA 1.1% Common Stocks 1.1% Alcan Aluminum 125,100 4,072 Celestica (USD) * 377,051 20,573 Nortel Networks 107,110 12,107 Royal Bank of Canada 54,210 2,559 Total Canada (Cost $26,111) 39,311 DENMARK 0.2% Common Stocks 0.2% Tele Danmark A/S 80,150 5,869 Total Denmark (Cost $3,834) 5,869 FINLAND 3.0% Common Stocks 3.0% Nokia (EUR) 1,888,480 108,331 Total Finland (Cost $17,091) 108,331 FRANCE 11.2% Common Stocks 11.2% Alcatel Alsthom (EUR) 118,041 27,364 Altran Technologies (EUR) 28,150 5,753 Aventis (EUR) 416,946 22,932 Aventis (DAX Exchange) (EUR) 64,389 3,477 AXA (EUR) 157,401 23,396 Banque National de Paris (EUR) 297,970 24,082 Canal Plus (EUR) 70,150 13,520 Cap Gemini (EUR) 66,040 12,962 Carrefour (EUR) 50,324 3,262 Cie de St. Gobain (EUR) 67,666 9,233 Danone (EUR) 18,620 4,071 Hermes (EUR) 44,320 6,326 L'Oreal (EUR) 5,162 3,566 Lafarge (EUR) 19,550 1,660 Legrand (EUR) 63,029 11,758 LVMH (EUR) 33,779 14,175 Sanofi Synthelabo (EUR) 469,320 $ 17,514 Schneider Electric (EUR) 59,878 3,919 Societe Generale (EUR) 25,181 5,215 Sodexho Alliance (EUR) 26,110 3,912 STMicroelectronics (EUR) 145,483 27,669 Television Francaise (EUR) 85,616 58,609 TotalFina (Class B) (EUR) 344,574 52,282 Vivendi (EUR) 540,854 53,496 Total France (Cost $255,764) 410,153 GERMANY 4.3% Common Stocks 4.2% Allianz (EUR) 49,730 19,137 Bayer (EUR) 104,824 4,367 Bayerische Vereinsbank (EUR) 321,244 19,888 Deutsche Bank (EUR) 285,797 19,201 Deutsche Telekom (EUR) 286,270 18,579 Gehe (EUR) 162,214 5,044 Infineon Technologies (EUR) * 272,843 18,789 Rhoen Klinikum (EUR) 138,312 5,099 SAP (EUR) 64,500 30,198 Siemens (EUR) 38,751 5,742 Veba (EUR) 143,236 7,188 153,232 Preferred Stocks 0.1% SAP (EUR) 4,410 2,600 2,600 Total Germany (Cost $124,383) 155,832 HONG KONG 3.0% Common Stocks 3.0% Cable & Wireless Hong Kong Telecom 2,994,550 7,074 Cheung Kong Holdings 1,630,670 19,470 China Telecom (Hong Kong) 4,046,130 28,959 Dao Heng Bank Group 1,675,500 7,744 Henderson Land Development 1,432,050 6,269 Hutchison Whampoa 1,759,660 25,528 Pacific Century CyberWorks 6,286,000 11,702 Sun Hung Kai Properties 479,400 3,754 Total Hong Kong (Cost $65,245) 110,500 INDIA 1.2% Common Stocks 1.2% Global Tele-Systems 240,000 $ 6,570 Hindustan Lever 252,000 13,826 ICICI Limited 858,000 2,648 ICICI Limited ADR (USD) 439,970 11,164 Mahanagar Telephone 1,614,000 8,322 Total India (Cost $40,107) 42,530 IRELAND 0.3% Common Stocks 0.3% SmartForce ADR (USD) * 212,538 10,228 Total Ireland (Cost $5,377) 10,228 ITALY 4.9% Common Stocks 4.9% Alleanza Assicurazioni (EUR) 1,017,000 10,521 Banca Intesa (EUR) 1,715,579 6,316 Banca Popolare di Brescia (EUR) 202,530 18,412 ENI (EUR) 2,609,532 12,977 Gucci Group (USD) 26,431 2,316 Mediaset (EUR) 752,000 12,203 Mediolanum (EUR) 864,845 14,349 San Paolo IMI (EUR) 513,006 7,182 Tecnost (EUR) 1,608,000 5,643 Telecom Italia (EUR) 2,049,950 28,662 Telecom Italia Mobile (EUR) 4,829,256 46,098 Unicredito (EUR) 3,511,719 14,239 Total Italy (Cost $111,205) 178,918 JAPAN 20.3% Common Stocks 20.3% Bridgestone 208,000 4,516 Canon 960,000 43,905 DDI 588 6,750 East Japan Railway 708 4,195 Fanuc 129,900 13,614 Fuji Bank 2,783,000 23,189 Fuji Television Network 1,501 25,013 Fujitsu 803,000 22,749 Hitachi 449,000 5,362 Ito-Yokado 109,000 7,962 Kao 203,000 6,183 Kokuyo 315,000 $ 4,477 Komori 134,000 1,837 Kyocera 278,000 46,507 Makita 404,000 3,508 Marui 629,000 11,821 Matsushita Electric Industrial 1,353,000 35,825 Mitsui Fudosan 1,072,000 10,897 Murata Manufacturing 285,000 55,409 NEC 1,667,000 45,373 Nippon Telegraph & Telephone 3,731 46,286 Nomura Securities 1,157,000 29,135 NTT DoCoMo 1,478 49,397 Sankyo 401,000 8,836 Seven-Eleven Japan 209,000 25,734 Shin-Etsu Chemical 242,000 12,793 Shiseido 370,000 4,679 Softbank (New shares) * 40,200 9,937 Softbank 18,400 4,531 Sony (New shares) * 263,400 30,482 Sony 263,400 30,262 Sumitomo 922,000 10,328 Sumitomo Bank 1,455,000 18,198 Sumitomo Electric Industries 597,000 7,953 TDK 119,000 15,942 Toshiba 3,632,000 35,239 Yamanouchi Pharmaceutical 435,000 22,995 Total Japan (Cost $463,173) 741,819 MEXICO 2.1% Common Stocks 2.1% Femsa UBD (Represents 1 Class B and 4 Series D shares) 2,073,690 8,209 Grupo Iusacell ADR (USD) * 229,700 3,661 Grupo Televisa GDR (USD) * 470,362 29,839 Telefonos de Mexico (Class L) ADR (USD) 620,268 36,479 Total Mexico (Cost $56,264) 78,188 NETHERLANDS 6.4% Common Stocks 6.4% ABN Amro (EUR) 160,699 3,309 Akzo Nobel (EUR) 29,831 1,221 ASM Lithography (EUR) 767,520 30,003 CSM (EUR) 371,218 $ 6,378 Equant (EUR) * 112,742 8,727 Fortis NI (EUR) 510,744 12,843 ING Groep (EUR) 726,135 39,621 KPN (EUR) 68,835 6,937 Philips Electronics (EUR) 1,033,990 46,126 Royal Dutch Petroleum (EUR) 334,878 19,301 TNT Post Groep (EUR) 36,667 800 United Pan-Europe Communications (EUR) * 266,111 9,684 VNU (EUR) 707,650 37,860 Wolters Kluwer (EUR) 429,090 10,127 Total Netherlands (Cost $164,247) 232,937 NEW ZEALAND 0.2% Common Stocks 0.2% Telecom Corporation of New Zealand 1,656,592 6,999 Total New Zealand (Cost $7,358) 6,999 NORWAY 0.2% Common Stocks 0.2% Orkla (Class A) 418,395 6,469 Total Norway (Cost $4,737) 6,469 PORTUGAL 0.1% Common Stocks 0.1% Jeronimo Martins (EUR) 250,281 4,464 Total Portugal (Cost $2,051) 4,464 SINGAPORE 0.5% Common Stocks 0.5% United Overseas Bank 2,569,560 17,918 Total Singapore (Cost $17,035) 17,918 SOUTH KOREA 1.5% Common Stocks 1.5% Korea Telecom ADR (USD) 278,000 9,591 Pohang Iron & Steel ADR (USD) 98,572 2,070 Samsung Electronics 141,223 38,177 South Korea Telecom 16,000 4,253 Total South Korea (Cost $38,763) 54,091 SPAIN 2.8% Common Stocks 2.8% Banco Bilbao Vizcaya (EUR) 765,492 $ 10,438 Banco Santander Central Hispano (EUR) 2,414,860 25,181 Empresa Nacional de Electricidad (EUR) 882,458 19,141 Gas Natural (EUR) 103,274 1,726 Repsol (EUR) 417,801 8,546 Telefonica (EUR) 1,700,173 37,837 Total Spain (Cost $66,468) 102,869 SWEDEN 3.5% Common Stocks 3.5% ABB 69,090 7,706 Atlas Copco (Class B) 88,352 2,020 Electrolux (Class B) 376,305 6,358 Hennes & Mauritz (Class B) 566,320 15,033 LM Ericsson 483,940 43,018 Nordic Baltic Holding 2,183,068 13,757 Nordic Baltic Holding (DKK) * 352,617 2,195 Sandvik (Class B) 118,330 2,824 Securitas (Class B) 1,309,295 33,879 Total Sweden (Cost $75,812) 126,790 SWITZERLAND 3.6% Common Stocks 3.6% ABB 121,077 13,585 Adecco 52,903 43,407 Credit Suisse Group 65,105 11,760 Nestle 17,123 30,184 Roche Holdings 1,034 10,798 Swisscom 11,909 4,199 UBS 73,937 18,114 Total Switzerland (Cost $81,480) 132,047 TAIWAN 1.5% Common Stocks 1.5% Hon Hai Precision Industry 1,853,000 17,867 Taiwan Semiconductor Manufacturing 4,872,960 31,377 United Microelectronics 1,176,000 3,978 Total Taiwan (Cost $40,508) 53,222 UNITED KINGDOM 17.3% Common Stocks 17.3% Abbey National 424,100 $ 4,840 AstraZeneca Group 542,307 22,704 Baltimore Technologies 71,400 7,192 BG Group 409,600 2,463 BP Amoco 1,433,304 12,374 Cable & Wireless 2,488,500 41,263 Cadbury Schweppes 1,618,378 11,087 Celltech Group 466,000 7,691 Centrica 869,710 3,101 Compass Group 2,411,050 34,235 David S. Smith 532,185 1,127 Diageo 1,702,924 13,774 Electrocomponents 674,640 6,775 GKN 117,700 1,631 Glaxo Wellcome 2,148,700 65,637 Hays 279,000 1,929 Hilton Group 646,940 2,709 HSBC Holdings (HKD) 471,600 5,283 John Laing (Class A) 218,410 738 Kingfisher 1,370,977 11,222 Marconi 1,010,000 12,580 Reed International 4,448,691 30,879 Rio Tinto 862,060 13,355 Royal Bank of Scotland Group 2,690,599 41,724 Safeway 878,470 2,961 Shell Transport & Trading 6,012,400 48,677 SmithKline Beecham 2,730,880 37,269 Standard Chartered 898,000 12,122 Tesco 1,949,004 6,623 Tomkins 2,849,256 8,750 Unilever 1,416,946 8,494 United News & Media 536,510 6,975 Vodafone Airtouch 24,406,087 111,907 WPP Group 1,904,000 30,682 Total United Kingdom (Cost $544,325) 630,773 SHORT-TERM INVESTMENTS 4.5% Money Market Funds 4.5% Reserve Investment Fund, 6.18% #! 162,167,725 162,168 Total Short-Term Investments (Cost $162,168) 162,168 Total Investments in Securities 99.6% of Net Assets (Cost $2,549,394) $3,628,207 Other Assets Less Liabilities 15,495 NET ASSETS $3,643,702 ---------- * Non-income producing # Seven-day yield ! Affiliated company ADR American depository receipt DKK Danish krone EUR Euro GDR Global depository receipt HKD Hong Kong dollar USD U.S. dollar The accompanying notes are an integral part of these financial statements. Statement of Assets and Liabilities Foreign Equity Fund April 30, 2000 (Unaudited) In thousands Assets Investments in securities, at value Affiliated companies (cost $162,168) $ 162,168 Other companies (cost $2,387,226) 3,466,039 Total investments in securities 3,628,207 Other assets 28,086 Total assets 3,656,293 Liabilities Total liabilities 12,591 NET ASSETS $3,643,702 ---------- Net Assets Consist of: Accumulated net investment income - net of distributions $ 4,569 Accumulated net realized gain/loss - net of distributions 207,922 Net unrealized gain (loss) 1,078,258 Paid-in-capital applicable to 170,734,550 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares authorized 2,352,953 NET ASSETS $3,643,702 ---------- NET ASSET VALUE PER SHARE $ 21.34 ---------- Statement of Operations Foreign Equity Fund (Unaudited) In thousands 6 Months Ended 4/30/00 Investment Income (Loss) Income Dividend (net of foreign taxes of $2,305) $ 16,538 Interest (including $2,854 from affiliated companies) 2,902 Total income 19,440 Expenses Investment management 13,041 Custody and accounting 593 Registration 29 Shareholder servicing 17 Legal and audit 14 Directors 5 Prospectus and shareholder reports 1 Miscellaneous 18 Total expenses 13,718 Net investment income (loss) 5,722 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 221,700 Foreign currency transactions (4,030) Net realized gain (loss) 217,670 Change in net unrealized gain or loss Securities 251,986 Other assets and liabilities denominated in foreign currencies (114) Change in net unrealized gain or loss 251,872 Net realized and unrealized gain (loss) 469,542 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 475,264 ---------- 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 4/30/00 10/31/99 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 5,722 $ 35,439 Net realized gain (loss) 217,670 254,287 Change in net unrealized gain or loss 251,872 328,965 Increase (decrease) in net assets from operations 475,264 618,691 Distributions to shareholders Net investment income (28,399) (53,955) Net realized gain (223,838) (24,187) Decrease in net assets from distributions (252,237) (78,142) Capital share transactions* Shares sold 363,717 534,332 Distributions reinvested 198,989 58,440 Shares redeemed (502,851) (976,185) Increase (decrease) in net assets from capital share transactions 59,855 (383,413) Net Assets Increase (decrease) during period 282,882 157,136 Beginning of period 3,360,820 3,203,684 End of period $ 3,643,702 $ 3,360,820 --------------------------------- *Share information Shares sold 16,516 28,737 Distributions reinvested 9,716 3,394 Shares redeemed (22,893) (52,874) Increase (decrease) in shares outstanding 3,339 (20,743) The accompanying notes are an integral part of these financial statements. Notes to Financial Statements Foreign Equity Fund April 30, 2000 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES 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 established by the corporation and 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 are prepared in accordance with generally accepted accounting principles for the investment company industry; these principles may require the use of estimates by fund management. 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. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. 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. Affiliated Companies As defined by the Investment Company Act of 1940, an affiliated company is one in which the fund owns at least 5% of the outstanding voting securities. 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. Credits earned on daily uninvested cash balances at the custodian are used to reduce the fund's custody charges. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $942,066,000 and $1,182,862,000, respectively, for the six months ended April 30, 2000. 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, 2000, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $2,549,394,000. Net unrealized gain aggregated $1,078,813,000 at period-end, of which $1,188,466,000 related to appreciated investments and $109,653,000 to depreciated investments. 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 and withheld from dividend and interest income. NOTE 5 - RELATED PARTY TRANSACTIONS The fund is managed by Rowe Price-Fleming International, Inc. (the manager), which is owned by subsidiaries of T. Rowe Price Associates, Inc. (Price Associates) and Robert Fleming Holdings Limited (Fleming). Price Associates has entered into an agreement with Fleming to purchase Fleming's interest in the manager. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $2,123,000 was payable at April 30, 2000. The fee is computed daily and paid monthly, and is equal to 0.70% of average daily net assets. Foreign Equity Fund 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 $68,000 for the six months ended April 30, 2000, of which $13,000 was payable at period-end. The fund may invest in the Reserve Investment Fund and Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by T. Rowe Price and its affiliates and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended April 30, 2000, totaled $2,854,000 and are reflected as interest income in the accompanying Statement of Operations. During the six months ended April 30, 2000, the fund, in the ordinary course of business, placed security purchase and sale orders aggregating $64,043,000 with certain affiliates of the manager and paid commissions of $77,000 related thereto.