<PAGE> 1
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to
others who have received a copy of the prospectus of the T. Rowe Price
Foreign Bond Funds.
[INVEST WITH CONFIDENCE(R) T.ROWE PRICE LOGO]
FBF
-------------------------------------------------------------------
[T.ROWE PRICE LOGO]
FOREIGN BOND FUNDS
DECEMBER 31, 1995
<PAGE> 2
- --------------------------------------------------------------------------------
Fellow Shareholders
The second half of 1995 saw a continuation of the trends of earlier last year.
Slow economic growth and low inflation were the catalysts behind rising bond
prices and falling yields. Forecasts for both economic growth and inflation were
lowered in most regions during the last six months. Stability filtered back into
the emerging markets, allowing them to participate fully in the international
bond rally.
Currency markets were more stable in the second half, although the dollar
rallied on a trade-weighted basis. However, this relative stability masked
Japanese yen volatility. Having risen 17% against the U.S. dollar in the first
half, the yen fell 20% in the second half in response to concerted efforts to
rekindle the Japanese economy. The Mexican peso was again weaker, but this time
without adversely affecting other emerging markets.
MARKET ENVIRONMENT
A succession of weak economic data in many major markets provided the backdrop
for interest rate cuts. Interest rate-sensitive areas such as automobile sales,
consumer durables, and housing starts indicated sluggish activity. Unemployment
remained relatively stable in the U.S. but rose in Europe and Japan.
In contrast to the first half, European bonds outperformed their U.S. and
Japanese counterparts in local currency and dollar terms over the last six
months. A downward revision in German inflation in September further assisted
the rally.
Much of the discussion in Europe centered on the timetable for Economic
Monetary Union (EMU). Whether or not the required number of countries qualify
for EMU in 1999 is open to question. However, in order to participate, European
countries will be forced to reduce high budget deficits and outstanding
government debt.
Implementing this fiscal tightening at a time of sluggish growth demands a
loosening of monetary policy, that is, lower interest rates.
- ------------------------------------------------------
Developed Markets Performance
<TABLE>
<CAPTION>
6 Months Ended 12/31/95
------------------------
In Local In U.S.
Currency Dollars
-------- -------
<S> <C> <C>
Australia 8.66% 14.03%
- --------------------------------------------------
France 9.11 8.15
Germany 8.72 5.13
- --------------------------------------------------
Italy 12.06 15.63
Japan 1.05 -16.84
- --------------------------------------------------
United Kingdom 10.28 7.63
United States 6.04 6.04
</TABLE>
- ------------------------------------------------------
Source: J.P. Morgan
Investor perceptions that this shift was required propelled European bonds
higher at the end of the year.
Japanese bonds posted double-digit returns in the first half but struggled
to stay positive in the second half. Low nominal yields were not a problem for
investors as inflation was running near zero. However, there was a major change
in government policy around midyear as Japan sought to extract its economy from
a deflationary environment. In addition to more public spending, the Japanese
government in conjunction with the U.S. pursued a weaker yen policy. These
measures caused Japanese bonds to underperform. Japan was the only major market
to provide a negative return in the final quarter.
In the currency arena, the yen, the Australian dollar, and British pound
were the only major currencies to weaken against the U.S. dollar. Other European
currencies gained between 8% and 12% over the year, except for the Italian lira,
which was up 2%. The best currency performance came from Swedish krona, up 12%
for the year and 10% in the second half. Thus, the big currency story of the
second half was yen weakness rather than dollar strength.
<PAGE> 3
Emerging markets benefited from the positive tone of international bonds in
general. In the second half they were able to escape the negative influences of
the first. While concerns over the outlook for real political reform affected
volatility, the push toward western-style economies continued.
Major beneficiaries were Poland, Argentina, and Brazil. The strong recovery
of emerging markets and narrowing of their yield spreads with developed markets
underlined this improvement. Collective emerging market performance ranked
second to Sweden's in the second half and third with Spain for the entire year
in U.S. dollar terms.
- ------------------------------------------------------
Emerging Markets Performance
<TABLE>
<CAPTION>
6 Months Ended
12/31/95 In
U.S. Dollars
--------------
<S> <C>
Emerging Market Bond Index 16.77%
- -------------------------------------------------
Brady Indexes (by issuer)*:
Argentina 23.44
- -------------------------------------------------
Brazil 18.25
Mexico 10.69
- -------------------------------------------------
Poland 7.28
Venezuela 20.95
</TABLE>
- ------------------------------------------------------
* Brady bonds are restructured debt obligations of many emerging market
countries, denominated in U.S. dollars with extended maturities and lower
interest rates, that enable these nations to repay loans while they implement
economic reforms.
Source: J.P. Morgan
PORTFOLIO REVIEW
INTERNATIONAL BOND FUND
Your fund turned in a strong performance over the year as a whole, largely
because of the continued appreciation of international bonds. Second half gains
were respectable, even though the U.S. dollar was fairly stable while foreign
currency appreciation helped boost earlier returns.
Your fund outperformed its benchmark over the second half because of its
under-
- ------------------------------------------------------
Performance Comparison
<TABLE>
<CAPTION>
Periods Ended
12/31/95
6 Months 12 Months
-------- ---------
<S> <C> <C>
International Bond Fund 3.01% 20.30%
J.P. Morgan Non-U.S.
Dollar Government Bond
Index 1.51 21.12
</TABLE>
- ------------------------------------------------------
weighted allocation to Japanese bonds and currency. This underweighting hindered
results to some extent during the first six months of 1995, when Japanese bonds
returned 8% in dollar terms.
Our preference for the better-performing markets of Europe and our
overweighting there also helped returns. Extensive exposure to all European bond
maturities benefited the fund as rates fell across the yield curve.
Your fund's small holdings in emerging market debt aided performance in the
second half as those markets rebounded from first quarter losses.
EDGAR DESCRIPTION: GEOGRAPHICAL PIE CHART SHOWING GERMANY 19%, FRANCE 14%,
ITALY 11%, JAPAN 9%, DENMARK 7%, SPAIN 8%, OTHER AND RESERVES 32%.
GEOGRAPHICAL DIVERSIFICATION*
<TABLE>
<CAPTION>
International Bond Fund based on
assets as of 12/31/95
<S> <C>
Germany 19%
France 14%
Italy 11%
Japan 9%
Spain 8%
Denmark 7%
Other and Reserves 32%
</TABLE>
- --------------------------------------
* Based on currency denomination of the fund's securities.
Does not include the effects of forward currency contracts and
exposure from hybrid instruments.
2
<PAGE> 4
EMERGING MARKETS BOND FUND
Your fund turned in robust performance in absolute terms during the 6- and
12-month periods ended December 31, 1995, although it lagged the benchmark index
in both periods for reasons explained below.
- ------------------------------------------------------
Performance Comparison
<TABLE>
<CAPTION>
Periods Ended
12/31/95
6 Months 12 Months
-------- ---------
<S> <C> <C>
Emerging Markets Bond
Fund 14.39% 25.81%
J.P. Morgan Emerging
Markets Bond Index 16.77 27.54
</TABLE>
- ------------------------------------------------------
The fund trailed the Latin American-dominated benchmark slightly in the
final six months of the year because of its more diverse asset mix -- a mix
that, ironically, was advantageous during the first six months. Latin American
bonds, which outperformed other emerging market credits during the last six
months, constitute 89% of the index versus only 70% of fund assets at year-end.
In addition, we failed to participate fully in the strong year-end bond
rally in Venezuela, where we were underweighted, and
in Nigeria, where we had no position. We favored, instead, the markets of
Eastern Europe, which do not struggle like Latin America beneath a heavy debt
load.
We continue to prefer a more diversified approach to investing than is
represented by the benchmark. Therefore, beginning with our semiannual report at
the end of June, we will measure fund performance against a more diverse index,
the J.P. Morgan Emerging Markets Bond Index +, which was recently introduced.
OUTLOOK
The strong performance of international bonds in 1995 justified the optimistic
view we expressed in our last annual report. Our outlook for the first six
months of 1996 re-
mains positive. Continued efforts to reduce government spending in Europe should
be rewarded with lower interest rates, especially as European economies are
still growing
EDGAR DESCRIPTION: GEOGRAPHICAL DIVERSIFICATION PIE CHART SHOWING
ARGENTINA 23%, BRAZIL 20%, MEXICO 12%, POLAND 6%, ALBANIA 4%, VENEZUELA 4%,
OTHER AND RESERVES 31%.
GEOGRAPHICAL DIVERSIFICATION*
<TABLE>
<CAPTION>
Emerging Markets Bond Fund based on net
assets as of 12/31/95
<S> <C>
Argentina 23%
Brazil 20%
Mexico 12%
Poland 6%
Albania 4%
Venezuela 4%
Other and Reserves 31%
</TABLE>
- --------------------------------------
* Based on the issuing country of the fund's securities.
sluggishly. Real yields (bond yields less infla-
tion) are still attractive in Europe and not stretched as they were in late
1993.
However, we are nearing the end of this stage of the interest rate cycle,
and the rallies in the U.S. and Japan may be cresting. Still, there is little
reason to fear the kind of price reversal witnessed in the first part of 1994,
since inflation is not a threat at present. Wage costs should remain under
control for at least a while longer. One potential concern is the recent rise in
commodity prices, but current levels of economic activity suggest that this
should be only a short-term phenomenon.
Last year's improvement in emerging debt markets could be enhanced as these
nations continue to adopt tough economic measures. They appear well placed to
outperform most developed markets again in 1996.
Recent currency market stability may continue, with perhaps some further
U.S. dollar strength if there is a positive outcome on budget deficit reduction.
Respectfully submitted,
/s/ PETER B. ASKEW
------------------
Peter B. Askew
Executive Vice President
January 19, 1996
3
<PAGE> 5
- --------------------------------------------------------------------------------
Portfolio Highlights
T. Rowe Price International Bond Fund / December 31, 1995
- ------------------------------------------------------
Key Statistics
<TABLE>
<CAPTION>
Periods Ended
Dividend Yield* 12/31/95
- ------------------------------------ -------------
<S> <C>
6 Months 6.40%
- --------------------------------------------------
12 Months 6.28
Dividend Per Share
- ------------------------------------
6 Months $0.33
- --------------------------------------------------
12 Months 0.62
Capital Gain
- ------------------------------------
- --------------------------------------------------
12 Months $0.12
Change in Price Per Share
- ------------------------------------
6 Months (From $10.60 to $10.46) $ -0.14
- --------------------------------------------------
12 Months (From $9.34 to $10.46) 1.12
- --------------------------------------------------
Total Net Assets $1,015.7 Million
</TABLE>
- ------------------------------------------------------
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- ------------------------------------------------------
Quality Diversification
<TABLE>
<CAPTION>
Percent of Net Assets
<S> <C> <C> <C>
RPFI Quality Rating* 12/31/95 6/30/95 12/31/94
- -------------------------- -------- ------- --------
1 38% 45% 48%
- ------------------------------------------------------
2 41 44 40
3 16 7 6
- ------------------------------------------------------
4 -- -- 1
5 and below 5 4 5
- ------------------------------------------------------
Weighted Average Quality 1.9 1.7 1.7
- ------------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
- ------------------------------------------------------
Maturity Diversification
<TABLE>
<CAPTION>
Percent of Net Assets
<S> <C> <C> <C>
Range 12/31/95 6/30/95 12/31/94
- -------------------------- -------- ------- --------
Short-Term
(0 to 1 year) 5% 11% 21%
- ------------------------------------------------------
Short Intermediate-
Term (1+ to 5 years) 41 23 15
Long Intermediate-
Term (5+ to 10 years) 40 57 46
- ------------------------------------------------------
Long-Term
(over 10 years) 14 9 18
- ------------------------------------------------------
Weighted Average
Maturity (years) 7.8 8.0 7.7
- ------------------------------------------------------
</TABLE>
4
<PAGE> 6
- --------------------------------------------------------------------------------
Portfolio Highlights
T. Rowe Price Emerging Markets Bond Fund / December 31, 1995
- ------------------------------------------------------
Key Statistics
<TABLE>
<CAPTION>
Periods Ended
Dividend Yield* 12/31/95
- ------------------------------------ -------------
<S> <C>
6 Months 10.24%
- --------------------------------------------------
12 Months 10.56
Dividend Per Share
- ------------------------------------
6 Months $ 0.54
- --------------------------------------------------
12 Months 1.02
Capital Gain
- ------------------------------------
- --------------------------------------------------
12 Months $ 0.72
Change in Price Per Share
- ------------------------------------
6 Months (From $10.47 to $10.67) $ 0.20
- --------------------------------------------------
12 Months (From $10.00 to $10.67) 0.67
- --------------------------------------------------
Total Net Assets $10.0 Million
</TABLE>
- ------------------------------------------------------
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- ------------------------------------------------------
Maturity Diversification
<TABLE>
<CAPTION>
Percent of Net Assets
<S> <C> <C>
Range 12/31/95 6/30/95
- ----------------------------- -------- -------
Short-Term
(0 to 1 Year) 14% 38%
- ----------------------------------------------------
Short Intermediate-
Term (1+ to 5 years) 3 3
Long Intermediate-
Term (5+ to 10 years) 24 22
- ----------------------------------------------------
Long-Term
(over 10 years) 59 37
- ----------------------------------------------------
Weighted Average
Maturity (years) 16.8 11.8
- ----------------------------------------------------
</TABLE>
- ------------------------------------------------------
Quality Diversification
<TABLE>
<CAPTION>
Percent of Net Assets
<S> <C> <C>
RPFI Quality Rating* 12/31/95 6/30/95
- ----------------------------- -------- -------
1 14% 22%
- ----------------------------------------------------
2 4 15
3 -- 1
- ----------------------------------------------------
4 4 35
5 and below 78 27
- ----------------------------------------------------
Weighted Average Quality 4.6 4.0
- ----------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
Performance Comparison
as of 12/31/95
<TABLE>
<CAPTION>
T. Rowe Price J.P. Morgan
Emerging Markets Emerging Markets
Bond Fund Bond Index
<S> <C> <C>
12/30/94 $ 10,000 $ 10,000
Dec-95 12,581 12,754
</TABLE>
Note: The index return does not reflect expenses, which have been deducted
from the fund's return.
5
<PAGE> 7
Performance Comparison
as of 12/31/95
<TABLE>
<CAPTION>
T. Rowe Price J.P. Morgan Non-
International U.S. Dollar Government
Bond Fund Bond Index
<S> <C> <C>
12/86 $ 10,298 $ 10,248
12/87 13,136 13,948
12/88 12,970 14,197
12/89 12,556 13,846
12/90 14,571 16,012
12/91 17,157 18,559
12/92 17,569 18,854
12/93 21,083 21,594
12/94 20,695 22,659
12/95 24,896 27,444
</TABLE>
Note: The index return does not reflect expenses, which have been deducted
from the fund's return.
- ------------------------------------------------------
Average Annual Compound Total Return
International Bond Fund
Periods Ended December 31, 1995
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 9/10/86
- --------- ----------- ------------------
<S> <C> <C>
20.30% 11.31% 10.30%
</TABLE>
- ------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- ------------------------------------------------------
Average Annual Compound Total Return
Emerging Markets Bond Fund
Period Ended December 31, 1995
Since Inception
12/30/94
- --------------------------
25.81%
- ------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
6
<PAGE> 8
- --------------------------------------------------------------------------------
Investment Record
T. Rowe Price International Bond Fund
The table below shows the investment record of one share of the T. Rowe Price
International Bond Fund, purchased at the initial offering price of $10.00, for
the period 9/10/86 through 12/31/95. Over this time, interest rates have been
volatile. The results shown should not be considered as a representation of the
dividend income or capital gain or loss which may be realized from an investment
made in the fund today.
- --------------------------------------------------------------------------------
Per Share Data
<TABLE>
<CAPTION>
NAV With
Capital NAV With Dividends and
Year Net Asset Income Gain Dividends Capital Gains
Ended Value Dividends Distributions(2) Reinvested Reinvested
- --------- --------- --------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
12/31/86(1) $ 10.01 $0.28 -- $10.30 $ 10.30
- ---------
1987 11.60 1.01 $ 0.05 13.14 13.14
1988 10.25 0.91 0.26 12.67 12.97
- ---------
1989 9.15 0.75 -- 12.26 12.56
1990 9.53 0.83 0.17 13.98 14.57
- ---------
1991 10.35 0.77 -- 16.46 17.16
1992 9.61 0.83 0.15 16.60 17.57
- ---------
1993 10.34 0.69 0.45 19.08 21.08
1994 9.34 0.60 0.21 18.31 20.69
- ---------
1995 10.46 0.62 0.12 21.78 24.90
- ---------
Total $7.29 $ 1.41
- ---------
</TABLE>
(1) From inception 9/10/86 to 12/31/86.
(2) Includes short-term capital gains of $0.05 in 1987; $0.19 in 1988; $0.17 in
1990; $0.15 in 1992; $0.42 in 1993; $0.21 in 1994; and $0.12 in 1995.
7
<PAGE> 9
- --------------------------------------------------------------------------------
Portfolio of Investments+
T. Rowe Price International Bond Fund / December 31, 1995
(values in thousands)
<TABLE>
<S> <C> <C>
Value
--------
- ------------------------------------------------------
AUSTRALIA -- 2.9%
GOVERNMENT BONDS
AUD 10,225,000 Commonwealth of Australia,
7.00%,
4/15/00................. $ 7,420
31,550,000 Commonwealth of Australia,
7.50%,
7/15/05................. 22,424
TOTAL AUSTRALIA 29,844
</TABLE>
- ------------------------------------------------------
BELGIUM -- 6.8%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
BEL 1,595,000,000 Obligation Lineaire,
7.75%, 12/22/00......... 59,323
300,000,000 Obligation Lineaire,
6.50%, 3/31/05.......... 10,066
TOTAL BELGIUM 69,389
</TABLE>
- ------------------------------------------------------
CANADA -- 4.8%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
CAD 38,500,000 Government of Canada,
7.75%, 9/1/99........... 29,484
23,650,000 Government of Canada,
8.75%, 12/1/05.......... 19,368
TOTAL CANADA 48,852
</TABLE>
- ------------------------------------------------------
CZECH REPUBLIC -- 0.9%
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENT
CZK 232,700,000 Internationale Nederlanden
Groep, Zero Coupon,
1/30/96................. 8,648
</TABLE>
- ------------------------------------------------------
DENMARK -- 7.4%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
DKK 48,000,000 Kingdom of Denmark, 9.00%,
11/15/98................ 9,427
77,500,000 Kingdom of Denmark, 9.00%,
11/15/00................ 15,530
Value
--------
DKK 172,400,000 Kingdom of Denmark, 7.00%,
12/15/04................ $ 30,866
100,000,000 Kingdom of Denmark, 8.00%,
3/15/06................. 18,988
TOTAL DENMARK 74,811
</TABLE>
- ------------------------------------------------------
FRANCE -- 13.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
FRF 337,500,000 Bons du Tresor Annuel,
7.00%, 10/12/00......... 72,060
65,000,000 Obligation Assimilable du
Tresor, 7.75%,
4/12/00................. 14,234
100,000,000 Obligation Assimilable du
Tresor, 7.50%,
4/25/05................. 21,646
95,000,000 Obligation Assimilable du
Tresor, Zero Coupon,
10/25/05................ 10,140
81,000,000 Obligation Assimilable du
Tresor, 8.50%,
4/25/23................. 18,710
TOTAL FRANCE 136,790
</TABLE>
- ------------------------------------------------------
GERMANY -- 18.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
DEM 38,000,000 Bundesobligation,
6.25%, 1/4/24........... 24,714
30,000,000 Province of Ontario,
6.25%, 1/13/04.......... 20,907
22,500,000 Treuhandanstalt,
7.00%, 11/25/99......... 17,023
39,000,000 Treuhandanstalt,
6.875%, 6/11/03......... 28,903
29,500,000 Treuhandanstalt,
7.50%, 9/9/04........... 22,592
114,139
CORPORATE BONDS
23,000,000 LKB Baden-Wurttemberg,
6.50%, 9/15/08.......... 15,970
36,000,000 Norddeutsche LB Finance,
6.00%, 1/5/04........... 24,669
40,639
</TABLE>
8
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Value
--------
SHORT-TERM INVESTMENT
DEM 47,029,391 Union Bank of Switzerland,
Fixed Deposit,
3.90 - 4.438%, 1/4/96... $ 32,785
TOTAL GERMANY 187,563
</TABLE>
- ------------------------------------------------------
IRELAND -- 2.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
IEP 4,000,000 Republic of Ireland,
6.25%, 4/1/99........... 6,351
11,500,000 Republic of Ireland,
8.00%, 10/18/00......... 19,351
TOTAL IRELAND 25,702
</TABLE>
- ------------------------------------------------------
ITALY -- 11.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
ITL 35,250,000,000 Buoni del Tesoro
Poliennali, 8.313%,
12/1/97................. 21,954
66,750,000,000 Buoni del Tesoro
Poliennali, 8.313%,
12/1/99................. 41,112
64,500,000,000 Buoni del Tesoro
Poliennali, 9.188%,
4/1/00.................. 40,980
21,000,000,000 Buoni del Tesoro
Poliennali, 8.313%,
1/1/05.................. 12,403
TOTAL ITALY 116,449
</TABLE>
- ------------------------------------------------------
JAPAN -- 8.9%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
JPY 700,000,000 Government of Japan,
5.50%, 3/20/02.......... 7,887
3,750,000,000 Government of Japan,
4.60%, 9/20/04.......... 40,390
1,000,000,000 International Bank for
Reconstruction &
Development, 4.75%,
12/20/04................ 11,060
59,337
CORPORATE BOND
2,870,000,000 Export Import Bank,
4.375%, 10/1/03......... 30,514
Value
--------
OPTION PURCHASED
JPY 300,000,000 *Government of Japan,
4.60%, 9/20/04,
European-Style Put
Option, expires 1/96.... $ 24
TOTAL JAPAN 89,875
</TABLE>
- ------------------------------------------------------
NETHERLANDS -- 1.9%
<TABLE>
<S> <C> <C>
GOVERNMENT BOND
NLG 26,600,000 Government of Netherlands,
8.25%, 9/15/07.......... 19,258
</TABLE>
- ------------------------------------------------------
SOUTH AFRICA -- 0.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BOND
ZAR 20,480,000 Republic of South Africa,
12.00%, 2/28/05......... 4,991
</TABLE>
- ------------------------------------------------------
SPAIN -- 8.3%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
ESP 1,000,000,000 Bonos del Estado,
8.30%, 12/15/98......... 8,067
5,660,000,000 Bonos del Estado,
12.25%, 3/25/00......... 51,253
900,000,000 Bonos del Estado,
10.10%, 2/28/01......... 7,517
1,600,000,000 Bonos del Estado,
10.90%, 8/30/03......... 14,037
450,000,000 Bonos del Estado,
10.00%, 2/28/05......... 3,764
TOTAL SPAIN 84,638
</TABLE>
- ------------------------------------------------------
UNITED KINGDOM -- 6.6%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
GBP 4,000,000 City of Kobe, Japan,
9.50%, 10/20/04......... 6,871
4,000,000 Republic of Austria,
9.00%, 7/22/04.......... 6,710
13,000,000 United Kingdom Treasury,
7.50%, 12/7/06.......... 20,284
33,865
</TABLE>
9
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Value
--------
CORPORATE BONDS
GBP 10,000,000 Abbey National,
8.00%, 4/2/03........... $ 15,799
10,000,000 Guaranteed Export Finance
Corporation, 10.625%,
9/15/01................. 17,821
33,620
TOTAL UNITED KINGDOM 67,485
</TABLE>
- ------------------------------------------------------
UNITED STATES -- 9.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
USD 4,750,000 Republic of Argentina,
FRB, 6.813%, 3/31/05.... 3,390
4,700,000 Republic of Argentina
Bocon Pro 2, FRN,
5.994%, 4/1/07.......... 3,631
1,713,000 Republic of Argentina Bote
10, FRN, 3.81%,
4/1/00.................. 1,028
5,000,000 Republic of Argentina Par,
FRN, 5.00%, 3/31/23..... 2,850
6,101,946 Republic of Brazil (Class
C), 8.00%, 4/15/14...... 3,501
6,750,000 Republic of Brazil
Discount, FRN, 6.812%,
4/15/24................. 4,160
10,925,000 Republic of Brazil IDU
Trust, FRN, 6.688%,
1/1/01.................. 9,409
2,500,000 Republic of Bulgaria IAB,
FRN, 6.75%, 7/28/11..... 1,162
5,000,000 United Mexican States
(Class A), 6.25%,
12/31/19................ 3,281
2,000,000 United Mexican States
(Class B), 6.25%,
12/31/19................ 1,313
1,550,000 Republic of Panama, FRN,
6.75%, 5/10/02.......... 1,326
6,000,000 Government of Poland
Discount, FRN, 6.875%,
10/27/24................ 4,537
39,588
HYBRID INSTRUMENTS
USD 8,800,000 Bank of Scotland Treasury
Services Singapore
Dollar Linked Note, Zero
Coupon, 5/3/96:
Principal repayment
value linked to the
performance of the
Singapore dollar........ $ 8,557
2,118,644 Bankers Trust Polish Zloty
Linked Note, Zero
Coupon, 4/18/96:
Principal repayment
value linked to the
performance of the
Polish zloty............ 1,892
4,053,482 Morgan Guaranty Trust
Polish Zloty Linked
Note, 23.52%, 1/12/96:
Principal repayment
value linked to the
performance of the
Polish zloty............ 4,002
14,451
OPTION PURCHASED
28,000,000 *U.S. Dollar Call/Japanese
Yen Put, expires 5/96... 4,337
SHORT-TERM INVESTMENTS
10,000,000 Countrywide Funding,
Commercial Paper, 5.82%,
1/19/96................. 9,971
5,000,000 Falcon Asset
Securitization,
Commercial Paper, 5.80%,
1/2/96.................. 4,999
10,000,000 First Union National Bank
(North Carolina),
Certificate of Deposit,
5.80%, 1/31/96.......... 10,000
10,000,000 Fleet Mortgage Group,
Commercial Paper, 5.95%,
1/5/96.................. 9,993
3,357,897 Investments in Commercial
Paper through a joint
account, 5.90 - 6.05%,
1/2/96.................. 3,358
38,321
TOTAL UNITED STATES 96,697
- ------------------------------------------------------
</TABLE>
10
<PAGE> 12
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-------
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 104.5% OF NET ASSETS (COST $1,018,187) $ 1,060,992
- ---------------------------------------------------------------------------------------------------------------
FORWARD CURRENCY EXCHANGE CONTRACTS
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Counterparty Settlement Deliver Receive Gain (Loss)
- -------------------- ---------- ------------------- ------------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
UBS Philips & Drew 1/5/96 FRF 50,000 JPY 1,010,000 $ (420)
J.P. Morgan 1/5/96 USD 87,500 JPY 8,837,500 (1,820)
Citibank 1/8/96 BEL 192,644 USD 6,486 (63)
J.P. Morgan 1/8/96 DEM 9,601 USD 6,684 (13)
Citibank 1/8/96 FRF 106,644 USD 21,482 (300)
Chase Manhattan 1/8/96 USD 13,400 DEM 19,202 (7)
Citibank 1/16/96 ESP 885,960 USD 7,157 (133)
Citibank 1/16/96 ITL 7,674,637 USD 4,794 (27)
UBS Philips & Drew 1/16/96 ITL 15,000,000 USD 9,402 (19)
Chase Manhattan 1/22/96 BEL 200,000 GBP 4,456 112
Citibank 1/24/96 ITL 45,756,752 JPY 2,888,155 (629)
Citibank 1/30/96 DEM 7,919 USD 5,668 138
J.P. Morgan 1/31/96 ZAR 18,957 USD 5,100 (52)
J.P. Morgan 3/5/96 USD 8,007 JPY 800,000 (186)
-----------
</TABLE>
<TABLE>
<S> <C>
Net unrealized gain (loss) on open forward currency exchange contracts.......... (3,419)
OTHER ASSETS LESS LIABILITIES................................................... (41,907)
-----------
NET ASSETS...................................................................... $ 1,015,666
==========
NET ASSET VALUE PER SHARE....................................................... $10.46
======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 13
- --------------------------------------------------------------------------------
Portfolio of Investments
T. Rowe Price Emerging Markets Bond Fund / December 31, 1995
(values in thousands)
<TABLE>
<S> <C> <C>
Value
--------
- ------------------------------------------------------
ALBANIA -- 4.1%
GOVERNMENT BOND
USD 2,500,000 Republic of Albania, Zero
Coupon, 8/31/25......... $ 414
</TABLE>
- ------------------------------------------------------
ARGENTINA -- 22.7%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
250,000 Province of Buenos Aires,
11.50%, 10/19/98........ 258
900,000 Republic of Argentina,
FRB, 6.813%, 3/31/05.... 642
200,000 Republic of Argentina
Bocon Pro 2, FRN,
5.994%, 4/1/07.......... 155
400,000 Republic of Argentina
Discount, FRN, 6.563%,
3/31/23................. 260
200,000 Republic of Argentina
Global, 8.375%,
12/20/03................ 170
1,000,000 Republic of Argentina Par,
FRN, 5.00%, 3/31/23..... 570
2,055
CORPORATE BOND
200,000 Telefonica de Argentina,
11.875%, 11/1/04........ 209
TOTAL ARGENTINA 2,264
</TABLE>
- ------------------------------------------------------
BRAZIL -- 20.1%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
955,087 Republic of Brazil (Class
C), 8.00%, 4/15/14...... 548
850,000 Republic of Brazil
Discount, FRN, 6.812%,
4/15/24................. 524
500,000 Republic of Brazil EI,
FRN, 6.813%, 4/15/06.... 344
250,000 Republic of Brazil NMB,
FRN, 6.875%, 4/15/09.... 155
830,000 Republic of Brazil Par,
FRN, 4.25%, 4/15/24..... 441
TOTAL BRAZIL 2,012
Value
--------
- ------------------------------------------------------
BULGARIA -- 3.2%
GOVERNMENT BONDS
USD 300,000 Republic of Bulgaria
Discount 'A' Bonds, FRN,
6.75%, 7/28/24.......... $ 161
350,000 Republic of Bulgaria IAB,
FRN, 6.75%, 7/28/11..... 163
TOTAL BULGARIA 324
</TABLE>
- ------------------------------------------------------
COLOMBIA -- 4.1%
<TABLE>
<S> <C> <C>
GOVERNMENT BOND
430,000 Republic of Colombia,
7.25%, 2/23/04.......... 413
</TABLE>
- ------------------------------------------------------
CZECH REPUBLIC -- 1.5%
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENT
CZK 3,900,000 Internationale Nederlanden
Groep, Zero Coupon,
1/30/96................. 145
</TABLE>
- ------------------------------------------------------
ECUADOR -- 3.5%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
USD 500,000 Republic of Ecuador
Discount, FRN, 6.813%,
2/28/25................. 256
250,000 Republic of Ecuador Par,
Step-Up, 3.00%,
2/28/25................. 91
TOTAL ECUADOR 347
</TABLE>
- ------------------------------------------------------
MEXICO -- 11.7%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
750,000 United Mexican States
(Class A), 6.25%,
12/31/19................ 492
750,000 United Mexican States
(Class B), 6.25%,
12/31/19................ 492
984
CORPORATE BOND
200,000 Cemex, 9.50%, 9/20/01..... 185
TOTAL MEXICO 1,169
</TABLE>
12
<PAGE> 14
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Value
--------
- ------------------------------------------------------
PANAMA -- 3.4%
GOVERNMENT BOND
USD 400,000 Republic of Panama, FRN,
6.75%, 5/10/02.......... $ 342
</TABLE>
- ------------------------------------------------------
POLAND -- 6.3%
<TABLE>
<S> <C> <C>
GOVERNMENT BOND
550,000 Government of Poland
Discount, FRN, 6.875%,
10/27/24................ 416
HYBRID INSTRUMENT
212,342 Morgan Guaranty Trust
Polish Zloty Linked
Note, 23.52%, 1/12/96:
Principal repayment
value linked to the
performance of the
Polish zloty............ 210
TOTAL POLAND 626
</TABLE>
- ------------------------------------------------------
SINGAPORE -- 1.0%
<TABLE>
<S> <C> <C>
HYBRID INSTRUMENT
100,000 Bank of Scotland Treasury
Services Singapore
Dollar Linked Note, Zero
Coupon, 5/3/96:
Principal repayment
value linked to the
performance of the
Singapore dollar........ 97
Value
--------
</TABLE>
- ------------------------------------------------------
SOUTH AFRICA -- 3.6%
<TABLE>
<S> <C> <C>
GOVERNMENT BOND
ZAR 1,470,000 Republic of South Africa,
12.00%, 2/28/05......... $ 358
</TABLE>
- ------------------------------------------------------
VENEZUELA -- 4.3%
<TABLE>
<S> <C> <C>
GOVERNMENT BONDS
USD 250,000 Republic of Venezuela DCB,
FRN, 6.563%, 12/18/07... 138
500,000 Republic of Venezuela Par,
FRN, 6.688%, 3/31/20.... 286
TOTAL VENEZUELA 424
</TABLE>
- ------------------------------------------------------
UNITED STATES -- 9.7%
<TABLE>
<S> <C> <C>
CORPORATE BOND
100,000 B.F. Saul REIT, 11.625%,
4/1/02.................. 103
SHORT-TERM INVESTMENT
870,168 Investments in Commercial
Paper through a joint
account, 5.90 - 6.05%,
1/2/96.................. 870
TOTAL UNITED STATES 973
- ------------------------------------------------------
</TABLE>
13
<PAGE> 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-----------
<S> <C>
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 99.2% OF NET ASSETS (COST $9,398) $ 9,908
- ---------------------------------------------------------------------------------------------
FORWARD CURRENCY EXCHANGE CONTRACTS
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Counterparty Settlement Deliver Receive Gain (Loss)
- ------------- ---------- -------------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Citibank 1/30/96 DEM 133 USD 95 $ 2
J.P. Morgan 1/31/96 ZAR 1,301 USD 350 (3)
-----------
</TABLE>
<TABLE>
<S> <C>
Net unrealized gain (loss) on open forward currency exchange
contracts................................................... (1)
OTHER ASSETS LESS LIABILITIES................................. 82
-----------
NET ASSETS.................................................... $ 9,989
======
NET ASSET VALUE PER SHARE..................................... $10.67
======
- ---------------------------------------------------------------------------------------------
</TABLE>
* - Non-income producing
+ - Listed by currency
denomination
AUD - Australian dollar
BEL - Belgian franc
CAD - Canadian dollar
CZK - Czech koruna
DEM - German deutschemark
DKK - Danish krone
ESP - Spanish peseta
FRF - French franc
GBP - British sterling
IEP - Irish punt
ITL - Italian lira
JPY - Japanese yen
NLG - Dutch guilder
USD - U.S. dollar
ZAR - South African rand
DCB - Debt conversion bond
EI - Eligible interest
FRB - Floating rate bond
FRN - Floating rate note
IAB - Interest arrears bond
IDU - Interest due bond
NMB - New money bond
REIT - Real estate investment trust
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 16
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
T. Rowe Price Foreign Bond Funds / December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Emerging
International Markets
Bond Fund Bond Fund
------------- ---------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost $1,018,187 and $9,398)........... $ 1,060,992 $ 9,908
Receivable for investment securities sold.................................. 50,351 --
Interest receivable........................................................ 26,148 226
Other assets............................................................... 3,381 159
------------- ---------
Total assets............................................................... 1,140,872 10,293
------------- ---------
LIABILITIES
Payable for investment securities purchased................................ 117,766 197
Other liabilities.......................................................... 7,440 107
------------- ---------
Total liabilities.......................................................... 125,206 304
------------- ---------
NET ASSETS................................................................. $ 1,015,666 $ 9,989
============= =========
NET ASSETS CONSIST OF:
Accumulated net investment income -- net of distributions.................. $ 5,061 $ 13
Accumulated realized gain/loss -- net of distributions..................... (18,141) (2)
Net unrealized gain (loss)................................................. 40,635 509
Paid-in-capital applicable to 97,099,617 and 936,033 shares
of $0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized....................... 988,111 9,469
------------- ---------
NET ASSETS................................................................. $ 1,015,666 $ 9,989
------------- ---------
NET ASSET VALUE PER SHARE.................................................. $10.46 $10.67
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 17
- --------------------------------------------------------------------------------
Statement of Operations
T. Rowe Price Foreign Bond Funds / Year Ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
International Emerging Markets
Bond Fund Bond Fund++
------------- ----------------
<S> <C> <C>
INVESTMENT INCOME
Interest income....................................................... $ 63,043 $ 680
------------- -------
Expenses
Investment management............................................... 6,201 --
Shareholder servicing............................................... 1,172 34
Custody and accounting.............................................. 482 120
Prospectus and shareholder reports.................................. 116 6
Registration........................................................ 81 11
Legal and audit..................................................... 34 23
Directors........................................................... 18 5
Organization........................................................ -- 7
Miscellaneous....................................................... 21 3
Reimbursed by Manager............................................... -- (135)
------------- -------
Total expenses...................................................... 8,125 74
------------- -------
Net investment income................................................. 54,918 606
------------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities.......................................................... 45,523 614
Futures............................................................. 570 --
Options............................................................. 857 --
Foreign currency transactions....................................... (4,364) (1)
------------- -------
Net realized gain (loss)............................................ 42,586 613
------------- -------
Change in net unrealized gain or loss on:
Securities.......................................................... 57,672 510
Options............................................................. 4,202 --
Other assets and liabilities denominated in foreign currencies...... (3,277) (1)
------------- -------
Change in net unrealized gain or loss............................... 58,597 509
------------- -------
Net realized and unrealized gain (loss)............................... 101,183 1,122
------------- -------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..................... $ 156,101 $1,728
============= ===========
</TABLE>
- --------------------------------------------------------------------------------
++ From commencement of operations on December 30, 1994.
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 18
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
T. Rowe Price Foreign Bond Funds
(in thousands)
<TABLE>
<CAPTION>
Emerging Markets
International Bond Fund Bond Fund
Year Ended December 31, From
-------------------------------- December 30, 1994++
1995 1994 to December 31, 1995
-------------- -------------- --------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income........................... $ 54,918 $ 45,552 $ 606
Net realized gain (loss)........................ 42,586 (35,246) 613
Change in net unrealized gain or loss........... 58,597 (24,542) 509
-------------- -------------- --------
Increase (decrease) in net assets from
operations.................................... 156,101 (14,236) 1,728
-------------- -------------- --------
Distributions to shareholders
Net investment income........................... (54,919) (45,550) (598)
Net realized gain............................... (11,472) (16,210) (617)
-------------- -------------- --------
Decrease in net assets from distributions....... (66,391) (61,760) (1,215)
-------------- -------------- --------
Capital share transactions*
Shares sold..................................... 392,525 376,286 16,608
Distributions reinvested........................ 57,578 52,742 983
Shares redeemed................................. (262,250) (360,173) (8,115)
-------------- -------------- --------
Increase (decrease) in net assets from capital
share transactions............................ 187,853 68,855 9,476
-------------- -------------- --------
Increase (decrease) in net assets................. 277,563 (7,141) 9,989
NET ASSETS
Beginning of period............................... 738,103 745,244 --
-------------- -------------- --------
End of period..................................... $1,015,666 $ 738,103 $ 9,989
============== ============== ==============
- ------------------------------------------------------------------------------------------------------------
* Share information
Shares sold.................................... 38,100 37,991 1,620
Distributions reinvested....................... 5,565 5,463 93
Shares redeemed................................ (25,582) (36,546) (777)
-------------- -------------- --------
Increase (decrease) in shares outstanding....... 18,083 6,908 936
============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
++ Commencement of operations.
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 19
- --------------------------------------------------------------------------------
Notes to Financial Statements
T. Rowe Price Foreign Bond Funds / December 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Funds, Inc. (the Corporation) is registered under
the Investment Company Act of 1940. The International Bond Fund and the Emerging
Markets Bond Fund, nondiversified, open-end management investment companies, are
two of the portfolios established by the Corporation.
A) Valuation - 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. Purchased options are valued at the latest bid price.
For purposes of determining each 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 each
fund, as authorized by the Board of Directors.
B) 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.
C) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
D) 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. Distributions to shareholders are
recorded by each 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. Unrealized gains and losses on forward currency exchange
contracts are included in Other assets and Other liabilities, respectively, and
in Change in net unrealized gain or loss in the accompanying financial
statements.
NOTE 2 - ORGANIZATION
The Emerging Markets Bond Fund was organized on November 2, 1994, and had no
operations prior to December 30, 1994, other than those related to
organizational matters.
NOTE 3 - INVESTMENT TRANSACTIONS
Consistent with their investment objectives, the funds engage in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of each fund are
described more fully in each fund's prospectus and Statement of Additional
Information.
A) Emerging Markets - At December 31, 1995, each fund held investments in
securities of companies located in emerging markets or issued by governments of
emerging market countries. Each fund also held investments whose value is linked
to the currencies of emerging market countries. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
B) Noninvestment-Grade Debt Securities - At December 31, 1995, each fund held
investments in noninvestment-grade debt securities, commonly referred to as
"high-yield" or "junk" bonds. A real or perceived economic
18
<PAGE> 20
- --------------------------------------------------------------------------------
downturn or higher interest rates could adversely affect the liquidity or value,
or both, of such securities because such events could lessen the ability of
issuers to make principal and interest payments.
C) Forward Currency Exchange Contracts - At December 31, 1995, each fund was a
party to forward currency exchange contracts under which it is obligated to
exchange currencies at specified future dates and exchange rates. Risks arise
from the possible inability of counterparties to meet the terms of their
agreements and from movements in currency values.
D) Options - Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on a certain date.
Risks arise from possible illiquidity of the options market and from movements
in security or currency values. Options are reflected in the International Bond
Fund's accompanying Portfolio of Investments at market value.
E) Commercial Paper Joint Account - Each fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy each fund's criteria as to
quality, yield, and liquidity.
F) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, for the period ended December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
Emerging
International Markets Bond
Bond Fund Fund
-------------- ---------------
<S> <C> <C>
Purchases $2,178,336,000 $21,356,000
Sales 1,886,653,000 13,763,000
</TABLE>
NOTE 4 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since each fund intends to
qualify or continue to qualify as a regulated investment company and distribute
all of its taxable income. The International Bond Fund has unused realized
capital loss carryforwards for federal income tax purposes of $11,233,000 which
expire in 2002. Capital loss carryforwards utilized in 1995 amounted to
$20,177,000. The fund intends to retain gains realized in future periods that
may be offset by available capital loss carryforwards.
In order for each fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the period ended December 31, 1995. The
results of operations and net assets were not affected by the reclassifications.
<TABLE>
<CAPTION>
Emerging
International Markets Bond
Bond Fund Fund
------------- ---------------
<S> <C> <C>
Undistributed Net
Investment Income $ -- $ 5,000
Undistributed Net
Realized Gain 442,000 2,000
Paid-in-Capital (442,000) (7,000)
</TABLE>
At December 31, 1995, the aggregate cost of investments for the
International Bond and Emerging Markets Bond funds for federal income tax and
financial reporting purposes was $1,018,187,000 and $9,398,000, respectively.
Net unrealized gain (loss) on investments was as follows:
<TABLE>
<CAPTION>
Emerging
International Markets Bond
Bond Fund Fund
------------- ---------------
<S> <C> <C>
Appreciated
Investments $49,293,000 $ 528,000
Depreciated
Investments (6,488,000) (18,000)
------------- ---------------
Net Unrealized
Gain (Loss) $42,805,000 $ 510,000
============= ================
</TABLE>
NOTE 5 - RELATED PARTY TRANSACTIONS
Each fund is managed by Rowe Price-Fleming International, Inc. (the Manager),
which is
19
<PAGE> 21
- --------------------------------------------------------------------------------
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 each fund and the Manager
provides for an annual investment management fee, of which $584,000 was payable
at December 31, 1995 by the International Bond Fund. The fee is computed daily
and paid monthly, and consists of an Individual Fund Fee equal to 0.35% of
average daily net assets for the International Bond Fund and 0.45% of average
daily net assets for the Emerging Markets Bond Fund, and a Group Fee. The Group
Fee is based on the combined assets of certain mutual funds sponsored by the
Manager or Price Associates (the Group). The Group Fee rate ranges from 0.48%
for the first $1 billion of assets to 0.31% for assets in excess of $34 billion.
At December 31, 1995, and for the period then ended, the effective annual Group
Fee rate was 0.34%. Each fund pays a pro rata share of the Group Fee based on
the ratio of its net assets to those of the Group.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through December 31, 1996, which would cause the
Emerging Markets Bond Fund's ratio of expenses to average net assets to exceed
1.25%. Thereafter through December 31, 1998, the Emerging Markets Bond Fund is
required to reimburse the Manager for these expenses, provided that average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing the fund's ratio of expenses to average net assets to exceed
1.25%. Pursuant to this agreement, $47,000 of management fees were not accrued
by the Emerging Markets Bond Fund for the period ended December 31, 1995, and
$135,000 of other expenses were borne by the Manager.
In addition, each fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which each fund
receives certain other services. Price Associates computes the daily share price
and maintains the financial records of each fund. T. Rowe Price Services, Inc.
(TRPS), is each fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the funds. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in each fund. Additionally, the
International Bond Fund is one of several T. Rowe Price mutual funds (the
Underlying Funds) in which the T. Rowe Price Spectrum Income Fund (Spectrum)
invests. In accordance with an Agreement among Spectrum, the Underlying Funds,
Price Associates and TRPS, expenses from the operation of Spectrum are borne by
the Underlying Funds based on each Underlying Fund's proportionate share of
assets owned by Spectrum. The International Bond and Emerging Markets Bond funds
incurred expenses pursuant to these related party agreements totaling
approximately $1,150,000 and $124,000, respectively, for the period ended
December 31, 1995, of which $123,000 and $11,000, respectively, were payable at
period-end.
During the period ended December 31, 1995, the Emerging Markets Bond Fund,
in the ordinary course of business, placed security purchase orders aggregating
$73,000 with certain affiliates of the Manager in connection with the execution
of various portfolio transactions.
20
<PAGE> 22
- --------------------------------------------------------------------------------
Financial Highlights
T. Rowe Price International Bond Fund
<TABLE>
<CAPTION>
For a share outstanding throughout each period
------------------------------------------------------
Year Ended December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.34 $10.34 $ 9.61 $10.35 $ 9.53
------ ------ ------ ------ ------
Investment activities
Net investment income.......................... 0.62 0.60 0.69 0.87 0.77
Net realized and unrealized gain (loss)........ 1.24 (0.79) 1.18 (0.63) 0.82
------ ------ ------ ------ ------
Total from investment activities............... 1.86 (0.19) 1.87 0.24 1.59
------ ------ ------ ------ ------
Distributions
Net investment income.......................... (0.62) (0.60) (0.69) (0.83) (0.77)
Net realized gain.............................. (0.12) (0.21) (0.45) (0.15) --
------ ------ ------ ------ ------
Total distributions............................ (0.74) (0.81) (1.14) (0.98) (0.77)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $10.46 $ 9.34 $10.34 $ 9.61 $10.35
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total return..................................... 20.30% (1.84)% 20.00% 2.39% 17.75%
Ratio of expenses to average net assets.......... 0.90% 0.98% 0.99% 1.08% 1.24%
Ratio of net investment income to
average net assets............................. 6.10% 6.07% 6.58% 8.66% 8.11%
Portfolio turnover rate.......................... 237.1% 345.2% 395.7% 357.7% 295.6%
Net assets, end of period (in thousands)......... $1,015,666 $738,103 $745,244 $513,927 $413,985
- ---------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
- --------------------------------------------------------------------------------
Financial Highlights
T. Rowe Price Emerging Markets Bond Fund
<TABLE>
<CAPTION>
For a share
outstanding
throughout the period
December 30, 1994++
to December 31, 1995
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................ $10.00
------------
Investment activities
Net investment income......................................................... 1.03*
Net realized and unrealized gain (loss)....................................... 1.38
------------
Total from investment activities.............................................. 2.41
------------
Distributions
Net investment income......................................................... (1.02)
Net realized gain............................................................. (0.72)
------------
Total distributions........................................................... (1.74)
------------
NET ASSET VALUE, END OF PERIOD.................................................. $10.67
============
- -------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total return.................................................................... 25.81%*
Ratio of expenses to average net assets......................................... 1.25%*
Ratio of net investment income to average net assets............................ 10.20%*
Portfolio turnover rate......................................................... 273.5%
Net assets, end of period (in thousands)........................................ $9,989
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
through December 31, 1996.
++ Commencement of operations.
22
<PAGE> 24
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors of T. Rowe Price International Funds, Inc.
and Shareholders of International Bond Fund and Emerging Markets Bond Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios 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 International Bond Fund and
Emerging Markets Bond Fund (two of the portfolios constituting T. Rowe Price
International Funds, Inc., hereafter referred to as the "Funds") at December 31,
1995, and the results of each of their operations, the changes in each of their
net assets and the financial highlights for 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 Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with 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 December 31, 1995 by
correspondence with custodians and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 18, 1996
23
