<PAGE>
Annual Report
International
Discovery
Fund
----------------
October 31, 1997
----------------
[LOGO OF T.ROWE PRICE APPEARS HERE]
T. Rowe Price
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------
INTERNATIONAL DISCOVERY FUND
. An Asian currency crisis in October caused sharp market losses worldwide,
though Europe recovered much of its earlier gains.
. Small-cap stocks in particular suffered from weak economic growth and a lack
of investor confidence.
. The fund returned -1.41% for the six-month period and 1.69% for the full
year, behind the large-cap Morgan Stanley EAFE Index.
. We will continue to focus on reasonably priced smaller companies with steady
growth prospects around the world.
<PAGE>
FELLOW SHAREHOLDERS
International markets were volatile during the 12 months ended October 31, 1997,
with a serious currency crisis throughout Southeast Asia and Latin America
offsetting what had been, to that point, a relatively successful year. Although
the International Discovery Fund was able to sidestep steep losses in the
emerging markets, its smaller-company holdings were generally not in favor.
- -----------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 10/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
<S> <C> <C>
International Discovery Fund - 1.41% 1.69%
MSCI EAFE Index 3.15 4.92
</TABLE>
The fund returned a disappointing -1.41% over the last six months and 1.69%
over the 12 months as a whole. The EAFE Index, which measures performance
of the larger companies of Europe, Australasia, and the Far East, fared
better, but only by modest margins. In general, European nations fared best
throughout the period, aided by stable economic growth and renewed focus on
corporate profitability. Japan's stock markets, on the other hand, suffered
from continuing economic weakness.
Initially, emerging markets were mixed, with some strong gains in Hong Kong
and in Latin America. As the period neared its end, however, a currency
crisis erupted in Southeast Asia that torpedoed emerging equity markets.
For many years, Southeast Asia's currencies were pegged to the U.S. dollar.
In October, it became apparent that these links were no longer sustainable.
The resulting sell-off depressed returns in financial markets around the
world. While European and U.S. markets recovered, many Asian and Latin
American markets did not.
Smaller companies had an even tougher time in this environment. The Salomon
Extended Market Index was up 0.3% over the six-month period but down 3.3%
for the year. The table on the next page compares the performance of
smaller firms with large-capitalization stocks in selected markets.
In most European markets, larger companies benefited most from a pickup in
exports, especially when local currencies fell against the dollar (weaker
local currency makes exported goods cheaper for foreign buyers). Europe's
smaller companies, which are generally more
1
<PAGE>
domestically focused, were therefore tied to the weak local economies. In
addition, much of the gains in Europe's markets has been driven by
restructurings, cost containment, and increased takeover activity by larger
corporate conglomerates.
- -----------------------------------
SMALL-CAP VS. LARGE-CAP PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 MONTHS MSCI EAFE SALOMON
ENDED 10/31/97 INDEX SMALL CAP EMI INDEX
- --------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM 28.6% 14.4%
................................................................................
GERMANY 21.1 12.9
................................................................................
NETHERLANDS 33.3 13.3
................................................................................
FRANCE 13.1 1.4
................................................................................
ITALY 34.1 36.8
................................................................................
SWEDEN 23.5 12.8
................................................................................
JAPAN -18.1 -34.0
................................................................................
HONG KONG -17.5 -12.3
................................................................................
SINGAPORE -26.9 -34.3
................................................................................
</TABLE>
SOURCE: FAME INFORMATION SERVICES, INC., SALOMON BROTHERS.
Japan's smaller firms suffered a similar fate to Europe's: with anemic
domestic growth, only large export-focused companies showed good
performance. In Southeast Asia and Latin America, small companies performed
poorly, similar to their larger counterparts.
Despite this recent underperformance, our investment criteria have not
changed. We continue to look for smaller and mid-size companies with
sustainable growth outlooks. Consolidation, business sector growth, and
successful management strategies are appealing. We focus on the strength of
a company's franchise and its ability to hold or improve pricing. Finally
we look at the financial structure of the business and its ability to fund
its own growth.
MARKET REVIEW
EUROPE
The fund's largest and most successful regional exposure was Europe, where
currencies and economies were relatively healthy. During the year, we
increased your fund's weighting in the U.K. from about 15% last October 31
to 25% at the end of the period, making it the largest country exposure.
These holdings have an average expected earnings growth of 18% for 1998,
with a price/earnings multiple under 16X, meaning we're finding strongly
growing companies at modest prices.
Much of the increase in U.K. weighting came from adding to existing
holdings. Ashtead Group, a plant hire company operating also in the U.S.,
temporary employment company Corporate Services Group, and
2
<PAGE>
- --------------------------
GEOGRAPHIC DIVERSIFICATION
- -----------------------------------
[PIE CHART APPEARS HERE]
Latin America 3%
Far East 14%
Japan 14%
Other and Reserves 10%
Europe 59%
Based on net assets as of 10/31/97.
baker Greggs have all grown to significant positions. After some healthy
gains, we were able to take profits in several positions, including
automotive component company First Technology, advertising agency WPP
Group, and Peter Black Holdings, a supplier of cosmetics to dominant
department store chains like Marks and Spencer.
Another area of positive performance was in the Germanic block --
Germany, the Netherlands, and Switzerland. We found several firms in
this region that met our criteria. In the Netherlands, for example, we
added mechanical and electrical installation company GTI, whose new
management intends to achieve a significantly higher return by using
free cash to acquire companies both in the Netherlands and abroad.
In Switzerland we added Valora Holdings, a kiosk and bedding company
with an aggressive new management team that we think can generate
sustainable growth. In Germany, performance was more mixed. We sold a
position in insurance broker MLP after an excellent performance, but
Berentzen Gruppe, a beverage company, was eliminated due to a
contraction in the spirits sector and unsuccessful launches of new
products.
We kept the fund's weightings in France and Italy low, as it was
difficult to find smaller companies with consistent growth prospects. We
recently took profits on some holdings in Norway, Sweden, and Denmark,
where good performance has taken company valuations higher than we
prefer. Finally, we reduced our position in eastern Europe because most
of the more appealing firms are too large to meet our investment
criteria.
Japan
The performance of Japan's smaller companies continued to be
frustrating. While the main market fell by 18% in U.S. dollar terms over
the past 12 months, the extended market (as represented by the Salomon
3
<PAGE>
Extended Market Index) was down 34%. Already weak, the Japanese economy
suffered an additional setback in April when a rise in the consumption
tax from 3% to 5% sent consumer spending into a tailspin. For the second
quarter of 1997, real GDP fell by 2.9% from the previous quarter, which
translates to an 11.2% annualized decline for the year. Service-sector
and smaller companies took the brunt of this blow.
- ------------------
Market Performance
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Local Local Currency U.S.
Ended 10/31/97 Currency vs. U.S. Dollars Dollars
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Brazil - 11.02% - 3.55% - 14.18%
...............................................................................
France 2.98 1.40 4.42
...............................................................................
Germany 7.32 0.61 7.98
...............................................................................
Hong Kong - 17.50 0.22 - 17.32
...............................................................................
Indonesia - 18.89 - 32.59 - 45.33
...............................................................................
Italy 18.75 1.29 20.28
...............................................................................
Japan - 10.49 5.52 - 5.55
...............................................................................
Malaysia - 38.90 - 25.07 - 54.22
...............................................................................
Mexico 23.89 - 5.42 17.17
...............................................................................
Netherlands 16.27 0.38 16.71
...............................................................................
Norway 15.52 1.72 17.51
...............................................................................
Sweden 11.74 4.83 17.13
...............................................................................
United Kingdom 10.44 3.35 14.14
...............................................................................
</TABLE>
Source: FAME Information Services, Inc.; using MSCI Indices.
Throughout the period our weighting in Japan stayed at about 14% of
assets, about half Japan's weight in the MSCI EAFE Index. We maintained
some positions in electrical firms and pharmaceuticals, where Japan has
globally competitive companies with pricing power. Our holdings
significantly outperformed the smaller company indices but still lost
money.
During Japan's seven-year bear market, over-the-counter, small-cap
stocks have lost more than 75% from their peak. Over 40% of the
companies listed on the TSE2 (the Tokyo Stock Exchange's index of mid-
size and small companies) and 48% of the companies on Japan's OTC index
now sell for less than their stated book value. Not surprisingly, these
are very attractive valuations, but it is difficult to see small
companies outperforming until the economy and the yen strengthen.
Southeast Asia
Asia's small-cap stocks were hit hard by the broad currency crisis, with
small companies in Hong Kong and Australia being sold off particularly
sharply.
Hong Kong's currency, which has long gained stability by being directly
pegged to the U.S. dollar, came under considerable pressure in October.
4
<PAGE>
As a result, short-term interest rates rose more than 100%, and Hong
Kong's stock market, which had been outperforming, fell sharply.
The government's determination to protect its currency (and,
correspondingly, its position as a global financial center) will have a
negative impact on the economy. In particular, retail stocks such as
Giordano International and Esprit Holdings are likely to struggle.
However, share prices have already been beaten down to levels last seen
in 1989, and we will be looking to pick up stocks in well-managed
companies over the next few months.
In Taiwan, the stock market was led down by the technology sector after
it became overvalued. We trimmed holdings in Yageo and Compal
Electronics earlier in the summer.
In Australia and New Zealand, stock market returns were limited in U.S.
dollar terms by the weakness of both currencies, in part a reflection of
their trading proximity to the problems further north. However, recent
interest rate cuts in Australia are starting to give life to a flagging
economy: retail sales are picking up and the housing sector is reviving.
Natural resource stocks were poor performers, but financials benefited
from cost-cutting efforts and the lower interest rates. Fund holding
Tyndall Australia, an insurance and fund management group, is well
placed for the growing superannuation fund market -- Australia's version
of the 401(k).
- ------------------------
Industry Diversification
- --------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Percent of
Net Assets Net Assets
4/30/97 10/31/97
- --------------------------------------------------------
<S> <C> <C>
Services 26.5% 32.7%
........................................................
Capital Equipment 23.1 26.4
........................................................
Consumer Goods 15.2 13.6
........................................................
Finance 14.4 9.4
........................................................
Materials 8.0 5.8
........................................................
Multi-industry - 2.1
........................................................
Energy 3.8 2.0
........................................................
All Other 1.8 0.8
........................................................
Reserves 7.2 7.2
........................................................
Total 100.0% 100.0%
- --------------------------------------------------------
</TABLE>
Latin America
Once again, Latin America endured a sudden and unexpected loss of
investor confidence, as fear resulting from Asia's currency devaluations
spread. Although Asia's currency problems had at most an indirect effect
on Latin America's economies, past Latin American currency
5
<PAGE>
traumas -- and the rocketing interest rates and capital flight that
accompanied them -- are an all-too-recent memory. For the month of
October, the three largest markets -- Brazil, Mexico, and Argentina --
fell 24.1%, 18.9%, and 18.7% respectively, in U.S. dollar terms.
Fortunately, we reduced the fund's exposure to Latin America ahead of
this turbulence. Throughout the region, large companies with global
presence have sharply outperformed the smaller companies we seek, and we
expect that situation to continue. At the end of the period, the fund's
Latin American weighting was only 3%, down from 10% one year ago.
The key to a return of confidence lies in Brazil. Investors will be
looking for continued action by the Brazilian government to tackle the
fiscal deficit. Any disappointments on this front will be dealt with
harshly by the markets. We still like Brazil's prospects but prefer
stocks with a low direct exposure to the nation's economy. For example,
Telecomunicacoes de Minas Gerais (Telemig), Telecomunicacoes do Parana
(Telepar), and Telecomunicacoes do Rio de Janeiro (Telerj) (all
subsidiaries of the giant telecom holding company Telecomunicacoes
Brasileiras, or Telebras) are privatization plays.
INVESTMENT OUTLOOK
We continue to see many opportunities in foreign smaller companies,
particularly in the U.K., the Netherlands, Germany, Scandinavia, and
Hong Kong. Although it has been frustrating to see the smaller-cap
indices underperform larger-cap stocks in most countries, currently the
valuations on our preferred investments are often far more appealing
than those of their larger counterparts. As in the past, proper stock
selection is critical. With growth in Europe and Japan subdued, we will
continue to favor strong managements and strong franchises that can
create wealth in low-growth environments.
Respectfully submitted,
/s/ Martin G. Wade
Martin G. Wade
President
November 19, 1997
6
<PAGE>
T. Rowe Price International Discovery Fund
- ---------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
10/31/97
- --------------------------------------------------------------------------
<S> <C>
Corporate Services Group, United Kingdom 2.1%
..........................................................................
Select Appointment, United Kingdom 2.0
..........................................................................
CRT Group, United Kingdom 1.8
..........................................................................
Merkantildata, Norway 1.8
..........................................................................
Ashtead Group, United Kingdom 1.8
- --------------------------------------------------------------------------
Mayflower, United Kingdom 1.8
..........................................................................
Tomra Systems, Norway 1.7
..........................................................................
Prosegur Seguridad, Spain 1.6
..........................................................................
Azkoyen, Spain 1.5
..........................................................................
Konecranes International, Finland 1.5
- --------------------------------------------------------------------------
Greggs, United Kingdom 1.5
..........................................................................
Serco Group, United Kingdom 1.4
..........................................................................
Devro International, United Kingdom 1.4
..........................................................................
Ahrend, Netherlands 1.4
..........................................................................
Gewiss, Italy 1.4
- --------------------------------------------------------------------------
JBA Holdings, United Kingdom 1.4
..........................................................................
Powerscreen International, United Kingdom 1.3
..........................................................................
Swisslog Holding, Switzerland 1.3
..........................................................................
Kingspan Group, Ireland 1.2
..........................................................................
Sage Group, United Kingdom 1.2
- --------------------------------------------------------------------------
Freepages Group, United Kingdom 1.2
..........................................................................
Sixt, Germany 1.1
..........................................................................
Bodycote International, United Kingdom 1.1
..........................................................................
Harvey Nichols Group, United Kingdom 1.0
..........................................................................
Eurobike, Germany 1.0
- --------------------------------------------------------------------------
Total 36.5%
</TABLE>
7
<PAGE>
T. Rowe Price International Discovery 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.
INTERNATIONAL DISCOVERY FUND
------------------------------------------------------------------------
[INTERNATIONAL DISCOVERY FUND BAR GRAPH APPEARS HERE]
As of 10/31/97
<TABLE>
<CAPTION>
International MSCI EAFE
Date Discovery Fund Index
-------- -------------- ---------
<S> <C> <C>
12/30/88 10,000 10,000
10/89 12,850 10,170
10/90 13,462 8,893
10/91 13,973 9,543
10/92 12,672 8,312
10/93 17,357 11,461
10/94 19,036 12,650
10/95 16,551 12,642
10/96 18,471 14,007
10/97 18,784 14,696
</TABLE>
- ------------------------------------
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.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 10/31/97 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Discovery Fund 1.69% -0.44% 8.19% 7.40% 12/30/88
................................................................................
</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.
8
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
- --------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ten Months++ Year
Ended Ended Ended
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 15.97 $ 14.43 $ 17.63 $ 16.16 $ 11.68 $ 12.99
...................................................................
Investment activities
Net investment income 0.02 0.07 0.10 0.04 0.07* 0.13*
Net realized and
unrealized gain (loss) 0.25 1.59 (2.38) 1.52 4.41 (1.31)
...................................................................
Total from
investment activities 0.27 1.66 (2.28) 1.56 4.48 (1.18)
...................................................................
Distributions
Net investment income (0.07) (0.10) (0.06) (0.07) - (0.13)
Net realized gain (0.06) (0.02) (0.87) (0.02) - -
...................................................................
Total distributions (0.13) (0.12) (0.93) (0.09) - (0.13)
...................................................................
Redemption fees added
to paid-in-capital - - 0.01 - - -
...................................................................
NET ASSET VALUE
End of period $ 16.11 $ 15.97 $ 14.43 $ 17.63 $ 16.16 $ 11.68
-------------------------------------------------------------------
Ratios/Supplemental Data
Total return 1.69% 11.60% (13.06)% 9.67% 38.36%* (9.08)%*
....................................................................................................
Ratio of expenses to
average net assets 1.41% 1.45% 1.50% 1.50% 1.50%+* 1.50%*
....................................................................................................
Ratio of net investment
income to average
net assets 0.13% 0.40% 0.55% 0.38% 0.81%+* 1.07%*
....................................................................................................
Portfolio turnover rate 72.7% 52.0% 43.5% 57.4% 71.8%+ 38.0%
....................................................................................................
Average commission
rate paid $ 0.0008 $ 0.0013 $ - $ - $ - $ -
....................................................................................................
Net assets, end of period
(in thousands) $ 254,430 $ 325,639 $325,374 $ 503,442 $ 329,001 $ 166,362
....................................................................................................
</TABLE>
* Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
through 12/31/93.
+ Annualized.
++ The fund's fiscal year-end was changed to 10/31.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
October 31, 1997
<TABLE>
<CAPTION>
- -----------------------
Statement of Net Assets Shares/Par Value
- ---------------------------------------------------------------------------
In thousands
<S> <C> <C>
AUSTRALIA 4.0%
Common Stocks and Rights 4.0%
Austrim 535,290 $ 1,205
........................................................................
BRL Hardy 390,602 1,058
........................................................................
Energy Equity 657,000 476
........................................................................
Harvey Norman Holdings 82,362 524
........................................................................
Harvey Norman Holdings, Rights, 11/21/97 * 3,294 3
........................................................................
Lang Corporation 852,000 899
........................................................................
Novogen 461,000 470
........................................................................
Novus Petroleum 579,079 1,894
........................................................................
Prime Television 423,610 804
........................................................................
Ramsay Health Care * 287,000 389
........................................................................
Skilled Engineering 373,211 349
........................................................................
Sonic Healthcare 492,309 519
........................................................................
Stanilite Pacific * 209,476 0
........................................................................
Tyndall Australia 1,032,978 1,663
........................................................................
Total Australia (Cost $11,478) 10,253
...........
BRAZIL 1.6%
Common Stocks 0.6%
Cia Paranaense de Energia Copel 32,515,000 380
........................................................................
Electricidade de Rio de Janeiro 867,417,000 543
........................................................................
Pao de Acucar GDS (USD) 33,035 604
........................................................................
Telecomunicacoes de Minas Gerais 149,683 21
........................................................................
1,548
........................................................................
Preferred Stocks and Rights 1.0%
........................................................................
Electricidade de Sao Paulo * 2,286,000 390
........................................................................
Electricidade de Sao Paulo, Rights, 11/27/97 * 548,885 2
........................................................................
Globex Utilidades 1,000 10
........................................................................
Lojas Renner 5,244,220 188
........................................................................
Telecomunicacoes de Minas Gerais (Class B) 7,517,000 941
........................................................................
Telecomunicacoes de Minas Gerais (Class B),
Preference Receipts * 85,839 8
........................................................................
Telecomunicacoes do Parana 940,743 490
........................................................................
Telecomunicacoes do Parana, Rights, 11/11/97 * 45,885 0
........................................................................
</TABLE>
10
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Telecomunicacoes do Rio de Janeiro 4,553,874 $ 434
.............................................................................
Telecomunicacoes do Rio de Janeiro, Rights, 11/11/97 * 176,571 1
.............................................................................
2,464
.........
Total Brazil (Cost $4,087) 4,012
.........
CHILE 0.3%
Common Stocks 0.3%
.............................................................................
Chilquinta ADR (USD) 18,494 250
.............................................................................
Santa Isabel ADR (USD) 13,616 252
.............................................................................
Sociedad Quimica Minera de Chile (Class B) ADR (USD) 5,976 310
.............................................................................
Total Chile (Cost $990) 812
.........
CHINA 1.1%
Common Stocks 0.8%
China Southern Airlines (HKD) * 192,000 85
.............................................................................
Guangshen Railway (HKD) 776,000 241
.............................................................................
Shanghai Industrial Holdings (HKD) 180,000 801
.............................................................................
Shenzhen Expressway (Class H) (HKD) * 3,332,000 715
.............................................................................
Zhejiang Expressway (HKD) 1,416,000 275
.............................................................................
2,117
.........
Convertible Bonds 0.3%
Qingling Motors, 3.50%, 1/22/02 USD 529,000 595
.............................................................................
595
.........
Total China (Cost $2,969) 2,712
.........
DENMARK 0.4%
Common Stocks 0.4%
William Demant Holding 24,430 1,141
.............................................................................
Total Denmark (Cost $1,145) 1,141
.........
FINLAND 2.3%
Common Stocks 2.3%
Cultor 41,726 2,218
.............................................................................
Konecranes International 98,980 3,731
.............................................................................
Total Finland (Cost $6,332) 5,949
.........
</TABLE>
11
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
FRANCE 4.1%
Common Stocks 4.1%
Altran Technologies 7,282 $ 1,944
.............................................................................
Bic 28,048 1,919
.............................................................................
CET 17,630 726
.............................................................................
Cipe France 53,160 1,332
.............................................................................
Guilbert 13,976 1,824
.............................................................................
Rexel 3,680 976
.............................................................................
Spir Communication 6,480 414
.............................................................................
Television Francaise 12,530 1,167
.............................................................................
Total France (Cost $11,035) 10,302
.........
GERMANY 3.4%
Common Stocks 2.7%
Eurobike 115,720 2,585
.............................................................................
Pfeiffer Vacuum Technology ADR (USD) * 45,295 1,472
.............................................................................
Sixt 33,505 2,915
.............................................................................
6,972
.........
Preferred Stocks 0.7%
Rhon Klinikum 18,330 1,733
.............................................................................
1,733
.........
Total Germany (Cost $7,513) 8,705
.........
HONG KONG 3.4%
Common Stocks and Warrants 3.4%
Amway Asia Pacific (USD) 16,300 387
.............................................................................
DC Finance Holdings 5,368,000 344
.............................................................................
Dah Sing Financial 159,200 399
.............................................................................
Dickson Concepts International 124,000 267
.............................................................................
Esprit Holdings 1,938,000 689
.............................................................................
Giordano International 2,310,000 852
.............................................................................
HKR International, Warrants, 6/23/00 * 725,200 289
.............................................................................
Hong Kong China 1,200,000 314
.............................................................................
JCG Holdings 818,000 362
.............................................................................
Lai Sun Development 1,188,800 492
.............................................................................
Lai Sun Development, Warrants, 3/23/99 * 360,900 9
.............................................................................
</TABLE>
12
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Lai Sun Hotels International, Warrants, 4/30/99 * 269,906 $ 3
.............................................................................
Legend Holdings 856,000 291
.............................................................................
Moulin International, Warrants, 11/14/97 * 1,590,000 226
.............................................................................
National Mutual Asia 751,000 680
.............................................................................
QPL International 1,160,000 720
.............................................................................
Sa Sa International Holdings * 1,884,000 336
.............................................................................
Smartone Telecommunications 226,000 497
.............................................................................
South China Morning Post 461,000 400
.............................................................................
Union Bank of Hong Kong 167,800 211
.............................................................................
Vtech Holdings 264,600 517
.............................................................................
YGM Trading 534,000 387
.............................................................................
Total Hong Kong (Cost $13,399) 8,672
............
HUNGARY 0.0%
Common Stocks 0.0%
Richter Gedeon GDS (USD) 1,190 111
.............................................................................
Total Hungary (Cost $128) 111
............
INDIA 2.6%
Common Stocks 2.6%
Gujarat Ambuja Cement GDR (USD) 123,920 1,007
.............................................................................
Hindustan Lever 21,000 740
.............................................................................
Hindustan Petroleum 50,800 668
.............................................................................
Housing Development Finance 6,500 549
.............................................................................
Industrial Credit & Investment Corporation of India 565,450 1,367
.............................................................................
Mahanagar Telephone 183,000 1,276
.............................................................................
Ranbaxy Laboratories 29,650 578
.............................................................................
State Bank of India 48,000 346
.............................................................................
Total India (Cost $6,203) 6,531
............
INDONESIA 0.1%
Common Stocks and Warrants 0.1%
Bank International Indonesia, Warrants, 1/17/00 * 498 0
.............................................................................
Gulf Indonesia Resources (USD) * 15,000 315
.............................................................................
Total Indonesia (Cost $293) 315
............
</TABLE>
13
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
IRELAND 1.2%
Common Stocks 1.2%
Kingspan Group 168,468 $ 3,040
.............................................................................
Total Ireland (Cost $643) 3,040
............
ITALY 2.0%
Common Stocks 2.0%
Gewiss 181,902 3,545
.............................................................................
Gucci Group (USD) 31,333 1,140
.............................................................................
Safilo 15,542 395
.............................................................................
Total Italy (Cost $5,170) 5,080
............
JAPAN 14.0%
Common Stocks 14.0%
Apollo Electronics 30,000 294
.............................................................................
Asatsu 3,700 77
.............................................................................
Chofu Seisakusho 41,600 570
.............................................................................
Circle K Japan 25,200 1,294
.............................................................................
Disco 25,000 804
.............................................................................
FCC 44,500 703
.............................................................................
Fuji Machine 53,000 1,537
.............................................................................
Fujimi 10,600 583
.............................................................................
Hamada Printing Press 76,000 253
.............................................................................
Hirose Electric 23,400 1,526
.............................................................................
Homac 28,400 203
.............................................................................
Horiba 45,000 509
.............................................................................
Hoya 47,000 1,632
.............................................................................
Japan Airport Terminal 61,000 598
.............................................................................
Japan Living Service 54,000 209
.............................................................................
Juken Sangyo 19,000 81
.............................................................................
Juntendo 56,000 183
.............................................................................
KOA 75,000 916
.............................................................................
KTK Telecommunications Engineering 104,000 549
.............................................................................
Kanamoto 65,000 307
.............................................................................
Kansai Sekiwa Real Estate 41,000 204
.............................................................................
Karakami Kankoh 14,000 180
.............................................................................
</TABLE>
14
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Kawasumi Laboratories 111,000 $ 1,513
.............................................................................
Keyence 13,900 2,079
.............................................................................
Kirin Beverage 42,000 698
.............................................................................
Lasertec 21,000 654
.............................................................................
Mabuchi Motor 19,900 1,108
.............................................................................
Marukyo 33,000 274
.............................................................................
Maruzen 36,000 132
.............................................................................
Matsumotokiyoshi 8,200 300
.............................................................................
Meitec 13,000 383
.............................................................................
Meitetsu Transport 14,000 31
.............................................................................
Nichicon 101,000 1,250
.............................................................................
Nichiei 22,100 2,424
.............................................................................
Nidec 12,070 471
.............................................................................
Nippon Denwa Shisetsu 97,000 561
.............................................................................
Nitta 43,000 500
.............................................................................
Noritsu Koki 37,000 1,230
.............................................................................
Paris Miki 25,600 447
.............................................................................
Promise 18,260 1,068
.............................................................................
Rohto Pharmaceutical 123,000 1,012
.............................................................................
Santen Pharmaceutical 79,000 1,418
.............................................................................
Seiko 24,000 202
.............................................................................
Shinkawa 38,000 663
.............................................................................
Sodick 58,000 280
.............................................................................
Tachihi Enterprise 13,000 315
.............................................................................
Techno Ryowa 2,100 14
.............................................................................
Toa Medical Electronics 61,000 735
.............................................................................
Toc 119,000 1,196
.............................................................................
Tokyo Tanabe 128,000 643
.............................................................................
Ushio 35,000 381
.............................................................................
Yellow Hat 25,500 286
.............................................................................
Zuiko 27,000 249
.............................................................................
Total Japan (Cost $42,355) 35,729
............
MALAYSIA 0.8%
Common Stocks 0.8%
Guinness Anchor Bond 183,000 216
.............................................................................
MNI Holdings 330,000 797
.............................................................................
</TABLE>
15
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Malaysian Assurance Alliance 296,737 $ 534
............................................................................
RJ Reynolds 170,000 263
............................................................................
Time Engineering 565,000 244
............................................................................
Total Malaysia (Cost $4,340) $ 2,054
...........
MEXICO 1.0%
Common Stocks 1.0%
Control Commercial Mexicana, Units (Each unit
consists of 3 Class B shares and 1 Class C share) 336,590 333
............................................................................
Corporacion Geo * 104,000 561
............................................................................
Gruma (Class B) * 48,960 191
............................................................................
Grupo Elektra 301,520 410
............................................................................
Grupo Financiero Inbursa 30,000 106
............................................................................
Grupo Industrial Maseca (Class B) 632,313 611
............................................................................
Sigma Alimentos (Class B) 32,700 447
............................................................................
Total Mexico (Cost $2,580) 2,659
...........
NETHERLANDS 6.3%
Common Stocks 6.3%
Aalberts Industries 69,440 1,820
............................................................................
Ahrend 108,094 3,602
............................................................................
Atag 35,190 2,229
............................................................................
Content Beheer 29,780 936
............................................................................
GTI 77,160 2,106
............................................................................
Getronics 54,336 1,794
............................................................................
Otra 126,380 2,018
............................................................................
Randstad Holdings 39,745 1,587
............................................................................
Total Netherlands (Cost $13,750) 16,092
...........
NEW ZEALAND 2.2%
Common Stocks 2.2%
Corporate Investments 2,782,000 1,559
............................................................................
Independent Newspapers 159,000 831
............................................................................
Restaurant Brands * 447,800 580
............................................................................
Sky City 300,000 1,093
............................................................................
Warehouse Group 528,900 1,515
............................................................................
Total New Zealand (Cost $5,587) 5,578
...........
</TABLE>
16
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
NORWAY 3.5%
Common Stocks 3.5%
Merkantildata 136,380 $ 4,593
............................................................................
Tomra Systems 164,790 4,251
............................................................................
Total Norway (Cost $3,796) 8,844
............
PERU 0.1%
Common Stocks 0.1%
Minsur (Class T) 46,303 124
............................................................................
Total Peru (Cost $142) 124
............
PHILIPPINES 0.2%
Common Stocks 0.1%
La Tondena Distillers 255,000 155
............................................................................
Universal Robina 1,506,000 191
............................................................................
346
............
Convertible Bonds 0.1%
Benpres Holdings, 4.20%, 11/26/49 USD 253,300 253
............................................................................
253
............
Total Philippines (Cost $1,993) 599
............
SINGAPORE 0.6%
Common Stocks 0.6%
Bukit Sembawang Estates 19,000 145
............................................................................
Clipsal (USD) 228,000 590
............................................................................
Venture Manufacturing 198,500 681
............................................................................
Total Singapore (Cost $1,502) 1,416
............
SPAIN 3.1%
Common Stocks 3.1%
Azkoyen 34,265 3,771
............................................................................
Prosegur Seguridad 356,540 3,995
............................................................................
Total Spain (Cost $5,220) 7,766
............
</TABLE>
17
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
SWEDEN 3.0%
Common Stocks 3.0%
ADB Gruppen Mandator * 82,460 $ 1,464
.............................................................................
Assa-Abloy (Class B) 73,508 1,678
.............................................................................
Atle 101,170 1,526
.............................................................................
Ortivus (Class B) 41,180 1,430
.............................................................................
Securitas (Class B) 60,110 1,605
.............................................................................
Total Sweden (Cost $6,858) 7,703
.............................................................................
SWITZERLAND 5.1%
Common Stocks 5.1%
Bucher Holding 1,320 1,245
.............................................................................
Disetronic Holdings 1,073 2,134
.............................................................................
Gurit Heberlien 480 1,517
.............................................................................
Liechtenstein Global Trust 2,575 1,287
.............................................................................
SMH Neuenburg 3,552 1,981
.............................................................................
Swisslog Holding * 41,400 3,223
.............................................................................
Valora Holdings 7,350 1,575
.............................................................................
Total Switzerland (Cost $12,202) 12,962
............
TAIWAN 1.1%
Common Stocks and Rights 1.1%
Bank Sino Pacific * 1,025,067 745
.............................................................................
Chyang Sheng Dyeing and Finishing * 48,750 34
.............................................................................
Compal Electronics * 188,500 430
.............................................................................
Compal Electronics, Rights, 11/15/97* 16,275 0
.............................................................................
Delpha Construction* 120,447 144
.............................................................................
Delta Electronics 55,000 175
.............................................................................
Hung Poo Construction * 285,600 296
.............................................................................
Taishin International Bank 935,403 716
.............................................................................
Walsin Lihwa * 247,282 150
.............................................................................
Yageo * 33,280 70
.............................................................................
Total Taiwan (Cost $3,694) 2,760
............
</TABLE>
18
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
THAILAND 0.2%
Common Stocks 0.2%
Dusit Thani 165,000 $ 117
.............................................................................
Royal Orchid Hotel 324,900 127
.............................................................................
Royal Orchid Hotel, Local Shares 16,000 6
.............................................................................
Siam Makro 39,000 50
.............................................................................
Siam Makro, Local Shares 27,000 35
.............................................................................
Thai Wah Resort Development 277,900 113
.............................................................................
Total Thailand (Cost $729) 448
............
UNITED KINGDOM 25.0%
Common Stocks 24.8%
Ashtead Group 774,998 4,525
.............................................................................
Bodycote International 167,043 2,895
.............................................................................
Britton Group 428,256 762
.............................................................................
CRT Group 855,422 4,621
.............................................................................
Carpetright 210,000 1,885
.............................................................................
Chamberlain Phipps * 134,000 0
.............................................................................
Cordiant 439,000 906
.............................................................................
Corporate Services Group 1,401,250 5,243
.............................................................................
Devro International 584,500 3,619
.............................................................................
Druck Holdings 103,400 494
.............................................................................
Freepages Group * 4,949,412 2,948
.............................................................................
Greggs 106,000 3,690
.............................................................................
Harvey Nichols Group 641,000 2,635
.............................................................................
Hozelock Group 209,679 1,161
.............................................................................
JBA Holdings 216,836 3,445
.............................................................................
Mayflower 1,347,000 4,497
.............................................................................
N Brown Group 126,340 816
.............................................................................
Pentos * 733,333 0
.............................................................................
Pizza Express 192,000 2,410
.............................................................................
Powerscreen International 292,000 3,410
.............................................................................
Regal Hotel Group 2,078,906 1,430
.............................................................................
Sage Group 249,000 3,008
.............................................................................
Select Appointment 545,290 5,004
.............................................................................
Serco Group 262,000 3,637
.............................................................................
63,041
..........
</TABLE>
19
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Preferred Stocks 0.2%
<S> <C> <C>
Regal Hotel Group, Cv. Loan Stock, 8.00%, 6/30/01 335,039 $ 601
...............................................................................
601
.............
Total United Kingdom (Cost $45,767) 63,642
.............
VIETNAM 0.1%
Common Stocks 0.1%
Lazard Vietnam Fund Limited (USD)* 106,600 267
...............................................................................
Total Vietnam (Cost $320) 267
.............
SHORT-TERM INVESTMENTS 5.9%
Money Market Funds 5.9%
Reserve Investment Fund, Inc., 5.65% $14,887,863 14,888
...............................................................................
Total Short-Term Investments (Cost $14,888) 14,888
.............
Total Investments in Securities
98.7% of Net Assets (Cost $237,108) $ 251,166
Other Assets Less Liabilities 3,264
.............
NET ASSETS $ 254,430
-------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of
distributions $ 3,777
Net unrealized gain (loss) 13,827
Paid-in-capital applicable to 15,794,723 shares of
$0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized 236,826
............
NET ASSETS $ 254,430
------------
NET ASSET VALUE PER SHARE $ 16.11
------------
</TABLE>
* Non-income producing
HKD Hong Kong dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
- -----------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
10/31/97
Investment Income
<S> <C>
Income
Dividend (net of foreign taxes of $ 504) $ 3,846
Interest 883
.........
Total income 4,729
.........
Expenses
Investment management 3,313
Shareholder servicing 644
Custody and accounting 241
Prospectus and shareholder reports 66
Registration 28
Legal and audit 16
Directors 7
Miscellaneous 11
.........
Total expenses 4,326
.........
Net investment income 403
.........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 22,855
Foreign currency transactions (1,169)
.........
Net realized gain (loss) 21,686
.........
Change in net unrealized gain or loss
Securities (13,181)
Other assets and liabilities
denominated in foreign currencies (164)
.........
Change in net unrealized gain or loss (13,345)
.........
Net realized and unrealized gain (loss) 8,341
.........
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 8,744
.........
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
- ----------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year Year
Ended Ended
10/31/97 10/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 403 $ 1,305
Net realized gain (loss) 21,686 (8,158)
Change in net unrealized gain or loss (13,345) 40,947
..........................
Increase (decrease) in net assets from operations 8,744 34,094
..........................
Distributions to shareholders
Net investment income (1,385) (2,150)
Net realized gain (1,189) (429)
..........................
Decrease in net assets from distributions (2,574) (2,579)
..........................
Capital share transactions*
Shares sold 29,231 63,094
Distributions reinvested 2,392 2,296
Shares redeemed (109,073) (96,750)
Redemption fees received 71 110
..........................
Increase (decrease) in net assets from capital
share transactions (77,379) (31,250)
..........................
Net Assets
Increase (decrease) during period (71,209) 265
Beginning of period 325,639 325,374
..........................
End of period $ 254,430 $325,639
==========================
* Share information
Shares sold 1,743 4,036
Distributions reinvested 149 161
Shares redeemed (6,488) (6,350)
..........................
Increase (decrease) in shares outstanding (4,596) (2,153)
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. Rowe Price International Discovery 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 International Discovery Fund
(the fund), a diversified, open-end management investment company, is one
of the portfolios established by the corporation and commenced operations
on December 30, 1988.
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.
23
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and
losses are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-
dividend date. Income and capital gain distributions are determined in
accordance with federal income tax regulations and may differ from those
determined in accordance with generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the
following practices to manage exposure to certain risks or enhance
performance. The investment objective, policies, program, and risk
factors of the fund are described more fully in the fund's prospectus
and Statement of Additional Information.
Emerging Markets At October 31, 1997, the fund held investments in
securities of companies located in emerging markets. Future economic or
political developments could adversely affect the liquidity or value, or
both, of such securities.
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 $6,710,000. 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 $209,469,000 and $285,645,000, 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. Capital loss carryforwards utilized in 1997
amounted to $17,366,000.
24
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, the
following reclassifications were made during the year ended October 31,
1997. The results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
-------------------------------------------------------------------
Undistributed net investment income $ (221,000)
Undistributed net realized gain 750,000
Paid-in-capital (529,000)
For federal income tax purposes, the fund intends to elect to pass
through foreign source income of $507,000 and foreign taxes paid of
$507,000 for its tax year ended October 31, 1997; the per share effect
of these pass-throughs is $0.03 and $0.03, respectively, based on fund
shares outstanding on October 31, 1997. These amounts may differ from
amounts reported in the accompanying financial statements due to
differences in financial and federal income tax reporting requirements.
At October 31, 1997, the aggregate cost of investments for federal
income tax and financial reporting purposes was $237,108,000, and net
unrealized gain aggregated $14,058,000, of which $44,493,000 related to
appreciated investments and $30,435,000 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 $250,000 was
payable at October 31, 1997. The fee is computed daily and paid monthly,
and consists of an individual fund fee equal to 0.75% 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.
25
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
In addition, the fund has entered into agreements with Price Associates
and two wholly owned subsidiaries of Price Associates, pursuant to which
the fund receives certain other services. Price Associates computes the
daily share price and maintains the financial records of the fund. T.
Rowe Price Services, Inc. (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 $647,000 for the year
ended October 31, 1997, of which $65,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government
Reserve Investment Fund (collectively, the Reserve Funds), open-end
management investment companies managed by T. Rowe Price Associates,
Inc. The Reserve Funds are offered as cash management options only to
mutual funds and other accounts managed by T. Rowe Price and its
affiliates and are not available to the public. The Reserve Funds pay no
investment management fees. Distributions from the Reserve Funds to the
fund for the year ended October 31, 1997, totaled $189,000 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
$64,133,000 with certain affiliates of the manager and paid commissions
of $256,000 related thereto.
26
<PAGE>
T. Rowe Price International Discovery Fund
- --------------------------------------------------------------------------------
- ---------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price International Discovery 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 International Discovery 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
27
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
Knowledgeable Service Representatives
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to
10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
Account Services
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access/(R)/ and T. Rowe Price
OnLine.
Discount Brokerage*
Individual Investments Stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
Investment Information
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
28
<PAGE>
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
Stock Funds
....................................
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications*
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock***
Small-Cap Value**
Spectrum Growth
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
....................................
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Government Bond
International Bond
Money Market FUNDS
....................................
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
Blended Asset FUNDS
....................................
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. Rowe Price No-Load
Variable Annuity
....................................
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly the closed-end New Age Media Fund; converted to open-end
status on 7/28/97.
** Closed to new investors.
*** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
29
<PAGE>
For yield, price, last transaction, Investor Centers:
current balance, or to conduct 101 East Lombard St.
transactions, 24 hours, 7 days Baltimore, MD 21202
a week, call Tele*Access/(R)/:
1-800-638-2587 toll free T. Rowe Price
Financial Center
For assistance 10090 Red Run Blvd.
with your existing Owings Mills, MD 21117
fund account, call:
Shareholder Service Center Farragut Square
1-800-225-5132 toll free 900 17th Street, N.W.
410-625-6500 Baltimore area Washington, D.C. 20006
To open a Discount Brokerage ARCO Tower
account or obtain information, 31st Floor
call: 1-800-638-5660 toll free 515 South Flower St.
Los Angeles, CA 90071
Internet address:
www.troweprice.com 4200 West Cypress St.
10th Floor
T. Rowe Price Associates Tampa, FL 33607
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 International
Discovery Fund.
[LOGO FOR T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F38-050 10/31/97
