UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-5833
T. Rowe Price Institutional International Funds, Inc. |
(Exact name of registrant as specified in charter) |
100 East Pratt Street, Baltimore, MD 21202 |
(Address of principal executive offices) |
David Oestreicher |
100 East Pratt Street, Baltimore, MD 21202 |
(Name and address of agent for service) |
Registrants telephone number, including
area code: (410) 345-2000
Date of fiscal year end:
October 31
Date of reporting period: October 31,
2011
Item 1. Report to Shareholders
Institutional International Growth Equity Fund |
October
31, 2011 |
Highlights |
International stock markets were volatile and declined sharply in the final six months of the reporting period.
Your fund performed in line with its benchmark index and outperformed its Lipper peer group average for the year ended October 31, 2011.
Our investment focus remains on companies with durable franchises that can grow their earnings and cash flow at a double-digit rate over the long term.
Our research continues to uncover attractive growth opportunities across a broad array of international stock markets, and we remain especially encouraged by the prospects for emerging markets.
The views and opinions in this report were current as of October 31, 2011. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the funds future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.
Managers Letter
T. Rowe Price Institutional International Growth Equity
Fund
Dear Investor
Global stock markets suffered violent swings during the past six months as investors reacted to a range of macroeconomic and political problems. Sharp declines in the second half of the fiscal year resulted in losses for the 12-month period. Through the turmoil, we stuck to our disciplined stock selection process and maintained our focus on generating long-term outperformance. The portfolio remains broadly diversified across regions, countries, and sectors, and our goal is to own companies with the best growth opportunities.
Performance Review
The Institutional International Growth Equity Fund returned -4.30% for the year ended October 31, 2011. As shown in the Performance Comparison table, the portfolio and international stocks overall were sharply lower in the second half of our fiscal year. Our performance versus the MSCI index benefited from stock selection and allocation decisions, which were especially good in the information technology and materials sectors in both periods. However, stock selection in consumer staples hurt our comparison with the benchmark. The portfolios largest sector allocationsfinancials and consumer discretionarywere significant absolute performance detractors.
From a regional perspective, our holdings in the Europe ex-UK region helped the most in our comparison with the MSCI All Country World ex-U.S.A. Index for the past six and 12 months. Although the Pacific ex-Japan region aided relative performance in the last six months, the region was the largest detractor for the year. Stock selection in Latin America detracted from returns in both periods. Overall, the portfolios overweight in emerging marketsaccounting for about 30% of the portfoliohurt relative returns.
Portfolio Strategy
Our unwavering investment philosophy is to buy and hold high-quality growth companies with a competitive advantage in their respective markets. The fund focuses on long-term performance and shuns fad investments and momentum trading. We believe that, over the long term, stock prices move with earnings and cash flow growth, meaning simply that if a company grows free cash flow by 15% a year, its stock should appreciate at roughly the same rate. We search for companies we think can generate double-digit earnings growth over time by participating in expanding markets, taking market share, or improving profitability faster than sales. We think that if we can find those companies and pay a fair price for their stock, we can compound absolute returns at double-digit levels and provide solid long-term relative results.
We work with T. Rowe Prices specialized industry analysts and other portfolio managers to find companies that fit these criteria. We look for the best stocks wherever we may find them rather than employing a regional, country, or sector focus. While we are mindful of the broad economic conditions in regions and countries, the portfolios composition is primarily determined by individual stock considerations.
At this time, our investment decisions are being shaped by the following views:
Economies are slowing in most regions.
Interest rates have remained low in mature markets and appear to have peaked in many developing markets.
Consumer spending in emerging markets should continue to be a strong global growth driver.
The turmoil in Greece and the resultant contagion in other European countries may not be resolved during the next 12 months and will slow growth for companies that operate in the region.
Financial firms, especially banks, are likely to face higher capital requirements, which will undoubtedly mean more regulation and lower return on equity.
Government policy decisions are increasingly affecting our investment decisions.
I would like you to reread the last bullet point above. I considered boldface type or all capital letters for emphasis because at no time in my investment experience has the statement been truer. Each morning I wake up and search for news relating to what Greek officials did, what Italys prime minister said, and how I should read the subtle changes in Chinese housing and lending policies. I think the investing environment in 2008 was much worse than it is today, mostly because the toxic assets then were real and permeated bank balance sheets. Todays toxicity is somewhat different because while there is potential for bad things to happen (think scuba diver in murky shark-infested water), they havent happened yet. The danger is certainly looming, and it is a very real factor for investors.
I firmly believe that good investors can make good decisions within the context of some uncertainty. However, at this time, uncertainty is unusually high. The range of possible outcomes for the global economy is wide, and an unfavorable policy decision will be dealt swift punishment from the markets.
We think that governments in mature markets will choose to curb spending and raise taxes to subsidize their lack of will (or intestinal fortitude) to alter past promisesincluding health care, pensions, and other benefits. Although the spending reductions will, in the end, likely crimp corporate earnings and cash flow, declining inflation should result in lower interest rates that could support higher valuations for those firms that can grow or navigate well during the slowdown.
Market Environment
Equity markets have been exceptionally volatile in recent months as multiple concerns surfaced and intensified to challenge investors resolve. As the year progressed, fiscal imbalances and political stalemates within the developed world were brought to the forefront of investors minds, with the risk of a European sovereign default weighing heavily on riskier investments (including cyclical, emerging markets, and higher-beta stocks). Separately, signs that the economic recovery has stalled, combined with lowered corporate earnings estimates, have compounded a sense of fear and uncertainty.
We are clearly in the midst of a transition from a rapid profit growth environment to a considerably more muted earnings environment. Indeed, recent market declines have already priced in a meaningful earnings recession despite signs that demand has not collapsed as it did in 2008. Investors lack of confidence in the durability of corporate earnings led to a severe market sell-off in the third quarter and heavy selling of riskier assets. Optimism about the prospects for a solution to the European debt crisis led to a snapback rally in October, but it was too little, too late to recoup the losses in the prior five months.
This is undoubtedly a challenging economic and investing environment, but if we look beyond the political issues, there are a number of positives. For example, banks are much better capitalized, companies cost bases are lean, and corporations have not overinvested during the recovery phase, in part given the short time frame since the last recession. Perhaps most importantly, equity valuations are low, as evidenced by price-to-earnings and price-to-book ratios and prospective dividend yields. Stock dividend yields are, in many cases, above long-term government bond yields, which historically has been a reliable indicator that equity markets are oversold. On the negative side, it seemed that risk aversion at times overwhelmed all assessments of longer-term fundamental strength.
Portfolio Review
The consumer staples sector held up well during the 6- and 12-month periods in the face of heightened volatility. In general, investors view the companies in the sector as more conservative and less economically sensitive than the broad market because the groups cash flow, revenue, and income stream tends to be somewhat predictable. Although the portfolio benefited from its overweight allocation, stock selection hurt our comparison with the benchmark in both periods.
Our best performers in the sector in the last six months were Hengan International Group, a Chinese personal products manufacturer, and Jeronimo Martins, a food and staples retailer with operations in Portugal and a solid presence in Poland. We like the near- and long-term prospects for both companies. Danish beer maker Carlsberg, which we purchased less than a year ago, and Belgiums Anheuser-Busch InBev were among the portfolios poorest performers in the six-month period. Carlsberg now faces regulation and taxation issues in Russia, which have hurt demand and profitability this year. We think the company is a good value and the market should improve from currently depressed levels. We added to our holdings in the past six months and will likely add more if the stock experiences further weakness. Anheuser-Buschs margins were crimped by rising costs, which could remain an issue in the near term, but longer term we think both companies are solid and can be good performers. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
United Spirits also fell due to rising molasses and sugar prices. Initially, we thought that we would hold the Indian beverage makers stock through what we believed was a period of temporary weakness and its share price would rebound as costs retreated. However, we anticipated neither that competition would intensify to the extent it has nor that the company would spend as aggressively as it did on marketing. We decided to liquidate our position based on managements capital allocation decisions relating to deferring revenues from a recent acquisition. We came to the conclusion that revenues and earnings could remain impaired for the next several years.
The fund benefited from stock selection and its overweight allocation in the information technology sector. Our tech holdings were modest absolute contributors in the past six months, while the benchmark and technology holdings in the index posted double-digit declines. Longtime holding ASML was a top portfolio contributor for the 6- and 12-month periods, and Baidu, the leading Chinese search engine, performed well in the Internet software and services segment. We added to our position in South Korea-based Samsung Electronics over the year, and it was a standout performer in both periods. The company improved its market position as the dominant provider of semiconductor chips and memory products, and its smartphones continue to sell extremely well. Samsung and Baidu, our two largest holdings in the technology sector, were among our best performers for the year. Tencent Holdings and Sina, stellar performers in prior periods, gave back some of their gains in the last six months. However, both were solid contributors for the year.
Financials, the portfolios largest sector allocation, were among its largest absolute performance detractors in the past six months and for the year. Although our below-benchmark allocation helped our comparison with the MSCI index, stock selection hurt the funds relative results. Our commercial bank holdings were punished by the negative news surrounding the sector. The funds largest holding is Brazils Itau Unibanco. The stock declined due to the severity of the credit cycle and in tandem with the steep losses in Brazils market during the reporting period. The companys earnings are growing but have not improved as fast as the market expected. Despite poor performance, we still think it is a great long-term growth company. We thought the stock was a great buy at 11 times next years expected earnings, and after the sell-off, it trades at less than eight times forecasted per share earnings. We like its solid balance sheet and superior growth prospects. Similarly, we own a large stake in Banco Santander Brasil. Although its balance sheet is not as pristine as Itaus, we believe that there is stronger upside earnings potential. We view Brazil as one of the best growth markets in the world and added to our positions as the market declined over the past six months.
We took advantage of market weakness to add to our holdings in China Construction Bank and UK-based Standard Chartered. We also established positions in Hong Kong-based Hang Lung Properties in the real estate development segment, and BM&F Bovespa (BM&F is the Brazilian Mercantile and Futures Exchange).
Our consumer discretionary holdings account for almost 18% for the portfolioabout double the allocation in the MSCI benchmarkbecause that is where we are finding what we believe are the best growth companies. Right now, we are finding more of these kinds of companies in the consumer discretionary sector than anywhere else. The portfolio benefited from stock selection in the sector during the last six months, and our overweight allocation contributed to relative returns for the past six months and the year.
Specialty retailer Gome Electrical Appliances was a portfolio addition and the best performer among our consumer discretionary holdings in the last six months. We think of it as the Chinese version of Best Buy. The appliance retailer is transitioning from a consignment vendor to a structure where it owns its inventory. This has improved profit margins, and the company is taking market share. We believe Gome can generate 15% to 20% earnings growth per year for the next five to 10 years based on the housing growth in China. We like retailers because, if a concept is working and a company expands into new markets, we are able to assess with a reasonable amount of confidence the companys return on newly invested capital. Belle International Holdings was another recent portfolio addition that performed well in the past six months. The company is the leading Chinese womens shoe and footwear retailer, with more than 12,000 outlets. In addition to manufacturing, distributing, and selling its own brands, the company markets sportswear from market leaders including Nike, Adidas, Puma, Converse, and Reebok.
We refer to our recent purchases of BMW and Adidas as plays on Chinese aspirational luxury goods. This refers to consumers across emerging markets, and especially in China, who demand and will pay top dollar for top-of-the-line luxury brand-name goods. For example, a BMW or a high-end Audi sells for significantly more in China than it does in the U.S. because demand is greater. We see the new middle class in China as very material, and luxury goods are one of the ways that they can express their wealth. Both stocks generated solid results in the past six months.
Media holdings were our poorest performers in the consumer discretionary sector, and WPP was among the funds worst performers for the past six and 12 months. The UK-based company has a global reach in media advertising, which suffered as companies curbed spending. British Sky Broadcasting, a pay-television broadcaster and Internet services provider similarly endured large losses in the past six monthsNews Corp. canceled its takeover bid and the stock tumbledbut BSkyB, as we call it, was one of the portfolios top contributors for the year. We like the companys assets and its business prospects and added to our position during the past six months.
Investment Outlook
We believe that near-term market performance will be shaped by policy decisions. We expect policymakers to focus on debt reduction in mature markets, which will inevitably cause global growth to slow. It could also hurt growth in emerging markets, but we believe that growth in these economies will remain more robust than in mature markets. If extreme events can be avoided, stocks should move higher as many companies are performing well, continue to report solid revenues and earnings, and have great balance sheets. In our view, stocks are currently priced at reasonable, if not cheap, valuations.
We remain optimistic about the companies in our portfolio as most of them are poised to benefit from growth in emerging countries. As always, our focus is on owning companies that generate strong free cash flow and have seasoned management teamsthese are the companies that should be best equipped to navigate choppy waters. With political decisions increasingly shaping market movements, we expect a great deal of volatility around the myriad possible outcomes. We will continue to look for opportunities to invest within the extreme views as neither represents our base case.
Respectfully submitted,
Robert W. Smith
Chairman of the Investment Advisory
Committee
November 14, 2011
The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the funds investment program.
Risks of International Investing |
Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Funds investing in a single country or in a limited geographic region tend to be riskier than more diversified funds. Risks can result from varying stages of economic and political development; differing regulatory environments, trading days, and accounting standards; and higher transaction costs of non-U.S. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Glossary |
Lipper averages: The averages of available mutual fund performance returns for specified periods in categories defined by Lipper Inc.
MSCI All Country World ex-U.S.A. Index: An index that measures equity market performance of developed and emerging countries, excluding the U.S.
Price-to-book ratio: A valuation measure that compares a stocks market price with its book value, i.e., the companys net worth divided by the number of outstanding shares.
Price-to-earnings (P/E) ratio: A valuation measure calculated by dividing the price of a stock by its reported earnings per share. The ratio is a measure of how much investors are willing to pay for the companys earnings.
Portfolio Highlights
Performance and
Expenses
T. Rowe Price Institutional
International Growth Equity Fund
Performance Comparison |
This chart shows the value of a hypothetical $1 million 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.
Fund Expense Example
As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.
Actual
Expenses
The first line of the
following table (Actual) provides information about actual account values and
actual expenses. You may use the information on this line, together with your
account balance, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number on the first
line under the heading Expenses Paid During Period to estimate the expenses
you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The information
on the second line of the table (Hypothetical) is based on hypothetical
account values and expenses derived from the funds actual expense ratio and an
assumed 5% per year rate of return before expenses (not the funds actual
return). You may compare the ongoing costs of investing in the fund with other
funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.
Financial Highlights
T. Rowe Price Institutional International Growth Equity
Fund
The accompanying notes are an integral part of these financial statements.
Portfolio of
Investments
T. Rowe Price Institutional International Growth Equity
Fund
October 31, 2011
The accompanying notes are an integral part of these financial statements.
Statement of Assets and
Liabilities
T. Rowe Price
Institutional International Growth Equity Fund
October 31,
2011
($000s, except shares and per share
amounts)
The accompanying notes are an integral part of these financial statements.
Statement of
Operations
T. Rowe Price
Institutional International Growth Equity Fund
($000s)
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net
Assets
T. Rowe Price Institutional
International Growth Equity Fund
($000s)
The accompanying notes are an integral part of these financial statements.
Notes to Financial
Statements
T. Rowe Price
Institutional International Growth Equity Fund
October 31, 2011
T. Rowe Price Institutional International Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The Institutional International Growth Equity Fund (the fund), a diversified, open-end management investment company, is one portfolio established by the corporation. The fund commenced operations on September 7, 1989. The fund seeks long-term growth of capital through investments primarily in the common stocks of established, non-U.S. companies.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), which require the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/ loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid annually. Capital gain distributions, if any, are generally declared and paid by the fund annually.
Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses.
Credits The fund earns credits on temporarily uninvested cash balances held at the custodian, which reduce the funds custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits.
Redemption Fees A 2% fee is assessed on redemptions of fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share.
NOTE 2 - VALUATION
The funds financial instruments are reported at fair value as defined by GAAP. The fund determines the values of its assets and liabilities and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business.
Valuation Methods Equity securities listed or regularly traded on a securities exchange or in the over-the-counter (OTC) market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities. Debt securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service.
Investments in mutual funds are valued at the mutual funds closing net asset value per share on the day of valuation.
Other investments, including restricted securities and private placements, and those financial instruments for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the funds Board of Directors (the Board). Subject to oversight by the Board, the Valuation Committee develops pricing-related policies and procedures and approves all fair-value determinations. The Valuation Committee regularly makes good faith judgments, using a wide variety of sources and information, to establish and adjust valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of private-equity instruments, the Valuation Committee considers a variety of factors, including the companys business prospects, its financial performance, strategic events impacting the company, relevant valuations of similar companies, new rounds of financing, and any negotiated transactions of significant size between other investors in the company. Because any fair-value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions.
For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted under the circumstances described below. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. A fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing prices and information to evaluate and/or adjust those prices. The fund cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. As a means of evaluating its security valuation process, the fund routinely compares closing prices, the next days opening prices in the same markets, and adjusted prices. Additionally, trading in the underlying securities of the fund may take place in various foreign markets on certain days when the fund is not open for business and does not calculate a net asset value. As a result, net asset values may be significantly affected on days when shareholders cannot make transactions.
Valuation Inputs Various inputs are used to determine the value of the funds financial instruments. These inputs are summarized in the three broad levels listed below:
Level 1 quoted prices in active markets for identical financial instruments
Level 2 observable inputs other than Level 1 quoted prices (including, but not limited to, quoted prices for similar financial instruments, interest rates, prepayment speeds, and credit risk)
Level 3 unobservable inputs
Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the funds own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level. For example, non-U.S. equity securities actively traded in foreign markets generally are reflected in Level 2 despite the availability of closing prices because the fund evaluates and determines whether those closing prices reflect fair value at the close of the NYSE or require adjustment, as described above. The following table summarizes the funds financial instruments, based on the inputs used to determine their values on October 31, 2011:
NOTE 3 - OTHER INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the funds prospectus and Statement of Additional Information.
Emerging Markets At October 31, 2011, approximately 28% of the funds net assets were invested, either directly or through investments in T. Rowe Price institutional funds, in securities of companies located in emerging markets, securities issued by governments of emerging market countries, and/or securities denominated in or linked to the currencies of emerging market countries. Emerging market securities are often subject to greater price volatility, less liquidity, and higher rates of inflation than U.S. securities. In addition, emerging markets may be subject to greater political, economic, and social uncertainty, and differing regulatory environments that may potentially impact the funds ability to buy or sell certain securities or repatriate proceeds to U.S. dollars.
Repurchase Agreements All repurchase agreements are fully collateralized by U.S. government securities. Collateral is in the possession of the funds custodian or, for tri-party agreements, the custodian designated by the agreement. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its value and a possible loss of income or value if the counterparty fails to perform in accordance with the terms of the agreement.
Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and U.S. government securities valued at 102% to 105% of the value of the securities on loan. Cash collateral is invested by the funds lending agent(s) in accordance with investment guidelines approved by management. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. Securities lending revenue recognized by the fund consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower and compensation to the lending agent. In accordance with GAAP, investments made with cash collateral are reflected in the accompanying financial statements, but collateral received in the form of securities are not. On October 31, 2011, the value of cash collateral investments was $1,079,000, and the value of loaned securities was $998,000.
Other Purchases and sales of portfolio securities other than short-term securities aggregated $41,583,000 and $36,633,000, respectively, for the year ended October 31, 2011.
NOTE 4 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions determined in accordance with federal income tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
The fund files U.S. federal, state, and local tax returns as required. The funds tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards. Reclassifications between income and gain relate primarily to the character of net currency losses and the character of income on passive foreign investment companies. For the year ended October 31, 2011, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):
Distributions during the years ended October 31, 2011 and October 31, 2010, totaled $966,000 and $1,200,000, respectively, and were characterized as ordinary income for tax purposes. At October 31, 2011, the tax-basis cost of investments and components of net assets were as follows:
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales and the realization of unrealized gains/losses on passive foreign investment companies for tax purposes. The fund intends to retain realized gains to the extent of available capital loss carryforwards. During the year ended October 31, 2011, the fund utilized $5,703,000 of capital loss carryforwards. The funds available capital loss carryforwards as of October 31, 2011, all expire in fiscal 2017. As a result of the Regulated Investment Company Modernization Act of 2010, net capital losses realized in future fiscal years may be carried forward for an unlimited period of time but must be used before capital loss carryforwards with expiration dates. Accordingly, it is possible that a substantial portion of the funds current capital loss carryforwards could expire unused.
NOTE 5 - FOREIGN TAXES
The fund is subject to foreign income taxes imposed by certain countries in which it invests. Acquisition of certain foreign currencies related to security transactions are also subject to tax. Additionally, capital gains realized by the fund upon disposition of securities issued in or by certain foreign countries are subject to capital gains tax imposed by those countries. All taxes are computed in accordance with the applicable foreign tax law, and, to the extent permitted, capital losses are used to offset capital gains. Taxes attributable to income are accrued by the fund as a reduction of income. Taxes incurred on the purchase of foreign currencies are recorded as realized loss on foreign currency transactions. Current and deferred tax expense attributable to net capital gains is reflected as a component of realized and/or change in unrealized gain/loss on securities in the accompanying financial statements. At October 31, 2011, the fund had no deferred tax liability attributable to foreign securities and $3,713,000 of foreign capital loss carryforwards, including $3,195,000 that expire in 2012, $35,000 that expire in 2013, $32,000 that expire in 2016, $197,000 that expire in 2017, $122,000 that expire in 2018, $62,000 that expire in 2019 and $70,000 that expire in 2020.
NOTE 6 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). Price Associates has entered into subadvisory agreements with T. Rowe Price International Ltd and T. Rowe Price Singapore Private Ltd., wholly owned subsidiaries of Price Associates, to provide investment advisory services to the fund; the subadvisory agreements provide that Price Associates may pay the subadvisors up to 60% of the management fee that Price Associates receives from the fund. The fund was previously managed by T. Rowe Price International, Inc. (Price International), which was merged into its parent company, Price Associates, effective at the close of business on December 31, 2010. Thereafter, Price Associates assumed responsibility for all of Price Internationals existing investment management contracts, and Price International ceased all further operations. The corporate reorganization was designed to simplify Price Groups corporate structure related to its international business and was intended to result in no material changes in the nature, quality, level, or cost of services provided to the T. Rowe Price funds.
The investment management agreement between the fund and Price Associates provides for an annual investment management fee equal to 0.70% of the funds average daily net assets. The fee is computed daily and paid monthly.
The fund is also subject to a contractual expense limitation through February 29, 2012. During the limitation period, Price Associates is required to waive its management fee and reimburse the fund for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the funds ratio of annualized total expenses to average net assets (expense ratio) to exceed its expense limitation of 0.75%. The fund is required to repay Price Associates for expenses previously reimbursed and management fees waived to the extent the funds net assets have grown or expenses have declined sufficiently to allow repayment without causing the funds expense ratio to exceed its expense limitation. However, no repayment will be made more than three years after the date of any reimbursement or waiver or later than February 28, 2012. Pursuant to this agreement, management fees in the amount of $262,000 were waived during the year ended October 31, 2011. Including these amounts, management fees waived in the amount of $516,000 remain subject to repayment by the fund at October 31, 2011.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share price and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the funds transfer and dividend disbursing agent. For the year ended October 31, 2011, expenses incurred pursuant to these service agreements were $122,000 for Price Associates and less than $1,000 for T. Rowe Price Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The T. Rowe Price Reserve Investment Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates and are not available for direct purchase by members of the public. The T. Rowe Price Reserve Investment Funds pay no investment management fees.
Report of Independent Registered Public Accounting Firm
To the Board of Directors of T. Rowe Price Institutional International Funds, Inc. and Shareholders of T. Rowe Price Institutional International Growth Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Institutional International Growth Equity Fund (one of the portfolios comprising T. Rowe Price Institutional International Funds Inc., hereafter referred to as the Fund) at October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Funds management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2011 by correspondence with the custodian and brokers, and confirmation of the underlying fund by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
Baltimore, Maryland
December 16, 2011
Tax Information (Unaudited) for the Tax Year Ended 10/31/11 |
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 funds distributions to shareholders included $176,000 from short-term capital gains.
For taxable non-corporate shareholders, $1,332,000 of the funds income represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, $10,000 of the funds income qualifies for the dividends-received deduction.
The fund will pass through foreign source income of $1,332,000 and foreign taxes paid of $108,000.
Information on Proxy Voting Policies, Procedures, and Records |
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each funds Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SECs website, sec.gov. The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words Our Company at the top of our corporate home-page. Then, when the next page appears, click on the words Proxy Voting Policies on the left side of the page.
Each funds most recent annual proxy voting record is available on our website and through the SECs website. To access it through our website, follow the directions above, then click on the words Proxy Voting Records on the right side of the Proxy Voting Policies page.
How to Obtain Quarterly Portfolio Holdings |
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The funds Form N-Q is available electronically on the SECs website (sec.gov); hard copies may be reviewed and copied at the SECs Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
About the Funds
Directors and
Officers
Your fund is overseen by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Board elects the funds officers, who are listed in the final table. At least 75% of the Boards members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; inside or interested directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-638-5660.
Independent Directors | ||
Name (Year of Birth) | Principal Occupation(s) and Directorships of Public Companies and Other Investment Companies During | |
Year Elected | the Past Five Years | |
William R. Brody (1944) | President and Trustee, Salk Institute for Biological Studies (2009 to present); Director, Novartis, Inc. (2009 | |
2009 | to present); Director, IBM (2007 to present); President and Trustee, Johns Hopkins University (1996 to 2009); | |
Chairman of Executive Committee and Trustee, Johns Hopkins Health System (1996 to 2009) | ||
Jeremiah E. Casey (1940) | Retired | |
2006 | ||
Anthony W. Deering (1945) | Chairman, Exeter Capital, LLC, a private investment firm (2004 to present); Director, Under Armour (2008 to | |
1991 | present); Director, Vornado Real Estate Investment Trust (2004 to present); Director, Mercantile Bankshares | |
(2002 to 2007); Director and Member of the Advisory Board, Deutsche Bank North America (2004 to present) | ||
Donald W. Dick, Jr. (1943) | Principal, EuroCapital Partners, LLC, an acquisition and management advisory firm (1995 to present) | |
1989 | ||
Karen N. Horn (1943) | Senior Managing Director, Brock Capital Group, an advisory and investment banking firm (2004 to present); | |
2003 | Director, Eli Lilly and Company (1987 to present); Director, Simon Property Group (2004 to present); Director, | |
Norfolk Southern (2008 to present); Director, Fannie Mae (2006 to 2008) | ||
Theo C. Rodgers (1941) | President, A&R Development Corporation (1977 to present) | |
2006 | ||
John G. Schreiber (1946) | Owner/President, Centaur Capital Partners, Inc., a real estate investment company (1991 to present); Cofounder | |
2001 | and Partner, Blackstone Real Estate Advisors, L.P. (1992 to present); Director, General Growth Properties, Inc. | |
(2010 to present) | ||
Mark R. Tercek (1957) | President and Chief Executive Officer, The Nature Conservancy (2008 to present); Managing Director, The Goldman | |
2009 | Sachs Group, Inc. (1984 to 2008) | |
*Each independent director oversees 130 T. Rowe Price portfolios and serves until retirement, resignation, or election of a successor. | ||
Inside Directors | ||
Name (Year of Birth) | ||
Year Elected* [Number of T. Rowe | Principal Occupation(s) and Directorships of Public Companies and Other Investment Companies During | |
Price Portfolios Overseen] | the Past Five Years | |
Edward C. Bernard (1956) | Director and Vice President, T. Rowe Price; Vice Chairman of the Board, Director, and Vice President, T. Rowe Price | |
2006 [130] | Group, Inc.; Chairman of the Board, Director, and President, T. Rowe Price Investment Services, Inc.; Chairman | |
of the Board and Director, T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Savings Bank, and T. Rowe | ||
Price Services, Inc.; Chairman of the Board, Chief Executive Officer, and Director, T. Rowe Price International; | ||
Chief Executive Officer, Chairman of the Board, Director, and President, T. Rowe Price Trust Company; Chairman | ||
of the Board, all funds | ||
Brian C. Rogers, CFA, CIC (1955) | Chief Investment Officer, Director, and Vice President, T. Rowe Price; Chairman of the Board, Chief Investment | |
2006 [74] | Officer, Director, and Vice President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust Company | |
*Each inside director serves until retirement, resignation, or election of a successor. |
Officers | ||
Name (Year of Birth) | ||
Position Held With Institutional International Funds | Principal Occupation(s) | |
Ulle Adamson, CFA (1979) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Christopher D. Alderson (1962) | Director and PresidentInternational Equity, T. Rowe Price International; | |
President | Companys Representative, Director, and Vice President, Price Hong Kong; | |
Director and Vice President, Price Singapore; Vice President, T. Rowe Price | ||
Group, Inc. | ||
Paulina Amieva (1981) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Oliver Bell, IMC (1969) | Vice President, T. Rowe Price International; formerly Head of Global | |
Executive Vice President | Emerging Markets Research, Pictet Asset Management Ltd. (to 2011); | |
Portfolio Manager of Africa and Middle East portfolios and other emerging | ||
markets strategies, Pictet Asset Management Ltd. (to 2009) | ||
R. Scott Berg, CFA (1972) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Executive Vice President | ||
Mark C.J. Bickford-Smith (1962) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
José Costa Buck (1972) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Richard N. Clattenburg, CFA (1979) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Executive Vice President | International | |
Michael J. Conelius, CFA (1964) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price | |
Executive Vice President | International, and T. Rowe Price Trust Company | |
Richard de los Reyes (1975) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly | |
Vice President | Analyst, Soros Fund Management (to 2006) | |
Mark J.T. Edwards (1957) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
David J. Eiswert, CFA (1972) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Vice President | International | |
Roger L. Fiery III, CPA (1959) | Vice President, Price Hong Kong, Price Singapore, T. Rowe Price, T. Rowe | |
Vice President | Price Group, Inc., T. Rowe Price International, and T. Rowe Price Trust | |
Company | ||
Robert N. Gensler (1957) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Executive Vice President | International | |
John R. Gilner (1961) | Chief Compliance Officer and Vice President, T. Rowe Price; Vice President, | |
Chief Compliance Officer | T. Rowe Price Group, Inc., and T. Rowe Price Investment Services, Inc. | |
Gregory S. Golczewski (1966) | Vice President, T. Rowe Price and T. Rowe Price Trust Company | |
Vice President | ||
M. Campbell Gunn (1956) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Gregory K. Hinkle, CPA (1958) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Treasurer | Trust Company; formerly Partner, PricewaterhouseCoopers LLP (to 2007) | |
Leigh Innes, CFA (1976) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Randal Spero Jenneke (1971) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; | |
Vice President | formerly Senior Portfolio Manager, Australian Equities (to 2010) | |
Kris H. Jenner, M.D., D.Phil. (1962) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Vice President | International | |
Yoichiro Kai (1973) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; | |
Vice President | formerly Japanese Financial/Real Estate Sector Analyst/Portfolio Manager, | |
Citadel Investment Group, Asia Limited (to 2009); Research Analyst, | ||
Japanese Equities and Sector Fund Portfolio Manager, Fidelity Investments | ||
Japan Limited (to 2007) | ||
Andrew J. Keirle (1974) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
Ian D. Kelson (1956) | PresidentInternational Fixed Income, T. Rowe Price International; Vice | |
Executive Vice President | President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Mark J. Lawrence (1970) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
David M. Lee, CFA (1962) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Vice President | ||
Patricia B. Lippert (1953) | Assistant Vice President, T. Rowe Price and T. Rowe Price Investment | |
Secretary | Services, Inc. | |
Anh Lu (1968) | Vice President, Price Hong Kong and T. Rowe Price Group, Inc. | |
Vice President | ||
Daniel Martino, CFA (1974) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly | |
Vice President | Research Analyst and Co-portfolio Manager, Taurus Asset Management | |
(to 2006) and Onex Public Markets Group (to 2006) | ||
Jonathan H.W. Matthews, CFA (1975) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; | |
Vice President | formerly Analyst, Pioneer Investments (to 2008) | |
Susanta Mazumdar (1968) | Vice President, Price Singapore and T. Rowe Price Group, Inc. | |
Vice President | ||
Raymond A. Mills, Ph.D., CFA (1960) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price | |
Executive Vice President | International, and T. Rowe Price Trust Company | |
Joshua Nelson (1977) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Executive Vice President | ||
Jason Nogueira, CFA (1974) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Executive Vice President | ||
David Oestreicher (1967) | Director and Vice President, T. Rowe Price Investment Services, Inc., | |
Vice President | T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Services, Inc., | |
and T. Rowe Price Trust Company; Vice President, Price Hong Kong, Price | ||
Singapore, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | ||
International | ||
Gonzalo Pángaro, CFA (1968) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
Timothy E. Parker, CFA (1974) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Vice President | ||
Frederick A. Rizzo (1969) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; | |
Vice President | formerly Analyst, F&C Asset Management (London) (to 2006) | |
Christopher J. Rothery (1963) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
Federico Santilli, CFA (1974) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Executive Vice President | ||
Sebastian Schrott (1977) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Deborah D. Seidel (1962) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Vice President | Investment Services, Inc.; Assistant Treasurer and Vice President, T. Rowe | |
Price Services, Inc. | ||
Robert W. Sharps, CFA, CPA (1971) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Vice President | Trust Company | |
Robert W. Smith (1961) | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price | |
Executive Vice President | Trust Company | |
Jonty Starbuck, Ph.D. (1975) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Dean Tenerelli (1964) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Eric L. Veiel, CFA (1972) | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Vice President | ||
Julie L. Waples (1970) | Vice President, T. Rowe Price | |
Vice President | ||
Christopher S. Whitehouse (1972) | Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Vice President | ||
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 5 years. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrants Board of Directors/Trustees has determined that Mr. Anthony W. Deering qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Deering is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrants principal accountant were as follows:
Audit fees include amounts related to the audit of the registrants annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrants financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrants pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrants Board of Directors/Trustees.
(e)(1) The registrants audit committee has adopted a policy whereby audit and non-audit services performed by the registrants principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountants full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrants principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,632,000 and $1,429,000, respectively.
(h) All non-audit services rendered in (g) above were pre-approved by the registrants audit committee. Accordingly, these services were considered by the registrants audit committee in maintaining the principal accountants independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrants principal executive officer and principal financial officer have evaluated the registrants disclosure controls and procedures within 90 days of this filing and have concluded that the registrants disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrants principal executive officer and principal financial officer are aware of no change in the registrants internal control over financial reporting that occurred during the registrants second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrants code of ethics pursuant to Item 2 of Form N-CSR is attached.
(3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.
(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Institutional International Funds,
Inc.
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | December 16, 2011 |
Pursuant to
the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | December 16, 2011 |
By | /s/ Gregory K. Hinkle |
Gregory K. Hinkle | |
Principal Financial Officer | |
Date | December 16, 2011 |
Item 12(a)(2).
CERTIFICATIONS
I, Edward C. Bernard, certify that:
1. | I have reviewed this report on Form N-CSR of T. Rowe Price Institutional International Growth Equity Fund; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | |||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: December 16, 2011 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer |
CERTIFICATIONS
I, Gregory K. Hinkle, certify that:
1. | I have reviewed this report on Form N-CSR of T. Rowe Price Institutional International Growth Equity Fund; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | |||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: December 16, 2011 | /s/ Gregory K. Hinkle | |
Gregory K. Hinkle | ||
Principal Financial Officer |
Item 12(b).
CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002 | ||
Name of Issuer: T. Rowe Price Institutional International Growth Equity Fund | ||
In connection with the Report on Form N-CSR for the above named Issuer, the undersigned hereby | ||
certifies, to the best of his knowledge, that: | ||
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities | |
Exchange Act of 1934; | ||
2. | The information contained in the Report fairly presents, in all material respects, the financial | |
condition and results of operations of the Issuer. |
Date: December 16, 2011 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer | ||
Date: December 16, 2011 | /s/ Gregory K. Hinkle | |
Gregory K. Hinkle | ||
Principal Financial Officer |
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE
AND SENIOR FINANCIAL
OFFICERS OF THE PRICE FUNDS
UNDER THE SARBANES-OXLEY ACT OF 2002
I. General Statement. This Code of Ethics (the Price Funds S-O Code) has been designed to bring the Price Funds into compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 (the Act) rules promulgated by The Securities and Exchange Commission thereunder (Regulations). The Price Funds S-O Code applies solely to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller of, or persons performing similar functions for, a Price Fund (whether such persons are employed by a Price Fund or third party) (Covered Officers). The Price Funds shall include each mutual fund that is managed, sponsored and distributed by affiliates of T. Rowe Price Group, Inc. (Group). The investment managers to the Price Funds will be referred to as the Price Fund Advisers. A list of Covered Officers is attached as Exhibit A.
The Price Fund Advisers have, along with their parent, T. Rowe Price Group, Inc. (Group) also maintained a comprehensive Code of Ethics and Conduct (the Group Code) since 1972, which applies to all officers, directors and employees of the Price Funds, Group and its affiliates.
As mandated by the Act, Group has adopted a Code (the Group S-O Code), similar to the Price Funds S-O Code, which applies solely to its principal executive and senior financial officers. The Group S-O Code and the Price Funds S-O Code will be referred to collectively as the S-O Codes.
The Price Funds S-O Code has been adopted by the Price Funds in accordance with the Act and Regulations thereunder and will be administered in conformity with the disclosure requirements of Item 2 of Form N-CSR. The S-O Codes are attachments to the Group Code. In many respects the S-O Codes are supplementary to the Group Code, but the Group Code is administered separately from the S-O Codes, as the S-O Codes are from each other.
II. Purpose of the Price Funds S-O Code. The purpose of the Price Funds S-O Code, as mandated by the Act and the Regulations, is to establish standards that are reasonably designed to deter wrongdoing and to promote:
Ethical Conduct. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.
Disclosure. Full, fair, accurate, timely and understandable disclosure in reports and documents that the Price Funds file with, or submit to, the SEC and in other public communications made by the Price Funds.
Compliance. Compliance with applicable governmental laws, rules and regulations.
Reporting of Violations. The prompt internal reporting of violations of the Price Funds S-O Code to an appropriate person or persons identified in the Price Funds S-O Code.
Accountability. Accountability for adherence to the Price Funds S-O Code.
III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest.
Overview. Each Covered Officer owes a duty to the Price Funds to adhere to a high standard of honesty and business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
A conflict of interest occurs when a Covered Officers private interest interferes with the interests of, or his or her service to, the Price Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Price Fund.
Certain conflicts of interest covered by the Price Funds S-O Code arise out of the relationships between Covered Officers and the Price Funds and may already be subject to provisions regulating conflicts of interest in the Investment Company Act of 1940 (Investment Company Act), the Investment Advisers Act of 1940 (Investment Advisers Act) and the Group Code. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Price Fund because of their status as affiliated persons of a Price Fund. The compliance programs and procedures of the Price Funds and Price Fund Advisers are designed to prevent, or identify and correct, violations of these provisions.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Price Fund and its Price Fund Adviser (and its affiliates) of which the Covered Officers may also be officers or employees. As a result, the Price Funds S-O Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Price Funds or for the Price Fund Advisers, or for both), be involved in establishing policies and implementing decisions which will have different effects on these entities. The participation of the Covered Officers in such activities is inherent in the contractual relationship between each Price Fund and its respective Price Fund Adviser. Such participation is also consistent with the performance by the Covered Officers of their duties as officers of the Price Funds and, if consistent with the provisions of the Investment Company Act and the Investment Advisers Act, it will be deemed to have been handled ethically.
Other conflicts of interest are covered by the Price Funds S-O Code, even if these conflicts of interest are not addressed by or subject to provisions in the Investment Company Act and the Investment Advisers Act.
Whenever a Covered Officer is confronted with a conflict of interest situation where he or she is uncertain as to the appropriate action to be taken, he or she should discuss the matter with the Chairperson of Groups Ethics Committee or another member of the Committee.
Handling of Specific Types of Conflicts. Each Covered Officer (and close family members) must not:
Entertainment. Accept entertainment from any company with which any Price Fund or any Price Fund Adviser has current or prospective business dealings, including portfolio companies, unless such entertainment is in full compliance with the policy on entertainment as set forth in the Group Code.
Gifts. Accept any gifts, except as permitted by the Group Code.
Improper Personal Influence. Use his or her personal influence or personal relationships improperly to influence investment decisions, brokerage allocations or financial reporting by the Price Funds to the detriment of any one or more of the Price Funds.
Taking Action at the Expense of a Price Fund. Cause a Price Fund to take action, or fail to take action, for the personal benefit of the Covered Officer rather than for the benefit of one or more of the Price Funds.
Misuse of Price Funds Transaction Information. Use knowledge of portfolio transactions made or contemplated for a Price Fund or any other clients of the Price Fund Advisers to trade personally or cause others to trade in order to take advantage of or avoid the market impact of such portfolio transactions.
Outside Business Activities. Engage in any outside business activity that detracts from a Covered Officers ability to devote appropriate time and attention to his or her responsibilities to a Price Fund.
Service Providers. Excluding Group and its affiliates, have any ownership interest in, or any consulting or employment relationship with, any of the Price Funds service providers, except that an ownership interest in public companies is permitted
Receipt of Payments. Have a direct or indirect financial interest in commissions, transaction charges, spreads or other payments paid by a Price Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest (such as compensation or equity ownership) arising from the Covered Officers employment by Group or any of its affiliates.
Service as a Director or Trustee. Serve as a director, trustee or officer of any public or private company or a non-profit organization that issues securities eligible for purchase by any of the Price Funds, unless approval is obtained as required by the Group Code.
IV. Covered Officers Specific Obligations and Accountabilities.
A. Disclosure Requirements and Controls. Each Covered Officer must familiarize himself or herself with the disclosure requirements (Form N-1A registration statement, proxy (Schedule 14A), shareholder reports, Forms N-SAR, N-CSR, etc.) applicable to the Price Funds and the disclosure controls and procedures of the Price Fund and the Price Fund Advisers.
B. Compliance with Applicable Law. It is the responsibility of each Covered Officer to promote compliance with all laws, rules and regulations applicable to the Price Funds and the Price Fund Advisers. Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Price Funds and the Price Fund Advisers and take other appropriate steps with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Price Funds file with, or submit to, the SEC, and in other public communications made by the Price Funds.
C. Fair Disclosure. Each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about a Price Fund to others, whether within or outside the Price organization, including to the Price Funds directors and auditors, and to governmental regulators and self-regulatory organizations.
D. Initial and Annual Affirmations. Each Covered Officer must:
1. Upon adoption of the Price Funds S-O Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing that he or she has received, read, and understands the Price Funds S-O Code.
2. Annually affirm that he or she has complied with the requirements of the Price Funds S-O Code.
E. Reporting of Material Violations of the Price Funds S-O Code. If a Covered Officer becomes aware of any material violation of the Price Funds S-O Code or laws and governmental rules and regulations applicable to the operations of the Price Funds, he or she must promptly report the violation (Report) to the Chief Legal Counsel of the Price Funds (CLC). Failure to report a material violation will be considered itself a violation of the Price Funds S-O Code. The CLC is identified in the attached Exhibit B.
It is the Price Funds policy that no retaliation or other adverse action will be taken against any Covered Officer or other employee of a Price Fund, a Price Fund Adviser or their affiliates based upon any lawful actions of the Covered Officer or employee with respect to a Report made in good faith.
F. Annual Disclosures. Each Covered Officer must report, at least annually, all affiliations or other relationships as called for in the Annual Questionnaire for Executive Officers and/or Employee Directors/Trustees of Group and the Price Funds.
V. Administration of the Price Funds S-O Code. The Ethics Committee is responsible for administering the Price Funds S-O Code and applying its provisions to specific situations in which questions are presented.
A. Waivers and Interpretations. The Chairperson of the Ethics Committee has the authority to interpret the Price Funds S-O Code in any particular situation and to grant waivers where justified, subject to the approval of the Joint Audit Committee of the Price Funds. All material interpretations concerning Covered Officers will be reported to the Joint Audit Committee of the Price Funds at its next meeting. Waivers, including implicit waivers, to Covered Officers will be publicly disclosed as required in the Instructions to N-CSR. Pursuant to the definition in the Regulations, an implicit waiver means a Price Funds failure to take action within a reasonable period of time regarding a material departure from a provision of the Price Funds S-O Code that has been made known to an executive officer (as defined in Rule 3b-7 under the Securities Exchange Act of 1934) of a Price Fund. An executive officer of a Price Fund includes its president and any vice-president in charge of a principal business unit, division or function.
B. Violations/Investigations. The following procedures will be followed in investigating and enforcing the Price Funds S-O Code:
1. The CLC will take or cause to be taken appropriate action to investigate any potential or actual violation reported to him or her.
2. The CLC, after consultation if deemed appropriate with Outside Counsel to the Price Funds, will make a recommendation to the appropriate Price Funds Board regarding the action to be taken with regard to each material violation. Such action could include any of the following: a letter of censure or suspension, a fine, a suspension of trading privileges or termination of officership or employment. In addition, the violator may be required to surrender any profit realized (or loss avoided) from any activity that is in violation of the Price Funds S-O Code.
VI. Amendments to the Price Funds S-O Code. Except as to the contents of Exhibit A and Exhibit B, the Price Funds S-O Code may not be materially amended except in written form, which is specifically approved or ratified by a majority vote of each Price Fund Board, including a majority of the independent directors on each Board.
VII. Confidentiality. All reports and records prepared or maintained pursuant to the Price Funds S-O Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law, the Price Funds S-O Code or as necessary in connection with regulations under the Price Funds S-O Code, such matters shall not be disclosed to anyone other than the directors of the appropriate Price Fund Board, Outside Counsel to the Price Funds, members of the Ethics Committee and the CLC and authorized persons on his or her staff.
Preparation Date: 9/30/03
Adoption Date: 10/22/03
Exhibit A
Persons Covered by the Price Funds S-O Code of
Ethics
Edward C. Bernard, Chairman
and Chief Executive Officer
Gregory K. Hinkle, Treasurer and Chief Financial
Officer
Exhibit B
David Oestreicher, Chief Legal Counsel to the Price Funds
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