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:
December 31
Date of reporting period: December 31, 2011
Item 1. Report to Shareholders
Institutional Emerging Markets Bond Fund |
December 31, 2011 |
Highlights |
The views and opinions in this report were current as of December 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 Foreign Bond Funds
Dear Investor:
Returns for international bonds were mixed in 2011 against a background of heightened volatility. The latter half of the year was particularly challenging as the ongoing European debt crisis and signs of slower global economic growth caused investors to shed risk in favor of safe-haven assets. Government bonds issued by non-U.S. developed markets rose on the whole, but Europe was an obvious exception as returns were held back by the failure of policymakers to adequately address the Continents long-term debt problems. Emerging markets bonds outpaced developed market debta testament to their generally healthy fiscal positions and better growth prospects relative to developed markets. The U.S. dollar strengthened against most currencies, which eroded returns in dollar terms.
Market Environment
The global economic recovery continued to unfold in 2011, although the pace of growth slowed overall. Among developed markets, U.S. growth was less than robust but proved far more resilient than many experts had expected. The domestic recovery continued despite multiple shocks, including the acrimonious political debate over the U.S. debt ceiling, the ongoing European debt crisis, political and social unrest in key oil-producing nations in the Middle East and North Africa, and slowing growth in China and other key emerging markets. The eurozone edged toward recession as policymakers failed to resolve or even effectively contain the Continental debt crises. However, German government bonds benefited from their status as the premium lower-risk asset in Europe and performed well, as did highly rated non-eurozone sovereigns from the UK, Denmark, Sweden, and Norway. Except for the Japanese yen, all major developed market currencies depreciated against the U.S. dollar over the year, eroding returns in dollar terms. Investment-grade corporate bonds were volatile, rising steadily in the first half of the year before experiencing a broad third-quarter sell-off as the eurozone debt crisis intensified. They recovered somewhat in the fourth quarter and closed the year with modest gains. European high yield bonds lost ground for the year amid widespread negative investor sentiment.
Dollar-denominated emerging markets bonds outpaced developed market debt by a wide margin as investors were attracted to the superior fundamentals of the asset class versus developed markets. Emerging markets debt denominated in local currencies performed well in local currency terms. However, this strong performance was offset by broad-based currency depreciation against the U.S. dollar as investors favored the relative safety of dollar-denominated assets.
Institutional International Bond Fund
As shown in the Performance Comparison table, the Institutional International Bond Fund gained 1.95% for the 12 months ended December 31, 2011, but declined 3.68% over the closing six months. The fund lagged the Barclays Capital Global Aggregate Ex-U.S. Dollar Bond Index. Our currency selection, country and duration selection, sector and security selection, and allocations to below investment-grade securities all detracted through the second half of the year after a reasonably positive first six months.
Underweight duration positions in peripheral European government debt helped performance as these securities mostly lagged German government bonds, in which we have an overweight relative to the benchmark. Emerging market debt issued in local currencies also aided returns as EM government bonds enjoyed strong returns in local currency terms. A stronger U.S. dollar, however, weighed on returns in dollar terms. An overweight position in Mexican government bonds funded by a short position in U.S. Treasuries detracted as risk-averse investors favored the relative safety of U.S. government securities. An underweight allocation to core European government bonds detracted as a flight to quality contributed to falling yields across the core eurozone nations. Overall, we expect low yields and negative real yields in some regions to persist for some time, and we recently lengthened our durationmaking it more sensitive to changes in interest ratesbut remain shorter than our benchmark. We reduced our exposure to peripheral European debt by eliminating our lone Irish government bond and we trimmed our Spanish and Italian debt. We currently have no exposure to Ireland or Portugal and have significant underweights to Italy and Spain. Government bonds currently appear expensive, and we have underweight allocations to Canada and the eurozone. Among Asian markets, we are underweight Japan and overweight Malaysia. We like longer-dated bonds in Brazil and Mexico as part of our broader focus on the relative health of emerging markets over the long term.
Active currency selection weighed on returns. An underweight exposure to the euro and an overweight allocation to the Russian ruble enhanced returns for the year. However, the gains were not enough to offset weakness from the Mexican peso and other emerging market local currencies, whose value declined sharply in September as investors once again grew cautious. We reduced risk in our currency allocations late in the period, trimming exposure to the British pound and Swedish krona. We retained a focus on the Norwegian krone, funded by our lack of exposure to the euro. We favor the Mexican peso over a weakening U.S. dollar. Over the long term, emerging market currencies should continue to strengthen versus the U.S. dollar and euro as developed markets struggle with burdensome debt challenges.
Sector and security selection also dampened results during the year. An overweight allocation and adverse security selection in investment-grade European corporate bonds detracted significantly amid heightened uncertainty surrounding the European debt crisis, particularly over the second half of the year. However, an underweight to European securitized and government-related bonds was modestly positive. We reduced our focus on European investment-grade corporate bonds in light of widening yield spreadsthe difference between yields of higher- and lower-quality bondsbut remain overweight. Within financials, we continue to favor U.S. and UK banks over European banks as they are more likely to be insulated somewhat from the European debt crisis.
Allocations to below investment-grade emerging markets local currency government bonds helped returns modestly. European high yield and emerging markets U.S. dollar-denominated corporate bonds detracted significantly in the second half of the year as riskier assets came under pressure. As part of a risk reduction strategy, we trimmed our exposure to European high yield bonds over the quarter. However, we maintain allocations to both European high yield and dollar-denominated emerging markets corporate bonds, where we see a mismatch between fundamentals and current yields.
Institutional Emerging Markets Bond Fund
As shown in the Performance Comparison table, solid performance in the first half of the year helped the Institutional Emerging Markets Bond Fund gain 2.84% for the 12 months ended December 31, 2011. The fund trailed the J.P. Morgan Emerging Markets Bond Index Global Diversified. Our exposure to emerging market corporate debt weighed heavily on returns over the second half of the year as risk appetite declined amid concerns over the broader impact of the European debt crisis and slowing global economic growth. Investors rotated into the perceived safety of larger sovereign issuers such as Brazil and Mexico, where our underweight allocation hurt returns. On a positive note, our relative lack of exposure to several troubled countries, including Belarus and Egypt, benefited returns. Our exposure to Venezuelan sovereign bonds also aided results as elevated oil prices and improved prospects for regime change contributed to heightened investor interest.
We trimmed our allocation to corporate debt after a December rally in many of our positions, including the Chinese property sector, which benefited from improved prospects for a soft economic landing. Our long-term conviction in the sector remains firm given favorable urbanization trends and a high savings rate. The remainder of our corporate allocation is spread across companies that stand to benefit from growing domestic demand from the emerging market consumer, particularly in Brazil, Russia, China, India, and Mexico. We recently added to our position in General Shopping, a Brazilian shopping mall operator that stands to benefit from rising local consumption trends and low vacancy rates. Given heightened tensions in major oil producers, such as Iran, Russia, Kazakhstan, and Iraq, we also recently added to select western oil-related companies that enjoy strong government support, including Petroleos de Venezuela, Petroleos Mexicanos (Pemex), and Petrobras in Brazil. These companies are removed from the unrest in the Middle East and North Africa but stand to benefit from potential oil price increases. Despite the recent volatility, the fundamentals of emerging market corporate debt compare favorably to developed market companies, and we believe strongly that it will outperform over the coming years. (Please refer to the funds portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
We continued to reduce our local markets allocation during the period. Inflationary pressures have eased, and many emerging markets have started to cut interest rates in order to safeguard economic growth. However, weakening currencies versus the U.S. dollar have muted the return potential. We continue to maintain conviction in select markets, however, most notably in Mexico and Brazil. Mexico continues to enjoy relatively benign inflation expectations, while Brazil offers the highest real interest rates in the world.
The choice to invest in local debt and the respective currency in which that debt is issued are separate and distinct decisions made by the portfolio manager. Although bouts of risk aversion are likely in the first half of 2012, we expect risk appetite to increase in the second half of the year as global headwinds abate or become priced into the market, and we may add to select currencies on weakness, such as the Colombian peso and Chilean peso.
In terms of region and country positions, our overweight in Eastern Europe stems largely from our focus on Russia. The country maintains a robust growth outlook, led by consumer activity, lower inflation, and an ongoing resumption in lending activity. Additionally, Russia stands to benefit from its upcoming membership in the World Trade Organization, which should boost long-term growth prospects and improve regulatory discipline. We further anticipate that this major oil exporter will continue to benefit from elevated oil prices. We also favor the Ukraine, where our exposure is spread across sovereign, quasi-sovereign, and corporate debt markets. Importantly, we are significantly underweight troubled Eastern European countries exposed to high contagion risks from the deteriorating eurozone economy, including Belarus, Croatia, and Hungary.
Our exposure to inflation-linked debt in Latin America helped relative performance in the fourth quarter. Despite reduced inflationary pressure in the latter part of 2011, we expect current inflation levels to persist and that inflation is likely to rise again in 2012. Brazil continues to be the largest overweight position in our portfolio, and our holdings include external, local, and corporate debt. Brazil has a healthy reserve position, a diverse mix of commodity exports, and strong domestic demand. We continue to find value in corporations that stand to profit from Brazils growing middle class.
Outlook
Among developed markets, the U.S. economy has shown surprising resilience in the face of macroeconomic uncertainty stemming from the eurozone debt crisis and decelerating growth in major emerging markets. Nonetheless, we continue to expect a recession and financial strains in the eurozone to contribute to a slowdown in the U.S. in the months ahead. The European economy is likely to deteriorate due to stress in the banking system and ongoing fiscal tightening, with expected gross domestic product growth between -0.5% and -1.0% for 2012. The outlook for growth in the second half of 2012 depends largely on whether or not policymakers take decisive action to resolve the Continents long-term debt problems. The Japanese economy continues to recover from the impact of the earthquake and tsunami last March. Domestic demand and exports have improved, though capital expenditures are still weak, and recent export data to Europe have been somewhat disappointing.
Short-term weakness emanating from global growth concerns may provide an attractive entry point into emerging market bonds, as emerging markets debt remains well supported by solid fundamental and technical characteristics. Although the asset class remains vulnerable to global macroeconomic instability stemming from developed markets in the near term, longer-term drivers remain very supportive of emerging markets debt. More specifically, we expect risks will begin to ease in the second half of the year as a modest U.S. recovery and soft economic landing in China become more entrenched. Capital inflows have been reinforced by the continued fundamental deterioration of developed markets, most notably in Europe, combined with improved credit profiles among emerging countries. We believe this convergence is precipitating a long-term shift in investor preference toward emerging markets debt.
Overall, the global growth outlook has become modestly more positive, helped by better-than-expected data from the U.S. While a recession in Europe is now fully priced into bond markets, investors remain uncertain when it comes to China. Decreased commodity prices, coupled with erosion in exports to regions like Europe have led many forecasters to downgrade inflation expectations in emerging market countries. While this supports local currency emerging market bonds, it may restrict the appreciation potential of emerging market currencies in the short term. In below investment-grade bonds, default rate forecasts for 2012 are around historical averages, and the asset class is attractively valued. By contrast, the market remains cautious on investment-grade corporate bonds, where the financials sector remains vulnerable to further deleveraging and large exposure to European periphery debt.
Effective security selection is becoming increasingly important as the international bond market grows in size, complexity, and maturity. We believe that the extended reach of T. Rowe Prices global credit and equity research platforms, combined with our emphasis on cross-functional collaboration, gives our portfolio managers a critical edge in evaluating opportunities and risks in the global bond market.
Respectfully submitted,
Ian Kelson
President of the International Fixed Income Division,
portfolio manager of the Institutional International Bond
Fund, and
chairman of the funds Investment
Advisory Committee
Michael J.
Conelius
Portfolio manager for the
Institutional Emerging Markets
Bond Fund and chairman of the funds
Investment
Advisory Committee
January 30, 2012
The committee chairmen have day-to-day responsibility for the portfolios and work with committee members in developing and executing the funds investment programs.
Risk of International Bond Investing |
Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets, including unpredictable changes in currency values. Investments in emerging markets are subject to abrupt and severe price declines and should be regarded as speculative. The economic and political structures of developing nations, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. Some countries also have legacies of hyperinflation, currency devaluations, and governmental interference in markets.
International investments are subject to currency risk, 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. The overall impact on a funds holdings can be significant and long-lasting, depending on the currencies represented in the portfolio, how each one appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Further, exchange rate movements are unpredictable, and it is not possible to effectively hedge the currency risks of many developing countries.
Bonds are also subject to interest rate risk, the decline in bond prices that usually accompanies a rise in interest rates, and credit risk, the chance that any fund holding could have its credit rating downgraded or that a bond issuer will default (fail to make timely payments of interest or principal), potentially reducing the funds income level and share price.
Glossary |
Barclays Capital Global Aggregate Ex-U.S. Dollar Bond Index: Tracks the performance of government, corporate, agency, and mortgage-backed bonds in Europe, the Asia-Pacific region, and Canada.
Duration: A measure of a bond funds sensitivity to changes in interest rates. For example, a fund with a duration of five years would fall approximately 5% in price in response to a one-percentage-point rise in interest rates.
J.P. Morgan Emerging Markets Bond Index Global Diversified: Tracks U.S. dollar-denominated government bonds of foreign countries and limits the weight of constituent countries at 10% of the index.
Quasi-sovereign debt: Debt issued by a corporation and backed by its respective government, typically offering the higher yields of corporate debt with the added benefit of government support.
SEC yield (30-day): The 30-day SEC yield represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the funds share price at the end of the 30-day period.
Weighted average maturity: A measure of a funds sensitivity to interest rates. In general, the longer the average maturity, the greater the funds sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities. Money funds must maintain a weighted average maturity of less than 60 days.
Portfolio Highlights
Performance and
Expenses
T. Rowe Price Institutional
Foreign Bond Funds
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.
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 Emerging Markets Bond
Fund
The accompanying notes are an integral part of these financial statements.
Portfolio of
Investments
T. Rowe Price Institutional Emerging Markets Bond
Fund
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Statement of Assets and
Liabilities
T. Rowe Price
Institutional Emerging Markets Bond Fund
December 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 Emerging Markets Bond Fund
($000s)
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net
Assets
T. Rowe Price Institutional
Emerging Markets Bond Fund
($000s)
The accompanying notes are an integral part of these financial statements.
Notes to Financial
Statements
T. Rowe Price
Institutional Emerging Markets Bond Fund
December 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 Emerging Markets Bond Fund (the fund), a nondiversified, open-end management investment company, is one portfolio established by the corporation. The fund commenced operations on November 30, 2006. The fund seeks to provide high income and capital appreciation.
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. Paydown gains and losses are recorded as an adjustment to interest income. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as interest income. 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 daily and paid monthly. 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 Credits are earned on the funds temporarily uninvested cash balances held at the custodian and such credits reduce the amount paid by the manager for custody of the funds assets. In order to pass the benefit of custody credits to the fund, the manager has voluntarily reduced its investment management and administrative expense in the accompanying financial statements.
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.
New Accounting Pronouncement In December 2011, the Financial Accounting Standards Board issued amended guidance to enhance disclosure for offsetting assets and liabilities. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013; adoption will have no effect on the funds net assets or results of operations.
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. Values in the accompanying Portfolio of Investments are as of December 30, 2011, the last business day in the funds fiscal year ended December 31, 2011. Some foreign markets were open between December 30 and the close of the funds reporting period on December 31, but any differences in values and foreign exchange rates subsequent to December 30 through December 31 were immaterial to the funds financial statements.
Valuation Methods Debt securities are generally traded in the over-the-counter (OTC) market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. 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. Forward currency exchange contracts are valued using the prevailing forward exchange rate. Swaps are valued at prices furnished by independent swap dealers or by an independent pricing service.
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.
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. The following table summarizes the funds financial instruments, based on the inputs used to determine their values on December 31, 2011:
NOTE 3 - DERIVATIVE INSTRUMENTS
During the year ended December 31, 2011, the fund invested in derivative instruments. As defined by GAAP, a derivative is a financial instrument whose value is derived from an underlying security price, foreign exchange rate, interest rate, index of prices or rates, or other variable; it requires little or no initial investment and permits or requires net settlement. The fund invests in derivatives only if the expected risks and rewards are consistent with its investment objectives, policies, and overall risk profile, as described in its prospectus and Statement of Additional Information. The fund may use derivatives for a variety of purposes, such as seeking to hedge against declines in principal value, increase yield, invest in an asset with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration and credit exposure. The risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. Investments in derivatives can magnify returns positively or negatively; however, the fund at all times maintains sufficient cash reserves, liquid assets, or other SEC-permitted asset types to cover the settlement obligations under its open derivative contracts.
The fund values its derivatives at fair value, as described below and in Note 2, and recognizes changes in fair value currently in its results of operations. Accordingly, the fund does not follow hedge accounting, even for derivatives employed as economic hedges. The fund does not offset the fair value of derivative instruments against the right to reclaim or obligation to return collateral. The following table summarizes the fair value of the funds derivative instruments held as of December 31, 2011, and the related location on the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
Additionally, the amount of gains and losses on derivative instruments recognized in fund earnings during the year ended December 31, 2011, and the related location on the accompanying Statement of Operations is summarized in the following table by primary underlying risk exposure:
Forward Currency Exchange Contracts The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. It uses forward currency exchange contracts (forwards) primarily to protect its non-U.S. dollar-denominated holdings from adverse currency movements and to gain exposure to currencies for the purposes of risk management or enhanced return. A forward involves an obligation to purchase or sell a fixed amount of a specific currency on a future date at a price set at the time of the contract. Although certain forwards may be settled by exchanging only the net gain or loss on the contract, most forwards are settled with the exchange of the underlying currencies in accordance with the specified terms. Forwards are valued at the unrealized gain or loss on the contract, which reflects the net amount the fund either is entitled to receive or obligated to deliver, as measured by the difference between the forward exchange rates at the date of entry into the contract and the forward rates at the reporting date. Appreciated forwards are reflected as assets, and depreciated forwards are reflected as liabilities on the accompanying Statement of Assets and Liabilities. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the agreements; that anticipated currency movements will not occur, thereby reducing the funds total return; and the potential for losses in excess of the funds initial investment. During the year ended December 31, 2011, the funds exposure to forwards, based on underlying notional amounts, was generally between 9% and 13% of net assets.
Credit Default Swaps The fund is subject to credit risk in the normal course of pursuing its investment objectives and uses swap contracts to help manage such risk. The fund may use swaps in an effort to manage exposure to changes in interest rates, inflation rates, and credit quality; to adjust overall exposure to certain markets; to enhance total return or protect the value of portfolio securities; to serve as a cash management tool; and/or to adjust portfolio duration or credit exposure. Credit default swaps are agreements where one party (the protection buyer) agrees to make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as certain defaults and bankruptcies related to an underlying credit instrument, or issuer or index of such instruments. Upon occurrence of a specified credit event, the protection seller is required to pay the buyer the difference between the notional amount of the swap and the value of the underlying credit, either in the form of a net cash settlement or by paying the gross notional amount and accepting delivery of the relevant underlying credit. For credit default swaps where the underlying credit is an index, a specified credit event may affect all or individual underlying securities included in the index and will be settled based upon the relative weighting of the affected underlying security(s) within the index. Generally, the payment risk for the seller of protection is inversely related to the current market price of the underlying credit; or, in the case of an index swap, the market value of the contract relative to the notional amount. Therefore, the payment risk increases as the price of the relevant underlying credit, or market value of the index swap, declines due to market valuations of credit quality. As of December 31, 2011, the notional amount of protection sold by the fund totaled $2,100,000 (1.0% of net assets), which reflects the maximum potential amount the fund could be required to pay under such contracts. The value of a swap included in net assets is the unrealized gain or loss on the contract plus or minus any unamortized premiums paid or received, respectively. Appreciated swaps and premiums paid are reflected as assets, and depreciated swaps and premiums received are reflected as liabilities on the accompanying Statement of Assets and Liabilities. Net periodic receipts or payments required by swaps are accrued daily and are recorded as realized gain or loss for financial reporting purposes when settled; fluctuations in the fair value of swaps are reflected in the change in net unrealized gain or loss and are reclassified to realized gain or loss upon termination prior to maturity or cash settlement. Risks related to the use of credit default swaps include the possible inability of the fund to accurately assess the current and future creditworthiness of underlying issuers, the possible failure of a counterparty to perform in accordance with the terms of the swap agreements, potential government regulation that could adversely affect the funds swap investments, and potential losses in excess of the funds initial investment. During the year ended December 31, 2011, the funds exposure to swaps, based on underlying notional amounts, was generally between 0% and 2% of net assets.
NOTE 4 - 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 December 31, 2011, approximately 90% 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.
Noninvestment-Grade Debt Securities At December 31, 2011, approximately 50% of the funds net assets were invested, either directly or through its investment in T. Rowe Price institutional funds, in noninvestment-grade debt securities, commonly referred to as high yield or junk bonds. The noninvestment-grade bond market may experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large sustained sales by major investors, a high-profile default, or a change in the markets psychology. These events may decrease the ability of issuers to make principal and interest payments and adversely affect the liquidity or value, or both, of such securities.
Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs.
Counterparty Risk and Collateral The fund has entered into collateral agreements with certain counterparties to mitigate counterparty risk associated with certain over-the-counter (OTC) financial instruments, including swaps, forward currency exchange contracts, TBA purchase commitments, and OTC options (collectively, covered OTC instruments). Subject to certain minimum exposure requirements (which typically range from $100,000 to $500,000), collateral requirements generally are determined and transfers made based on the net aggregate unrealized gain or loss on all covered OTC instruments covered by a particular collateral agreement with a specified counterparty. Collateral, both pledged by the fund to a counterparty and pledged by a counterparty to the fund, is held in a segregated account by a third-party agent and can be in the form of cash or debt securities issued by the U.S. government or related agencies. Securities posted as collateral by the fund to a counterparty are so noted in the accompanying Portfolio of Investments and remain in the funds net assets. As of December 31, 2011, securities valued at $154,000 had been posted by the fund to counterparties. In accordance with GAAP, cash pledged by counterparties to the fund is included in the funds net assets, however, securities pledged by counterparties to the fund are not recorded by the fund. As of December 31, 2011, collateral pledged by counterparties to the fund consisted of securities valued at $550,000.
At any point in time, the funds risk of loss from counterparty credit risk on covered OTC instruments is the aggregate unrealized gain on appreciated covered OTC instruments in excess of collateral, if any, pledged by the counterparty to the fund. In accordance with the terms of the relevant derivatives agreements, counterparties to OTC derivatives may be able to terminate derivative contracts prior to maturity after the occurrence of certain stated events, such as a decline in net assets above a certain percentage or a failure by the fund to perform its obligations under the contract. Upon termination, all transactions would typically be liquidated and a net amount would be owed by or payable to the fund.
Other Purchases and sales of portfolio securities other than short-term securities aggregated $115,251,000 and $92,392,000, respectively, for the year ended December 31, 2011.
NOTE 5 - 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 a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. Reclassifications between income and gain relate primarily to the character of premium payments and unrealized gains and losses on swaps. For the year ended December 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 December 31, 2011 and December 31, 2010, were characterized for tax purposes as follows:
At December 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 certain derivative contracts, and the realization of gains/losses on certain open derivative contracts for tax purposes.
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). The investment management and administrative agreement between the fund and Price Associates provides for an all-inclusive annual fee equal to 0.70% of the funds average daily net assets. The fee is computed daily and paid monthly. The all-inclusive fee covers investment management, shareholder servicing, transfer agency, accounting, and custody services provided to the fund, as well as fund directors fees and expenses; interest, taxes, brokerage commissions, and extraordinary expenses are paid directly by the fund.
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.
Mutual funds and other accounts managed by T. Rowe Price and its affiliates (collectively, T. Rowe Price funds) may invest in the fund; however, no T. Rowe Price fund may invest for the purpose of exercising management or control over the fund. At December 31, 2011, approximately 73% of the funds outstanding shares were held by T. Rowe Price funds.
As of December 31, 2011, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 1,152,874 shares of the fund, representing 5% of the funds net assets.
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 Emerging Markets Bond 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 Emerging Markets Bond Fund (one of the portfolios comprising T. Rowe Price Institutional International Funds, Inc., hereafter referred to as the Fund) at December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, 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 December 31, 2011 by correspondence with the custodian and brokers, and confirmation of the underlying funds by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
Baltimore, Maryland
February 17, 2012
Tax Information (Unaudited) for the Tax Year Ended 12/31/11 |
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:
$956,000 from short-term capital gains,
$5,400,000 from long-term capital gains, subject to the 15% rate gains category.
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 homepage. 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) Year Elected* |
Principal Occupation(s) and Directorships of Public Companies and Other Investment Companies During the Past Five Years | |
William R. Brody (1944) 2009 |
President and Trustee, Salk Institute for Biological Studies (2009 to present); Director, Novartis, Inc. (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) 2006 |
Retired | |
Anthony W. Deering (1945) 1991 |
Chairman, Exeter Capital, LLC, a private investment firm (2004 to present); Director, Under Armour (2008 to 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) 1989 |
Principal, EuroCapital Partners, LLC, an acquisition and management advisory firm (1995 to present) | |
Karen N. Horn (1943) 2003 |
Senior Managing Director, Brock Capital Group, an advisory and investment banking firm (2004 to present); 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) 2006 |
President, A&R Development Corporation (1977 to present) | |
John G. Schreiber (1946) 2001 |
Owner/President, Centaur Capital Partners, Inc., a real estate investment company (1991 to present); Cofounder and Partner, Blackstone Real Estate Advisors, L.P. (1992 to present); Director, General Growth Properties, Inc. (2010 to present) | |
Mark R. Tercek (1957) 2009 |
President and Chief Executive Officer, The Nature Conservancy (2008 to present); Managing Director, The Goldman 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 Price Portfolios Overseen] |
Principal Occupation(s) and Directorships of Public Companies and Other Investment Companies During the Past Five Years | |
Edward C. Bernard (1956) 2006 [130] |
Director and Vice President, T. Rowe Price; Vice Chairman of the Board, Director, and Vice President, T. Rowe Price 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) 2006 [74] |
Chief Investment Officer, Director, and Vice President, T. Rowe Price; Chairman of the Board, Chief Investment Officer, Director, and Vice President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust Company; President, Institutional Equity Funds | |
*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 |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Christopher D. Alderson (1962) President |
Director and PresidentInternational Equity, T. Rowe Price International; 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 |
Vice President, T Rowe Price Group, Inc., and T. Rowe Price International | |
Oliver D.M. Bell (1969) Executive Vice President |
Vice President, T. Rowe Price International, formerly Head of Global Emerging Markets Research, Pictet Asset Management Ltd. | |
R. Scott Berg, CFA (1972) Executive Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Jose Costa Buck (1972) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Richard N. Clattenburg, CFA (1979) Executive Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Michael J. Conelius, CFA (1964) Executive Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, and T. Rowe Price Trust Company | |
Richard de los Reyes (1975) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Mark J.T. Edwards (1957) Executive Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
David J. Eiswert, CFA (1972) Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Roger L. Fiery III, CPA (1959) Vice President |
Vice President, Price Hong Kong, Price Singapore, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, and T. Rowe Price Trust Company | |
Robert N. Gensler (1957) Executive Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International | |
John R. Gilner (1961) Chief Compliance Officer |
Chief Compliance Officer and Vice President, T. Rowe Price; Vice President, T. Rowe Price Group, Inc., and T. Rowe Price Investment Services, Inc. | |
Gregory S. Golczewski (1966) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Trust Company | |
M. Campbell Gunn (1956) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Gregory K. Hinkle, CPA (1958) Treasurer |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; formerly Partner, PricewaterhouseCoopers LLP (to 2007) | |
Leigh Innes, CFA (1976) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Randal Spero Jenneke, 1971 Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; formerly Senior Portfolio Manager, Australian Equities (to 2010) | |
Kris H. Jenner, M.D., D.Phil. (1962) Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Yoichiro Kai (1973) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; formerly Japanese Financial/Real Estate Sector Analyst/Portfolio Manager, Citadel Investment Group, Asia Limited (to 2009); Research Analyst, Japanese Equities & Sector Fund Portfolio Manager, Fidelity Investments Japan Limited (to 2007) | |
Andrew J. Keirle (1974) Executive Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Ian D. Kelson (1956) Executive Vice President |
Director and PresidentInternational Fixed Income, T. Rowe Price International; Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Mark J. Lawrence (1970) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
David M. Lee, CFA (1962) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Patricia B. Lippert (1953) Secretary |
Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services, Inc. | |
Anh Lu (1968) Vice President |
Vice President, Price Hong Kong and T. Rowe Price Group, Inc. | |
Daniel Martino, CFA (1974) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Jonathan H.W. Matthews, CFA (1975) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; formerly Analyst, Pioneer Investments (to 2008) | |
Susanta Mazumdar (1968) Vice President |
Vice President, Price Singapore and T. Rowe Price Group, Inc. | |
Raymond A. Mills, Ph.D., CFA (1960) Executive Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, and T. Rowe Price Trust Company | |
Joshua Nelson (1977) Executive Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Jason Nogueira, CFA (1974) Executive Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
David Oestreicher (1967) Vice President |
Director and Vice President, T. Rowe Price Investment Services, Inc., 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) Executive Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Timothy E. Parker, CFA (1974) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Frederick A. Rizzo (1969) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International; formerly Analyst, F&C Asset Management (London) (to 2006) | |
Christopher J. Rothery (1963) Executive Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Federico Santilli, CFA (1974) Executive Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Sebastian Schrott (1977) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Deborah D. Seidel (1962) Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Investment Services, Inc.; Assistant Treasurer and Vice President, T. Rowe Price Services, Inc. | |
Robert W. Sharps, CFA, CPA (1971) Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company | |
Robert W. Smith (1961) Executive Vice President |
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company | |
Jonty Starbuck, Ph.D. (1975) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Dean Tenerelli (1964) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
Eric L. Veiel, CFA (1972) Vice President |
Vice President, T. Rowe Price and T. Rowe Price Group, Inc. | |
Julie L. Waples (1970) Vice President |
Vice President, T. Rowe Price | |
Christopher S. Whitehouse (1972) Vice President |
Vice President, T. Rowe Price Group, Inc., and T. Rowe Price International | |
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 $1,764,000 and $1,417,000, 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 February 17, 2012 |
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 February 17, 2012 | ||
By | /s/ Gregory K. Hinkle | |
Gregory K. Hinkle | ||
Principal Financial Officer | ||
Date February 17, 2012 |
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 Emerging Markets Bond 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: February 17, 2012 | /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 Emerging Markets Bond 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: February 17, 2012 | /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 Emerging Markets Bond 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: February 17, 2012 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer | ||
Date: February 17, 2012 | /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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