- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
European Stock Fund
- --------------------------------------------------------------------------------
October 31, 1997
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
European Stock Fund
* Europe's markets turned in excellent gains for the 6- and 12-month
periods.
* Among the major markets, the U.K. and the Netherlands performed best
for the six months, but several smaller markets (including Italy and
Scandinavia) posted significant gains.
* The fund returned 10.41% for the six months ended October 31, 1997,
and 20.30% for the year, lagging the MSCI Europe Index but in line
with the Lipper European Funds Average.
* Europe should continue to do well as long as its economies stay on
track for monetary union and corporations focus on profitability.
Fellow Shareholders
Europe's markets turned in excellent gains for the year ended October 31,
1997, with the United Kingdom, Italy, and the countries of Scandinavia leading
the charge. Improving corporate profitability and strong economic discipline in
advance of the European Monetary Union (EMU) made Europe among the world's
best-performing regions.
================================================================================
Performance Comparison
================================================================================
Periods Ended 10/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
European Stock Fund 10.41% 20.30%
MSCI Europe Index 12.89 26.40
Lipper European Funds Average 9.94 20.38
================================================================================
Your fund achieved a strong 20.3% return for the year - its second
consecutive year with returns above 20%. Europe's best gains came in the first
half of the period, with several major markets notching six-month returns above
25%. However, U.S. investors saw essentially equivalent gains in the first and
second halves of the year, as the dollar strengthened considerably in the first
half then fell slightly as the year progressed.
<PAGE>
Our 6- and 12-month showings lagged those of the MSCI Europe benchmark but
nearly matched those of our Lipper peer group average. The majority of the
shortfall against the index can be explained by differences in holdings rather
than country exposure. The steady earners at the core of the fund continued to
advance, but in some markets were overtaken by companies with plans to sharply
improve the returns on their businesses. This theme has been gathering momentum
throughout Europe, and is now well advanced in the U.K. Although we are
attracted to firms with realistic odds of achieving these higher goals, in some
cases we expect reality to fall short of ambition. Therefore, we bypassed some
firms that performed well in the short term.
The trend toward improving profitability, which prompted an increasing
number of companies to restructure their businesses, was a powerful force behind
the stock market returns of the last 12 months, but not the only one. A steady
economic background, helped by the move toward European Monetary Union scheduled
for 1999, was also a crucial support to higher valuations and continued strong
performance.
Market and Portfolio Review
The U.K. advance continued apace, particularly compared with other major
European bourses. The Bank of England gained new independence after the Labour
party victory in the May general election and has since engineered three
successive interest rate increases through October's end. That helped to make
the pound the strongest European currency and the only one to outperform the
dollar over the year. The Labour government's commitment to joining the EMU
helped keep the bond market stable in the face of robust economic growth and
falling unemployment. Overall, this economic cycle has been managed much more
credibly than in the past, lowering the risk of a severe slowdown.
[Pie chart with following segments: United Kingdom 26%, Netherlands 17%,
Frnace 13%, Switzerland 9%, Germany 8%, Sweden 5%, Italy 5%, Other and
Reserves 17%
The U.K. remains the fund's largest country weighting at 26% of assets.
Although its equity markets did well in general, the largest gains were
concentrated in a small number of large companies. We were therefore able to
take profits in two of our better-performing large holdings: the pharmaceutical
company SmithKline Beecham and the bank Abbey National. Toward the end of the
period, a currency crisis in Asia tripped up major multinational firms across
the globe, opening the door for some of our smaller company holdings to
outperform. Notable gainers were training group CRT Group and plant hire company
Ashtead.
At 17% of assets, the fund's second largest exposure was still the
Netherlands. Gains in this market were driven by companies that announced
restructuring efforts, giving investors hope of more efficient, competitive, and
profitable investments. But in some cases we were skeptical these efforts would
be successful. Toward the end of the fund's fiscal year, we made significant
gains from a merger agreement between Reed Elsevier and Wolters Kluwer.
Throughout the period, we generally cut back in the media sectors as they lagged
the broader market.
<PAGE>
Germany remains one of the fund's largest country underweightings against
the European index. Traditionally it has been difficult to find companies with
the consistent returns we prefer. Neither has growth been a top priority for
German authorities, who have started to raise interest rates as a step toward
harmonizing interest rates across Europe ahead of EMU. However, some planned
improvements at the corporate level have encouraged us to modestly build our
holdings in the market, from 7% six months ago to 8%. We added to positions in
recently privatized Deutsche Telekom and Deutsche Bank, companies with the scope
and desire to improve profitability and shareholder value. The fund's stake in
fast-growing computer systems designer SAP was also increased.
================================================================================
Market Performance
Six Months Local Local Currency U.S.
Ended 10/31/97 Currency vs. U.S. Dollars Dollars
- --------------------------------------------------------------------------------
Belgium 2.98% 0.60% 3.60%
Finland 22.80 0.70 23.67
France 2.98 1.40 4.42
Germany 7.32 0.61 7.98
Italy 18.75 1.29 20.28
Netherlands 16.27 0.38 16.71
Norway 15.52 1.72 17.51
Spain 10.28 0.49 10.82
Sweden 11.74 4.83 17.13
Switzerland 11.32 5.52 17.47
United Kingdom 10.44 3.35 14.14
Source: FAME Information Services, Inc., based on MSCI indices.
================================================================================
In France the authorities continued to control the budget deficit by
increasing indirect taxation. The effect of this was to make the nation's
economic recovery even more anemic than in other European countries, and, with
unemployment at very high levels, there were signs of unrest. However, the
government has shown strong commitment to remain on course to join EMU.
Despite the economic difficulties, we still found appealing investments in
France, although, at 13% of assets, our weighting at October 31 was slightly
lower than six months ago. We trimmed a number of holdings: LVMH, for example,
appeared too exposed to an expected slowdown in Asian growth for our comfort.
One of the strongest markets during the six months was Italy, also an
outperformer over 12 months. Our confidence in the nation's commitment to
joining the monetary union was increased when the government agreed to a number
of difficult but necessary spending cuts. The government also eased a huge
fiscal burden by encouraging individuals to take more responsibility for their
pension saving. That helped the performance of financial services companies,
including fund holding Credito Italiano -- one of many European banks focusing
on improving the profitability of its business.
<PAGE>
There was more evidence of bank restructuring in Scandinavia when Sweden's
Nordbanken, a new holding, announced its intention to merge with Finland's
Merita toward the end of the year. This was only one of many positive stories in
Scandinavia this past year. Two of the fund's strongest performers were to be
found in these two markets: mobile phone manufacturer Nokia in Finland and
clothing retailer Henn es and Mauritz in Sweden. The latter successfully
expanded its network of stores throughout Europe in spite of generally weak
consumer spending.
================================================================================
Industry Diversification
Percent of Percent of
Net Assets Net Assets
4/30/97 10/31/97
- --------------------------------------------------------------------------------
Services 29.4% 28.3%
Consumer Goods 19.6 22.0
Finance 15.0 18.4
Energy 12.9 13.9
Capital Equipment 5.9 7.2
Materials 7.3 3.4
Multi-industry 2.3 2.6
Reserves 7.6 4.2
Total 100.0% 100.0%
================================================================================
The fund was also helped by its modest exposure to the emerging markets of
Eastern Europe and Russia, some of which produced spectacular gains over the
last 12 months. These markets can be volatile, and some gains have already been
given back. But we believe the long-term prospects for Russia in particular
remain good, as long as its economic reform process stays on course. Companies
such as Russia's Lukoil (an oil company) offer good value when compared with
international peers.
Outlook
Although the returns over the last year were attractive, markets came off
their highs after the severe corrections in Southeast Asia. However, the
fundamentals of Europe's economy and markets will be solid as long as the
integration of the European economies into monetary union remains on course and
the push toward higher profitability continues to gain momentum. These important
changes may provide an ideal backdrop for success in European stock market
investments.
Respectfully submitted,
/s/
Martin G. Wade
President
November 20, 1997
<PAGE>
================================================================================
T. Rowe Price European Stock Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
----------------------------
Percent of
Net Assets
10/31/97
--------
Royal Dutch Petroleum, Netherlands 3.4%
Novartis, Switzerland 3.0
Wolters Kluwer, Netherlands 2.8
SmithKline Beecham, United Kingdom 2.4
National Westminster Bank, United Kingdom 2.3
Elsevier, Netherlands 2.1
Roche Holdings, Switzerland 1.9
Eaux Cie Generale, France 1.8
Reed International, United Kingdom 1.7
Shell Transport & Trading, United Kingdom 1.7
ING Groep, Netherlands 1.6
ABB, Sweden/Switzerland 1.5
Glaxo Wellcome, United Kingdom 1.5
Total, France 1.4
Nestle, Switzerland 1.4
Astra, Sweden 1.3
Telecom Italia, Italy 1.3
Tomkins, United Kingdom 1.2
Unilever, Netherlands 1.2
Telecom Italia Mobile, Italy 1.2
Pinault Printemps, France 1.1
Grand Metropolitan, United Kingdom 1.0
Orkla, Norway 1.0
ABN Amro Holdings, Netherlands 1.0
ENI, Italy 1.0
---------- ---
Total 41.8%
<PAGE>
T. Rowe Price European Stock Fund
================================================================================
Performance Comparison
================================================================================
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[European Stock Fund SEC chart shown here]
================================================================================
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.
Since Inception
Periods Ended 10/31/97 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
European Stock Fund 20.30% 18.78% 18.42% 11.11% 2/28/90
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
T. Rowe Price European Stock Fund
================================================================================
For a share outstanding throughout each period
Financial Highlights
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year 10 Months++ Year
Ended Ended Ended
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92
-------- -------- -------- -------- -------- --------
NET ASSET VALUE
Beginning of period ......... $ 16.93 $ 14.35 $ 12.72 $ 11.37 $ 9.36 $ 10.09
Investment activities
Net investment income ......... 0.25 0.25 0.20 0.14 0.12 0.14
Net realized and
unrealized gain (loss) ........ 3.12 2.79 1.60 1.26 1.89 (0.70)
Total from
investment activities ......... 3.37 3.04 1.80 1.40 2.01 (0.56)
Distributions
Net investment income ......... (0.26) (0.21) (0.12) (0.04) -- (0.17)
Net realized gain ............. (0.20) (0.25) (0.05) (0.01) -- --
Total distributions ........... (0.46) (0.46) (0.17) (0.05) -- (0.17)
NET ASSET VALUE
End of period ................. $ 19.84 $ 16.93 $ 14.35 $ 12.72 $ 11.37 $ 9.36
Ratios/Supplemental Data
Total return .................. 20.30% 21.76% 14.41% 12.35% 21.47% (5.56)%
Ratio of expenses to
average net assets ............ 1.06% 1.12% 1.20% 1.25% 1.35%+ 1.48%
Ratio of net investment
income to average
net assets .................... 1.41% 1.81% 1.75% 1.19% 1.79%+ 1.23%
Portfolio turnover rate ....... 17.5% 14.1% 17.2% 24.5% 21.3%+ 52.0%
Average commission
rate paid ..................... $ 0.0312 0.0248 $ -- $ -- $ -- $ --
Net assets, end of period
(in thousands) ................ $984,083 $ 704,887 $ 490,573 $ 337,498 $ 265,784 $ 173,798
+ Annualized.
++ The fund's fiscal year-end was changed to 10/31.
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price European Stock Fund
October 31, 1997
Statement of Net Assets
Shares/Par Value
---------- -----
In thousands
AUSTRIA 0.0%
Preferred Stocks 0.0%
Creditanstalt Bankverein ........................ 2,050 $ 116
Total Austria (Cost $215) 116
BELGIUM 1.9%
Common Stocks 1.9%
Dexia ........................................... 14,314 1,564
Generale de Banque .............................. 11,973 4,897
Generale de Banque, VVPR Strip * ................ 723 0
Kredietbank ..................................... 21,770 9,135
UCB ............................................. 979 3,383
18,979
Convertible Bonds 0.0%
Kredietbank, 5.75%, 11/30/03 .................BEL 4,522,500 245
245
Total Belgium (Cost $11,540) 19,224
CZECH REPUBLIC 0.1%
Common Stocks 0.1%
Cokoladovny ..................................... 760 110
SPT Telecom ..................................... 5,520 636
Total Czech Republic (Cost $702) 746
DENMARK 0.7%
Common Stocks 0.7%
Den Danske Bank ................................. 25,690 2,901
Tele Danmark (Class B) .......................... 15,830 930
Unidanmark (Class A) ............................ 28,760 1,944
William Demant Holding .......................... 17,652 824
Total Denmark (Cost $4,479) 6,599
FINLAND 0.8%
Common Stocks 0.8%
Cultor .......................................... 22,241 1,183
Konecranes International ........................ 42,690 1,609
Nokia (Class A) ................................. 58,780 $ 5,181
<PAGE>
Total Finland (Cost $4,656) 7,973
FRANCE 13.4%
Common Stocks 13.4%
Accor ........................................... 10,430 1,942
Alcatel Alsthom ................................. 59,808 7,216
Altran Technologies ............................. 4,158 1,110
Assurances Generales de France .................. 22,210 1,169
AXA ............................................. 56,838 3,892
Bic ............................................. 14,884 1,018
Canal Plus ...................................... 12,700 2,208
Carbone Lorraine ................................ 7,000 1,857
Carrefour ....................................... 9,380 4,895
CET ............................................. 8,700 358
Cie de St. Gobain ............................... 48,799 7,005
Cipe France ..................................... 30,000 752
Credit Commercial de France ..................... 37,504 2,125
Danone .......................................... 11,780 1,801
Dexia France, Bearer ............................ 10,799 1,084
Dexia France, Registered 1998++ ................. 12,910 1,296
Dexia France, Registered 1999++ ................. 10,510 1,055
Eaux Cie Generale ............................... 151,534 17,627
Elf Aquitaine ................................... 63,460 7,855
Guilbert ........................................ 26,371 3,443
Havas ........................................... 15,760 1,038
L'Oreal ......................................... 6,312 2,237
LVMH ............................................ 27,423 4,659
Pathe ........................................... 12,733 2,285
Pinault Printemps ............................... 22,640 10,354
Primagaz ........................................ 1,485 111
Rexel ........................................... 2,000 530
Sanofi .......................................... 70,304 6,679
Schneider ....................................... 122,441 6,538
Societe Generale ................................ 25,792 3,532
Sodexho ......................................... 9,592 4,784
Spir Communication .............................. 3,437 220
Television Francaise ............................ 58,979 5,491
Total (Class B) ................................. 120,568 $ 13,377
Total France (Cost $112,741) 131,543
GERMANY 8.1%
Common Stocks 7.5%
Allianz ......................................... 27,500 6,198
Bayer ........................................... 152,292 5,372
Bayerische Hypotheken und Wechsel Bank .......... 113,694 4,716
Bayerische Vereinsbank .......................... 33,553 1,946
Commerzbank ..................................... 57,460 1,950
Deutsche Bank ................................... 135,975 8,941
Deutsche Telekom ................................ 183,723 3,443
Eurobike ........................................ 59,060 1,319
Gehe ............................................ 166,093 8,672
Hoechst ......................................... 65,530 2,494
Mannesmann ...................................... 6,024 2,544
Pfeiffer Vacuum Technology ADR (USD) * .......... 36,915 1,200
Rhoen Klinikum .................................. 7,776 744
SAP ............................................. 20,870 5,987
Sartorius ....................................... 1,495 364
Siemens ......................................... 89,753 5,524
Sixt ............................................ 32,500 2,828
Veba ............................................ 136,203 7,593
Volkswagen ...................................... 3,911 2,306
74,141
<PAGE>
Preferred Stocks 0.6%
Fresenius ....................................... 9,590 1,619
SAP ............................................. 12,390 3,691
5,310
Total Germany (Cost $63,205) 79,451
GREECE 0.2%
Common Stocks 0.2%
Alpha Credit Bank ............................... 3,390 224
Ergo Bank ....................................... 3,010 179
Hellenic Bottling ............................... 2,270 94
Hellenic Telecommunication ...................... 36,550 763
Intracom ........................................ 9,320 409
Total Greece (Cost $1,736) 1,669
HUNGARY 0.2%
Common Stocks 0.2%
EGIS ............................................ 8,810 $ 414
Fotex * ......................................... 93,270 104
Graboplast Textile .............................. 6,090 329
Richter Gedeon GDS (USD) ........................ 16,980 1,579
Total Hungary (Cost $1,385) 2,426
IRELAND 0.2%
Common Stocks 0.2%
Kingspan Group .................................. 140,900 2,543
Total Ireland (Cost $294) 2,543
ISRAEL 0.4%
Common Stocks 0.4%
Agis ............................................ 81,170 672
Bank Hapoalim ................................... 126,300 298
Blue Square * ................................... 39,270 360
Eci Telecom (USD) ............................... 10,860 300
Elite Industries ................................ 13,480 360
Koor Industries ................................. 2,280 235
Super Sol ....................................... 364,460 1,047
Teva Pharmaceutical ADR (USD) ................... 13,900 650
Total Israel (Cost $3,889) 3,922
ITALY 5.3%
Common Stocks 5.3%
<PAGE>
Assicurazioni Generali .......................... 87,000 1,945
Banca Commerciale Italiana ...................... 371,000 1,013
Credito Italiano ................................ 2,213,231 5,902
ENI ............................................. 1,722,376 9,735
Gewiss .......................................... 79,900 1,557
Gucci Group (USD) ............................... 70,044 2,548
IMI ............................................. 318,253 2,881
Italgas ......................................... 608,943 2,194
Safilo .......................................... 13,589 345
Telecom Italia .................................. 1,964,080 12,309
Telecom Italia Mobile ........................... 2,794,435 $10,316
Telecom Italia Mobile, Savings Shares ........... 620,611 1,268
Total Italy (Cost $39,401) 52,013
NETHERLANDS 16.5%
Common Stocks 16.5%
Aalberts Industries ............................. 43,150 1,131
ABN Amro Holdings ............................... 491,232 9,893
Ahold ........................................... 90,393 2,314
Ahrend .......................................... 50,380 1,679
Akzo Nobel ...................................... 16,242 2,862
Atag ............................................ 20,706 1,312
Baan Company .................................... 57,893 4,100
Baan Company (USD) .............................. 32,510 2,280
Content Beheer .................................. 13,400 421
CSM ............................................. 138,533 6,322
Elsevier ........................................ 1,304,766 20,497
Fortis Amev ..................................... 147,885 5,812
Getronics ....................................... 31,496 1,040
GTI ............................................. 42,510 1,160
ING Groep ....................................... 363,045 15,240
Koninklijke PTT Nederland ....................... 64,097 2,450
Otra ............................................ 73,500 1,173
Polygram ........................................ 152,226 8,656
Randstad Holdings ............................... 19,920 795
Royal Dutch Petroleum ........................... 627,556 33,196
Unilever ........................................ 225,560 11,990
Wolters Kluwer .................................. 224,987 27,626
161,949
Preferred Stocks 0.0%
ING Groep ....................................... 33,857 170
170
Total Netherlands (Cost $101,831) 162,119
<PAGE>
NORWAY 2.5%
Common Stocks 2.5%
Bergesen (Class A) .............................. 47,900 1,400
Merkantildata ................................... 64,000 2,156
Norsk Hydro ..................................... 161,545 8,914
Orkla (Class A) ................................. 109,904 $ 10,128
Tomra Systems ................................... 99,000 2,554
Total Norway (Cost $13,041) 25,152
PORTUGAL 0.3%
Common Stocks 0.3%
Jeronimo Martins ................................ 47,904 3,133
Total Portugal (Cost $881) 3,133
RUSSIA 0.7%
Common Stocks 0.7%
AO Mosenergo ADR (USD) * ........................ 24,219 1,017
AO Tatneft ADR (USD) ............................ 5,836 876
Irkutskenergo ADR (USD) ......................... 31,018 434
Lukoil (USD) .................................... 16,966 369
Lukoil ADR (USD) ................................ 19,441 1,654
Rao Gazprom ADS (USD) ........................... 11,235 251
Surgutneftegaz ADR (USD) ........................ 61,440 568
Unified Energy Systems GDR (USD) * .............. 47,425 1,553
Total Russia (Cost $6,099) 6,722
SPAIN 4.2%
Common Stocks 4.2%
Argentaria Banca de Espana ...................... 54,801 3,044
Azkoyen ......................................... 13,750 1,513
Banco Bilbao Vizcaya ............................ 86,310 2,308
Banco Popular Espanol ........................... 78,076 4,610
Banco Santander ................................. 230,621 6,460
Centros Comerciales Pryca ....................... 77,268 1,227
Empresa Nacional de Electricidad ................ 223,376 4,208
Gas Natural ..................................... 49,901 2,312
Iberdrola ....................................... 388,345 4,645
Prosegur Seguridad .............................. 162,500 1,821
Repsol .......................................... 80,729 3,385
Telefonica de Espana ............................ 200,128 5,462
Total Spain (Cost $30,893) 40,995
SWEDEN 5.4%
Common Stocks 5.4%
<PAGE>
ABB (Class A) ................................... 276,500 $ 3,230
ADB Gruppen Mandator * .......................... 35,470 630
Assa-Abloy (Class B) ............................ 32,172 735
Astra (Class B) ................................. 813,653 12,601
Atlas Copco (Class B) ........................... 217,940 6,474
Atle ............................................ 134,640 2,031
Electrolux (Class B) ............................ 76,360 6,321
Esselte (Class B) ............................... 61,920 1,348
Granges * ....................................... 38,180 624
Hennes and Mauritz .............................. 199,900 8,180
Nordbanken ...................................... 122,470 3,843
Ortivus (Class B) ............................... 21,160 735
Sandvik (Class B) ............................... 155,020 4,719
Scribona (Class B) .............................. 59,530 787
Securitas (Class B) ............................. 33,041 882
Total Sweden (Cost $34,105) 53,140
SWITZERLAND 9.4%
Common Stocks 9.4%
ABB ............................................ 8,645 11,267
Adecco ......................................... 12,824 4,076
Bucher Holding ................................. 600 566
Credit Suisse Group ............................ 26,655 3,755
Disetronic Holdings ............................ 480 955
Gurit Heberlien ................................ 365 1,154
Liechtenstein Global Trust ..................... 1,235 617
Merkur Holdings ................................ 5,350 1,146
Nestle ......................................... 9,425 13,280
Novartis ....................................... 18,508 28,986
Roche Holdings * ............................... 2,088 18,349
Schweizerischer Bankverein ..................... 22,000 5,915
SMH Neuenburg .................................. 1,623 905
Swisslog Holding * ............................. 19,955 1,553
Total Switzerland (Cost $61,448) 92,524
UNITED KINGDOM 25.5%
Common Stocks 25.5%
Abbey National ................................. 486,080 $ 7,731
Argos .......................................... 426,266 4,541
Asda Group ..................................... 1,848,430 4,807
Ashtead Group .................................. 357,497 2,087
BG ............................................. 544,250 2,356
Bodycote International ......................... 103,800 1,799
British Petroleum .............................. 283,000 4,159
Britton Group .................................. 315,703 561
Cable & Wireless ............................... 804,110 6,422
Cadbury Schweppes .............................. 742,753 7,477
Caradon ........................................ 1,024,029 3,264
Carpetright .................................... 186,000 1,670
Centrica * ..................................... 463,250 649
Chamberlain Phipps * ........................... 99,000 0
Compass Group .................................. 231,000 2,434
Cordiant ....................................... 195,000 402
<PAGE>
Corporate Services Group ....................... 645,471 2,415
CRT Group ...................................... 244,171 1,319
David S. Smith ................................. 588,020 2,249
Devro International ............................ 251,250 1,555
Druck Holdings ................................. 15,000 72
Electrocomponents .............................. 223,000 1,740
Freepages Group * .............................. 1,590,600 947
GKN ............................................ 100,000 2,240
Glaxo Wellcome ................................. 674,540 14,373
Grand Metropolitan ............................. 1,132,420 10,212
Greggs ......................................... 77,000 2,681
Guinness ....................................... 893,040 7,986
Harvey Nichols Group ........................... 309,500 1,272
Hozelock Group ................................. 99,461 551
JBA Holdings ................................... 121,340 1,928
John Laing (Class A) ........................... 377,690 2,316
Kingfisher ..................................... 565,731 8,144
Ladbroke Group ................................. 751,250 3,365
Mayflower ...................................... 595,000 1,987
N Brown Group .................................. 81,420 $ 526
National Westminster Bank ...................... 1,589,410 22,933
Northern Leisure ............................... 261,566 1,391
Pentos * ....................................... 358,333 0
Pizza Express .................................. 75,000 941
Powerscreen International ...................... 147,000 1,717
Rank Group ..................................... 1,106,625 6,183
Reed International ............................. 1,700,880 16,822
Regal Hotel Group .............................. 913,666 629
Rio Tinto ...................................... 296,060 3,820
Rolls Royce .................................... 587,201 2,108
Safeway ........................................ 697,000 4,540
Sage Group ..................................... 138,000 1,667
Select Appointment ............................. 263,000 2,414
Serco Group .................................... 117,500 1,631
Shell Transport & Trading ...................... 2,319,000 16,419
SmithKline Beecham ............................. 2,456,200 23,283
T & N .......................................... 566,000 2,389
Tesco .......................................... 543,500 4,352
Tomkins ........................................ 2,351,770 12,074
United News & Media ............................ 553,390 6,959
250,509
Preferred Stocks 0.0%
Regal Hotel Group,Cv.Loan Stock,8.00%, 6/30/01.. 166,676 299
299
Total United Kingdom (Cost $167,267) 250,808
<PAGE>
SHORT-TERM INVESTMENTS 3.8%
Money Market Funds 3.8%
Reserve Investment Fund, 5.65% ................. $37,504,085 37,504
Total Short-Term Investments (Cost $37,504) 37,504
Total Investments in Securities
99.6% of Net Assets (Cost $697,312) $ 980,322
Other Assets Less Liabilities 3,761
NET ASSETS $ 984,083
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 12,280
Accumulated net realized gain/loss - net of distributions 45,413
Net unrealized gain (loss) 283,047
Paid-in-capital applicable to 49,596,768 shares
of $0.01 par value capital stock outstanding;
2,000,000,000 shares of the corporation authorized 643,343
NET ASSETS $ 984,083
NET ASSET VALUE PER SHARE $ 19.84
* Non-income producing
++ Securities contain some restrictions as to public resale -- total of
such securities at year-end amounts to 0.2% of net assets. ADR
American depository receipt ADS American depository share BEL Belgian
franc GDR Global depository receipt GDS Global depository share USD
U.S. dollar VVPR Entitles holders to a reduced rate of foreign
withholding tax.
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price European Stock Fund
Statement of Operations
In thousands
Year
Ended
10/31/97
Investment Income
Income
Dividend (net of foreign taxes of $ 3,012) $ 18,940
Interest 2,952
Total income 21,892
Expenses
Investment management 7,315
Shareholder servicing 1,478
Custody and accounting 382
Prospectus and shareholder reports 126
Registration 90
Legal and audit 14
Directors 8
Miscellaneous 9
Total expenses 9,422
Net investment income 12,470
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 48,658
Foreign currency transactions (1,055)
Net realized gain (loss) 47,603
Change in net unrealized gain or loss
Securities 96,081
Other assets and liabilities
denominated in foreign currencies 12
Change in net unrealized gain or loss 96,093
Net realized and unrealized gain (loss) 143,696
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 156,166
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price European Stock Fund
Statement of Changes in Net Assets
In thousands
Year Year
Ended Ended
10/31/97 10/31/96
-------- --------
Increase (Decrease) in Net Assets
Operations
Net investment income $ 12,470 $ 10,895
Net realized gain (loss) 47,603 7,431
Change in net unrealized gain or loss 96,093 99,374
Increase (decrease) in net assets from operations 156,166 117,700
Distributions to shareholders
Net investment income (10,997) (7,528)
Net realized gain (8,458) (8,941)
Decrease in net assets from distributions (19,455) (16,469)
Capital share transactions *
Shares sold 538,663 254,494
Distributions reinvested 18,533 15,698
Shares redeemed (414,711) (157,109)
Increase (decrease) in net assets from capital
share transactions 142,485 113,083
Net Assets
Increase (decrease) during period 279,196 214,314
Beginning of period 704,887 490,573
End of period $ 984,083 $ 704,887
*Share information
Shares sold 28,889 16,561
Distributions reinvested 1,070 1,094
Shares redeemed (21,997) (10,195)
Increase (decrease) in shares outstanding 7,962 7,460
The accompanying notes are an integral part of these financial statements.
================================================================================
T. Rowe Price European Stock Fund October 31, 1997
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The European Stock Fund (the fund), a
diversified, open-end management investment company, is one of the portfolios
established by the corporation and commenced operations on February 28, 1990.
<PAGE>
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities are valued at the last quoted sales price at
the time the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
<PAGE>
Securities Lending The fund lends its securities to approved brokers to
earn additional income and takes cash and U.S. Treasury securities as collateral
to secure the loans. Collateral is maintained at not less than 100% of the value
of loaned securities. At October 31, 1997, the value of securities on loan was
$71,058,000. Although the risk is mitigated by the collateral, the fund could
experience a delay in recovering its securities and a possible loss of income or
value if the borrower fails to return them.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $275,821,000 and $145,961,000, respectively, for the year
ended October 31, 1997.
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.
For federal income tax purposes, fund distributions included $7,478,000
($0.18 per share) of long-term capital gains, which were paid to shareholders of
record on December 26, 1996.The fund intends to elect to pass through foreign
source income of $13,107,000 and foreign taxes paid of $2,765,000 for its tax
year ended October 31, 1997; the per share effect of these pass-throughs is
$0.26 and $0.06, respectively, based on fund shares outstanding on October 31,
1997. These amounts may differ from amounts reported in the accompanying
financial statement and federal income tax reporting requirements.
At October 31, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $697,312,000, and net unrealized gain
aggregated $283,010,000, of which $296,636,000 related to appreciated
investments and $13,626,000 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 $722,000 was payable
at October 31, 1997. The fee is computed daily and paid monthly, and consists of
an individual fund fee equal to 0.50% of average daily net assets 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 0.30% for assets in
excess of $80 billion. At October 31, 1997, and for the year then ended, the
effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the
group fee based on the ratio of its net assets to those of the group.
<PAGE>
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.
(TRPS) 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 $1,213,000 for
the year ended October 31, 1997, of which $115,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum)
may invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings to
it and in proportion to the average daily value of its shares owned by Spectrum,
pursuant to special servicing agreements between and among Spectrum, the
underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum International Fund
held approximately 1.3% of the outstanding shares of the European Stock Fund at
October 31, 1997. For the year then ended, the fund was allocated $55,000 of
Spectrum expenses, $4,000 of which 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, 1997, totaled $394,000
and are reflected as interest income in the accompanying Statement of
Operations.
During the year ended October 31, 1997, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $24,493,000 with
certain affiliates of the manager and paid commissions of $52,000 related
thereto.
================================================================================
<PAGE>
T. Rowe Price European Stock Fund
Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
T. ROWE PRICE EUROPEAN STOCK FUND
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price European Stock Fund (one of the portfolios constituting T. Rowe
Price International Funds, Inc., hereafter referred to as the "Fund") at October
31, 1997, 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, 1997 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
November 19, 1997
================================================================================
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A DISCOUNT BROKERAGE
ACCOUNT OR OBTAIN INFORMATION,
CALL: 1-800-638-5660 toll free
<PAGE>
INTERNET ADDRESS:
www.troweprice.com
T. Rowe Price Associates
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 European Stock Fund.
INVESTOR CENTERS:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F79-050 10/31/97
