Semiannual Report
April 30, 1998
Foreign Equity Fund
Dear Investor
International stock markets were strong as a group, and your fund
performed well during the six months under review. European
bourses led the way, with returns in major markets there leading
S&P 500 stocks for the first time in several years.
Performance Comparison
Periods Ended 4/30/98 6 Months 12 Months
_____________________________________________________________
Foreign Equity Fund 14.86% 17.20%
MSCI EAFE Index 15.59 19.23
Returns were good for both the 6- and 12-month periods ended
April 30, due largely to the portfolio's exposure to the powerful
European markets. However, results were slightly behind the
unmanaged Morgan Stanley Capital International Europe Australasia
Far East (EAFE) Index, since the index is more heavily weighted
in Europe. Nevertheless, we believe our strategy of broad
regional diversification will continue to benefit shareholders
over time. We also maintained our preference for quality growth
stocks, which underperformed other equity sectors.
Market Performance
Six Months Local Local Currency U.S.
Ended 4/30/98 Currency vs. U.S. Dollars Dollars
_________________________________________________________________
______
Australia 17.25% - 7.50% 8.45%
France 42.66 - 4.35 36.45
Germany 36.45 - 4.09 30.87
Hong Kong - 9.43 - 0.21 - 9.62
Italy 54.01 - 4.62 46.90
Japan - 1.11 - 8.98 -
9.99
Mexico 15.25 - 0.98 14.12
Netherlands 25.96 - 3.95 20.99
Norway 5.91 - 6.13 - 0.59
Singapore - 2.54 - 0.66 - 3.18
Sweden 29.12 - 3.29 24.88
Switzerland 35.37 - 6.90 26.03
United Kingdom 23.74 - 0.29 23.38
Source: FAME Information Services, Inc., using MSCI indices.
An important theme in world markets was the focus on recovering
cyclicals and restructuring stories, and against this background
a number of our growth favorites were left behind. A typical
example would be the financial sector. This is not a natural home
for the growth stock investor but, just as in the U.S., the
sector has led a number of European markets, driven by a steady
stream of merger and acquisition stories. The financial sector is
one of the largest in most European markets, and our
underweighting, although reduced significantly during the six
months, has been uncomfortable. Another factor in stock selection
was our use of medium- and smaller-capitalized companies, many of
which are junior to the index. We find growth much more
attractively valued in such stocks, but again, our choices
trailed local indices during a period where most of the action
has been in large companies.
International stock markets recovered well following the
Southeast Asian crisis of late last year. As mentioned, European
markets took the lead, driven by signs of economic recovery on
the Continent and continued corporate activity. Even the Pacific
markets rallied at the beginning of the calendar year, but in
recent months they faded again as the economy in Japan failed to
recover and the secondary effects of the Southeast Asian crisis
began to emerge. Major Latin American stock markets were strong
but others were weak as some of the economic reforms stalled and
the emerging market label impaired sentiment.
1999: The Year of the Euro
On the first business day of 1999, several major European
countries will officially inaugurate the European Economic and
Monetary Union (EMU) and adopt the euro as a single European
currency backed by the European Central Bank. The event could be
one of the most significant financial developments of the
century, creating a vast economic and currency bloc equal to the
U.S. in size and power. Since the EMU has far-reaching
implications for investors and funds with exposure to European
securities, it is important for you to understand what is taking
place.
The currencies of the original participating countries will
become fixed rate units of the euro, much the same as the nickel,
dime, quarter, and half dollar are denominations of the U.S.
dollar. The exchange rates versus the euro were set in May and
will officially be determined by the end of 1998.
Country Currency Euro Rate
___________________________________________________________
Austria Schilling 13.91
Belgium Franc 40.78
Finland Mark 6.01
France Franc 6.63
Germany Mark 1.98
Ireland Punt 0.80
Italy Lira 1958.00
Luxembourg Franc 40.78
Netherlands Guilder 2.23
Portugal Escudo 202.70
Spain Peseta 168.20
Source: The Wall Street Journal, May 4, 1998
Beginning in January 1999, some European holdings will be
redenominated in euros, particularly government securities. The
face value of other investments might remain in the existing
national currencies for a time, but they will be priced, settled,
and valued in euros by stock exchanges and other agencies. Thus,
some of the European holdings in your funds will be valued in
euros.
This will not affect the investment value of your funds in U.S.
dollar terms, since the euro will be converted into the dollar in
the same way deutschemarks, francs, lire, and other European
currencies are currently converted at the prevailing exchange
rates.
During the transition period, which lasts from January 1, 1999,
until June 30, 2002, other countries that have moved to adopt the
economic terms of the Maastricht Treaty of 1993 will be able to
participate in the EMU. The primary criteria for joining are:
o a sustainable budget deficit less than 3% of GDP;
o public debt less than 60% of GDP;
o low inflation and interest rates; and
o no currency devaluations within two years of application.
Some of the original participants are not totally compliant with
these terms but are expected to embrace them by 2002. Countries
joining later may have to be in strict accord before entering the
EMU, or at least be well along the path to achieving them. So
far, the transition seems to be progressing smoothly, but there
has been resistance to some of the more stringent terms. French
Socialists, in particular, would prefer to maintain heavy
government subsidies for social programs. Therefore, the jury is
still out on whether complete economic and monetary convergence
will be attained as planned.
Assuming all goes well, the national currencies of participating
countries will cease to exist and all accounting will be in euros
following the transition period. However, regardless of whether
or not full convergence is realized on the date specified, we do
not expect pricing in euros to have any special impact on the
value of your investment. Of course, problems could develop that
might be unfavorable for the fund, but we do not anticipate them
at this time.
This supplements the prospectus dated March 1, 1998.
INVESTMENT REVIEW
Europe
Stock markets in Europe performed strongly during the past six
months. The goal of monetary union took a step closer to reality
with 11 of the member states achieving Maastricht economic
convergence criteria, thereby agreeing to link their currencies
as a precursor to the introduction of the euro in 1999. Only
Greece failed the Maastricht test, and the remaining three
states-U.K., Sweden, and Denmark-have opted out of European
Monetary Union (EMU) for the time being. Perhaps more important
than the symbolism, preparation for monetary union has required
key European economies to adopt far stronger fiscal measures than
would otherwise have been the case. Equally important, these
economies are at about the same point in their economic cycles,
which means that a common monetary policy stands a better chance
of success. Aside from the rising optimism about EMU, the
combination of moderate inflation, steadily improving economic
activity, and the realization that Europe is relatively immune to
the Asian crisis all contributed to the strengths of European
bourses.
Turning to individual countries, the U.K. economy continues to be
ahead of the cycle in Continental Europe. In fact, it has
remarkable similarities to the U.S. in the sense that steady
growth has not yet triggered inflation despite some signs of
overheating in the economy. This is partly due to the strength of
sterling, which in turn has suppressed the export sector, but
consumer expenditure has been remarkably buoyant. This has left
the Bank of England, which is now independently responsible for
monetary policy, with something of a dilemma. If it raises
interest rates to moderate the domestic economy, sterling will
rise further, putting the export sector under even more pressure.
Conversely, any decline in interest rates will help manufacturers
but run the risk of further stimulating the buoyant consumer
sector. Faced with this dilemma, the Bank's policy committee
remains split, but it is probably right to do nothing until the
outlook clears a little more.
The stock market performed well with attention focused on the
service sector, whereas the export companies were held back by
the strength of sterling. The financial sector led the way and
our position in National Westminster Bank, currently the
portfolio's largest holding, recovered lost ground against its
peers. Although not part of the merger and acquisition activity,
a heavy cost-cutting program at this bank caught the investor's
eye. Two other large U.K. holdings, Glaxo Wellcome and SmithKline
Beecham, made headlines when they announced a merger that would
have created the largest pharmaceutical company outside the U.S.
Unfortunately, the merger aborted over the inability of
management to agree on key executive positions in the new
combine, and it was frustrating to see stock prices slide away.
In Germany the economy continued to recover steadily led by the
export sector. Unemployment has started to edge down but is still
high compared with historical levels, and this has undermined
consumer confidence. Interest rates remained stable despite the
weakness of the deutschemark. Politics have attracted increased
attention in Germany with the Social Democratic Party electing
Mr. Gerhard Schroeder as its candidate for Chancellor, whereas
Chancellor Kohl's Christian Democrats performed very poorly in
recent provincial elections. There are general elections in
September and it looks as though Mr. Kohl's long tenure as
Chancellor might end. Buoyed by signs of recovery and stable
interest rates, the German market did well. Although the
portfolio is underweighted in Germany, a number of our larger
holdings such as business software supplier SAP aided results.
In the Netherlands, our overweighting has not worked well.
Publishing companies Wolters Kluwer and Elsevier, two important
holdings, have underperformed since they abandoned their merger
earlier this year. Both companies pursued a successful strategy
of acquiring smaller publishers; together they would have been a
formidable force, but separately they are likely to compete with
each other as smaller publishers are bought out by their larger
rivals. At least ING Groep, the financial holding company,
participated in Europe's booming financial sector, and the
musical publisher Polygram powered ahead as parent Philips
Electronics announced it was considering a spinoff.
France is showing signs of recovery from its awkward mix of high
unemployment, low growth, but a steady trade surplus. Some
moderate reflation looks like the obvious answer but labor
rigidities remain a formidable obstacle. With France one of the
largest of the new EMU countries, monetary policy will now lie in
the hands of the new European Central Bank, and this will ensure
that an external discipline pushes domestic reform. Despite this
dull economic background, the stock market was one of the leaders
in Europe and our overweighting here was helpful. Strong
performance was seen in financial conglomerate AXA, retailer
Pinault Printemps, and caterer Sodexho Alliance, which has
recently announced a tie-in with Marriott to gain access to the
U.S. market and improve economies of scale.
In Switzerland, the trend was similar to other markets with
pharmaceuticals such as Novartis and Roche Holdings lagging the
market, but we did have a large position in Credit Suisse Group.
Employment services company Adecco is a good example of a
European niche service company doing well and our holding here
contributed strongly.
Far East
In contrast to the brighter picture in Europe, the economies of
the Pacific Basin continue to be in poor shape. In Japan a range
of problems plagued the economy-some external, some self-induced.
A large proportion of Japanese exports go to the Pacific region
and the collapse in demand here has been unhelpful. However, the
most important factor is probably poor consumer sentiment with
rising unemployment becoming a real source of concern, and
corporate bankruptcies at unprecedented levels simply add to the
gloom. Foreign governments, particularly the U.S., have tried to
persuade Japan to ease fiscal policy, but Prime Minister
Hashimoto, who was the author of the ill-fated rising consumption
tax last year, has found it politically difficult to reverse his
position.
Geographic Diversification
Europe 68%
Japan 15%
Latin America 6%
Far East 6%
Other and Reserves 5%
Based on net assets as of 4/30/98.
To see the real extent of Japan's problems, one need look no
further than the banking sector itself. Following the bubble
years of the late 1980s, Japan's banks became overextended and
are now saddled with substantial bad loans particularly in the
real estate sector. For a long time the Japanese authorities
seemed to deny the problems facing Japanese banks, whereas
resolute action earlier might have avoided the trauma now
engulfing the financial sector. Last November there was a series
of unprecedented bankruptcies of which Hokkaido Takushoku
(Japan's tenth-largest bank) and Yamaichi Securities (one of
Japan's "big four" brokers) were the most prominent. Japanese
bond yields recently reached an all-time low of 1.3% but,
although the economy is awash with money, there is a worsening
credit crunch as Japanese banks rein in their lending. As bank
lending declined, the scarcity of long-term capital resulted in
lower capital equipment orders, and corporate expenditure
programs have been put on hold.
The stock market started the year well with investors optimistic
that the worst of the banking crisis was over and that the
economy should now improve. More recently, however, prices
slipped as the news on the economy remained unremittingly poor.
Our strategy has been to underweight the market in general and
bias our selections toward the international blue chips, such as
Sony, NEC, and Canon, which remain well managed and
internationally competitive and offer reasonable valuations
compared with the Japanese market.
Turning to Southeast Asia, stock markets seem to have shrugged
off the crisis and performed better in February and March.
However, we know from the Mexican experience that the secondary
effects of a massive currency devaluation may be slow to emerge
but are very traumatic when they eventually arrive. IMF-led
reforms are slow to have an effect whereas rapidly rising
inflation-which we are now seeing in the worst-hit Asian
economies-is socially and financially disruptive. Capturing the
headlines at the moment is the social unrest in Indonesia but
countries such as South Korea, Malaysia, and Thailand are also
struggling to bring their economies under control.
Asia's financial crisis was certainly damaging, but not all the
economies were affected equally by a mix of currency devaluation
and financial collapse. There has been a slowdown in China, but
the Chinese renminbi and the Hong Kong dollar have been stable as
the authorities managed to avoid a competitive devaluation with
the rest of the region. Singapore saw its dollar drift a little
against the U.S. dollar but continued to show the economic and
political stability that makes it such an important regional
financial center. Our investment strategy for the region has been
to avoid almost completely the worst-hit economies, but we still
have small positions in Hong Kong, Singapore, and Australia that
we believe have good long-term potential.
Latin America
The stock markets of Latin America have been in a more somber
mood this year. To some degree, they still carry the emerging
market label and are therefore affected when such markets
generally perform poorly. However, fiscal reform in Brazil seemed
to slow down earlier in the year although recent signs have been
more encouraging. Indeed, the abolition of lifetime employment
for civil servants was a significant achievement. The other key
issue in Brazil was the large privatization program where
Telebras (Telecomunicacoes Brasileiras), the national
telecommunications company and a core holding for us, is playing
a central role. We believe this program will provide more
evidence that telecommunications is a growth business in Brazil
and will confirm that Telebras looks inexpensive compared with
similar companies throughout the world.
Industry Diversification
Percent of
Net Assets
4/30/98
___________________________________________________________
Services 26.7%
Finance 20.8
Consumer Goods 19.5
Capital Equipment 11.0
Energy 10.8
Materials 4.0
Multi-industry 2.7
Miscellaneous 0.1
Reserves 4.4
Net Assets 100.0%
In Mexico, the market was unexciting, but the economy itself made
progress and inflation is in slow but steady decline. The
immediate problem was a deterioration in the trade balance,
partly caused by a weak oil price, but a lower peso should help
matters here.
INVESTMENT POLICY AND OUTLOOK
Our investment strategy has been based on a geographical
allocation of about two-thirds of assets in Europe, just over
one-fifth in the Pacific, and the balance in Latin America with a
small cash reserve. Compared with EAFE, Europe is slightly
underweighted, the Pacific rather more underweighted, and the
Latin American markets are not part of the index. While some
competitors have extremely high European exposure, we believe our
own strategy makes more sense given recent frothiness in Europe
and the depressed conditions of the Pacific markets, Japan in
particular.
We are also maintaining our bias toward quality growth stocks
even though a number of them trailed the index during this strong
bull run in Europe. We believe that the virtues of steady growth
will be more apparent particularly if the prospects for worldwide
economic growth moderate from here. We still have great
confidence in the long-term future of Latin America and believe
that other emerging markets, such as those in Eastern Europe,
should be increasingly represented in the portfolio.
Looking back, there was a remarkable divergence in performance
between the stock markets of the U.S. and Europe on one hand and
those of the Pacific and Latin America on the other. This
divergence looks unsustainable over the longer term, and Europe,
in particular, looks due for some form of correction. Therefore,
we believe our more broadly diversified regional diversification
and accent on growth stocks will continue to reward investors
over time.
Respectfully submitted,
Martin G. Wade
President
May 22, 1998
Twenty-Five Largest Holdings
Percent of
Net Assets
Company Country 4/30/98
_________________________________________________________________
______
National Westminster BankUnited Kingdom 2.6%
Royal Dutch Petroleum Netherlands 2.1
Novartis Switzerland 1.9
SmithKline Beecham United Kingdom 1.8
ING Groep Netherlands 1.7
Nestle Switzerland 1.6
Wolters Kluwer Netherlands 1.6
Diageo United Kingdom 1.5
Glaxo Wellcome United Kingdom 1.4
Telecomunicacoes Brasileiras Brazil 1.3
Roche Holdings Switzerland 1.3
Shell Transport & TradingUnited Kingdom 1.3
Kingfisher United Kingdom 1.2
Eaux Cie Generale France 1.2
Reed International United Kingdom 1.1
Orkla Norway 1.1
Telecom Italia Italy 1.0
Pinault Printemps France 1.0
Canon Japan 1.0
Kredietbank Belgium 0.9
Total France 0.9
Unilever Netherlands 0.9
Telecom Italia Mobile Italy 0.9
Astra Sweden 0.9
NEC Japan 0.8
_________________________________________________________________
______
Total 33.0
%
_________________________________________________________________
______
Security Classification
Percent Market
of Net Cost Value
4/30/98 Assets (000) (000)
_________________________________________________________________
______
Common Stock, Rights,
and Warrants 92.2% $2,618,082 $3,365,501
Preferred Stocks 3.4 87,290 122,110
Short-Term
Investments 4.5 165,955 165,955
Total Investments 100.1 2,871,327 3,653,566
Other Assets Less
Liabilities - 0.1 - 3,749 - 3,942
Net Assets 100.0% $2,867,578 $3,649,624
Summary of Investments and Cash
April 30, 1998
Percent of
Equities Cash Total MSCI EAFE*
_________________________________________________________________
______
Europe
Austria - - - 0.4%
Belgium 1.5 - 1.5 1.5
Czech Republic 0.0 - 0.0 -
Denmark 0.3 - 0.3 1.0
Finland 0.4 - 0.4 1.0
France 9.3 - 9.3 8.8
Germany 6.1 - 6.1 10.3
Ireland - - - 0.5
Italy 5.0 - 5.0 4.7
Netherlands 10.3 - 10.3 5.8
Norway 1.9 - 1.9 0.6
Portugal 0.4 - 0.4 0.7
Russia 0.1 - 0.1 -
Spain 2.7 - 2.7 3.4
Sweden 3.5 - 3.5 3.2
Switzerland 7.4 - 7.4 7.8
United Kingdom 18.6 - 18.6 21.7
Total Europe 67.5% -% 67.5% 71.5%
_________________________________________________________________
_______
Pacific Basin
Australia 2.1 - 2.1 2.5
China 0.2 - 0.2 -
Hong Kong 2.1 - 2.1 2.1
India 0.3 - 0.3 -
Japan 15.5 - 15.5 22.0
Malaysia 0.1 - 0.1 0.8
New Zealand 0.3 - 0.3 0.2
Singapore 0.5 - 0.5 0.8
South Korea 0.1 - 0.1 -
Thailand 0.2 - 0.2 -
Total Pacific
Basin 21.4% -% 21.4% 28.5%
_________________________________________________________________
_______
Americas
Argentina 0.9 - 0.9 -
Brazil 3.2 - 3.2 -
Canada 0.2 - 0.2 -
Chile 0.3 - 0.3 -
Mexico 1.9 - 1.9 -
Panama 0.0 - 0.0 -
Peru 0.1 - 0.1 -
United States - 4.5 4.5 -
Venezuela 0.1 - 0.1 -
_________________________________________________________________
_______
Total Americas 6.7% 4.5% 11.2% -
_________________________________________________________________
_______
Other Assets Less
Liabilities - - 0.1 - 0.1% -%
_________________________________________________________________
_______
TOTAL 95.6% 4.4% 100.0% 100.0%
_________________________________________________________________
_______
* Totals may not appear to foot due to rounding.
Foreign Equity Fund
4/30/98
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment
in the fund over the past 10 fiscal year periods or since
inception (for funds lacking 10-year records). The result is
compared with a broad-based average or index. The index return
does not reflect expenses, which have been deducted from the
fund's return.
Foreign Equity Fund
As of 4/30/98
Lipper
Foreign Equity International
Fund MSCI EAFE Funds Average
9/7/89 $10,000 $ 10,000 $10,000
4/90 10,069 8,714 10,116
4/91 10,688 9,124 10,438
4/92 11,338 8,378 10,949
4/93 12,334 10,226 11,894
4/94 15,350 11,959 14,694
4/95 15,623 12,662 14,716
4/96 18,399 14,149 17,164
4/97 19,730 14,065 18,505
4/98 23,124 16,770 22,586
!Data from 8/31/89
Total Return Performance
<TABLE>
<CAPTION>
Periods Ended
Calendar
Year-to- Since
10/31/97 1 Month 3 Months Date 1 Year 3 Years* 5 Years* 9/7/89*
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Foreign Equity
Fund 0.89% 10.73% 14.49% 17.20% 13.96% 13.39% 10.18%
S&P 500 Index 1.01 13.84 15.10 41.07 31.97 23.25 17.52
MSCI EAFE Index 0.81 10.63 15.72 19.23 9.82 10.40 6.15**
Lipper International
Funds Average 1.37 13.58 16.26 20.89 13.36 12.41 9.55
FT-A Euro Pacific
Index 0.36 9.78 15.03 16.87 8.41 9.29 5.49**
<FN>
* Average annual compound total return. This table shows how the fund would have performed each year if
its actual (or cumulative) returns for the periods shown had been earned at a constant rate.
** From 8/31/89.
</FN>
Investment return and principal value represent past performance and will vary. Shares may be worth more or
less at redemption than at original purchase.
</TABLE>
Financial Highlights
Foreign Equity Fund
(Unaudited)
<TABLE>
<CAPTION>
Financial Highlights
Foreign Equity Fund
For a share outstanding throughout each period
6 Months Year Ten Months> Year
Ended Ended Ended Ended
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92
<C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of
period $ 16.51 $ 15.62 $ 13.99 $ 14.59 $ 13.32 $ 10.05 $ 10.73
Investment activities
Net investment
income 0.13 0.21 0.21 0.18 0.09 0.13 0.17
Net realized
and unrealized
gain (loss) 2.22 1.07 1.78 (0.14) 1.48 3.14 (0.57)
Total from
investment
activities 2.35 1.28 1.99 0.04 1.57 3.27 (0.40)
Distributions
Net investment
income (0.21) (0.22) (0.18) (0.12) (0.09) - (0.18)
Net realized
gain (0.48) (0.17) (0.18) (0.52) (0.21) - (0.10)
Total distri-
butions (0.69) (0.39) (0.36) (0.64) (0.30) - (0.28)
NET ASSET VALUE
End of period $ 18.17 $ 16.51 $ 15.62 $ 13.99 $ 14.59 $ 13.32 $ 10.05
_______________________________________________________________________________
Ratios/Supplemental Data
Total return 14.86% 8.30% 14.48% 0.64% 11.96% 32.54% (3.74)%
Ratio of expenses
to average net
assets 0.74%! 0.75% 0.76% 0.80% 0.82% 0.86%! 0.99%
Ratio of net
investment
income to average
net assets 1.47%! 1.40% 1.67% 1.69% 1.26% 1.65%! 1.49%
Portfolio turnover
rate 10.6% 15.9% 13.8% 18.8% 22.0% 27.4%! 35.1%
Average commission
rate paid $0.0055 $0.0017 $0.0017 $ - $ - $ - $ -
Net assets, end
of period
(in thousands) $3,649,624$3,159,855$2,322,469$1,559,619$1,058,478 $489,389 $ 238,979
<FN>
! Annualized.
+ The fund's fiscal year-end was changed to 10/31.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
Statement of Net Assets
Foreign Equity Fund
April 30, 1998 (Unaudited)
Shares/Par Value
In thousands
ARGENTINA 0.9%
Common Stocks 0.9%
Banco de Galicia Buenos Aires
(Class B) ADR (USD) 110,440 $ 2,706
Banco Frances del Rio de la
Plata ADR (USD) 109,808 3,191
Perez Companc (Class B) 783,762 4,711
Telefonica de Argentina
(Class B) ADR (USD) 189,624 7,312
YPF Sociedad Anonima
(Class D) ADR (USD) 434,689 15,160
Total Argentina (Cost $25,547) 33,080
AUSTRALIA 2.1%
Common Stocks 2.0%
Australian Gas Light Company 872,335 6,493
Brambles Industries 174,000 3,587
Broken Hill Proprietary 727,470 7,117
Colonial Limited * 187,299 660
Commonwealth Bank of
Australia 600,276 7,208
Fosters Brewing Group 826,000 1,799
Goodman Fielder 1,399,000 2,172
John Fairfax Holdings 1,777,000 3,245
Lend Lease 225,857 5,186
National Australia Bank 258,844 3,681
News Corporation 1,041,618 6,984
Publishing & Broadcasting 799,124 3,821
Tabcorp Holdings 770,000 4,194
Telstra, Installment Receipts,
11/17/98 1,889,458 4,437
Westpac Bank 1,003,000 6,738
Woodside Petroleum 718,000 4,697
72,019
Preferred Stocks 0.1%
News Corporation 510,283 2,875
News Corporation ADR (USD) 11,750 274
Sydney Harbour Casino
Holdings 2,787,600 1,982
5,131
Total Australia (Cost $67,505) 77,150
BELGIUM 1.5%
Common Stocks 1.5%
Dexia 24,759 $ 3,393
Generale de Banque 23,658 13,668
Generale de Banque, VVPR Strip * 1,524 0
Kredietbank 58,111 32,787
UCB 1,039 4,968
Total Belgium (Cost $29,091) 54,816
BRAZIL 3.2%
Common Stocks 0.4%
Eletrobras 115,827,680 4,760
Eletrobras ADR (USD) 20,340 422
Pao de Acucar GDS (USD) 111,340 2,964
Telecomunicacoes de Sao
Paulo * 967,420 253
Unibanco GDR (USD) 119,458 4,748
White Martins 400,674 582
13,729
Preferred Stocks 2.8%
Banco Bradesco 465,618,322 4,275
Banco Itau 4,882,000 3,287
Brahma 5,531,989 3,604
Brasmotor 5,547,410 769
Cia Cimento Portland Itau 4,882,700 1,110
Cia Energetica Minas Gerais 85,153,577 4,132
Cia Energetica Minas Gerais
ADR (144a) (USD) 16,530 793
Cia Energetica Minas Gerais
ADR, Cv. (USD) 23,337 1,120
Cia Energetica Minas Gerais
ADR, Sponsored,
Nonvoting (USD) 103,555 4,971
Cia Tecidos Norte de Minas 3,724,770 912
Encorpar * 3,724,770 10
Pao de Acucar GDS (USD) 6,600 176
Petrol Brasileiros 33,819,021 8,576
Telecomunicacoes Brasileiras
ADR (USD) 400,442 48,779
Telecomunicacoes de Minas
Gerais (Class B) 10,835,753 1,672
Telecomunicacoes de Sao
Paulo 31,817,420 10,822
Telecomunicacoes do
Rio de Janeiro 11,275,077 1,774
Usiminas 391,918$ 2,570
Usiminas ADR (USD) 361,810 2,533
Usiminas ADR (144a) (USD) 12,540 88
101,973
Total Brazil (Cost $81,176) 115,702
CANADA 0.2%
Common Stocks 0.2%
Alcan Aluminum 172,380 5,593
Royal Bank of Canada 61,480 3,672
Total Canada (Cost $5,919) 9,265
CHILE 0.3%
Common Stocks 0.3%
Chilectra ADR (144a) (USD) 82,522 2,300
Compania Cervecerias Unidas
ADS (USD) 43,830 1,211
Empresa Nacional de
Electricidad Chile ADR (USD) 140,341 2,447
Enersis ADS (USD) 65,396 1,925
Genesis Chile Fund (USD) 66,410 2,391
Santa Isabel ADR (USD) * 16,681 275
Total Chile (Cost $9,807) 10,549
CHINA 0.2%
Common Stocks 0.2%
Huaneng Power International
(Class N) ADR (USD) * 413,700 9,101
Total China (Cost $8,311) 9,101
CZECH REPUBLIC 0.0%
Common Stocks 0.0%
SPT Telecom * 8,781 1,277
Total Czech Republic (Cost $834) 1,277
DENMARK 0.3%
Common Stocks 0.3%
Den Danske Bank 49,280 5,977
Tele Danmark (Class B) 13,050 1,097
Unidanmark (Class A) 40,121 3,371
Total Denmark (Cost $5,760) 10,445
FINLAND 0.4%
Common Stocks 0.4%
Nokia (Class A) 206,140 $ 13,814
Total Finland (Cost $3,971) 13,814
FRANCE 9.3%
Common Stocks 9.3%
AXA 165,361 19,422
Accor 22,200 6,053
Alcatel Alsthom 98,611 18,292
Canal Plus 29,270 5,089
Carrefour 16,865 9,666
Cie de St. Gobain 86,166 14,363
Credit Commercial de France 65,873 5,260
Danone 51,350 12,131
Dexia France, Bearer 19,298 2,337
Dexia France, Registered 1999 + 20,520 2,485
Dexia France, Registered 2000 + 16,696 2,022
Eaux Cie Generale 239,542 44,553
Elf Aquitaine 99,530 13,064
GTM Entrepose 25,080 1,978
LVMH 13,837 2,850
L'Oreal 12,405 5,923
Lafarge 49,700 4,696
Lafarge, New * 4,141 380
Lapeyre 58,000 4,410
Legrand 25,609 6,774
Pathe 16,728 3,640
Pinault Printemps 48,923 36,446
Primagaz 6,680 577
Sanofi 152,790 18,530
Schneider 258,216 19,331
Societe Generale 59,472 12,387
Sodexho Alliance 112,492 20,604
Television Francaise 88,346 12,419
Total (Class B) 273,441 32,525
Total France (Cost $222,915) 338,207
GERMANY 6.1%
Common Stocks and Warrants 5.7%
Allianz 55,440 17,053
Bayer 295,414 13,136
Bayerische Hypotheken und
Wechsel Bank 233,578 13,328
Bayerische Vereinsbank 174,561 $ 13,278
Bilfinger & Berger 80,960 2,729
Buderus 5,392 2,533
Commerzbank 102,930 3,969
Deutsche Bank 263,654 20,290
Deutsche Telekom 484,595 12,260
Dresdner Bank 234,327 12,679
Dresdner Bank, Warrants,
4/30/02 * 193,719 4,858
Gehe 311,824 16,160
Hoechst 94,660 3,818
Hornbach Baumarkt 14,770 675
Mannesmann 12,767 10,131
Rhoen Klinikum 52,994 5,537
SAP 45,760 21,675
Siemens 107,641 6,298
Veba 347,056 22,937
Volkswagen 6,455 5,140
208,484
Preferred Stocks 0.4%
Fielmann 27,225 762
Fresenius 16,900 4,054
Hornbach Holdings 42,180 4,090
SAP 12,124 6,047
14,953
Total Germany (Cost $165,325) 223,437
HONG KONG 2.1%
Common Stocks and Warrants 2.1%
CLP Holdings 1,354,000 6,503
Cheung Kong Holdings 663,000 4,408
Dao Heng Bank Group 1,915,000 5,661
HSBC Holdings 129,844 3,705
Hang Seng Bank 576,000 4,852
Henderson Land
Development 1,361,000 6,079
Hong Kong and China Gas 2,915,000 3,970
Hong Kong and China Gas,
Warrants, 9/30/99 * 132,500 10
Hong Kong Land Holdings
(USD) 2,034,719 2,869
Hutchison Whampoa 2,665,000 16,480
New World Development 2,370,448 6,748
Sun Hung Kai Properties 1,074,000 6,378
Swire Pacific (Class A) 1,659,000 8,289
Total Hong Kong (Cost $94,921) 75,952
INDIA 0.3%
Common Stocks 0.3%
Mahanagar Telephone GDR
(USD) * 309,000$ 4,983
State Bank of India GDR
(USD) 302,700 5,751
Total India (Cost $7,978) 10,734
ITALY 5.0%
Common Stocks 5.0%
Assicurazioni Generali 482,560 14,520
Banca Commerciale Italiana 670,000 3,389
Banca di Roma * 6,210,000 11,446
Credito Italiano 4,812,429 25,294
ENI 3,327,232 22,343
Gucci Group (USD) 97,641 4,546
IMI 530,757 8,689
Industrie Natuzzi ADR (USD) 132,084 3,393
Istituto Nazionale delle
Assicurazioni 1,489,000 4,451
Italgas 730,325 3,381
Mediolanum 330,119 9,896
Rinascente 316,500 3,172
Telecom Italia * 4,962,930 37,124
Telecom Italia Mobile 5,537,866 31,576
Total Italy (Cost $107,837) 183,220
JAPAN 15.5%
Common Stocks 15.5%
Advantest 57,090 3,839
Alps Electric 468,000 4,880
Amada 776,000 3,137
Canon 1,523,000 36,021
Citizen Watch 448,000 3,013
DDI 1,574 3,984
Daifuku 126,000 498
Daiichi Pharmaceutical 660,000 9,471
DaiNippon Screen
Manufacturing 692,000 3,216
Daiwa House 794,000 6,420
Denso 1,337,000 22,984
East Japan Railway 2,227 11,106
Fanuc 171,300 6,317
Hitachi 1,563,000 11,208
Hitachi Zosen 1,097,000 1,674
Honda Motor 99,000 $ 3,591
Inax 331,000 1,226
Ito-Yokado 365,000 18,893
Kao 676,000 9,935
Kokuyo 387,000 6,638
Komatsu 823,000 3,731
Komori 335,000 5,696
Kuraray 916,000 7,738
Kyocera 335,000 17,568
Makita 584,000 6,354
Marui 960,000 15,161
Matsushita Electric Industrial 1,421,000 22,763
Mitsubishi 950,000 7,178
Mitsubishi Heavy Industries 4,176,000 15,462
Mitsui Fudosan 2,063,000 18,831
Murata Manufacturing 420,000 12,314
NEC 2,657,000 29,915
National House Industrial 170,000 1,381
Nippon Telephone & Telecom 1,130 9,905
Nomura Securities 1,417,000 17,292
Pioneer Electronic 477,000 7,821
Sangetsu 111,000 1,417
Sankyo 969,000 24,016
Sega Enterprises 133,050 2,212
Sekisui Chemical 1,236,000 6,790
Sekisui House 778,000 6,079
Seven Eleven Japan 111,000 7,423
Sharp 531,000 4,173
Shin-Etsu Chemical 787,000 15,343
Shiseido 520,000 6,857
Sony 349,800 29,102
Sumitomo 1,585,000 9,102
Sumitomo Electric Industries 2,060,000 24,547
Sumitomo Forestry 435,000 2,547
TDK 328,000 25,925
Teijin 669,000 1,911
Tokio Marine & Fire Insurance 419,000 4,559
Tokyo Electronics 181,000 7,112
Tokyo Steel Manufacturing 383,200 1,688
Toppan Printing 775,000 9,212
Uny 409,000 6,583
Yurtec 126,000 671
Total Japan (Cost $679,046) 564,430
MALAYSIA 0.1%
Common Stocks 0.1%
Berjaya Sports Toto 862,000 $ 2,045
Tanjong 669,000 1,525
Total Malaysia (Cost $5,313) 3,570
MEXICO 1.9%
Common Stocks 1.9%
Cemex (Class B) * 612,840 3,679
Cemex ADS (USD) * 482,160 4,761
Cemex ADS (144a) (USD) * 410,812 4,057
Cifra (Class V) ADR (USD) 44,164 773
Fomentos Economico Mexicano
(Class B) * 673,862 4,990
Gruma (Class B) * 621,077 1,427
Gruma (Class B) ADS (144a)
(USD) * 150,784 1,404
Grupo Financiero Banamex
(Class B) * 966,552 3,015
Grupo Financiero Banamex
(Class L) * 31,801 81
Grupo Financiero Bancomer
(Class L) 8,266 4
Grupo Industrial Maseca
(Class B) 1,664,467 1,201
Grupo Modelo (Class C) 445,864 4,217
Grupo Televisa ADR (USD) * 100,322 4,113
Kimberly-Clark Mexico
(Class A) 1,182,310 5,807
Panamerican Beverages
(Class A) (USD) 226,428 9,029
TV Azteca ADR (USD) 194,300 3,619
Telefonos de Mexico (Class L)
ADR (USD) 309,614 17,532
Total Mexico (Cost $61,402) 69,709
NETHERLANDS 10.3%
Common Stocks and Warrants 10.3%
ABN Amro Holdings 724,388 17,643
ASM Lithography * 38,000 3,450
Ahold 306,927 9,572
Akzo Nobel 21,098 4,293
Baan Company * 102,310 4,482
Baan Company (USD) * 139,340 6,183
CSM 278,499 15,069
Elsevier 1,909,982$ 28,837
Fortis Amev 343,827 20,118
ING Groep 904,265 58,774
ING Groep, Warrants, 3/15/01 * 149,267 2,704
Koninklijke PTT Nederland 96,125 4,968
Numico 192,920 6,446
Otra 45,880 840
Philips Electronics 98,790 8,705
Polygram 400,639 16,540
Royal Dutch Petroleum 1,370,048 75,620
Unilever 446,314 31,771
Wolters Kluwer * 447,241 58,471
374,486
Preferred Stocks 0.0%
ING Groep 10,797 53
53
Total Netherlands (Cost $265,288) 374,539
NEW ZEALAND 0.3%
Common Stocks 0.3%
Fletcher Challenge Building 811,083 1,640
Fletcher Challenge Energy 711,005 2,425
Telecom Corporation of
New Zealand 976,372 4,637
Telecom Corporation of
New Zealand, Installment
Receipts, 3/31/99 * 333,000 894
Total New Zealand (Cost $10,481) 9,596
NORWAY 1.9%
Common Stocks 1.9%
Bergesen (Class A) 46,430 1,009
Norsk Hydro 514,282 25,657
Orkla (Class A) 334,850 39,698
Saga Petroleum (Class B) 85,950 1,533
Total Norway (Cost $43,315) 67,897
PANAMA 0.0%
Common Stocks 0.0%
Banco Latinoamericano de
Exportaciones (Class E) (USD) 25,252 903
Total Panama (Cost $1,243) 903
PERU 0.1%
Common Stocks 0.1%
Credicorp (USD) 73,568 $ 1,232
Telefonica del Peru (Class B) 316,910 698
Telefonica del Peru (Class B)
ADR (USD) 83,788 1,854
Total Peru (Cost $3,725) 3,784
PORTUGAL 0.4%
Common Stocks 0.4%
Jeronimo Martins 353,261 16,516
Total Portugal (Cost $4,666) 16,516
RUSSIA 0.1%
Common Stocks 0.1%
Lukoil ADR (USD) 22,490 1,535
Rao Gazprom ADS (USD) * 142,100 2,622
Total Russia (Cost $4,078) 4,157
SINGAPORE 0.5%
Common Stocks 0.5%
Overseas Union Bank 756,400 2,868
Singapore Press 720,710 7,970
Singapore Telecommunications 1,663,000 2,858
United Overseas Bank 695,352 3,296
Total Singapore (Cost $23,794) 16,992
SOUTH KOREA 0.1%
Common Stocks and Rights 0.1%
Samsung Electronic 53,817 2,980
Samsung Electronic, Rights,
6/2/98 * 4,281 82
Total South Korea (Cost $6,201) 3,062
SPAIN 2.7%
Common Stocks and Rights 2.7%
Argentaria Banca de Espana 84,210 7,022
Banco Bilbao Vizcaya 133,650 6,880
Banco Popular Espanol 97,844 8,031
Banco Santander 418,211 22,105
Empresa Nacional de
Electricidad 524,068 12,732
Gas Natural 103,616 6,640
Iberdrola 596,256 $ 9,592
Repsol 135,510 7,429
Telefonica de Espana 441,677 18,444
Telefonica de Espana, Rights,
5/7/98 * 441,677 348
Total Spain (Cost $52,455) 99,223
SWEDEN 3.5%
Common Stocks 3.5%
ABB (Class A) 617,890 10,016
Astra (Class B) 1,586,605 31,560
Atlas Copco (Class B) 368,282 10,846
Electrolux (Class B) 195,727 18,203
Esselte (Class B) 91,130 2,084
Granges 81,378 1,482
Hennes and Mauritz 426,945 22,224
Nordbanken Holding 2,835,248 20,874
Sandvik (Class A) 70,120 2,024
Sandvik (Class B) 308,980 8,900
Scribona (Class B) 49,060 627
Total Sweden (Cost $76,262) 128,840
SWITZERLAND 7.4%
Common Stocks 7.4%
ABB 10,930 17,919
Adecco 45,643 19,924
Credit Suisse Group 90,725 19,953
Nestle 30,563 59,273
Novartis 41,243 68,166
Roche Holdings * 4,714 47,768
Schweizerischer Bankverein 51,544 17,897
Union Bank of Switzerland 11,670 18,790
Total Switzerland (Cost $177,939) 269,690
THAILAND 0.2%
Common Stocks 0.2%
Thai Farmers Bank * 2,548,000 5,834
Total Thailand (Cost $5,975) 5,834
UNITED KINGDOM 18.6%
Common Stocks 18.6%
Abbey National 1,188,440 22,324
Asda Group 3,790,530 12,697
BG 1,087,352$ 5,820
British Petroleum 1,008,802 15,946
Cable & Wireless 2,329,200 26,688
Cadbury Schweppes 1,617,578 23,634
Caradon 2,708,215 8,834
Centrica * 901,200 1,564
Compass Group 771,000 13,316
David S. Smith 1,456,500 5,482
Diageo 4,464,808 53,436
Electrocomponents 847,000 8,260
GKN 189,000 5,463
Glaxo Wellcome 1,750,650 49,488
Heywood Williams Group 249,576 1,064
Hillsdown Holdings 675,300 2,022
John Laing (Class A) 594,300 3,559
Kingfisher 2,481,977 45,107
Ladbroke Group 1,611,000 8,839
National Westminster Bank 4,683,173 93,689
Rank Group 1,783,000 11,542
Reed International 4,635,140 41,363
Rio Tinto 1,216,960 17,506
Rolls Royce 811,851 3,789
Safeway 2,136,200 12,738
Shell Transport & Trading 6,266,000 46,720
SmithKline Beecham 5,650,230 67,434
Tesco 1,899,903 17,892
Tomkins 4,907,080 28,892
United News & Media 1,758,620 23,857
Total United Kingdom (Cost $444,334) 678,965
VENEZUELA 0.1%
Common Stocks 0.1%
Compania Anonima Nacional
Telefonos de Venezuela
(Class D) ADR (USD) * 94,187 3,155
Total Venezuela (Cost $2,958) 3,155
SHORT-TERM INVESTMENTS 4.5%
Money Market Funds 4.5%
Reserve Investment Fund,
5.65% 165,954,691 165,955
Total Short-Term
Investments (Cost $165,955) 165,955
Total Investments in Securities
100.1% of Net Assets (Cost $2,871,327) $3,653,566
Other Assets Less Liabilities (3,942)
NET ASSETS $3,649,624
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 23,244
Accumulated net realized gain/loss -
net of distributions (24,869)
Net unrealized gain (loss) 782,046
Paid-in-capital applicable to 200,880,861
shares of $0.01 value capital stock out-
standing; 1,000,000,000 shares authorized 2,869,203
NET ASSETS $3,649,624
___________
NET ASSET VALUE PER SHARE $ 18.17
___________
* Non-income producing
+ Securities contain some restrictions as to public resale-total of such
securities at year-end amounts to 0.1% of net assets.
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers-total of such securities at year-end amounts to
0.2% of net assets.
ADR American depository receipt
ADS American depository share
GDR Global depository receipt
GDS Global depository share
USD U.S. dollar
VVPR Entitles holders to a reduced rate of foreign withholding tax.
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Foreign Equity Fund
(Unaudited)
In thousands
6 Months
Ended
4/30/98
Investment Income
Income
Dividend (net of foreign taxes of $ 4,010) $ 33,197
Interest 3,345
Total income 36,542
Expenses
Investment management 11,587
Custody and accounting 547
Registration 87
Shareholder servicing 16
Legal and audit 13
Prospectus and shareholder reports 5
Directors 5
Miscellaneous 7
Total expenses 12,267
Net investment income 24,275
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (12,641)
Foreign currency transactions (917)
Net realized gain (loss) (13,558)
Change in net unrealized gain or loss
Securities 454,421
Other assets and liabilities
denominated in foreign currencies (257)
Change in net unrealized gain or loss 454,164
Net realized and unrealized gain (loss) 440,606
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 464,881
___________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
Foreign Equity Fund
(Unaudited)
In thousands
6 Months Year
Ended Ended
4/30/98 10/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 24,275 $ 40,579
Net realized gain (loss) (13,558) 87,538
Change in net unrealized gain or loss 454,164 53,367
Increase (decrease) in net assets
from operations 464,881 181,484
Distributions to shareholders
Net investment income (40,559) (33,766)
Net realized gain (92,704) (26,079)
Decrease in net assets from
distributions (133,263) (59,845)
Capital share transactions*
Shares sold 398,916 1,016,742
Distributions reinvested 102,189 43,555
Shares redeemed (342,954) (344,550)
Increase (decrease) in net assets from capital
share transactions 158,151 715,747
Net Assets
Increase (decrease) during period 489,769 837,386
Beginning of period 3,159,855 2,322,469
End of period $3,649,624 $3,159,855
________________________
*Share information
Shares sold 23,541 60,358
Distributions reinvested 6,463 2,750
Shares redeemed (20,498) (20,421)
Increase (decrease) in shares outstanding9,506 42,687
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
Foreign Equity Fund
(Unaudited)
Note 1 - Significant Accounting Policies
Institutional International Funds, Inc. (the corporation) is registered under
the Investment Company Act of 1940. The Foreign Equity Fund (the fund), a
diversified, open-end management investment company, is the sole portfolio
currently established by the corporation and commenced operations on September
7, 1989.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities are valued at the last quoted sales price at the
time the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Investments in open-end mutual funds are valued at the closing net asset value
per share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars
at the prevailing exchange rate at the end of the reporting period. Purchases
and sales of securities and income and expenses are translated into U.S.
dollars at the prevailing exchange rate on the dates of such transactions. The
effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and
losses.
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and distributions
to shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Emerging Markets At April 30, 1998, the fund held investments in securities of
companies located in emerging markets. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $367,646,000 and $339,709,000, respectively, for the
six months ended April 30, 1998.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At April 30, 1998, the aggregate cost of investments for federal income tax
and financial reporting purposes was $2,871,327,000, and net unrealized gain
aggregated $782,239,000, of which $987,645,000 related to appreciated
investments and $205,406,000 to depreciated investments.
Note 4 - Related Party Transactions
The fund is managed by Rowe Price-Fleming International, Inc. (the manager),
which is owned by T. Rowe Price Associates, Inc. (Price Associates), Robert
Fleming Holdings Limited, and Jardine Fleming Holdings Limited under a joint
venture agreement. The investment management agreement between the fund and
the manager provides for an annual investment management fee, of which
$2,111,000 was payable at April 30, 1998. The fee is computed daily and paid
monthly, and is equal to 0.70% of average daily net assets.
In addition, the fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the fund
receives certain other services. Price Associates computes the daily share
price and maintains the financial records of the fund. T. Rowe Price Services,
Inc., is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. The fund incurred expenses
pursuant to these related party agreements totaling approximately $66,000 for
the six months ended April 30, 1998, of which $12,000 was payable at
period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available to
the public. The Reserve Funds pay no investment management fees. Distributions
from the Reserve Funds to the fund for the six months ended April 30, 1998,
totaled $3,312,000 and are reflected as interest income in the accompanying
Statement of Operations.
During the six months ended April 30, 1998, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating $58,607,000
with certain affiliates of the manager and paid commissions of $131,000
related thereto.
