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: 811-05833
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: April 30,
2017
Item 1. Report to Shareholders
Institutional International Concentrated Equity Fund |
April 30,
2017 |
Highlights |
● |
International stock markets logged
solid gains in the six months ended April 30, 2017.
|
● |
The Institutional International
Concentrated Equity Fund gained 10.75% during the first half of our fiscal
year but trailed the MSCI EAFE Index. |
● |
Stock selection benefited relative
returns in the reporting period, but allocation decisions
detracted. |
● |
We are finding the best relative valuations in health care, financials, and industrials and business services. Our overweight allocations to these sectors reflect confidence that our holdings can continue to deliver on earnings expectations. |
The views and opinions in this report were current as of April 30, 2017. 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 Concentrated Equity
Fund
Dear Investor
We are pleased to report that your portfolio generated solid returns for the six-month period ended April 30, 2017, although our performance lagged the benchmark and Lipper peer group average. Because we manage a concentrated portfolio, we keep a close eye on risk, seeking to protect against losses by remaining disciplined from a valuation perspective. We do not have a preference for growth or value style investments. We look for companies that have a favorable combination of fundamentals, earnings potential, and relative valuation, and we attempt to buy them when they are trading at a discount to our assessment of their intrinsic value.
Portfolio Performance
The Institutional International Concentrated Equity Fund returned 10.75% during the six months ended April 30, 2017, compared with 11.73% for the MSCI EAFE Index and 10.89% for the Lipper International Multi-Cap Core Funds Average. Stock selection benefited relative performance, while allocation decisions and reserves detracted. Overall, our health care and energy positions generated solid relative performance contributions, but stock selection in materials and our underweight allocation in consumer staples detracted.
From a regional perspective, stock selection and an overweight allocation in developed Europe helped relative returns. The Continent is still the most fertile field for our stock selection process, but the number of compelling opportunities has decreased. Japan is making uneven progress on Abenomics, but we are finding individual companies that offer promising prospects. High-quality emerging markets companies appear richly priced after posting strong year-to-date performance. We want to remain selective, and we are unwilling to own lower-quality companies to gain exposure to these faster-growing markets.
Your fund compared favorably with its competitors. Lipper ranked the Institutional International Concentrated Equity Fund in the top decile of the Lipper International Multi-Cap Core Funds Average for the five-year and the month-end since-inception (July 31, 2010) periods ended April 30, 2017. (Based on cumulative total return, Lipper ranked the Institutional International Concentrated Equity Fund 165 of 434, 75 of 345, 17 of 289, and 9 of 255 funds for the one-, three-, and five-year and since-inception periods ended April 30, 2017, respectively. Past performance cannot guarantee future results.)
Market Environment
Sector performance within the MSCI EAFE Index was uniformly positive, although real estate, telecommunication services, and utilities posted modest gains. Growthier areas of the market, such as consumer discretionary, financials, health care, industrials and business services, and information technology, posted double-digit returns.
As I pen this letter, European markets are well ahead of U.S. markets in dollar terms. This feels like a momentous turn in favor of international markets. International stocks and currencies have felt cheap, both in absolute and relative terms versus the U.S. markets and the dollar for quite some time, and the solid gains are welcomed. We have gone through the Austrian, Dutch, and French elections, and, so far, populist movements have been voted down, which we think sets the stage for a stronger and more united Europe. In retrospect, populism is now prevalent primarily in the U.S. and UK.
The Trump trade feels a little tired and overcrowded and perhaps the tide is beginning to turn. In our view, the fundamentals underpinning international equities appear solid and positive sentiment across Europe appears to be gathering steam. International markets as a whole do not appear expensive, and we believe that there is more to come from the cyclical profits upturn, which is evident in the latest earnings releases.
Portfolio Strategy and Review
Concentrated portfolios tend to exhibit greater volatility than more broadly diversified portfolios. These divergences may also show up in our short-term comparisons with broad-based benchmarksan inevitable characteristic of managing a concentrated portfolio. We invest for the long term, but we also attempt to opportunistically exploit short-term volatility. The portfolios composition is determined by the following considerations:
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A focus on the most compelling,
highest-conviction companies. |
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Position sizes determined by
risk/reward characteristics. |
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Diversification across regions,
countries, and sectors. |
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Active risk management that includes a sell discipline based on analyst downgrades, achieving price targets, and forced displacement, such as mergers or acquisitions. |
Our investment style attempts to discern whether expectations as priced by the market are reasonable. We focus on best-in-class companies with durable competitive advantages and exceptional financials as evidenced by their ability to generate free cash flow and create shareholder value over time. Ultimately, however, the funds strategy relies on bottom-up stock selection.
In the past six months, the portfolio benefited from stock selection in the health care sector, our largest overweight allocation versus the MSCI EAFE Index. Pharmaceutical companies were standout performers for the portfolio, including our positions in Roche Holding, Novartis, and AstraZeneca. We established positions in Novo Nordisk and Shire and added to Smith & Nephew, Astellas Pharma, and Novartis. Astellas was the poorest performer in the sector, but we remain committed to the company because we like its longer-term prospects. We took profits during the period and eliminated our stake in Sanofi. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Financials, the portfolios largest sector allocation, was also the funds best absolute contributor. During the period, we modestly trimmed our overweight. Our trading activity was mostly confined to adjusting allocations to existing positions. We added to top holdings HSBC Holdings and Standard Chartered and established new positions in Credit Suisse and Fairfax Financial Holdings. We decreased the size of our allocation in Investor after it generated solid gains and exited our position in RSA Insurance Group with a tidy profit.
Overall, we added to our holdings in the industrials and business services sector and have built an overweight allocation. Our new positions include aerospace and defense firms Leonardo and Rolls-Royce and electronic security systems provider Secom. We also added to two electrical equipment names: Mitsubishi Electric and Schneider Electric. Concurrently, we eliminated Experian and Bureau Veritas and trimmed Wolters Kluwer and CK Hutchison Holdings, which had run up since our purchase earlier in the period.
We added to our consumer discretionary holdings as the reporting period progressed, reducing our underweight to the sector as we uncovered compelling opportunities. We established positions in Fujitsu General and William Hill and added to Asics, and Hennes & Mauritz. Because of the portfolios concentrated mandate (40 to 60 holdings), the addition of new holdings forces us to eliminate others. We sold our positions in Luxottica and Marks & Spencerboth had generated modest gains. We also significantly reduced our stake in luggage maker Samsonite International, which had run up sharply during the period.
Our reserves position is currently toward the upper end of our target range because we booked substantial profits in several holdings. We believe that holding cash provides your portfolio with the flexibility to take advantage of opportunities as they arise. As discussed in previous letters, cash is a residual in our investment process. Stock selection is paramount in our process, and we attempt to remain disciplined and focused on finding high-quality businesses trading at attractive valuations. However, in the sharply rising market over the past six months, reserves crimped our absolute and relative results.
Investment Outlook
As I head toward my seventh year at the helm of this strategy, I am confident that the investment team can continue delivering consistent results driven by disciplined stock selection, regardless of the prevailing macroeconomic environment. In our view, the best relative valuations continue to be in health care, where the multiples seem reasonable given that the companies continue to deliver on earnings expectations. The strategy mandate demands that we remain selective. We do not attempt to predict how the markets will perform, but by remaining true to our investment style, we are confident we can continue to deliver strong longer-term relative returns. Looking ahead, we believe that our deep fundamental research platform and our unwavering focus on bottom-up stock selection will be critical to investment success.
Thank you for your confidence and for investing with T. Rowe Price.
Respectfully submitted,
Federico Santilli
Chairman of the funds Investment Advisory
Committee
May 9, 2017
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 time periods in categories defined by Lipper Inc.
MSCI EAFE Index: An index that measures equity market performance of developed countries in the Europe, Australasia, and Far East regions.
Note: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
Portfolio Highlights
Performance and Expenses
T. Rowe Price Institutional International
Concentrated Equity Fund
Growth of $1 Million |
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 Concentrated Equity
Fund
(Unaudited)
The accompanying notes are an integral part of these financial statements.
Portfolio of Investments
T. Rowe Price
Institutional International Concentrated Equity Fund
April 30, 2017
(Unaudited)
The accompanying notes are an integral part of these financial statements.
Statement of Assets and
Liabilities
T. Rowe Price Institutional
International Concentrated Equity Fund
April 30, 2017
(Unaudited)
($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 Concentrated Equity
Fund
(Unaudited)
($000s)
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net
Assets
T. Rowe Price Institutional
International Concentrated Equity Fund
(Unaudited)
($000s)
The accompanying notes are an integral part of these financial statements.
Notes to Financial
Statements
T. Rowe Price Institutional
International Concentrated Equity Fund
April 30, 2017 (Unaudited)
T. Rowe Price Institutional International Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The Institutional International Concentrated Equity Fund (the fund) is a nondiversified, open-end management investment company established by the corporation. The fund seeks long-term growth of capital through investments in stocks of non-U.S. companies.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires 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. 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. Income distributions are declared and paid annually. Distributions to shareholders are recorded on the ex-dividend date. Capital gain distributions 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.
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 Guidance In October 2016, the Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Compliance with the guidance is effective for financial statements filed with the SEC on or after August 1, 2017; adoption will have no effect on the funds net assets or results of operations.
NOTE 2 - VALUATION
The funds financial instruments are valued and its net asset value (NAV) per share is computed at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open for business. However, the NAV per share may be calculated at a time other than the normal close of the NYSE if trading on the NYSE is restricted, if the NYSE closes earlier, or as may be permitted by the SEC.
Fair Value The funds financial instruments are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The T. Rowe Price Valuation Committee (the Valuation Committee) is an internal committee that has been delegated certain responsibilities by the funds Board of Directors (the Board) to ensure that financial instruments are appropriately priced at fair value in accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the Valuation Committee develops and oversees pricing-related policies and procedures and approves all fair value determinations. Specifically, the Valuation Committee establishes procedures to value securities; determines pricing techniques, sources, and persons eligible to effect fair value pricing actions; oversees the selection, services, and performance of pricing vendors; oversees valuation-related business continuity practices; and provides guidance on internal controls and valuation-related matters. The Valuation Committee reports to the Board and has representation from legal, portfolio management and trading, operations, risk management, and the funds treasurer.
Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value:
Level 1 quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date
Level 2 inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads)
Level 3 unobservable inputs
Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. When multiple inputs are used to derive fair value, the financial instrument is assigned to the level within the fair value hierarchy based on the lowest-level input that is significant to the fair value of the financial instrument. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values.
Valuation Techniques 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. OTC Bulletin Board securities are valued at the mean of the closing 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 closing bid and asked prices for domestic securities and the last quoted sale or closing price for international securities.
For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted to reflect the fair value of such securities at the close of the NYSE. 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 quoted 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 quoted 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. The 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 quoted prices and information to evaluate or adjust those prices. The fund cannot predict how often it will use quoted 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 quoted prices, the next days opening prices in the same markets, and adjusted prices.
Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Non-U.S. equity securities generally are categorized in Level 2 of the fair value hierarchy despite the availability of quoted prices because, as described above, the fund evaluates and determines whether those quoted prices reflect fair value at the close of the NYSE or require adjustment. OTC Bulletin Board securities, certain preferred securities, and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy.
Investments in mutual funds are valued at the mutual funds closing NAV per share on the day of valuation and are categorized in Level 1 of the fair value hierarchy. Assets and liabilities other than financial instruments, including short-term receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value.
Thinly traded financial instruments and those 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 Valuation Committee. The objective of any fair value pricing determination is to arrive at a price that could reasonably be expected from a current sale. Financial instruments fair valued by the Valuation Committee are primarily private placements, restricted securities, warrants, rights, and other securities that are not publicly traded.
Subject to oversight by the Board, the Valuation Committee regularly makes good faith judgments to establish and adjust the fair valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of an equity investment with limited market activity, such as a private placement or a thinly traded public company stock, the Valuation Committee considers a variety of factors, which may include, but are not limited to, the issuers business prospects, its financial standing and performance, recent investment transactions in the issuer, new rounds of financing, negotiated transactions of significant size between other investors in the company, relevant market valuations of peer companies, strategic events affecting the company, market liquidity for the issuer, and general economic conditions and events. In consultation with the investment and pricing teams, the Valuation Committee will determine an appropriate valuation technique based on available information, which may include both observable and unobservable inputs. The Valuation Committee typically will afford greatest weight to actual prices in arms length transactions, to the extent they represent orderly transactions between market participants, transaction information can be reliably obtained, and prices are deemed representative of fair value. However, the Valuation Committee may also consider other valuation methods such as market-based valuation multiples; a discount or premium from market value of a similar, freely traded security of the same issuer; or some combination. Fair value determinations are reviewed on a regular basis and updated as information becomes available, including actual purchase and sale transactions of the issue. Because any fair value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions, and fair value prices determined by the Valuation Committee could differ from those of other market participants. Depending on the relative significance of unobservable inputs, including the valuation technique(s) used, fair valued securities may be categorized in Level 2 or 3 of the fair value hierarchy.
Valuation Inputs The following table summarizes the funds financial instruments, based on the inputs used to determine their fair values on April 30, 2017:
There were no material transfers between Levels 1 and 2 during the six months ended April 30, 2017.
NOTE 3 - OTHER INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities other than short-term securities aggregated $330,237,000 and $244,995,000, respectively, for the six months ended April 30, 2017.
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 amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of the date of this report.
The fund intends to retain realized gains to the extent of available capital loss carryforwards. Net realized capital losses may be carried forward indefinitely to offset future realized capital gains. As of October 31, 2016, the fund had $5,678,000 of available capital loss carryforwards.
At April 30, 2017, the cost of investments for federal income tax purposes was $399,549,000. Net unrealized gain aggregated $26,520,000 at period-end, of which $42,007,000 related to appreciated investments and $15,487,000 related to depreciated investments.
NOTE 5 - FOREIGN TAXES
The fund is subject to foreign income taxes imposed by certain countries in which it invests. Additionally, certain foreign currency transactions are subject to tax, and capital gains realized 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 capital gains is reflected as a component of realized or change in unrealized gain/loss on securities in the accompanying financial statements. At April 30, 2017, the fund had no deferred tax liability attributable to foreign securities and no foreign capital loss carryforwards.
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 a sub-advisory agreement(s) with one or more of its wholly owned subsidiaries, to provide investment advisory services to the fund. The investment management agreement between the fund and Price Associates provides for an annual investment management fee equal to 0.65% 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 28, 2019. During the limitation period, Price Associates is required to waive its management fee and pay the fund for any expenses (excluding interest, expenses related to borrowings, taxes, brokerage, and other non-recurring expenses permitted by the investment management agreement) 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 waived/paid to the extent its net assets grow or expenses decline sufficiently to allow repayment without causing the funds expense ratio to exceed its expense limitation in effect at the time of the waiver. However, no repayment will be made more than three years after the date of a payment or waiver. Pursuant to this agreement, $17,000 of expenses were repaid to Price Associates during the six months ended April 30, 2017. Including these amounts, expenses previously waived/paid by Price Associates in the amount of $212,000 remain subject to repayment by the fund at April 30, 2017.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates provides certain accounting and administrative service 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 six months ended April 30, 2017, expenses incurred pursuant to these service agreements were $42,000 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 Government Reserve Fund, the T. Rowe Price Treasury Reserve Fund, or the T. Rowe Price Short-Term Fund (collectively, the Price Reserve Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The Price Reserve Funds are offered as short-term investment options to mutual funds, trusts, and other accounts managed by Price Associates or its affiliates and are not available for direct purchase by members of the public. The Price Reserve Funds pay no investment management fees.
As of April 30, 2017, T. Rowe Price Group, Inc., or its wholly owned subsidiaries owned 4,862,792 shares of the fund, representing 14% of the funds net assets.
The fund may participate in securities purchase and sale transactions with other funds or accounts advised by Price Associates (cross trades), in accordance with procedures adopted by the funds Board and Securities and Exchange Commission rules, which require, among other things, that such purchase and sale cross trades be effected at the independent current market price of the security. During the six months ended April 30, 2017, the fund had no purchases or sales cross trades with other funds or accounts advised by Price Associates.
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. You may request this document 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 corporate website. To access it, please visit the following Web page:
https://www3.troweprice.com/usis/corporate/en/utility/policies.html
Scroll down to the section near the bottom of the page that says, Proxy Voting Policies. Click on the Proxy Voting Policies link in the shaded box.
Each funds most recent annual proxy voting record is available on our website and through the SECs website. To access it through T. Rowe Price, visit the website location shown above, and scroll down to the section near the bottom of the page that says, Proxy Voting Records. Click on the Proxy Voting Records link in the shaded box.
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, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
Approval of Investment Management Agreement and Subadvisory Agreement |
Each year, the funds Board of Directors (Board) considers the continuation of the investment management agreement (Advisory Contract) between the fund and its investment advisor, T. Rowe Price Associates, Inc. (Advisor), as well as the continuation of the investment subadvisory agreement (Subadvisory Contract) that the Advisor has entered into with T. Rowe Price International Ltd (Subadvisor) on behalf of the fund. In that regard, at an in-person meeting held on March 67, 2017 (Meeting), the Board, including a majority of the funds independent directors, approved the continuation of the funds Advisory Contract and Subadvisory Contract. At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of the Advisor and Subadvisor and the approval of the Advisory Contract and Subadvisory Contract. The independent directors were assisted in their evaluation of the Advisory Contract and Subadvisory Contract by independent legal counsel from whom they received separate legal advice and with whom they met separately.
In providing information to the Board, the Advisor was guided by a detailed set of requests for information submitted by independent legal counsel on behalf of the independent directors. In considering and approving the Advisory Contract and Subadvisory Contract, the Board considered the information it believed was relevant, including, but not limited to, the information discussed below. The Board considered not only the specific information presented in connection with the Meeting but also the knowledge gained over time through interaction with the Advisor and Subadvisor about various topics. The Board meets regularly and, at each of its meetings, covers an extensive agenda of topics and materials and considers factors that are relevant to its annual consideration of the renewal of the T. Rowe Price funds advisory contracts, including performance and the services and support provided to the funds and their shareholders.
Services Provided by the Advisor and
Subadvisor
The Board considered the
nature, quality, and extent of the services provided to the fund by the Advisor
and Subadvisor. These services included, but were not limited to, directing the
funds investments in accordance with its investment program and the overall
management of the funds portfolio, as well as a variety of related activities
such as financial, investment operations, and administrative services;
compliance; maintaining the funds records and registrations; and shareholder
communications. The Board also reviewed the background and experience of the
Advisors and Subadvisors senior management teams and investment personnel
involved in the management of the fund, as well as the Advisors compliance
record. The Board concluded that it was satisfied with the nature, quality, and
extent of the services provided by the Advisor and Subadvisor.
Investment Performance of the Fund
The Board took into account discussions
with the Advisor and reports that it receives throughout the year relating to
fund performance. In connection with the Meeting, the Board reviewed the funds
net annualized total returns for the one-, two-, three-, four-, and five-year
periods as of September 30, 2016, and compared these returns with the
performance of a peer group of funds with similar investment programs and a wide
variety of other previously agreed-upon comparable performance measures and
market data, including those supplied by Broadridge, which is an independent
provider of mutual fund data.
On the basis of this evaluation and the Boards ongoing review of investment results, and factoring in the relative market conditions during certain of the performance periods, the Board concluded that the funds performance was satisfactory.
Costs, Benefits, Profits, and Economies
of Scale
The Board reviewed detailed
information regarding the revenues received by the Advisor under the Advisory
Contract and other benefits that the Advisor (and its affiliates, including the
Subadvisor) may have realized from its relationship with the fund, including any
research received under soft dollar agreements and commission-sharing
arrangements with broker-dealers. The Board considered that the Advisor and
Subadvisor may receive some benefit from soft-dollar arrangements pursuant to
which research is received from broker-dealers that execute the funds portfolio
transactions. The Board received information on the estimated costs incurred and
profits realized by the Advisor from managing the T. Rowe Price funds. The Board
also reviewed estimates of the profits realized from managing the fund in
particular, and the Board concluded that the Advisors profits were reasonable
in light of the services provided to the fund.
The Board also considered whether the fund benefits under the fee levels set forth in the Advisory Contract from any economies of scale realized by the Advisor. Under the Advisory Contract, the fund pays a fee to the Advisor for investment management services based on the funds average daily net assets and the fund pays its own expenses of operations (subject to an expense limitation agreed to by the Advisor). Under the Subadvisory Contract, the Advisor may pay the Subadvisor up to 60% of the advisory fee that the Advisor receives from the fund. Although the funds management fee does not consist of a group fee component, the assets of the fund are still included toward the calculation of a group fee rate, which declines at certain asset levels and is based on the combined average net assets of most of the T. Rowe Price funds. In addition, the funds shareholders benefit from economies of scale in the form of declining operating expenses as the fund grows in size and the fund has a contractual expense limitation in place to reduce the burden of higher operating costs to shareholders until the fund reaches greater scale. The Board concluded that the advisory fee structure for the fund continued to be appropriate and provide for a reasonable sharing of benefits from any economies of scale with the funds investors.
Fees and Expenses
The Board was provided with information regarding industry
trends in management fees and expenses. Among other things, the Board reviewed
data for peer groups that were compiled by Broadridge, which compared: (i)
contractual management fees, total expenses, actual management fees, and
non-management expenses of the fund to a group of competitor funds selected by
Broadridge (Expense Group); and (ii) total expenses, actual management fees, and
non-management expenses of the fund to a broader set of funds within the Lipper
investment classification (Expense Universe). The Board considered the funds
contractual management fee rate, actual management fee rate (which reflects the
management fees actually received from the fund by the Advisor after any
applicable waivers, reductions, or reimbursements), operating expenses, and
total expenses (which reflects the net total expense ratio of the fund after any
waivers, reductions, or reimbursements) in comparison with the information for
the Broadridge peer groups. Broadridge generally constructed the peer groups by
seeking the most comparable funds based on similar investment classifications
and objectives, expense structure, asset size, and operating components and
attributes and ranked funds into quintiles, with the first quintile representing
the funds with the lowest relative expenses and the fifth quintile representing
the funds with the highest relative expenses. The information provided to the
Board indicated that the funds contractual management fee ranked in the first
quintile (Expense Group), the funds actual management fee rate ranked in the
first quintile (Expense Group) and second quintile (Expense Universe), and the
funds total expenses ranked in the first quintile (Expense Group and Expense
Universe).
The Board also reviewed the fee schedules for institutional accounts and private accounts with similar mandates that are advised or subadvised by the Advisor and its affiliates. Management provided the Board with information about the Advisors responsibilities and services provided to subadvisory and other institutional account clients, including information about how the requirements and economics of the institutional business are fundamentally different from those of the mutual fund business. The Board considered information showing that the Advisors mutual fund business is generally more complex from a business and compliance perspective than its institutional account business and considered various relevant factors, such as the broader scope of operations and oversight, more extensive shareholder communication infrastructure, greater asset flows, heightened business risks, and differences in applicable laws and regulations associated with the Advisors proprietary mutual fund business. In assessing the reasonableness of the funds management fee rate, the Board considered the differences in the nature of the services required for the Advisor to manage its mutual fund business versus managing a discrete pool of assets as a subadvisor to another institutions mutual fund or for an institutional account and that the Advisor generally performs significant additional services and assumes greater risk in managing the fund and other T. Rowe Price funds than it does for institutional account clients.
On the basis of the information provided and the factors considered, the Board concluded that the fees paid by the fund under the Advisory Contract are reasonable.
Approval of the Advisory Contract and
Subadvisory Contract
As noted, the Board
approved the continuation of the Advisory Contract and Subadvisory Contract. No
single factor was considered in isolation or to be determinative to the
decision. Rather, the Board concluded, in light of a weighting and balancing of
all factors considered, that it was in the best interests of the fund and its
shareholders for the Board to approve the continuation of the Advisory Contract
and Subadvisory Contract (including the fees to be charged for services
thereunder).
Item 2. Code of Ethics.
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 is filed as an exhibit to the registrants annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrants most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrants annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrants annual Form N-CSR.
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 filed with the registrants annual Form N-CSR.
(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are 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 June 15, 2017 |
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 June 15, 2017 | ||
By | /s/ Catherine D. Mathews | |
Catherine D. Mathews | ||
Principal Financial Officer | ||
Date June 15, 2017 |
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 Concentrated 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: June 15, 2017 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer |
CERTIFICATIONS
I, Catherine D. Mathews, certify that:
1. | I have reviewed this report on Form N-CSR of T. Rowe Price Institutional International Concentrated 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: June 15, 2017 | /s/ Catherine D. Mathews | |
Catherine D. Mathews | ||
Principal Financial Officer |
Item 12(b).
CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002 | ||
Name of Issuer: T. Rowe Price Institutional International Concentrated 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: June 15, 2017 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer | ||
Date: June 15, 2017 | /s/ Catherine D. Mathews | |
Catherine D. Mathews | ||
Principal Financial Officer |
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