Annual Report
October 31, 1999
Foreign Equity Fund
T. Rowe Price, Invest With Confidence (registered trademark)
Annual Report
October 31, 1999
Foreign Equity Fund
Dear Investor
International stocks and your fund made good progress during the six months
ended October 31, 1999. During the first half of the fund's fiscal year,
interest rate cuts by central banks, signs of international economic recovery,
and an increase in investment overseas following the crises of mid-1998 drove
markets sharply higher. More recently, however, prospects of stronger
international economic growth sparked concerns about rising inflation, and
returns moderated from their earlier pace.
Performance Comparison
---------------------------------------------------------------------------
Periods Ended 10/31/99 6 Months 12 Months
---------------------------------------------------------------------------
Foreign Equity Fund 6.13% 20.79%
MSCI EAFE Index 6.87 23.37
Your fund provided good returns for the past six months and strong results
for the fiscal year ended October 31, although performance trailed that of
the MSCI EAFE Index for both periods. The somewhat weaker relative results
were due to our comparatively underweighted position in Japan and to
lagging performance in the traditional growth sectors in which the fund
invests. During the first half of our fiscal year, an upswing in the
economic cycle favored more attractively valued cyclical and value stocks,
which are not our primary focus. However, as concerns about rising interest
rates emerged in recent months, the performance of growth stocks began to
improve.
The major factors stimulating international markets were more vigorous
international growth and demand, as well as high levels of mergers,
acquisitions, and corporate restructuring. Europe benefited from an
impressive volume of corporate activity and restructuring as industry
consolidation accelerated. Merger activity so far this year was over $1
trillion compared with the previous record of $870 billion in 1998.
The long-awaited economic upturn in Japan helped propel the yen up 14%
versus the U.S. dollar during the past six months, enhancing returns for
U.S. investors in that market. Japan also enjoyed better-than-expected
economic performance and an unprecedented level of company restructuring.
However, the sharp rise of the yen led to concerns that Japan's exports
would be hurt, hindering the economic recovery. Elsewhere in Asia economies
improved more vigorously, and steps toward structural reform, although
tentative, were implemented. Weakness in Latin American markets reflected
concerns about the region's large fiscal deficits, rising U.S. interest
rates, and political uncertainties.
INVESTMENT REVIEW
At the end of October, the portfolio's allocation to Europe represented 64%
of assets, down from 69% in April, while 22% was invested in Japan, up from
17%-primarily a result of varying regional performance. Within Europe, the
U.K. was the largest country exposure at 17% of net assets. Despite these
changes, the fund is still underweighted in Japan relative to the MSCI EAFE
Index. Regarding individual purchases, we focused on companies and sectors
that we expect to benefit from the expansion and integration of the
Internet and telecommunications arenas.
Europe
Rising U.S. interest rates and the large number of initial public offerings
inhibited European equity market performance somewhat during the past six
months. However, economic recovery became clearly visible as exports,
industrial production, and business confidence picked up across the region,
while consumer confidence remained robust. The decline of the euro (the
currency of the 11 Eurozone countries introduced in January) versus the
dollar through the first seven months of 1999 moderated recently as
economies strengthened. Inflation in the Eurozone and the U.K. was
restrained.
European governments are working toward reforms that will improve labor
market flexibility and reduce social security and tax costs for companies;
the Netherlands and the U.K. have been leading the way. The euro has made
cost comparisons across Europe easier, introducing competitive pressure
among countries keen to attract business investment.
Deregulation and the need to raise shareholder value continued to drive
companies to restructure internally, divest noncore businesses, and merge
with or acquire other companies. European businesses are now taking bold
restructuring steps previously witnessed only in the U.S. A large
proportion of European mergers and acquisitions were part of the increase
in industry consolidation, which was greatest in banking but also affected
the energy, telecom, and retailing sectors. Telecommunications and
electricity prices fell markedly as price supports and barriers to
competition were reduced.
In Germany, economic recovery became more evident during the past six
months, boosting prospects for the entire region as Germany accounts for
about 30% of Eurozone GDP. The proposed budget reflects the government's
determination to reduce spending and relieve the corporate sector of tax
and social security costs. Despite resistance from trade unions, opposition
parties, and liberal members of the governing party, it appears that
compromises will be reached. Companies that are restructuring include Gehe
(pharmaceutical retailer and wholesaler), which is spinning off its mail
order clothing business, and conglomerate Mannesmann, which plans to split
its industrial and telecom businesses into separate companies. Mannesmann
aims to boost its position as the largest mobile phone operator in Europe
by acquiring control of British mobile telecom Orange. Two of Germany's
largest utilities, Veba and Viag, announced a merger prompted by declining
electricity prices. Deutsche Bank, Dresdner Bank, Commerzbank, and
Bayerische Vereinsbank admitted they were involved in merger discussions
with one another and with other European banks.
Market Performance
Six Months Local Local Currency U.S.
Ended 10/31/99 Currency vs. U.S. Dollars Dollars
Australia -6.93% -3.85% -10.51%
France 12.67 -0.65 11.94
Germany 4.10 -0.65 3.42
Hong Kong -0.30 -0.25 -0.54
Italy -8.74 -0.65 -9.34
Japan 9.18 14.38 24.88
Mexico -0.84 -3.05 -3.86
Netherlands 0.47 -0.65 -0.19
Norway -1.14 -0.74 -1.87
Singapore 20.76 1.79 22.92
Sweden 20.80 2.10 23.33
Switzerland -1.21 -0.08 -1.28
United Kingdom -4.84 1.92 -3.02
Source: RIMES Online, using MSCI indices.
France was the strongest market within the Eurozone during the six-month
period. Its economic recovery, robust consumer sector, relative absence of
political tension, and a large amount of merger and acquisition activity
stimulated the 12% stock market gain. In the banking sector, BNP won
control of Paribas although it failed to acquire Societe Generale as well.
In energy, Total Fina (a recent merger between French Total and Belgian
Petrofina) is to acquire competitor Elf Aquitaine. Carrefour and Promodes,
major supermarkets, announced a merger, creating the world's second-largest
retailer after Wal-Mart.
In the Netherlands, earlier progress with structural reform of labor
markets and taxation helped the economy remain strong. The nearly 30% rise
in oil prices over the past six months, and progress in raising shareholder
returns, boosted the performance of Royal Dutch Petroleum. Traditional
publishing leaders Wolters Kluwer and Elsevier weakened as Internet
applications expanded. Yet, both companies continue to invest heavily in
electronics. We believe these companies will remain leading media providers
as their distribution channels migrate to the Internet. Philips
Electronics, like other technology holdings in Europe and Asia,
strengthened due to growing international demand, particularly related to
the Internet and mobile communications.
In Italy, weaker economic growth, higher inflation, and political conflict
about cutting fiscal spending resulted in poor stock market results.
Financial services companies have been consolidating. After insurer
Assicurazioni Generali made a hostile bid for banking and insurance company
Istituto Nazionale delle Assicurazioni (which had agreed to merge with bank
Sanpaolo IMI), the two companies agreed to split INA's businesses between
them. Unicredito Italiano is discussing an alliance with Spanish bank Banco
Bilbao Vizcaya, which is merging with its Spanish competitor Argentaria
Banca de Espana.
Geographic Diversification pie chart
Europe Japan Pacific Basin Latin America Other and Reserves
64 22 8 3 3
Based on net assets of 10/31/99.
Sweden, not part of the Eurozone, was Europe's strongest major market with
a better than 20% gain for the six months. A healthy economy and the strong
performance of telecom equipment maker LM Ericsson Telephone, a global
competitor, boosted the general stock market. Within Scandinavia, banking
consolidation will also take place. Swedish concern Nordbanken Holding has
bid for Norway's second-largest bank Christiania. In addition, Sweden's
largest bank SEB announced plans to acquire second tier German bank BfG, in
which it previously held a significant stake.
With recovery strengthening in the U.K., the central bank reversed its June
interest rate cut by increasing rates a quarter percentage point in
September, even though inflation was below the target. Businesses took
important steps to restructure. For example, engineering and food
manufacturing company Tomkins announced plans to sell its food business.
Consumer goods leader Unilever will slash its brands from 1,600 to 400 to
focus on the global "power brands" that account for 90% of revenues and
more of profits. Banks in the U.K. took a step toward consolidation as Bank
of Scotland made a hostile bid for its larger rival, National Westminster
Bank.
Far East
In Japan, stronger-than-expected economic data and increased evidence of
corporate restructuring stimulated heavy foreign buying and pushed the yen
up sharply. The Bank of Japan's quarterly surveys and industrial production
figures reflected a healthier, but still weak, economy. Private consumption
improved slightly, as did private sector capital expenditure. However,
unemployment remained well above historic levels. The government has
announced plans for more fiscal stimulation later this autumn, although
there are limits to how much more it can do since the budget deficit is
already close to 10% of GDP.
Investors were encouraged by positive corporate developments. U.K. telecom
giant Cable & Wireless successfully outbid Nippon Telegraph & Telephone for
Japanese carrier IDC, demonstrating the recent willingness of Japanese
shareholders to vote for the highest bidder regardless of nationality.
Other foreign inroads into Japanese telecommunications this year included
British Telecom's and AT&T's 30% stake in Japan Telecom, and new positions
taken by U.K.'s Vodafone Airtouch in regional mobile companies.
In other sectors, restructuring through collaboration demonstrated that
some businesses are taking steps to improve returns. Notably, electronic
giants NEC and Hitachi announced a joint venture to make memory chips. In
August, news about the merger of three banks-Dai-Ichi Kangyo, Fuji, and
IBJ-led to heavy buying of Japanese banks by foreign investors. Last year's
government banking bill, tougher loan disclosure rules, and other measures
have made the sector stronger. We added Sumitomo Bank to the portfolio
because of the quality of its management and its increasing focus on
shareholder value.
Concerns about rising U.S. interest rates weighed on markets in the region
outside of Japan. Despite market weakness, Hong Kong's recovery took hold
while China also reported improved economic data. With these markets
subdued, both government and private companies felt the pressure to
continue with their reforms and restructuring. Revenues at China Telecom
are strong, and the company recently announced plans to buy additional
mobile phone networks in China, which would make it one of the world's
largest cellular phone operators. Other regional holdings include
electronic component suppliers Taiwan Semiconductor Manufacturing in Taiwan
and Samsung Electronics in South Korea, both of which benefited from the
upturn in regional demand.
Industry Diversification
---------------------------------------------------------------------------
Percent of
Net Assets
10/31/99
---------------------------------------------------------------------------
Services 29.5%
Finance 20.2
Consumer Goods 19.6
Capital Equipment 16.4
Energy 7.6
Materials 2.6
Multi-industry 1.1
Miscellaneous -
Reserves 3.0
Net Assets 100.0%
Australia's economy slowed slightly but remained sound. Resources company
Broken Hill Proprietary continued its ambitious rate of restructuring and
announced plans to sell half its steel business in the next year as it
focuses its range of activities. Commonwealth Bank of Australia and Westpac
Bank are prospering due to the strong economy and their success in
marketing asset management products.
Latin America
The 15% decline of the Brazilian real versus the dollar and, to a lesser
extent, the Mexican peso's 3% fall hurt returns for U.S. investors. The
real's nosedive reflected concern about political obstacles to fiscal
reforms. Encouragingly, Brazil's short-term interest rates were reduced
from 32% at the end of April to 19% at the end of October. Brazil also met
quarterly IMF budget targets with the economy stronger and inflation lower
than expected. However, policy changes to reduce fiscal spending in the
longer term stalled.
In Mexico, the peso's dip retraced some of its 8% rise during the preceding
six months. Mexico's economy surprised investors positively with
stronger-than-expected economic growth and lower inflation. The 28% rise in
oil prices during the past six months benefited Mexico's fiscal position.
With an upcoming presidential election, Mexico secured a substantial line
of credit from international agencies in the event of a financial
crisis-such as the one that was precipitated by the 1994 presidential
election.
Our holdings in Latin America focus on large, blue chip companies with
dominant market positions. Led by better management installed last spring,
Brazilian energy company Petrol Brasileiros (Petrobras) has started to
reduce lower margin businesses, cut costs, and set return targets. With
production growth expected to rise quickly and more restructuring planned,
Petrobras could see its earnings rise substantially. Leading Mexican
telecom Telefonos de Mexico (Telmex) acquired a stake in Puerto Rican
Telecommunications and began an alliance with U.S. giant SBC to develop
voice and data services.
INVESTMENT POLICY AND OUTLOOK
We expect further economic recovery to boost European markets, and we
believe the euro will gain strength against the dollar as we enter 2000.
Short-term interest rates were recently raised by the European Central
Bank, reversing cuts made earlier this year, and inflation appears likely
to remain under control. The quest for shareholder value will continue to
drive more businesses to restructure and reposition themselves in an
expanding global economy.
In Japan, several economic indicators may continue to encourage investors.
However, the yen is now strong enough to impede export growth, and the
government's ability to provide further fiscal support may be restrained by
growing budget deficits. We believe that further gains in the Japanese
stock market could moderate until investors are convinced that enough
company restructuring is being implemented to improve profitability.
Elsewhere in Asia we see economies improving further, although at less
spectacular rates of growth than in the past. We believe recent market
setbacks provide continued impetus for governments in South Korea,
Singapore, and elsewhere to push ahead with much needed reforms. Steps
taken so far have enhanced the prospects for economic and corporate
earnings growth throughout the region, but more is needed.
Latin America is particularly sensitive to the direction of U.S. interest
rates, although the region's economic outlook is otherwise somewhat better
than in the recent past. Brazil needs more fiscal reforms to create a
stable economy and Mexico's prosperity is reliant on conditions in the U.S.
However, we believe the market has discounted many of these risks. The
caliber of the larger Latin American companies is high, the potential for
growth is strong, and stock valuations are attractive.
Overall, we believe the fund's country, stock, and sector allocations
position it well for continued long-term growth.
Respectfully submitted,
Martin G. Wade
President
November 19, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
Percent of
Net Assets
Company Country 10/31/99
- --------------------------------------------------------------------------------
National Westminster Bank United Kingdom 2.3%
Shell Transport & Trading United Kingdom 1.6
Nokia Finland 1.5
Nestle Switzerland 1.5
Total Fina France 1.5
SmithKline Beecham United Kingdom 1.5
Murata Manufacturing Japan 1.4
ING Groep Netherlands 1.4
Glaxo Wellcome United Kingdom 1.3
Sony Japan 1.3
Nippon Telegraph &
Telephone Japan 1.3
Wolters Kluwer Netherlands 1.3
Carrefour France 1.2
NEC Japan 1.1
Vivendi France 1.1
Novartis Switzerland 1.1
NTT Mobile Communications
Network Japan 1.1
Diageo United Kingdom 1.1
Kingfisher United Kingdom 1.1
Mannesmann Germany 1.0
Fortis Belgium/Netherlands 1.0
AstraZeneca Group Sweden 1.0
Telecom Italia Mobile Italy 1.0
Hennes & Mauritz Sweden 0.9
Adecco Switzerland 0.9
- --------------------------------------------------------------------------------
Total 31.5%
- --------------------------------------------------------------------------------
Note: Table excludes reserves
Security Classification
- --------------------------------------------------------------------------------
Percent Market
of Net Cost Value
10/31/99 Assets (000) (000)
- --------------------------------------------------------------------------------
Common Stocks and
Rights 95.8% $2,391,745 $3,220,039
Preferred Stocks 1.2 40,901 39,434
Short-Term Investments 1.1 37,784 37,784
Total Investments 98.1 2,470,430 3,297,257
Other Assets Less
Liabilities 1.9 63,563 63,563
Net Assets 100.0% $2,533,993 $3,360,820
- --------------------------------------------------------------------------------
Summary of Investments and Cash
October 31, 1999
Percent of
Equities Cash Total MSCI EAFE
- --------------------------------------------------------------------------------
Europe
Austria -- -- -- 0.2%
Belgium 1.2% -- 1.2% 1.2
Denmark 0.4 -- 0.4 0.8
Finland 1.5 -- 1.5 2.1
France 10.9 -- 10.9 9.5
Germany 6.1 -- 6.1 9.5
Ireland 0.1 -- 0.1 0.5
Italy 4.5 -- 4.5 3.8
Netherlands 8.3 -- 8.3 5.4
Norway 0.6 -- 0.6 0.4
Portugal 0.4 -- 0.4 0.5
Spain 2.9 -- 2.9 2.7
Sweden 3.6 -- 3.6 2.3
Switzerland 6.3 -- 6.3 6.4
United Kingdom 17.2 -- 17.2 20.3
------------------------------------------------------------------------------
Total Europe 64.0% -- 64.0% 65.6%
- --------------------------------------------------------------------------------
Pacific Basin
Australia 2.4% -- 2.4% 2.4%
China 0.8 -- 0.8 --
Hong Kong 1.9 -- 1.9 2.2
Japan 21.6 -- 21.6 28.6
New Zealand 0.2 -- 0.2 0.2
Singapore 0.7 -- 0.7 1.0
South Korea 0.6 -- 0.6 --
India 0.5 -- 0.5 --
Taiwan 0.5 -- 0.5 --
------------------------------------------------------------------------------
Total Pacific Basin 29.2% -- 29.2% 34.4%
- --------------------------------------------------------------------------------
Americas
Argentina 0.3% -- 0.3% --
Brazil 1.7 -- 1.7 --
Canada 0.3 -- 0.3 --
Chile 0.1 -- 0.1 --
Mexico 1.4 -- 1.4 --
Panama -- -- -- --
Peru -- -- -- --
United States -- 1.1 1.1 --
Venezuela -- -- -- --
------------------------------------------------------------------------------
Total Americas 3.8% 1.1% 4.9% --
- --------------------------------------------------------------------------------
Other Assets
Less Liabilities -- 1.9 1.9 --
------------------------------------------------------------------------------
TOTAL 97.0% 3.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Foreign Equity Fund
10/31/99
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
Foreign Equity Fund
- --------------------------------------------------------------------------------
Lipper
Foreign MSCI International
Equity EAFE Funds
Fund Index Average
10/31/99 10.000 10.000 10.000
10/90 10.454 8.745 10.012
10/91 11.478 9.384 10.899
10/92 11.105 8.173 10.445
10/93 14.919 11.269 13.975
10/94 16.703 12.439 15.642
10/95 16.810 12.431 15.772
10/96 19.244 13.773 17.665
10/97 20.841 14.451 19.818
10/98 22.436 15.889 20.702
10/99 27.099 19.602 25.213
<TABLE>
<CAPTION>
Total Return Performance
Calendar Since
Periods Ended 10/31/99 1 Month 3 Months Year-to-Date 1 Year 3 Years *5 Years *10 Years *9/7/89*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Equity Fund 3.24% 4.97% 11.62% 20.79% 12.09% 10.16 %10.48% 9.95%
S&P 500 Index 6.33 2.90 12.03 25.67 26.52 26.02 17.82 17.31
MSCI EAFE Index 3.77 5.24 12.85 23.37 12.48 9.52 6.96 6.89**
Lipper International
Funds Average 3.84 5.24 15.93 25.53 12.90 9.50 9.42 9.13
FT-A Euro Pacific Index 3.73 6.19 15.95 26.67 12.19 9.11 6.57 6.58**
<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.
Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption
than at original purchase.
</FN>
</TABLE>
Financial Highlights
Foreign Equity Fund
For a share outstanding throughout each period
-------------------------------------------------------
Year
Ended
10/31/99 10/31/98 10/31/97 10/31/96 10/31/95
NET ASSET VALUE
Beginning of period $ 17.03 $ 16.51 $ 15.62 $ 13.99 $ 14.59
Investment activities
Net investment income 0.21 0.28 0.21 0.21 0.18
Net realized and
unrealized gain (loss) 3.26 0.93 1.07 1.78 (0.14)
Total from
investment activities 3.47 1.21 1.28 1.99 0.04
Distributions
Net investment income (0.29) (0.21) (0.22) (0.18) (0.12)
Net realized gain (0.13) (0.48) (0.17) (0.18) (0.52)
Total distributions (0.42) (0.69) (0.39) (0.36) (0.64)
NET ASSET VALUE
End of period $ 20.08 $ 17.03 $ 16.51 $ 15.62 $ 13.99
----------------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 20.79% 7.65% 8.30% 14.48% 0.64%
Ratio of total expenses
to average net assets 0.74% 0.74% 0.75% 0.76% 0.80%
Ratio of net investment
income to average
net assets 1.08% 1.58% 1.40% 1.67 1.69%
Portfolio turnover rate 18.2% 18.6% 15.9% 13.8% 18.8%
Net assets, end of period
(in millions) $ 3,361 $ 3,204 $ 3,160 $ 2,322 $1 ,560
(diamond) Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
The accompanying notes are an integral part of these financial statements.
Portfolio of Investments
Foreign Equity Fund
October 31, 1999
Shares Value
- --------------------------------------------------------------------------------
In thousands
ARGENTINA 0.3%
Common Stocks 0.3%
Banco de Galicia Buenos Aires
(Class B) ADR (USD) 121,719 $ 2,571
Banco Frances del Rio de la Plata
ADR (USD) 110,278 2,413
Telefonica de Argentina (Class B)
ADR (USD) 190,364 4,878
Total Argentina (Cost $9,704) 9,862
AUSTRALIA 2.4%
Common Stocks 2.2%
Brambles Industries 237,500 6,679
Broken Hill Proprietary 423,362 4,376
Colonial Limited 2,091,617 7,696
Commonwealth Bank
of Australia 614,691 10,074
Lend Lease 362,654 4,173
News Corporation 831,355 6,012
Publishing & Broadcasting 1,228,904 7,288
TABCORP Holdings 769,130 4,875
Telstra * 2,642,098 12,480
Westpac Bank 1,463,411 9,390
73,043
Preferred Stocks 0.2%
News Corporation 898,362 6,082
6,082
Total Australia (Cost $58,445) 79,125
BELGIUM 1.2%
Common Stocks 1.2%
Dexia (EUR) 24,809 3,635
Fortis B (EUR) 423,978 14,315
KBC Bancassurance
Holding (EUR) 355,670 18,331
Societe Europeenne des Satellites
(Class A) (EUR) 19,316 2,413
UCB (EUR) 45,425 1,694
Total Belgium (Cost $24,770) 40,388
BRAZIL 1.7%
Common Stocks 1.1%
Pao de Acucar GDR (USD) 193,368 4,230
Telebras ADR (USD) 385,052 $ 29,986
Unibanco GDR (USD) 117,158 2,709
36,925
Preferred Stocks 0.6%
Banco Bradesco 310,360,322 1,518
Banco Itau 48,820,000 2,801
Cia Energetica Minas Gerais 104,208,392 1,484
Cia Energetica Minas
Gerais ADR (144a) (USD) 19,838 283
Cia Energetica Minas
Gerais ADR, Cv. (USD) 28,009 399
Cia Energetica Minas
Gerais ADR, Sponsored
Nonvoting (USD) 124,287 1,771
Pao de Acucar GDR (USD) 6,480 142
Petrol Brasileiros 51,426,021 8,180
Telebras ADR (USD) * 404,052 19
Telecomunicacoes de
Sao Paulo 26,333,233 2,476
Telecomunicacoes de Sao
Paulo Celular (Class B) 31,817,420 1,663
20,736
Total Brazil (Cost $73,478) 57,661
CANADA 0.3%
Common Stocks 0.3%
Alcan Aluminum 137,560 4,509
Nortel Networks 64,690 3,980
Royal Bank of Canada 62,300 2,686
Total Canada (Cost $8,823) 11,175
CHILE 0.1%
Common Stocks 0.1%
Chilectra ADR (USD) 83,354 1,459
Total Chile (Cost $1,549) 1,459
CHINA 0.8%
Common Stocks 0.8%
China Telecom (HKD) 6,464,130 22,092
Huaneng Power International
ADR (USD) 339,710 4,119
Total China (Cost $22,885) 26,211
DENMARK 0.4%
Common Stocks 0.4%
Den Danske Bank 38,890 $ 4,430
Tele Danmark 90,110 5,471
Unidanmark (Class A) 29,041 2,260
Total Denmark (Cost $8,664) 12,161
FINLAND 1.5%
Common Stocks 1.5%
Nokia (EUR) 451,430 51,667
Total Finland (Cost $10,825) 51,667
FRANCE 10.9%
Common Stocks 10.9%
Alcatel Alsthom (EUR) 99,941 15,611
AXA (EUR) 179,971 25,385
Banque National de Paris (EUR) 213,740 18,773
Cap Gemini (EUR) 67,970 10,295
Carrefour (EUR) 212,950 39,422
Cie de St. Gobain (EUR) 71,326 12,379
Credit Commercial de France
(EUR) 33,653 3,876
Danone (EUR) 19,500 4,974
Dexia France (EUR) 38,316 5,401
Hermes (EUR) 64,990 7,109
L'Oreal (EUR) 11,325 7,558
Lafarge (EUR) 40,971 3,943
Legrand (EUR) 70,359 16,837
Pinault Printemps Redoute
(EUR) 67,965 12,961
Sanofi Synthelabo (EUR) * 502,710 22,182
Schneider (EUR) 256,646 17,682
Societe Generale (EUR) 59,622 12,982
Sodexho Alliance (EUR) 116,172 19,062
Television Francaise (EUR) 72,116 22,605
Total Fina (Class B) (EUR) 367,894 49,726
Vivendi (EUR) 497,654 37,715
Total France (Cost $232,651) 366,478
GERMANY 6.1%
Common Stocks 5.7%
Allianz (EUR) 52,050 15,773
Bayer (EUR) 267,704 10,903
Bayerische Vereinsbank (EUR) 365,434 $ 23,985
Celanese (EUR) * 5,240 83
Deutsche Bank (EUR) * 251,991 18,019
Deutsche Telekom (EUR) 325,930 15,033
Dresdner Bank (EUR) * 309,047 15,912
Gehe (EUR) 359,814 12,452
Hoechst (EUR) 95,430 4,215
Mannesmann (EUR) 223,420 35,227
Rhoen Klinikum (EUR) * 138,312 5,601
SAP (EUR) 37,270 13,842
Siemens (EUR) 91,211 8,208
Veba (EUR) 244,946 13,266
192,519
Preferred Stocks 0.4%
Fielmann (EUR) 27,425 1,042
Fresenius (EUR) 16,920 2,954
SAP (EUR) 19,512 8,620
12,616
Total Germany (Cost $155,926) 205,135
HONG KONG 1.9%
Common Stocks 1.9%
Cheung Kong Holdings 885,670 8,066
CLP Holdings 1,659,500 7,626
Dao Heng Bank Group 746,000 3,390
Henderson Land Development 1,461,050 6,639
Hong Kong
Telecommunications 2,988,950 6,829
Hutchison Whampoa 2,051,660 20,600
New World Development 382,000 723
Pacific Century 3,896,000 2,959
Sun Hung Kai Properties 781,400 6,337
Total Hong Kong (Cost $55,095) 63,169
INDIA 0.5%
Common Stocks 0.5%
ICICI ADR (USD) * 452,970 4,982
Mahanagar Telephone 1,614,000 6,373
Mahanagar Telephone
GDR (USD) 203,040 1,690
State Bank of India GDR (USD) 296,860 3,941
Total India (Cost $18,575) 16,986
IRELAND 0.1%
Common Stocks 0.1%
CBT Group ADR (USD) * 225,798 $ 4,657
Total Ireland (Cost $6,179) 4,657
ITALY 4.5%
Common Stocks 4.5%
Assicurazioni Generali (EUR) 341,500 10,956
Banca di Roma (EUR) 1,934,640 2,605
Banca Popolare di Brescia
(EUR) 355,530 15,052
Unicredito Italiano (EUR) 2,580,719 12,080
ENI (EUR) 3,003,532 17,565
Gucci Group (USD) 114,309 9,230
Istituto Nazionale delle
Assicurazioni (EUR) 3,015,780 9,152
Italgas (EUR) 528,225 2,183
Mediolanum (EUR) 979,845 7,967
Sanpaolo IMI (EUR) 898,006 11,637
Tecnost (EUR) 1,908,000 3,673
Telecom Italia (EUR) 2,068,950 17,867
Telecom Italia Mobile (EUR) 5,124,256 32,016
Total Italy (Cost $116,046) 151,983
JAPAN 21.6%
Common Stocks 21.6%
Bridgestone 218,000 6,000
Canon 1,087,000 30,753
Citizen Watch 452,000 3,195
Daiichi Pharmaceutical 208,000 2,982
Daiwa House 668,000 6,112
DDI 1,308 14,301
Denso 862,000 18,435
East Japan Railway 1,748 10,712
Fanuc 153,300 11,909
Fujitsu 910,000 27,404
Hitachi 1,040,000 11,241
Honda Motor 66,000 2,785
Ito-Yokado 173,000 13,837
Kao 593,000 18,085
Kokuyo 330,000 5,991
Komori 296,000 6,430
Kuraray 766,000 10,285
Kyocera 303,000 $ 29,059
Makita 423,000 4,061
Marui 847,000 16,003
Matsushita Electric Industrial 1,231,000 25,914
Mitsubishi 796,000 5,725
Mitsubishi Heavy Industries 3,441,000 13,497
Mitsui Fudosan 1,682,000 12,566
Murata Manufacturing 375,000 48,192
NEC 1,876,000 37,963
Nippon Telegraph & Telephone 2,844 43,640
Nomura Securities 1,243,000 20,516
NTT Mobile Communications
Network 1,354 35,970
Sankyo 839,000 23,898
Sekisui Chemical 1,062,000 5,225
Sekisui House 780,000 8,446
Seven-Eleven Japan 112,000 10,258
Shin-Etsu Chemical 327,000 13,485
Shiseido 388,000 5,917
Softbank 3,200 1,329
Sony 283,100 44,147
Sumitomo 1,267,000 9,259
Sumitomo Bank 923,000 14,854
Sumitomo Electric Industries 1,317,000 17,696
TDK 264,000 25,851
Tokio Marine & Fire Insurance 350,000 4,582
Tokyo Electronics 80,000 6,644
Toppan Printing 626,000 7,679
Toshiba 2,253,000 14,174
Uny 377,000 4,881
Yamanouchi Pharmaceutical 286,000 12,974
Total Japan (Cost $556,114) 724,862
MEXICO 1.4%
Common Stocks 1.4%
Cemex (Represents 2
Class A and 1 Class
B share) * 621,010 2,810
Cemex ADR (USD) * 51,192 1,152
Femsa UBD
(Represents 1 Class B
and 4 Series D shares) 1,353,690 4,394
Gruma (Class B) * 635,557 831
Gruma ADR (USD) * 106,684 560
Grupo Industrial Maseca
(Class B) 1,648,317 $ 823
Grupo Modelo (Class C) 1,528,006 3,736
Grupo Televisa GDR (USD) * 138,462 5,885
Kimberly-Clark de Mexico
(Class A) 1,187,470 3,805
Telefonos de Mexico (Class L)
ADR (USD) 276,634 23,652
TV Azteca ADR (USD) 194,550 790
Total Mexico (Cost $42,668) 48,438
NETHERLANDS 8.3%
Common Stocks 8.3%
ABN Amro (EUR) 595,748 14,406
Akzo Nobel (EUR) 59,672 2,570
ASM Lithography (EUR) * 361,920 25,544
CSM (EUR) 244,499 11,277
Elsevier (EUR) 861,392 8,182
Equant (EUR) * 62,420 6,073
Fortis NI (EUR) 589,684 20,301
ING Groep (EUR) 785,255 46,320
KPN (EUR) 73,625 3,778
Philips Electronics (EUR) 266,290 27,310
Royal Dutch Petroleum (EUR) 371,128 22,185
STMicroelectronics (EUR) 262,383 23,045
TNT Post Groep (EUR) 83,105 2,115
Unilever (EUR) 142,269 9,428
UTD Pan Europe
Communications (EUR) * 48,847 3,756
VNU (EUR) 246,030 8,320
Wolters Kluwer (EUR) 1,271,194 42,480
Total Netherlands (Cost $206,717) 277,090
NEW ZEALAND 0.2%
Common Stocks 0.2%
Telecom Corporation
of New Zealand 1,909,592 7,686
Total New Zealand (Cost $8,686) 7,686
NORWAY 0.6%
Common Stocks and Rights 0.6%
Norsk Hydro 102,352 4,082
Orkla (Class A) 998,470 13,930
Orkla Rights, 11/22/99 * 998,470 1,877
Total Norway (Cost $20,910) 19,889
PORTUGAL 0.4%
Common Stocks 0.4%
Jeronimo Martins (EUR) 500,034 $ 13,959
Total Portugal (Cost $6,880) 13,959
SINGAPORE 0.7%
Common Stocks 0.7%
Singapore Press 382,969 6,562
Singapore Telecommunications 1,383,000 2,628
United Overseas Bank 2,010,000 15,226
Total Singapore (Cost $22,554) 24,416
SOUTH KOREA 0.6%
Common Stocks 0.6%
Korea Telecom ADR (USD) * 194,000 6,839
Samsung Electronics 84,943 14,163
Total South Korea (Cost $14,558) 21,002
SPAIN 2.9%
Common Stocks 2.9%
Argentaria Banca de Espana
(EUR) 298,910 6,634
Banco Bilbao Vizcaya (EUR) 337,580 4,538
Banco Popular Espanol (EUR) 57,360 3,861
Banco Santander Central
Hispano (EUR) 1,381,110 14,338
Empresa Nacional
de Electricidad (EUR) 488,308 9,774
Gas Natural (EUR) 249,978 5,469
Iberdrola (EUR) 807,426 11,771
Repsol (EUR) 474,411 9,781
Telefonica (EUR) * 1,846,131 30,371
Total Spain (Cost $61,276) 96,537
SWEDEN 3.6%
Common Stocks 3.6%
ABB * 78,450 7,813
AstraZeneca Group 709,307 32,041
Atlas Copco (Class B) 197,562 5,141
Electrolux (Class B) 919,205 18,330
Ericsson Telephone 52,880 2,199
Esselte (Class B) 77,440 518
Hennes & Mauritz 1,191,930 31,668
Nordbanken Holding 2,441,058 14,247
Sandvik (Class B) 264,040 $ 6,839
Securitas (Class B) 239,355 3,551
Total Sweden (Cost $82,279) 122,347
SWITZERLAND 6.3%
Common Stocks 6.3%
ABB * 151,797 15,286
Adecco * 52,103 31,584
Credit Suisse Group 72,315 13,900
Nestle 25,813 49,787
Novartis 24,513 36,666
Roche Holdings 2,564 30,782
Swisscom 12,549 3,824
UBS 101,497 29,531
Total Switzerland (Cost $157,907) 211,360
TAIWAN 0.5%
Common Stocks 0.5%
Hon Hai Precison Industry
ADR (USD) * 380,064 6,167
Taiwan Semiconductor
Manufacturing * 2,238,960 9,952
Total Taiwan (Cost $14,030) 16,119
UNITED KINGDOM 17.2%
Common Stocks 17.2%
Abbey National 888,200 17,339
BG 963,352 5,350
BP Amoco 1,631,304 15,855
Cable & Wireless 1,943,700 22,772
Cadbury Schweppes 3,415,756 22,451
Caradon 1,547,905 3,675
Centrica 817,420 2,344
Compass Group 2,654,050 28,347
David S. Smith 1,114,370 3,461
Diageo 3,566,848 35,852
Electrocomponents 699,640 6,266
GKN 238,700 3,840
Glaxo Wellcome 1,515,900 44,737
Hays 287,000 3,292
HSBC Holdings (HKD) 842,830 10,144
John Laing (Class A) 436,820 2,067
Kingfisher 3,467,954 35,445
Ladbroke Group 1,355,880 $ 4,189
National Westminster Bank 3,494,873 78,963
Rank Group 844,720 2,630
Reed International 4,601,691 26,995
Rio Tinto 1,058,060 18,081
Safeway 878,470 2,757
Shell Transport & Trading 6,876,400 52,655
SmithKline Beecham 3,855,780 49,609
Tesco 5,469,009 16,221
Tomkins 3,997,256 13,531
Unilever 2,098,466 19,456
United News & Media 1,468,020 14,136
Vodafone Airtouch 3,249,500 15,191
Total United Kingdom (Cost $434,452) 577,651
SHORT-TERM INVESTMENTS 1.1%
Money Market Funds 1.1%
Reserve Investment Fund
5.51% # 37,784,075 37,784
Total Short-Term Investments
(Cost $37,784) 37,784
Total Investments in Securities
98.1% of Net Assets (Cost $2,470,430) $3,297,257
Other Assets Less Liabilities 63,563
NET ASSETS $3,360,820
----------
* Non-income producing
# Seven-day yield
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers-total of such securities at period-end amounts to
0.01% of net assets.
ADR American depository receipt
EUR Euro
GDR Global depository receipt
HKD Hong Kong dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
Statement of Assets and Liabilities
Foreign Equity Fund
October 31, 1999
In thousands
Assets
Investments in securities, at value (cost $2,470,430) $3,297,257
Other assets 187,162
Total assets 3,484,419
Liabilities
Total liabilities 123,599
NET ASSETS $3,360,820
----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 27,246
Accumulated net realized gain/loss - net of distributions 214,090
Net unrealized gain (loss) 826,386
Paid-in-capital applicable to 167,396,114 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized 2,293,098
NET ASSETS $3,360,820
----------
NET ASSET VALUE PER SHARE $20.08
------
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Foreign Equity Fund
In thousands
Year
Ended
10/31/99
Investment Income
Income
Dividend (net of foreign taxes of $7,451) $ 55,779
Interest 3,741
Total income 59,520
Expenses
Investment management 22,916
Custody and accounting 1,031
Registration 38
Shareholder servicing 38
Legal and audit 30
Directors 9
Prospectus and shareholder reports 3
Miscellaneous 17
Total expenses 24,082
Expenses paid indirectly (1)
Net expenses 24,081
Net investment income 35,439
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 256,865
Foreign currency transactions (2,578)
Net realized gain (loss) 254,287
Change in net unrealized gain or loss
Securities 329,746
Other assets and liabilities
denominated in foreign currencies (781)
Change in net unrealized gain or loss 328,965
Net realized and unrealized gain (loss) 583,252
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $618,691
--------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
Foreign Equity Fund
In thousands
Year
Ended
10/31/99 10/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 35,439 $ 53,464
Net realized gain (loss) 254,287 13,925
Change in net unrealized
gain or loss 328,965 169,539
Increase (decrease) in
net assets from operations 618,691 236,928
Distributions to shareholders
Net investment income (53,955) (40,559)
Net realized gain (24,187) (92,704)
Decrease in net assets
from distributions (78,142) (133,263)
Capital share transactions*
Shares sold 534,332 688,390
Distributions reinvested 58,440 102,189
Shares redeemed (976,185) (850,415)
Increase (decrease) in net
assets from capital
share transactions (383,413) (59,836)
Net Assets
Increase (decrease)
during period 157,136 43,829
Beginning of period 3,203,684 3,159,855
End of period $3,360,820 $3,203,684
---------- ----------
*Share information
Shares sold 28,737 40,154
Distributions reinvested 3,394 6,463
Shares redeemed (52,874) (49,853)
Increase (decrease)
in shares outstanding (20,743) (3,236)
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
Foreign Equity Fund
October 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Institutional International Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Foreign Equity Fund (the
fund), a diversified, open-end management investment company, is the sole
portfolio established by the corporation and commenced operations on
September 7, 1989.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities are valued at the last quoted sales price at
the time the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian, which are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $581,047,000 and $1,132,834,000, respectively, for
the year ended October 31, 1999.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended October 31, 1999. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $(6,671,000)
Undistributed net realized gain (18,624,000)
Paid-in-capital 25,295,000
At October 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$2,470,430,000. Net unrealized gain aggregated $826,827,000 at period-end,
of which $959,408,000 related to appreciated investments and $132,581,000
to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc. (the
manager), which is owned by T. Rowe Price Associates, Inc. (Price
Associates), Robert Fleming Holdings Limited, and Jardine Fleming Holdings
Limited under a joint venture agreement. The investment management
agreement between the fund and the manager provides for an annual
investment management fee, of which $1,986,000 was payable at October 31,
1999. The fee is computed daily and paid monthly, and is equal to 0.70% of
average daily net assets.
Foreign Equity Fund
In addition, the fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the
fund receives certain other services. Price Associates computes the daily
share price and maintains the financial records of the fund. T. Rowe Price
Services, Inc. is the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc. provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $143,000 for the year ended October 31, 1999, of which
$13,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the year ended October
31, 1999, totaled $3,597,000 and are reflected as interest income in the
accompanying Statement of Operations.
During the year ended October 31, 1999, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $45,268,000
with certain affiliates of the manager and paid commissions of $84,000
related thereto.
Report of Independent Accountants
To the Board of Directors of Institutional International Funds, Inc.
and Shareholders of Foreign Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Foreign
Equity Fund (the portfolio comprising Institutional International Funds,
Inc., hereafter referred to as the "Fund") at October 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 1999, by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 17, 1999
Foreign Equity Fund
Tax Information (Unaudited) for the Tax Year Ended 10/31/99
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $18,605,000 from short-term capital gains,
o $5,582,000 from long-term capital gains, subject to the 20% rate gains
category.
The fund will pass through foreign source income of $36,199,000 and foreign
taxes paid of $7,451,000.
