-----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, PRrHSy1qquy+vbFmpLngHEnS3rEtXExfvYfbOOL3DmkffMYzIsUJVdFp7Qne2Sym WkxIgImIhSxYSwiAbJFYgg== 0000852254-99-000005.txt : 19991214 0000852254-99-000005.hdr.sgml : 19991214 ACCESSION NUMBER: 0000852254-99-000005 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991213 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: SEC FILE NUMBER: 811-05833 FILM NUMBER: 99773424 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 Annual Report October 31, 1999 Foreign Equity Fund T. Rowe Price, Invest With Confidence (registered trademark) Annual Report October 31, 1999 Foreign Equity Fund Dear Investor International stocks and your fund made good progress during the six months ended October 31, 1999. During the first half of the fund's fiscal year, interest rate cuts by central banks, signs of international economic recovery, and an increase in investment overseas following the crises of mid-1998 drove markets sharply higher. More recently, however, prospects of stronger international economic growth sparked concerns about rising inflation, and returns moderated from their earlier pace. Performance Comparison --------------------------------------------------------------------------- Periods Ended 10/31/99 6 Months 12 Months --------------------------------------------------------------------------- Foreign Equity Fund 6.13% 20.79% MSCI EAFE Index 6.87 23.37 Your fund provided good returns for the past six months and strong results for the fiscal year ended October 31, although performance trailed that of the MSCI EAFE Index for both periods. The somewhat weaker relative results were due to our comparatively underweighted position in Japan and to lagging performance in the traditional growth sectors in which the fund invests. During the first half of our fiscal year, an upswing in the economic cycle favored more attractively valued cyclical and value stocks, which are not our primary focus. However, as concerns about rising interest rates emerged in recent months, the performance of growth stocks began to improve. The major factors stimulating international markets were more vigorous international growth and demand, as well as high levels of mergers, acquisitions, and corporate restructuring. Europe benefited from an impressive volume of corporate activity and restructuring as industry consolidation accelerated. Merger activity so far this year was over $1 trillion compared with the previous record of $870 billion in 1998. The long-awaited economic upturn in Japan helped propel the yen up 14% versus the U.S. dollar during the past six months, enhancing returns for U.S. investors in that market. Japan also enjoyed better-than-expected economic performance and an unprecedented level of company restructuring. However, the sharp rise of the yen led to concerns that Japan's exports would be hurt, hindering the economic recovery. Elsewhere in Asia economies improved more vigorously, and steps toward structural reform, although tentative, were implemented. Weakness in Latin American markets reflected concerns about the region's large fiscal deficits, rising U.S. interest rates, and political uncertainties. INVESTMENT REVIEW At the end of October, the portfolio's allocation to Europe represented 64% of assets, down from 69% in April, while 22% was invested in Japan, up from 17%-primarily a result of varying regional performance. Within Europe, the U.K. was the largest country exposure at 17% of net assets. Despite these changes, the fund is still underweighted in Japan relative to the MSCI EAFE Index. Regarding individual purchases, we focused on companies and sectors that we expect to benefit from the expansion and integration of the Internet and telecommunications arenas. Europe Rising U.S. interest rates and the large number of initial public offerings inhibited European equity market performance somewhat during the past six months. However, economic recovery became clearly visible as exports, industrial production, and business confidence picked up across the region, while consumer confidence remained robust. The decline of the euro (the currency of the 11 Eurozone countries introduced in January) versus the dollar through the first seven months of 1999 moderated recently as economies strengthened. Inflation in the Eurozone and the U.K. was restrained. European governments are working toward reforms that will improve labor market flexibility and reduce social security and tax costs for companies; the Netherlands and the U.K. have been leading the way. The euro has made cost comparisons across Europe easier, introducing competitive pressure among countries keen to attract business investment. Deregulation and the need to raise shareholder value continued to drive companies to restructure internally, divest noncore businesses, and merge with or acquire other companies. European businesses are now taking bold restructuring steps previously witnessed only in the U.S. A large proportion of European mergers and acquisitions were part of the increase in industry consolidation, which was greatest in banking but also affected the energy, telecom, and retailing sectors. Telecommunications and electricity prices fell markedly as price supports and barriers to competition were reduced. In Germany, economic recovery became more evident during the past six months, boosting prospects for the entire region as Germany accounts for about 30% of Eurozone GDP. The proposed budget reflects the government's determination to reduce spending and relieve the corporate sector of tax and social security costs. Despite resistance from trade unions, opposition parties, and liberal members of the governing party, it appears that compromises will be reached. Companies that are restructuring include Gehe (pharmaceutical retailer and wholesaler), which is spinning off its mail order clothing business, and conglomerate Mannesmann, which plans to split its industrial and telecom businesses into separate companies. Mannesmann aims to boost its position as the largest mobile phone operator in Europe by acquiring control of British mobile telecom Orange. Two of Germany's largest utilities, Veba and Viag, announced a merger prompted by declining electricity prices. Deutsche Bank, Dresdner Bank, Commerzbank, and Bayerische Vereinsbank admitted they were involved in merger discussions with one another and with other European banks. Market Performance Six Months Local Local Currency U.S. Ended 10/31/99 Currency vs. U.S. Dollars Dollars Australia -6.93% -3.85% -10.51% France 12.67 -0.65 11.94 Germany 4.10 -0.65 3.42 Hong Kong -0.30 -0.25 -0.54 Italy -8.74 -0.65 -9.34 Japan 9.18 14.38 24.88 Mexico -0.84 -3.05 -3.86 Netherlands 0.47 -0.65 -0.19 Norway -1.14 -0.74 -1.87 Singapore 20.76 1.79 22.92 Sweden 20.80 2.10 23.33 Switzerland -1.21 -0.08 -1.28 United Kingdom -4.84 1.92 -3.02 Source: RIMES Online, using MSCI indices. France was the strongest market within the Eurozone during the six-month period. Its economic recovery, robust consumer sector, relative absence of political tension, and a large amount of merger and acquisition activity stimulated the 12% stock market gain. In the banking sector, BNP won control of Paribas although it failed to acquire Societe Generale as well. In energy, Total Fina (a recent merger between French Total and Belgian Petrofina) is to acquire competitor Elf Aquitaine. Carrefour and Promodes, major supermarkets, announced a merger, creating the world's second-largest retailer after Wal-Mart. In the Netherlands, earlier progress with structural reform of labor markets and taxation helped the economy remain strong. The nearly 30% rise in oil prices over the past six months, and progress in raising shareholder returns, boosted the performance of Royal Dutch Petroleum. Traditional publishing leaders Wolters Kluwer and Elsevier weakened as Internet applications expanded. Yet, both companies continue to invest heavily in electronics. We believe these companies will remain leading media providers as their distribution channels migrate to the Internet. Philips Electronics, like other technology holdings in Europe and Asia, strengthened due to growing international demand, particularly related to the Internet and mobile communications. In Italy, weaker economic growth, higher inflation, and political conflict about cutting fiscal spending resulted in poor stock market results. Financial services companies have been consolidating. After insurer Assicurazioni Generali made a hostile bid for banking and insurance company Istituto Nazionale delle Assicurazioni (which had agreed to merge with bank Sanpaolo IMI), the two companies agreed to split INA's businesses between them. Unicredito Italiano is discussing an alliance with Spanish bank Banco Bilbao Vizcaya, which is merging with its Spanish competitor Argentaria Banca de Espana. Geographic Diversification pie chart Europe Japan Pacific Basin Latin America Other and Reserves 64 22 8 3 3 Based on net assets of 10/31/99. Sweden, not part of the Eurozone, was Europe's strongest major market with a better than 20% gain for the six months. A healthy economy and the strong performance of telecom equipment maker LM Ericsson Telephone, a global competitor, boosted the general stock market. Within Scandinavia, banking consolidation will also take place. Swedish concern Nordbanken Holding has bid for Norway's second-largest bank Christiania. In addition, Sweden's largest bank SEB announced plans to acquire second tier German bank BfG, in which it previously held a significant stake. With recovery strengthening in the U.K., the central bank reversed its June interest rate cut by increasing rates a quarter percentage point in September, even though inflation was below the target. Businesses took important steps to restructure. For example, engineering and food manufacturing company Tomkins announced plans to sell its food business. Consumer goods leader Unilever will slash its brands from 1,600 to 400 to focus on the global "power brands" that account for 90% of revenues and more of profits. Banks in the U.K. took a step toward consolidation as Bank of Scotland made a hostile bid for its larger rival, National Westminster Bank. Far East In Japan, stronger-than-expected economic data and increased evidence of corporate restructuring stimulated heavy foreign buying and pushed the yen up sharply. The Bank of Japan's quarterly surveys and industrial production figures reflected a healthier, but still weak, economy. Private consumption improved slightly, as did private sector capital expenditure. However, unemployment remained well above historic levels. The government has announced plans for more fiscal stimulation later this autumn, although there are limits to how much more it can do since the budget deficit is already close to 10% of GDP. Investors were encouraged by positive corporate developments. U.K. telecom giant Cable & Wireless successfully outbid Nippon Telegraph & Telephone for Japanese carrier IDC, demonstrating the recent willingness of Japanese shareholders to vote for the highest bidder regardless of nationality. Other foreign inroads into Japanese telecommunications this year included British Telecom's and AT&T's 30% stake in Japan Telecom, and new positions taken by U.K.'s Vodafone Airtouch in regional mobile companies. In other sectors, restructuring through collaboration demonstrated that some businesses are taking steps to improve returns. Notably, electronic giants NEC and Hitachi announced a joint venture to make memory chips. In August, news about the merger of three banks-Dai-Ichi Kangyo, Fuji, and IBJ-led to heavy buying of Japanese banks by foreign investors. Last year's government banking bill, tougher loan disclosure rules, and other measures have made the sector stronger. We added Sumitomo Bank to the portfolio because of the quality of its management and its increasing focus on shareholder value. Concerns about rising U.S. interest rates weighed on markets in the region outside of Japan. Despite market weakness, Hong Kong's recovery took hold while China also reported improved economic data. With these markets subdued, both government and private companies felt the pressure to continue with their reforms and restructuring. Revenues at China Telecom are strong, and the company recently announced plans to buy additional mobile phone networks in China, which would make it one of the world's largest cellular phone operators. Other regional holdings include electronic component suppliers Taiwan Semiconductor Manufacturing in Taiwan and Samsung Electronics in South Korea, both of which benefited from the upturn in regional demand. Industry Diversification --------------------------------------------------------------------------- Percent of Net Assets 10/31/99 --------------------------------------------------------------------------- Services 29.5% Finance 20.2 Consumer Goods 19.6 Capital Equipment 16.4 Energy 7.6 Materials 2.6 Multi-industry 1.1 Miscellaneous - Reserves 3.0 Net Assets 100.0% Australia's economy slowed slightly but remained sound. Resources company Broken Hill Proprietary continued its ambitious rate of restructuring and announced plans to sell half its steel business in the next year as it focuses its range of activities. Commonwealth Bank of Australia and Westpac Bank are prospering due to the strong economy and their success in marketing asset management products. Latin America The 15% decline of the Brazilian real versus the dollar and, to a lesser extent, the Mexican peso's 3% fall hurt returns for U.S. investors. The real's nosedive reflected concern about political obstacles to fiscal reforms. Encouragingly, Brazil's short-term interest rates were reduced from 32% at the end of April to 19% at the end of October. Brazil also met quarterly IMF budget targets with the economy stronger and inflation lower than expected. However, policy changes to reduce fiscal spending in the longer term stalled. In Mexico, the peso's dip retraced some of its 8% rise during the preceding six months. Mexico's economy surprised investors positively with stronger-than-expected economic growth and lower inflation. The 28% rise in oil prices during the past six months benefited Mexico's fiscal position. With an upcoming presidential election, Mexico secured a substantial line of credit from international agencies in the event of a financial crisis-such as the one that was precipitated by the 1994 presidential election. Our holdings in Latin America focus on large, blue chip companies with dominant market positions. Led by better management installed last spring, Brazilian energy company Petrol Brasileiros (Petrobras) has started to reduce lower margin businesses, cut costs, and set return targets. With production growth expected to rise quickly and more restructuring planned, Petrobras could see its earnings rise substantially. Leading Mexican telecom Telefonos de Mexico (Telmex) acquired a stake in Puerto Rican Telecommunications and began an alliance with U.S. giant SBC to develop voice and data services. INVESTMENT POLICY AND OUTLOOK We expect further economic recovery to boost European markets, and we believe the euro will gain strength against the dollar as we enter 2000. Short-term interest rates were recently raised by the European Central Bank, reversing cuts made earlier this year, and inflation appears likely to remain under control. The quest for shareholder value will continue to drive more businesses to restructure and reposition themselves in an expanding global economy. In Japan, several economic indicators may continue to encourage investors. However, the yen is now strong enough to impede export growth, and the government's ability to provide further fiscal support may be restrained by growing budget deficits. We believe that further gains in the Japanese stock market could moderate until investors are convinced that enough company restructuring is being implemented to improve profitability. Elsewhere in Asia we see economies improving further, although at less spectacular rates of growth than in the past. We believe recent market setbacks provide continued impetus for governments in South Korea, Singapore, and elsewhere to push ahead with much needed reforms. Steps taken so far have enhanced the prospects for economic and corporate earnings growth throughout the region, but more is needed. Latin America is particularly sensitive to the direction of U.S. interest rates, although the region's economic outlook is otherwise somewhat better than in the recent past. Brazil needs more fiscal reforms to create a stable economy and Mexico's prosperity is reliant on conditions in the U.S. However, we believe the market has discounted many of these risks. The caliber of the larger Latin American companies is high, the potential for growth is strong, and stock valuations are attractive. Overall, we believe the fund's country, stock, and sector allocations position it well for continued long-term growth. Respectfully submitted, Martin G. Wade President November 19, 1999 Portfolio Highlights Twenty-Five Largest Holdings - -------------------------------------------------------------------------------- Percent of Net Assets Company Country 10/31/99 - -------------------------------------------------------------------------------- National Westminster Bank United Kingdom 2.3% Shell Transport & Trading United Kingdom 1.6 Nokia Finland 1.5 Nestle Switzerland 1.5 Total Fina France 1.5 SmithKline Beecham United Kingdom 1.5 Murata Manufacturing Japan 1.4 ING Groep Netherlands 1.4 Glaxo Wellcome United Kingdom 1.3 Sony Japan 1.3 Nippon Telegraph & Telephone Japan 1.3 Wolters Kluwer Netherlands 1.3 Carrefour France 1.2 NEC Japan 1.1 Vivendi France 1.1 Novartis Switzerland 1.1 NTT Mobile Communications Network Japan 1.1 Diageo United Kingdom 1.1 Kingfisher United Kingdom 1.1 Mannesmann Germany 1.0 Fortis Belgium/Netherlands 1.0 AstraZeneca Group Sweden 1.0 Telecom Italia Mobile Italy 1.0 Hennes & Mauritz Sweden 0.9 Adecco Switzerland 0.9 - -------------------------------------------------------------------------------- Total 31.5% - -------------------------------------------------------------------------------- Note: Table excludes reserves Security Classification - -------------------------------------------------------------------------------- Percent Market of Net Cost Value 10/31/99 Assets (000) (000) - -------------------------------------------------------------------------------- Common Stocks and Rights 95.8% $2,391,745 $3,220,039 Preferred Stocks 1.2 40,901 39,434 Short-Term Investments 1.1 37,784 37,784 Total Investments 98.1 2,470,430 3,297,257 Other Assets Less Liabilities 1.9 63,563 63,563 Net Assets 100.0% $2,533,993 $3,360,820 - -------------------------------------------------------------------------------- Summary of Investments and Cash October 31, 1999 Percent of Equities Cash Total MSCI EAFE - -------------------------------------------------------------------------------- Europe Austria -- -- -- 0.2% Belgium 1.2% -- 1.2% 1.2 Denmark 0.4 -- 0.4 0.8 Finland 1.5 -- 1.5 2.1 France 10.9 -- 10.9 9.5 Germany 6.1 -- 6.1 9.5 Ireland 0.1 -- 0.1 0.5 Italy 4.5 -- 4.5 3.8 Netherlands 8.3 -- 8.3 5.4 Norway 0.6 -- 0.6 0.4 Portugal 0.4 -- 0.4 0.5 Spain 2.9 -- 2.9 2.7 Sweden 3.6 -- 3.6 2.3 Switzerland 6.3 -- 6.3 6.4 United Kingdom 17.2 -- 17.2 20.3 ------------------------------------------------------------------------------ Total Europe 64.0% -- 64.0% 65.6% - -------------------------------------------------------------------------------- Pacific Basin Australia 2.4% -- 2.4% 2.4% China 0.8 -- 0.8 -- Hong Kong 1.9 -- 1.9 2.2 Japan 21.6 -- 21.6 28.6 New Zealand 0.2 -- 0.2 0.2 Singapore 0.7 -- 0.7 1.0 South Korea 0.6 -- 0.6 -- India 0.5 -- 0.5 -- Taiwan 0.5 -- 0.5 -- ------------------------------------------------------------------------------ Total Pacific Basin 29.2% -- 29.2% 34.4% - -------------------------------------------------------------------------------- Americas Argentina 0.3% -- 0.3% -- Brazil 1.7 -- 1.7 -- Canada 0.3 -- 0.3 -- Chile 0.1 -- 0.1 -- Mexico 1.4 -- 1.4 -- Panama -- -- -- -- Peru -- -- -- -- United States -- 1.1 1.1 -- Venezuela -- -- -- -- ------------------------------------------------------------------------------ Total Americas 3.8% 1.1% 4.9% -- - -------------------------------------------------------------------------------- Other Assets Less Liabilities -- 1.9 1.9 -- ------------------------------------------------------------------------------ TOTAL 97.0% 3.0% 100.0% 100.0% - -------------------------------------------------------------------------------- Foreign Equity Fund 10/31/99 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 10/31/99 10.000 10.000 10.000 10/90 10.454 8.745 10.012 10/91 11.478 9.384 10.899 10/92 11.105 8.173 10.445 10/93 14.919 11.269 13.975 10/94 16.703 12.439 15.642 10/95 16.810 12.431 15.772 10/96 19.244 13.773 17.665 10/97 20.841 14.451 19.818 10/98 22.436 15.889 20.702 10/99 27.099 19.602 25.213
Total Return Performance Calendar Since Periods Ended 10/31/99 1 Month 3 Months Year-to-Date 1 Year 3 Years *5 Years *10 Years *9/7/89* Foreign Equity Fund 3.24% 4.97% 11.62% 20.79% 12.09% 10.16 %10.48% 9.95% S&P 500 Index 6.33 2.90 12.03 25.67 26.52 26.02 17.82 17.31 MSCI EAFE Index 3.77 5.24 12.85 23.37 12.48 9.52 6.96 6.89** Lipper International Funds Average 3.84 5.24 15.93 25.53 12.90 9.50 9.42 9.13 FT-A Euro Pacific Index 3.73 6.19 15.95 26.67 12.19 9.11 6.57 6.58** * 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 For a share outstanding throughout each period ------------------------------------------------------- Year Ended 10/31/99 10/31/98 10/31/97 10/31/96 10/31/95 NET ASSET VALUE Beginning of period $ 17.03 $ 16.51 $ 15.62 $ 13.99 $ 14.59 Investment activities Net investment income 0.21 0.28 0.21 0.21 0.18 Net realized and unrealized gain (loss) 3.26 0.93 1.07 1.78 (0.14) Total from investment activities 3.47 1.21 1.28 1.99 0.04 Distributions Net investment income (0.29) (0.21) (0.22) (0.18) (0.12) Net realized gain (0.13) (0.48) (0.17) (0.18) (0.52) Total distributions (0.42) (0.69) (0.39) (0.36) (0.64) NET ASSET VALUE End of period $ 20.08 $ 17.03 $ 16.51 $ 15.62 $ 13.99 ---------------------------------------------------- Ratios/Supplemental Data Total return(diamond) 20.79% 7.65% 8.30% 14.48% 0.64% Ratio of total expenses to average net assets 0.74% 0.74% 0.75% 0.76% 0.80% Ratio of net investment income to average net assets 1.08% 1.58% 1.40% 1.67 1.69% Portfolio turnover rate 18.2% 18.6% 15.9% 13.8% 18.8% Net assets, end of period (in millions) $ 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. The accompanying notes are an integral part of these financial statements. Portfolio of Investments Foreign Equity Fund October 31, 1999 Shares Value - -------------------------------------------------------------------------------- In thousands ARGENTINA 0.3% Common Stocks 0.3% Banco de Galicia Buenos Aires (Class B) ADR (USD) 121,719 $ 2,571 Banco Frances del Rio de la Plata ADR (USD) 110,278 2,413 Telefonica de Argentina (Class B) ADR (USD) 190,364 4,878 Total Argentina (Cost $9,704) 9,862 AUSTRALIA 2.4% Common Stocks 2.2% Brambles Industries 237,500 6,679 Broken Hill Proprietary 423,362 4,376 Colonial Limited 2,091,617 7,696 Commonwealth Bank of Australia 614,691 10,074 Lend Lease 362,654 4,173 News Corporation 831,355 6,012 Publishing & Broadcasting 1,228,904 7,288 TABCORP Holdings 769,130 4,875 Telstra * 2,642,098 12,480 Westpac Bank 1,463,411 9,390 73,043 Preferred Stocks 0.2% News Corporation 898,362 6,082 6,082 Total Australia (Cost $58,445) 79,125 BELGIUM 1.2% Common Stocks 1.2% Dexia (EUR) 24,809 3,635 Fortis B (EUR) 423,978 14,315 KBC Bancassurance Holding (EUR) 355,670 18,331 Societe Europeenne des Satellites (Class A) (EUR) 19,316 2,413 UCB (EUR) 45,425 1,694 Total Belgium (Cost $24,770) 40,388 BRAZIL 1.7% Common Stocks 1.1% Pao de Acucar GDR (USD) 193,368 4,230 Telebras ADR (USD) 385,052 $ 29,986 Unibanco GDR (USD) 117,158 2,709 36,925 Preferred Stocks 0.6% Banco Bradesco 310,360,322 1,518 Banco Itau 48,820,000 2,801 Cia Energetica Minas Gerais 104,208,392 1,484 Cia Energetica Minas Gerais ADR (144a) (USD) 19,838 283 Cia Energetica Minas Gerais ADR, Cv. (USD) 28,009 399 Cia Energetica Minas Gerais ADR, Sponsored Nonvoting (USD) 124,287 1,771 Pao de Acucar GDR (USD) 6,480 142 Petrol Brasileiros 51,426,021 8,180 Telebras ADR (USD) * 404,052 19 Telecomunicacoes de Sao Paulo 26,333,233 2,476 Telecomunicacoes de Sao Paulo Celular (Class B) 31,817,420 1,663 20,736 Total Brazil (Cost $73,478) 57,661 CANADA 0.3% Common Stocks 0.3% Alcan Aluminum 137,560 4,509 Nortel Networks 64,690 3,980 Royal Bank of Canada 62,300 2,686 Total Canada (Cost $8,823) 11,175 CHILE 0.1% Common Stocks 0.1% Chilectra ADR (USD) 83,354 1,459 Total Chile (Cost $1,549) 1,459 CHINA 0.8% Common Stocks 0.8% China Telecom (HKD) 6,464,130 22,092 Huaneng Power International ADR (USD) 339,710 4,119 Total China (Cost $22,885) 26,211 DENMARK 0.4% Common Stocks 0.4% Den Danske Bank 38,890 $ 4,430 Tele Danmark 90,110 5,471 Unidanmark (Class A) 29,041 2,260 Total Denmark (Cost $8,664) 12,161 FINLAND 1.5% Common Stocks 1.5% Nokia (EUR) 451,430 51,667 Total Finland (Cost $10,825) 51,667 FRANCE 10.9% Common Stocks 10.9% Alcatel Alsthom (EUR) 99,941 15,611 AXA (EUR) 179,971 25,385 Banque National de Paris (EUR) 213,740 18,773 Cap Gemini (EUR) 67,970 10,295 Carrefour (EUR) 212,950 39,422 Cie de St. Gobain (EUR) 71,326 12,379 Credit Commercial de France (EUR) 33,653 3,876 Danone (EUR) 19,500 4,974 Dexia France (EUR) 38,316 5,401 Hermes (EUR) 64,990 7,109 L'Oreal (EUR) 11,325 7,558 Lafarge (EUR) 40,971 3,943 Legrand (EUR) 70,359 16,837 Pinault Printemps Redoute (EUR) 67,965 12,961 Sanofi Synthelabo (EUR) * 502,710 22,182 Schneider (EUR) 256,646 17,682 Societe Generale (EUR) 59,622 12,982 Sodexho Alliance (EUR) 116,172 19,062 Television Francaise (EUR) 72,116 22,605 Total Fina (Class B) (EUR) 367,894 49,726 Vivendi (EUR) 497,654 37,715 Total France (Cost $232,651) 366,478 GERMANY 6.1% Common Stocks 5.7% Allianz (EUR) 52,050 15,773 Bayer (EUR) 267,704 10,903 Bayerische Vereinsbank (EUR) 365,434 $ 23,985 Celanese (EUR) * 5,240 83 Deutsche Bank (EUR) * 251,991 18,019 Deutsche Telekom (EUR) 325,930 15,033 Dresdner Bank (EUR) * 309,047 15,912 Gehe (EUR) 359,814 12,452 Hoechst (EUR) 95,430 4,215 Mannesmann (EUR) 223,420 35,227 Rhoen Klinikum (EUR) * 138,312 5,601 SAP (EUR) 37,270 13,842 Siemens (EUR) 91,211 8,208 Veba (EUR) 244,946 13,266 192,519 Preferred Stocks 0.4% Fielmann (EUR) 27,425 1,042 Fresenius (EUR) 16,920 2,954 SAP (EUR) 19,512 8,620 12,616 Total Germany (Cost $155,926) 205,135 HONG KONG 1.9% Common Stocks 1.9% Cheung Kong Holdings 885,670 8,066 CLP Holdings 1,659,500 7,626 Dao Heng Bank Group 746,000 3,390 Henderson Land Development 1,461,050 6,639 Hong Kong Telecommunications 2,988,950 6,829 Hutchison Whampoa 2,051,660 20,600 New World Development 382,000 723 Pacific Century 3,896,000 2,959 Sun Hung Kai Properties 781,400 6,337 Total Hong Kong (Cost $55,095) 63,169 INDIA 0.5% Common Stocks 0.5% ICICI ADR (USD) * 452,970 4,982 Mahanagar Telephone 1,614,000 6,373 Mahanagar Telephone GDR (USD) 203,040 1,690 State Bank of India GDR (USD) 296,860 3,941 Total India (Cost $18,575) 16,986 IRELAND 0.1% Common Stocks 0.1% CBT Group ADR (USD) * 225,798 $ 4,657 Total Ireland (Cost $6,179) 4,657 ITALY 4.5% Common Stocks 4.5% Assicurazioni Generali (EUR) 341,500 10,956 Banca di Roma (EUR) 1,934,640 2,605 Banca Popolare di Brescia (EUR) 355,530 15,052 Unicredito Italiano (EUR) 2,580,719 12,080 ENI (EUR) 3,003,532 17,565 Gucci Group (USD) 114,309 9,230 Istituto Nazionale delle Assicurazioni (EUR) 3,015,780 9,152 Italgas (EUR) 528,225 2,183 Mediolanum (EUR) 979,845 7,967 Sanpaolo IMI (EUR) 898,006 11,637 Tecnost (EUR) 1,908,000 3,673 Telecom Italia (EUR) 2,068,950 17,867 Telecom Italia Mobile (EUR) 5,124,256 32,016 Total Italy (Cost $116,046) 151,983 JAPAN 21.6% Common Stocks 21.6% Bridgestone 218,000 6,000 Canon 1,087,000 30,753 Citizen Watch 452,000 3,195 Daiichi Pharmaceutical 208,000 2,982 Daiwa House 668,000 6,112 DDI 1,308 14,301 Denso 862,000 18,435 East Japan Railway 1,748 10,712 Fanuc 153,300 11,909 Fujitsu 910,000 27,404 Hitachi 1,040,000 11,241 Honda Motor 66,000 2,785 Ito-Yokado 173,000 13,837 Kao 593,000 18,085 Kokuyo 330,000 5,991 Komori 296,000 6,430 Kuraray 766,000 10,285 Kyocera 303,000 $ 29,059 Makita 423,000 4,061 Marui 847,000 16,003 Matsushita Electric Industrial 1,231,000 25,914 Mitsubishi 796,000 5,725 Mitsubishi Heavy Industries 3,441,000 13,497 Mitsui Fudosan 1,682,000 12,566 Murata Manufacturing 375,000 48,192 NEC 1,876,000 37,963 Nippon Telegraph & Telephone 2,844 43,640 Nomura Securities 1,243,000 20,516 NTT Mobile Communications Network 1,354 35,970 Sankyo 839,000 23,898 Sekisui Chemical 1,062,000 5,225 Sekisui House 780,000 8,446 Seven-Eleven Japan 112,000 10,258 Shin-Etsu Chemical 327,000 13,485 Shiseido 388,000 5,917 Softbank 3,200 1,329 Sony 283,100 44,147 Sumitomo 1,267,000 9,259 Sumitomo Bank 923,000 14,854 Sumitomo Electric Industries 1,317,000 17,696 TDK 264,000 25,851 Tokio Marine & Fire Insurance 350,000 4,582 Tokyo Electronics 80,000 6,644 Toppan Printing 626,000 7,679 Toshiba 2,253,000 14,174 Uny 377,000 4,881 Yamanouchi Pharmaceutical 286,000 12,974 Total Japan (Cost $556,114) 724,862 MEXICO 1.4% Common Stocks 1.4% Cemex (Represents 2 Class A and 1 Class B share) * 621,010 2,810 Cemex ADR (USD) * 51,192 1,152 Femsa UBD (Represents 1 Class B and 4 Series D shares) 1,353,690 4,394 Gruma (Class B) * 635,557 831 Gruma ADR (USD) * 106,684 560 Grupo Industrial Maseca (Class B) 1,648,317 $ 823 Grupo Modelo (Class C) 1,528,006 3,736 Grupo Televisa GDR (USD) * 138,462 5,885 Kimberly-Clark de Mexico (Class A) 1,187,470 3,805 Telefonos de Mexico (Class L) ADR (USD) 276,634 23,652 TV Azteca ADR (USD) 194,550 790 Total Mexico (Cost $42,668) 48,438 NETHERLANDS 8.3% Common Stocks 8.3% ABN Amro (EUR) 595,748 14,406 Akzo Nobel (EUR) 59,672 2,570 ASM Lithography (EUR) * 361,920 25,544 CSM (EUR) 244,499 11,277 Elsevier (EUR) 861,392 8,182 Equant (EUR) * 62,420 6,073 Fortis NI (EUR) 589,684 20,301 ING Groep (EUR) 785,255 46,320 KPN (EUR) 73,625 3,778 Philips Electronics (EUR) 266,290 27,310 Royal Dutch Petroleum (EUR) 371,128 22,185 STMicroelectronics (EUR) 262,383 23,045 TNT Post Groep (EUR) 83,105 2,115 Unilever (EUR) 142,269 9,428 UTD Pan Europe Communications (EUR) * 48,847 3,756 VNU (EUR) 246,030 8,320 Wolters Kluwer (EUR) 1,271,194 42,480 Total Netherlands (Cost $206,717) 277,090 NEW ZEALAND 0.2% Common Stocks 0.2% Telecom Corporation of New Zealand 1,909,592 7,686 Total New Zealand (Cost $8,686) 7,686 NORWAY 0.6% Common Stocks and Rights 0.6% Norsk Hydro 102,352 4,082 Orkla (Class A) 998,470 13,930 Orkla Rights, 11/22/99 * 998,470 1,877 Total Norway (Cost $20,910) 19,889 PORTUGAL 0.4% Common Stocks 0.4% Jeronimo Martins (EUR) 500,034 $ 13,959 Total Portugal (Cost $6,880) 13,959 SINGAPORE 0.7% Common Stocks 0.7% Singapore Press 382,969 6,562 Singapore Telecommunications 1,383,000 2,628 United Overseas Bank 2,010,000 15,226 Total Singapore (Cost $22,554) 24,416 SOUTH KOREA 0.6% Common Stocks 0.6% Korea Telecom ADR (USD) * 194,000 6,839 Samsung Electronics 84,943 14,163 Total South Korea (Cost $14,558) 21,002 SPAIN 2.9% Common Stocks 2.9% Argentaria Banca de Espana (EUR) 298,910 6,634 Banco Bilbao Vizcaya (EUR) 337,580 4,538 Banco Popular Espanol (EUR) 57,360 3,861 Banco Santander Central Hispano (EUR) 1,381,110 14,338 Empresa Nacional de Electricidad (EUR) 488,308 9,774 Gas Natural (EUR) 249,978 5,469 Iberdrola (EUR) 807,426 11,771 Repsol (EUR) 474,411 9,781 Telefonica (EUR) * 1,846,131 30,371 Total Spain (Cost $61,276) 96,537 SWEDEN 3.6% Common Stocks 3.6% ABB * 78,450 7,813 AstraZeneca Group 709,307 32,041 Atlas Copco (Class B) 197,562 5,141 Electrolux (Class B) 919,205 18,330 Ericsson Telephone 52,880 2,199 Esselte (Class B) 77,440 518 Hennes & Mauritz 1,191,930 31,668 Nordbanken Holding 2,441,058 14,247 Sandvik (Class B) 264,040 $ 6,839 Securitas (Class B) 239,355 3,551 Total Sweden (Cost $82,279) 122,347 SWITZERLAND 6.3% Common Stocks 6.3% ABB * 151,797 15,286 Adecco * 52,103 31,584 Credit Suisse Group 72,315 13,900 Nestle 25,813 49,787 Novartis 24,513 36,666 Roche Holdings 2,564 30,782 Swisscom 12,549 3,824 UBS 101,497 29,531 Total Switzerland (Cost $157,907) 211,360 TAIWAN 0.5% Common Stocks 0.5% Hon Hai Precison Industry ADR (USD) * 380,064 6,167 Taiwan Semiconductor Manufacturing * 2,238,960 9,952 Total Taiwan (Cost $14,030) 16,119 UNITED KINGDOM 17.2% Common Stocks 17.2% Abbey National 888,200 17,339 BG 963,352 5,350 BP Amoco 1,631,304 15,855 Cable & Wireless 1,943,700 22,772 Cadbury Schweppes 3,415,756 22,451 Caradon 1,547,905 3,675 Centrica 817,420 2,344 Compass Group 2,654,050 28,347 David S. Smith 1,114,370 3,461 Diageo 3,566,848 35,852 Electrocomponents 699,640 6,266 GKN 238,700 3,840 Glaxo Wellcome 1,515,900 44,737 Hays 287,000 3,292 HSBC Holdings (HKD) 842,830 10,144 John Laing (Class A) 436,820 2,067 Kingfisher 3,467,954 35,445 Ladbroke Group 1,355,880 $ 4,189 National Westminster Bank 3,494,873 78,963 Rank Group 844,720 2,630 Reed International 4,601,691 26,995 Rio Tinto 1,058,060 18,081 Safeway 878,470 2,757 Shell Transport & Trading 6,876,400 52,655 SmithKline Beecham 3,855,780 49,609 Tesco 5,469,009 16,221 Tomkins 3,997,256 13,531 Unilever 2,098,466 19,456 United News & Media 1,468,020 14,136 Vodafone Airtouch 3,249,500 15,191 Total United Kingdom (Cost $434,452) 577,651 SHORT-TERM INVESTMENTS 1.1% Money Market Funds 1.1% Reserve Investment Fund 5.51% # 37,784,075 37,784 Total Short-Term Investments (Cost $37,784) 37,784 Total Investments in Securities 98.1% of Net Assets (Cost $2,470,430) $3,297,257 Other Assets Less Liabilities 63,563 NET ASSETS $3,360,820 ---------- * Non-income producing # Seven-day yield 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 0.01% of net assets. ADR American depository receipt 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 October 31, 1999 In thousands Assets Investments in securities, at value (cost $2,470,430) $3,297,257 Other assets 187,162 Total assets 3,484,419 Liabilities Total liabilities 123,599 NET ASSETS $3,360,820 ---------- Net Assets Consist of: Accumulated net investment income - net of distributions $ 27,246 Accumulated net realized gain/loss - net of distributions 214,090 Net unrealized gain (loss) 826,386 Paid-in-capital applicable to 167,396,114 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares authorized 2,293,098 NET ASSETS $3,360,820 ---------- NET ASSET VALUE PER SHARE $20.08 ------ The accompanying notes are an integral part of these financial statements. Statement of Operations Foreign Equity Fund In thousands Year Ended 10/31/99 Investment Income Income Dividend (net of foreign taxes of $7,451) $ 55,779 Interest 3,741 Total income 59,520 Expenses Investment management 22,916 Custody and accounting 1,031 Registration 38 Shareholder servicing 38 Legal and audit 30 Directors 9 Prospectus and shareholder reports 3 Miscellaneous 17 Total expenses 24,082 Expenses paid indirectly (1) Net expenses 24,081 Net investment income 35,439 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 256,865 Foreign currency transactions (2,578) Net realized gain (loss) 254,287 Change in net unrealized gain or loss Securities 329,746 Other assets and liabilities denominated in foreign currencies (781) Change in net unrealized gain or loss 328,965 Net realized and unrealized gain (loss) 583,252 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $618,691 -------- The accompanying notes are an integral part of these financial statements. Statement of Changes in Net Assets Foreign Equity Fund In thousands Year Ended 10/31/99 10/31/98 Increase (Decrease) in Net Assets Operations Net investment income $ 35,439 $ 53,464 Net realized gain (loss) 254,287 13,925 Change in net unrealized gain or loss 328,965 169,539 Increase (decrease) in net assets from operations 618,691 236,928 Distributions to shareholders Net investment income (53,955) (40,559) Net realized gain (24,187) (92,704) Decrease in net assets from distributions (78,142) (133,263) Capital share transactions* Shares sold 534,332 688,390 Distributions reinvested 58,440 102,189 Shares redeemed (976,185) (850,415) Increase (decrease) in net assets from capital share transactions (383,413) (59,836) Net Assets Increase (decrease) during period 157,136 43,829 Beginning of period 3,203,684 3,159,855 End of period $3,360,820 $3,203,684 ---------- ---------- *Share information Shares sold 28,737 40,154 Distributions reinvested 3,394 6,463 Shares redeemed (52,874) (49,853) Increase (decrease) in shares outstanding (20,743) (3,236) The accompanying notes are an integral part of these financial statements. Notes to Financial Statements Foreign Equity Fund October 31, 1999 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 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. 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. Expenses paid indirectly reflect credits earned on daily uninvested cash balances at the custodian, which 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 $581,047,000 and $1,132,834,000, respectively, for the year ended October 31, 1999. 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. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended October 31, 1999. The results of operations and net assets were not affected by the increases/(decreases) to these accounts. - -------------------------------------------------------------------------------- Undistributed net investment income $(6,671,000) Undistributed net realized gain (18,624,000) Paid-in-capital 25,295,000 At October 31, 1999, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $2,470,430,000. Net unrealized gain aggregated $826,827,000 at period-end, of which $959,408,000 related to appreciated investments and $132,581,000 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 Holdings 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 $1,986,000 was payable at October 31, 1999. 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 $143,000 for the year ended October 31, 1999, 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 year ended October 31, 1999, totaled $3,597,000 and are reflected as interest income in the accompanying Statement of Operations. During the year ended October 31, 1999, the fund, in the ordinary course of business, placed security purchase and sale orders aggregating $45,268,000 with certain affiliates of the manager and paid commissions of $84,000 related thereto. Report of Independent Accountants To the Board of Directors of Institutional International Funds, Inc. and Shareholders of Foreign Equity Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Foreign Equity Fund (the portfolio comprising Institutional International Funds, Inc., hereafter referred to as the "Fund") at October 31, 1999, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 1999, by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Baltimore, Maryland November 17, 1999 Foreign Equity Fund Tax Information (Unaudited) for the Tax Year Ended 10/31/99 - -------------------------------------------------------------------------------- We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. The fund's distributions to shareholders included: o $18,605,000 from short-term capital gains, o $5,582,000 from long-term capital gains, subject to the 20% rate gains category. The fund will pass through foreign source income of $36,199,000 and foreign taxes paid of $7,451,000. -----END PRIVACY-ENHANCED MESSAGE-----