Annual Report
International
Discovery
Fund
October 31, 2000
T. Rowe Price
REPORT HIGHLIGHTS
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International Discovery Fund
o International small-cap stocks declined during the six months ended
October 31 as technology stocks fell sharply.
o The fund posted negative returns, lagging its benchmarks for the six
months; strong results late in 1999 and early in 2000 led to solid gains
for the 12-month period.
o We trimmed our holdings in technology, media, and telecommunications and
added positions in business services and biotechnology.
o Despite this year's setback, the outlook is bright for emerging growth
companies, but stock selection and research remain crucial.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
International small-cap stocks struggled during the six months ended October 31,
2000, reversing trends of the previous 18 months. Building on a powerful
fourth-quarter 1999 rally, markets surged early in 2000, fueled by investor
enthusiasm for shares of technology companies-especially Internet-related
stocks. Asian markets peaked in January, but European small-caps continued to
climb until mid-March, when technology stocks began a sharp decline that
continued-with considerable volatility-through October. Telecommunications and
media companies were hit hard late in the period.
Performance Comparison
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Periods Ended 10/31/00 6 Months 12 Months
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International Discovery Fund -12.34% 40.07%
MSCI EAFE Small Cap Index* -6.56 -7.92
Salomon Non-U.S.
Extended Market Index -6.34 -1.04
* Principal return only
Your fund posted sharply negative returns for the six-month period, lagging
its benchmark indices. Fund returns were hurt by the reversal of market
conditions, as the high-potential growth stocks your fund favors
underperformed value stocks. Strong results in the previous six months
lifted the fund to a 40.07% 12-month return, far superior to its
benchmarks.
The recent downturn was at least partially the result of a slowdown in
corporate information technology (IT) spending after Y2K fears passed. The
failure of a number of high-profile e-commerce retailers and a general
slowdown in advertising spending by dot-com companies also contributed to
the decline. Broader concerns weighing on the equity markets included
slower economic growth, high oil prices, and euro weakness. Some sectors
bucked the downtrend, however, including alternative energy and oil
services, health care and medical devices, and biotechnology.
PORTFOLIO AND MARKET REVIEW
Six months ago we reported that we were selling European technology and
telecommunications highfliers whose valuations had become stretched.
Although that move proved judicious, it did not prevent the fund from
suffering losses in the tech and telecom sell-off. Stocks that hurt fund
performance included Dialog Semiconductor (U.K.), Bright Station
(e-commerce, U.K.), Lynx Group (IT services, U.K.), IFCO Systems (logistic
services, Netherlands), Software (systems software, Germany), and Ubizen
(IT services, Belgium). Non-European tech stocks also dragged down returns,
including Partner Communications (mobile telecommunications, Israel) and
Gilat Satellite Networks (satellite technology, Israel).
Can the Euro Also Rise?
Understanding why the euro has been weak helps explain why it should
recover. Several factors have pushed the euro-the common currency for 11
countries in Continental Europe-down 27% since its launch on January 1,
1999. Chris Rothery, a portfolio manager at T. Rowe Price International
(TRPI), thinks each of these factors could moderate or reverse in the next
year.
Capital flows into the U.S. have risen sharply in recent years as European
companies acquired an unprecedented number of U.S. businesses and as
Europeans invested in U.S. financial assets. Both trends are moderating,
however. This year's weakness in the U.S. stock market has made investment
here less attractive. "The Nasdaq bubble appears to have been pricked,
which should also take some steam out of the dollar," says Rothery.
The persistent strength of the U.S. economy has also hurt the euro, as it
makes the U.S. a more attractive place to invest. But U.S. growth has
showed signs of slowing recently, narrowing the advantage over European
growth.
Higher-yielding U.S. government bonds also lured investors. Recently,
however, long-term U.S. rates have declined while those in the euro zone
have remained stable.
Since the euro's launch, oil prices have more than tripled, and Europe's
demand for the dollars needed to pay for oil has surged. But oil prices are
stabilizing and expected to trend lower.
While the Federal Reserve is respected and well established, the European
Central Bank (ECB) has less than two years' experience. ECB officials have
aggravated investors' uncertainty by making confusing remarks. Lately, ECB
officials have become more politically astute and are expected to make more
careful statements.
Though TRPI portfolio managers have been surprised by the extent of the
euro's decline, they point out that markets often overshoot. It would be a
mistake for U.S. investors to shun euro assets, says Rothery.
John Ford, TRPI's chief investment officer, sees Europe at an earlier stage
of the economic cycle than the U.S., with greater room for productivity
improvement. "If we can get into a virtuous cycle, then investors can
benefit from better economic performance, higher returns on capital, and a
strong chance of currency appreciation to boot," Ford says.
THE EURO VS. THE U.S. DOLLAR
Px Last
12/31/1998 1.1667
1/1/1999 1.1697
1/4/1999 1.1837
1/5/1999 1.1761
1/6/1999 1.1628
1/7/1999 1.1712
1/8/1999 1.1585
1/11/1999 1.1494
1/12/1999 1.156
1/13/1999 1.1669
1/14/1999 1.169
1/15/1999 1.1555
1/18/1999 1.1613
1/19/1999 1.1595
1/20/1999 1.1565
1/21/1999 1.1602
1/22/1999 1.1588
1/25/1999 1.1535
1/26/1999 1.156
1/27/1999 1.1444
1/28/1999 1.142
1/29/1999 1.1362
2/1/1999 1.1309
2/2/1999 1.1351
2/3/1999 1.1314
2/4/1999 1.134
2/5/1999 1.1266
2/8/1999 1.1323
2/9/1999 1.1315
2/10/1999 1.1326
2/11/1999 1.1223
2/12/1999 1.1308
2/15/1999 1.1223
2/16/1999 1.1209
2/17/1999 1.1248
2/18/1999 1.1195
2/19/1999 1.1069
2/22/1999 1.1021
2/23/1999 1.1007
2/24/1999 1.1007
2/25/1999 1.1034
2/26/1999 1.1028
3/1/1999 1.0892
3/2/1999 1.0941
3/3/1999 1.0875
3/4/1999 1.0799
3/5/1999 1.0823
3/8/1999 1.0888
3/9/1999 1.0881
3/10/1999 1.0943
3/11/1999 1.1042
3/12/1999 1.0905
3/15/1999 1.0932
3/16/1999 1.0996
3/17/1999 1.1002
3/18/1999 1.0972
3/19/1999 1.0896
3/22/1999 1.0907
3/23/1999 1.0892
3/24/1999 1.087
3/25/1999 1.0839
3/26/1999 1.08
3/29/1999 1.0732
3/30/1999 1.0732
3/31/1999 1.0762
4/1/1999 1.0795
4/2/1999 1.0786
4/5/1999 1.0712
4/6/1999 1.083
4/7/1999 1.0775
4/8/1999 1.0742
4/9/1999 1.0797
4/12/1999 1.0804
4/13/1999 1.0782
4/14/1999 1.0802
4/15/1999 1.0713
4/16/1999 1.0705
4/19/1999 1.066
4/20/1999 1.0625
4/21/1999 1.0584
4/22/1999 1.0646
4/23/1999 1.0599
4/26/1999 1.059
4/27/1999 1.0662
4/28/1999 1.062
4/29/1999 1.0608
4/30/1999 1.057
5/3/1999 1.0567
5/4/1999 1.063
5/5/1999 1.0762
5/6/1999 1.0792
5/7/1999 1.0757
5/10/1999 1.0782
5/11/1999 1.0712
5/12/1999 1.0646
5/13/1999 1.0656
5/14/1999 1.0659
5/17/1999 1.0671
5/18/1999 1.0674
5/19/1999 1.0662
5/20/1999 1.0623
5/21/1999 1.0584
5/24/1999 1.0607
5/25/1999 1.0624
5/26/1999 1.0443
5/27/1999 1.0423
5/28/1999 1.0429
5/31/1999 1.042
6/1/1999 1.0448
6/2/1999 1.0359
6/3/1999 1.0324
6/4/1999 1.0377
6/7/1999 1.0328
6/8/1999 1.0466
6/9/1999 1.0466
6/10/1999 1.0482
6/11/1999 1.0519
6/14/1999 1.0423
6/15/1999 1.0426
6/16/1999 1.0308
6/17/1999 1.0343
6/18/1999 1.0397
6/21/1999 1.0347
6/22/1999 1.0325
6/23/1999 1.0337
6/24/1999 1.0412
6/25/1999 1.043
6/28/1999 1.0331
6/29/1999 1.0319
6/30/1999 1.0351
7/1/1999 1.023
7/2/1999 1.0249
7/5/1999 1.0223
7/6/1999 1.0236
7/7/1999 1.0222
7/8/1999 1.0222
7/9/1999 1.0196
7/12/1999 1.0145
7/13/1999 1.017
7/14/1999 1.0136
7/15/1999 1.019
7/16/1999 1.0201
7/19/1999 1.0313
7/20/1999 1.04
7/21/1999 1.05
7/22/1999 1.0508
7/23/1999 1.0504
7/26/1999 1.0647
7/27/1999 1.0632
7/28/1999 1.0662
7/29/1999 1.0725
7/30/1999 1.0711
8/2/1999 1.0691
8/3/1999 1.068
8/4/1999 1.0776
8/5/1999 1.0758
8/6/1999 1.0742
8/9/1999 1.0717
8/10/1999 1.071
8/11/1999 1.0658
8/12/1999 1.0674
8/13/1999 1.0567
8/16/1999 1.0581
8/17/1999 1.0507
8/18/1999 1.052
8/19/1999 1.0644
8/20/1999 1.0672
8/23/1999 1.049
8/24/1999 1.0544
8/25/1999 1.0424
8/26/1999 1.0453
8/27/1999 1.0464
8/30/1999 1.0482
8/31/1999 1.0566
9/1/1999 1.0582
9/2/1999 1.0689
9/3/1999 1.0612
9/6/1999 1.0575
9/7/1999 1.0587
9/8/1999 1.0598
9/9/1999 1.0538
9/10/1999 1.0374
9/13/1999 1.0424
9/14/1999 1.0358
9/15/1999 1.0409
9/16/1999 1.0383
9/17/1999 1.0423
9/20/1999 1.0355
9/21/1999 1.0491
9/22/1999 1.0439
9/23/1999 1.0503
9/24/1999 1.0439
9/27/1999 1.0462
9/28/1999 1.0525
9/29/1999 1.0645
9/30/1999 1.0684
10/1/1999 1.0725
10/4/1999 1.0737
10/5/1999 1.0737
10/6/1999 1.0687
10/7/1999 1.0717
10/8/1999 1.0632
10/11/1999 1.0638
10/12/1999 1.0772
10/13/1999 1.0806
10/14/1999 1.0776
10/15/1999 1.0894
10/18/1999 1.0812
10/19/1999 1.0825
10/20/1999 1.0749
10/21/1999 1.0802
10/22/1999 1.069
10/25/1999 1.0675
10/26/1999 1.0592
10/27/1999 1.0518
10/28/1999 1.0511
10/29/1999 1.0549
11/1/1999 1.0513
11/2/1999 1.0527
11/3/1999 1.0489
11/4/1999 1.0375
11/5/1999 1.0421
11/8/1999 1.0383
11/9/1999 1.0403
11/10/1999 1.0447
11/11/1999 1.0405
11/12/1999 1.0318
11/15/1999 1.0332
11/16/1999 1.0302
11/17/1999 1.0416
11/18/1999 1.0296
11/19/1999 1.03
11/22/1999 1.0321
11/23/1999 1.0279
11/24/1999 1.0185
11/25/1999 1.0179
11/26/1999 1.0171
11/29/1999 1.0103
11/30/1999 1.0093
12/1/1999 1.0086
12/2/1999 1.0013
12/3/1999 1.0017
12/6/1999 1.0228
12/7/1999 1.0254
12/8/1999 1.0278
12/9/1999 1.0214
12/10/1999 1.0134
12/13/1999 1.0144
12/14/1999 1.0057
12/15/1999 1.0071
12/16/1999 1.017
12/17/1999 1.0087
12/20/1999 1.0133
12/21/1999 1.0085
12/22/1999 1.0093
12/23/1999 1.0156
12/24/1999 1.011
12/27/1999 1.0132
12/28/1999 1.007
12/29/1999 1.0051
12/30/1999 1.0086
12/31/1999 1.0062
1/3/2000 1.0243
1/4/2000 1.0296
1/5/2000 1.0321
1/6/2000 1.0328
1/7/2000 1.0295
1/10/2000 1.0256
1/11/2000 1.0336
1/12/2000 1.0309
1/13/2000 1.0258
1/14/2000 1.0122
1/17/2000 1.0122
1/18/2000 1.0137
1/19/2000 1.0133
1/20/2000 1.0168
1/21/2000 1.0098
1/24/2000 1.0072
1/25/2000 1.0009
1/26/2000 1.0019
1/27/2000 0.9882
1/28/2000 0.9747
1/31/2000 0.9707
2/1/2000 0.9711
2/2/2000 0.9765
2/3/2000 0.9894
2/4/2000 0.9832
2/7/2000 0.9815
2/8/2000 0.9855
2/9/2000 0.9942
2/10/2000 0.9854
2/11/2000 0.9875
2/14/2000 0.9783
2/15/2000 0.9815
2/16/2000 0.9863
2/17/2000 0.9878
2/18/2000 0.9839
2/21/2000 0.9877
2/22/2000 1.0038
2/23/2000 1.0036
2/24/2000 0.992
2/25/2000 0.9749
2/28/2000 0.9709
2/29/2000 0.9642
3/1/2000 0.9727
3/2/2000 0.9656
3/3/2000 0.9586
3/6/2000 0.9586
3/7/2000 0.9584
3/8/2000 0.961
3/9/2000 0.9669
3/10/2000 0.9637
3/13/2000 0.9642
3/14/2000 0.9686
3/15/2000 0.9669
3/16/2000 0.9696
3/17/2000 0.9721
3/20/2000 0.9728
3/21/2000 0.9615
3/22/2000 0.961
3/23/2000 0.9715
3/24/2000 0.9779
3/27/2000 0.9672
3/28/2000 0.9605
3/29/2000 0.9514
3/30/2000 0.9613
3/31/2000 0.9553
4/3/2000 0.9553
4/4/2000 0.9596
4/5/2000 0.9625
4/6/2000 0.9584
4/7/2000 0.9553
4/10/2000 0.9627
4/11/2000 0.9592
4/12/2000 0.959
4/13/2000 0.9524
4/14/2000 0.9622
4/17/2000 0.9527
4/18/2000 0.9453
4/19/2000 0.9402
4/20/2000 0.9374
4/21/2000 0.9385
4/24/2000 0.938
4/25/2000 0.9208
4/26/2000 0.9235
4/27/2000 0.9099
4/28/2000 0.9119
5/1/2000 0.9158
5/2/2000 0.91
5/3/2000 0.8948
5/4/2000 0.8895
5/5/2000 0.897
5/8/2000 0.8977
5/9/2000 0.9075
5/10/2000 0.9068
5/11/2000 0.9016
5/12/2000 0.9197
5/15/2000 0.9112
5/16/2000 0.9003
5/17/2000 0.8959
5/18/2000 0.8946
5/19/2000 0.8975
5/22/2000 0.9031
5/23/2000 0.9071
5/24/2000 0.9044
5/25/2000 0.9115
5/26/2000 0.9309
5/29/2000 0.9266
5/30/2000 0.9301
5/31/2000 0.938
6/1/2000 0.9312
6/2/2000 0.9463
6/5/2000 0.9479
6/6/2000 0.9548
6/7/2000 0.9622
6/8/2000 0.956
6/9/2000 0.9536
6/12/2000 0.9538
6/13/2000 0.9596
6/14/2000 0.9579
6/15/2000 0.9547
6/16/2000 0.965
6/19/2000 0.9567
6/20/2000 0.9548
6/21/2000 0.9442
6/22/2000 0.9355
6/23/2000 0.9359
6/26/2000 0.9369
6/27/2000 0.9459
6/28/2000 0.9401
6/29/2000 0.952
6/30/2000 0.9525
7/3/2000 0.9502
7/4/2000 0.9513
7/5/2000 0.9525
7/6/2000 0.9507
7/7/2000 0.9484
7/10/2000 0.9553
7/11/2000 0.9527
7/12/2000 0.9424
7/13/2000 0.9372
7/14/2000 0.9385
7/17/2000 0.9366
7/18/2000 0.9248
7/19/2000 0.9246
7/20/2000 0.9331
7/21/2000 0.9369
7/24/2000 0.9337
7/25/2000 0.9385
7/26/2000 0.9428
7/27/2000 0.9317
7/28/2000 0.923
7/31/2000 0.9266
8/1/2000 0.9147
8/2/2000 0.9136
8/3/2000 0.9061
8/4/2000 0.9083
8/7/2000 0.9071
8/8/2000 0.9022
8/9/2000 0.9006
8/10/2000 0.9083
8/11/2000 0.9026
8/14/2000 0.9056
8/15/2000 0.9135
8/16/2000 0.9161
8/17/2000 0.9162
8/18/2000 0.9064
8/21/2000 0.9017
8/22/2000 0.8964
8/23/2000 0.9017
8/24/2000 0.9021
8/25/2000 0.9021
8/28/2000 0.9002
8/29/2000 0.8921
8/30/2000 0.894
8/31/2000 0.8878
9/1/2000 0.8997
9/4/2000 0.8978
9/5/2000 0.8903
9/6/2000 0.8702
9/7/2000 0.8713
9/8/2000 0.8672
9/11/2000 0.8577
9/12/2000 0.864
9/13/2000 0.8594
9/14/2000 0.8644
9/15/2000 0.8543
9/18/2000 0.8537
9/19/2000 0.8509
9/20/2000 0.8493
9/21/2000 0.8599
9/22/2000 0.8766
9/25/2000 0.8745
9/26/2000 0.8828
9/27/2000 0.8834
9/28/2000 0.8791
9/29/2000 0.8827
10/2/2000 0.8772
10/3/2000 0.8757
10/4/2000 0.8735
10/5/2000 0.8692
10/6/2000 0.8684
10/9/2000 0.8686
10/10/2000 0.8716
10/11/2000 0.8683
10/12/2000 0.8629
10/13/2000 0.856
10/16/2000 0.8499
10/17/2000 0.8544
10/18/2000 0.8389
10/19/2000 0.8435
10/20/2000 0.842
10/23/2000 0.8354
10/24/2000 0.8359
10/25/2000 0.8272
10/26/2000 0.8303
10/27/2000 0.8405
10/30/2000 0.8411
10/31/2000 0.8489
Chart shows the euro-the common currency of 11 countries in Continental
Europe-has declined steadily in value versus the U.S. dollar since its January
1, 1999, launch.
Top positive contributors to fund returns came mostly from the alternative
energy, oil services, biotech, and business services sectors. These
included Orbital Engine (alternative engine technology, Australia),
Coflexip (oil services, France), Saipem (oil services, Italy), Proffice
(temporary employment services, Sweden), and Shire Pharmaceuticals Group
(U.K.).
Country allocations ended the period little changed from six months ago.
European stocks accounted for 52% of fund assets, up from 48% six months
ago, while Japanese stocks accounted for 19%, down slightly from 21%. Our
Japanese allocation represents a significantly underweighted position
relative to the MSCI EAFE Small Cap Index, and reflects the fragility of
the Japanese economy, especially for smaller companies. We were net sellers
of technology, media, and telecom stocks, and this sector now represents
about 35% of the portfolio.
Europe
New Economy stocks were hardest hit in the downturn as valuations unwound
from unsustainably high levels. The failure of the much-hyped fashion
e-retailer Boo.com and other e-commerce businesses led investors to doubt
the concept of pure dot-com retailing, and demand for mobile data and
especially wireless application protocol (WAP) services was slower than
expected. Continued currency weakness in the euro region also hurt returns
for U.S. investors (see the story on page 2). Despite the stock market
decline, the small- and mid-cap universe continued to broaden and deepen.
The market for initial public offerings remained buoyant, although IPOs
could no longer count on the high premiums previously seen.
European indicators point to gently slowing growth. Euro zone GDP grew 3.7%
in the second quarter year-over-year, and unemployment continued to fall.
Progress with structural reforms continued, including tax cuts in Germany,
France, and other euro zone countries. Germany pressed ahead with proposals
for important pension reforms. The U.K. economy weakened, in part because
the strength of its currency relative to the depressed euro caused
difficulty for exporters.
In Europe, as elsewhere, we were net sellers of technology, media, and
telecommunications stocks, particularly fiber optics companies and mobile
Internet enablers. We eliminated Wavecom (France), A Novo (France), Enea
Data (Sweden), Disetronic Holdings (Switzerland), and Bachem (Switzerland)
and trimmed our holdings in Dialog Semiconductor and NDS Group (all U.K.).
We purchased select technology companies as well as business services and
biotech firms. Buys included Genesys (telecom services, France), Articon
Integralis (IT services, Germany), Direkt Anlage Bank (financial services,
Germany), IFCO systems, Cyber Com Consulting (e-business consulting,
Sweden), PyroSequencing (biotechnology, Sweden), Poolia (staffing agency,
Sweden), Bobst (packaging machinery, Switzerland), and Gemini Genomics
(biotechnology, U.K.).
Market Performance
--------------------------------------------------------------------------------
Six Months Local Local Currency U.S.
Ended 10/31/00 Currency vs. U.S. Dollars Dollars
--------------------------------------------------------------------------------
Australia 6.06% -11.20% -5.82%
Brazil 6.55 -5.42 0.77
France 0.66 -6.99 -6.37
Germany -5.58 -6.98 -12.18
Hong Kong -11.74 -0.13 -11.85
India -20.61 -6.78 -26.00
Japan -13.51 -1.02 -14.39
Mexico -0.67 -1.87 -2.53
Netherlands 6.37 -6.98 -1.06
Sweden -18.52 -10.65 -27.19
United Kingdom 4.74 -7.20 -2.81
Source: RIMES Online, using MSCI indices.
Regionally, we overweighted Scandinavia, which is particularly well placed
to take advantage of the New Economy, and underweighted Italy and Spain,
which lack attractive opportunities.
Japan
While Japan is no longer technically in a recession, pockets of economic
strength are limited to major manufacturers. The strength in such sectors
as housing reflects government subsidies, while the driving force of the
economy-consumer spending-remains weak. The Japanese economy is simply not
robust enough to sustain a broad rally in small companies at this time.
However, Japan's gradual moves toward deregulation are positive and could
provide an attractive environment for equities going forward.
We sold Aeon Credit Services and concentrated our allocation to the
consumer credit sector-which has suffered from the Shokoh Fund scandal-to a
single stock, Aiful. We eliminated Combi, a maker of child safety seats,
fiber optics company Hitachi Cable, and Hitachi Metals. We trimmed our
holdings of Santen Pharmaceutical, previously one of our largest Japanese
positions.
Despite the difficulties for small-caps in Japan, we are still finding a
few solid growth companies. We added Toys "R" Us-Japan, which had 20% to
25% physical asset growth. Its format is doing well in Tokyo's metropolitan
area and is about to be rolled out in the provinces. Mid-market cosmetics
maker KOSE, beverage company ITO EN, and Kaneka, which supplies chemicals
to the pharmaceutical industry, were also added to the portfolio.
Rest of the World
New Economy stocks outside Europe and Japan also felt the chill wind of a
bear market. Our holdings in Australia generally held up well, in contrast
to the indiscriminate small-cap sell-off in Hong Kong. The Indian market
was weak, and we eliminated our very successful investment in Zee
Telefilms, which is experiencing rising competition that is driving down
profits.
Industry Diversification
--------------------------------------------------------------------------------
Percent of Net Assets
4/30/00 10/31/00
--------------------------------------------------------------------------------
Services 50.8% 42.1%
Consumer Goods 9.3 16.6
Capital Equipment 11.7 11.6
Finance 9.3 11.1
Energy 3.4 3.9
Multi-industry 2.8 2.3
All Other 4.4 4.5
Reserves 8.3 7.9
--------------------------------------------------------------------------------
Total 100.0% 100.0%
Australia, India, and Hong Kong are our most important markets outside
Europe and Japan. The Australian allocation rose to 6.6% during the period,
while the 4.7% weighting in India was also slightly higher.
Recent purchases in Asia and Australia include soft drink maker Frucor
Beverages Group (Australia), medical-device manufacturer Fisher & Paykel
(New Zealand), and QBE Insurance Group (Australia). We also bought two Hong
Kong companies that could profit from growth in Chinese consumer spending:
consumer products distributor Hengan International and Denway Motors, an
auto assembler that has a joint venture with Honda.
INVESTMENT OUTLOOK
Emerging growth stocks suffered a major setback during the past six months,
with technology, communications, and the Internet-key areas of the New
Economy-hardest hit. In our previous report we pointed out that companies
that need to raise fresh equity could face increasing difficulty, and this
has been borne out. However, investor appetite for young, entrepreneurial
companies in emerging sectors of the economy is strong, and opportunities
in the international growth stock universe are greater than ever. We remain
committed to our growth stock strategy, but as always when investing in
smaller companies, rigorous investment analysis will be crucial.
While we believe that general corporate IT spending will remain subdued and
that spending on Internet infrastructure and telecommunications equipment
may weaken, demand in certain areas remains very good. These include mobile
telephones and cable infrastructure, customer call centers, and enabling
technologies for interactive TV. Other aspects of the global economy, such
as capital expenditure in oil exploration and production, steps toward
pension reform in Germany, deregulation in Japan, and growing consumerism
in India are healthy signs for the future.
Respectfully submitted,
John R. Ford
President, T. Rowe Price International Funds, Inc.
November 22, 2000
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
Portfolio Highlights
--------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
10/31/00
--------------------------------------------------------------------------------
Tandberg Television, Norway 1.7%
Coflexip, France 1.7
IHC Caland, Netherlands 1.7
Teleste, Finland 1.5
NICE Systems, Israel 1.5
--------------------------------------------------------------------------------
Proffice, Sweden 1.4
Orbital Engine, Australia 1.3
Shire Pharmaceuticals Group, United Kingdom 1.2
New Skies Satellites, Netherlands 1.2
Housing Development Finance, India 1.2
--------------------------------------------------------------------------------
Eyretel, United Kingdom 1.1
PyroSequencing, Sweden 1.1
Aldata Solutions, Finland 1.1
NH Hoteles, Spain 1.1
Taylor Nelson, United Kingdom 1.1
--------------------------------------------------------------------------------
Galen Holdings, United Kingdom 1.1
NDS Group, United Kingdom 1.1
Articon Integralis, Germany 1.0
Energy Development, Australia 1.0
Straumann Holding, Switzerland 1.0
--------------------------------------------------------------------------------
Swisslog Holding, Switzerland 0.9
Yakult Honsha, Japan 0.9
Aiful, Japan 0.9
Poolia, Sweden 0.9
Saipem, Italy 0.9
--------------------------------------------------------------------------------
Total 29.6%
Note: Table excludes reserves.
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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
INTERNATIONAL DISCOVERY FUND
--------------------------------------------------------------------------------
Salomon Non-U.S
Extended Market IDF
10/31/1990 10.000 10.000
10/31/1991 9.838 10.379
10/31/1992 7.987 9.413
10/31/1993 10.915 12.893
10/31/1994 12.153 14.141
10/31/1995 11.582 12.294
10/31/1996 13.064 13.721
10/31/1997 12.641 13.953
10/31/1998 12.531 13.200
10/31/1999 14.835 24.038
10/31/2000 14.681 33.670
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.
Periods Ended 10/31/00 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
International Discovery Fund 40.07% 34.13% 22.32% 12.91%
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 International Discovery Fund
--------------------------------------------------------------------------------
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
Year
Ended
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
NET ASSET VALUE
Beginning of period $ 26.75 $ 14.99 $ 16.11 $ 15.97 $ 14.43
Investment activities
Net investment
income (loss) 0.06 (0.03) 0.05 0.02 0.07
Net realized and
unrealized gain (loss) 10.39 12.09 (0.92) 0.25 1.59
Total from
investment activities 10.45 12.06 (0.87) 0.27 1.66
Distributions
Net investment income -- (0.01) -- (0.07) (0.10)
Net realized gain (2.81) (0.30) (0.25) (0.06) (0.02)
Total distributions (2.81) (0.31) (0.25) (0.13) (0.12)
Redemption fees added
to paid-in-capital 0.13 0.01 -- -- --
NET ASSET VALUE
End of period $ 34.52 $ 26.75 $ 14.99 $ 16.11 $1 5.97
Ratios/Supplemental Data
Total return 40.07% 82.11% (5.40)% 1.69% 11.60%
Ratio of total
expenses to
average net assets 1.27% 1.42% 1.47% 1.41% 1 .45
Ratio of net investment
income loss to average
net assets 0.15% (0.17)% 0.25% 0.13% 0.40%
Portfolio turnover rate 81.0% 98.2% 34.2% 72.7% 52.0%
Net assets,
end of period
(in thousands) $905,387 $381,462 $189,001 $254,430 $325,639
(diamond) Total return reflects the rate that an investor would have
earned on an investment in the fund during each period, assuming
reinvestment of all distributions and payment of no redemption or
account fees.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
October 31, 2000
Portfolio of Investments Shares Value
--------------------------------------------------------------------------------
In thousands
AUSTRALIA 6.5%
Common Stocks and Warrants 6.5%
Aristocrat Leisure 2,400,000 $ 7,501
Circadian Technologies * ! 3,073,207 5,958
Computershare 248,690 1,076
Credit Suisse, Warrants * 124,345 70
Energy Development 1,382,953 8,889
Frucor Beverages Group (NZD) * 4,615,182 3,606
Lang 862,000 4,406
Orbital Engine * 10,334,000 11,463
PowerLan * 3,913,400 2,738
QBE Insurance Group 1,164,000 5,370
Sonic Healthcare 1,636,309 6,616
Telemedia Networks International * 567,000 1,317
Wine Planet Holdings * 1,962,015 285
Total Australia (Cost $52,839) 59,295
AUSTRIA 0.3%
Common Stocks 0.3%
Cybertron Telekom (EUR) * 300,000 3,106
Total Austria (Cost $9,626) 3,106
BELGIUM 0.6%
Common Stocks 0.6%
Ubizen (EUR) * 246,456 5,134
Total Belgium (Cost $11,467) 5,134
CHINA 0.3%
Common Stocks 0.3%
Nanjing Panda Electric (HKD) * 9,978,000 2,009
TPV Technology (HKD) 4,422,000 459
Total China (Cost $2,670) 2,468
FINLAND 4.2%
Common Stocks 4.2%
Aldata Solutions (EUR) * 1,455,760 $ 10,254
Comptel (EUR) 147,330 2,038
Elisa Communications (EUR) 216,203 5,999
Rapala Normark (EUR) * 1,341,220 6,260
Teleste (EUR) 460,086 13,665
Total Finland (Cost $23,227) 38,216
FRANCE 6.9%
Common Stocks 6.9%
Aubay (EUR) * 184,032 3,996
Boiron (EUR) 33,000 2,050
Cegedim (EUR) 60,000 3,539
Coface (EUR) 84,589 7,616
Coflexip (EUR) 131,000 15,174
CPR (EUR) * 38,636 1,902
Euler (EUR)* 140,000 6,130
Genesys (EUR) * 110,862 5,174
Ipsos (EUR) 67,272 6,965
Linedata Services (EUR) * 71,000 1,808
Neopost (EUR) * 153,333 2,942
Ubiqus (EUR) * 417,780 4,963
Total France (Cost $50,857) 62,259
GERMANY 6.2%
Common Stocks 5.8%
Articon Integralis (EUR) * 138,871 9,251
Boewe Systec (EUR) 67,390 1,390
CargoLifter (EUR) * 443,215 7,334
Direkt Anlage Bank (EUR) * 169,000 7,458
Evotec Biosystems (EUR) * 151,351 5,317
GfK (EUR) 179,215 6,813
QS Communications (EUR) * 654,062 4,052
Software (EUR) 62,147 4,509
Zapf Creation (EUR) 147,887 6,375
52,499
Preferred Stocks 0.4%
Rhon-Klinikum (EUR) 66,510 $ 3,666
3,666
Total Germany (Cost $51,897) 56,165
HONG KONG 4.7%
Common Stocks 4.7%
Denway Motors * 17,706,000 2,861
e-Kong Group * 11,548,000 814
ehealthcareasia * 528,000 20
Esprit Holdings 6,859,431 5,893
Hengan International 14,772,000 3,542
Hong Kong Exchanges & Clearing 1,986,000 3,463
Li & Fung * 2,210,000 4,109
Quality Healthcare Asia * 14,114,000 3,257
South China Morning Post 4,675,000 3,207
Sun Television * 125,220,000 3,227
SUNDAY Communications * 22,376,000 2,066
Technology Venture Holdings 11,956,000 3,526
Varitronix International 3,632,000 4,191
Vodatel Networks * 16,380,000 2,163
Total Hong Kong (Cost $63,524) 42,339
INDIA 4.7%
Common Stocks 4.7%
Apollo Hospitals 398,350 1,786
Britannia Industries 79,499 1,293
Cipla 152,000 2,869
Global E-Com * 552,000 2,782
Global Tele-Systems * 192,000 4,321
HDFC Bank 1,183,000 6,339
Housing Development Finance 1,063,000 10,645
ICICI Bank ADR (USD) * 119,700 569
ICICI Bank 997,938 2,354
ICICI ADR (USD) 210,560 1,987
ICICI 1,005,451 1,607
McDowell & Company 671,786 $ 893
Pentamedia Graphics 132,000 983
Ranbaxy Laboratories 286,000 4,257
Total India (Cost $45,239) 42,685
IRELAND 0.4%
Common Stocks 0.4%
Icon ADR (USD) * 169,400 3,346
Total Ireland (Cost $2,481) 3,346
ISRAEL 3.0%
Common Stocks 3.0%
Gilat Satellite Networks (USD) * 129,433 6,646
NICE Systems ADR (USD) * 284,200 13,242
Partner Communications ADR (USD) * 1,134,000 6,839
Total Israel (Cost $56,741) 26,727
ITALY 1.3%
Common Stocks 1.3%
ACEA (EUR) 284,290 3,773
Saipem (EUR) 1,500,000 7,816
Total Italy (Cost $8,481) 11,589
JAPAN 18.9%
Common Stocks 18.9%
Aiful 104,400 8,228
Canon Chemicals 309,000 3,002
Cresco 45,300 3,197
Don Quijote 40,700 3,189
FANCL 24,500 1,549
Fuji Machine Manufacturing 53,000 1,447
Funai Electric * 20,000 1,510
Goldcrest 80,000 7,500
Hirose Electric 43,500 5,023
Hokuto 91,200 2,892
Homac 113,000 $ 1,605
Hoya 48,000 3,968
Hurxley 69,000 1,088
Internet Initiative ADR (USD) * 97,571 2,458
ITO EN 29,100 2,094
Japan Business Computer 74,000 1,519
Joint 217,300 6,751
Kaneka 479,000 4,653
KOSE 222,200 7,718
Koyo Seiko 1,002,000 7,089
Kuraya Sanseido 660,500 5,751
Marukyo 10,000 46
Megachips 48,000 1,887
Mitsukoshi * 1,001,000 3,569
Moritex 72,600 3,526
Net One Systems 227 6,740
Nidec 49,400 3,029
Nissho Electronics 300,000 6,324
Pacific Metals * 2,190,000 2,890
Relocation Services 52,000 2,955
Roland 91,900 1,644
Santen Pharmaceutical 287,000 5,668
Shimadzu 606,000 2,149
Shohkoh Fund 27,930 2,293
Sumisho Electronic 131,000 1,597
Sumitomo Rubber Industries 1,397,000 6,658
Sunkus & Associates 115,900 3,452
Tomen Electronics 167,000 7,499
Toyo Information 92,000 6,239
Toys "R" Us-Japan * 44,500 6,077
Trend Micro * 12,000 1,133
Watami Food Service 55,000 2,954
Yahoo Japan * 28 2,412
Yakult Honsha 735,000 8,380
Total Japan (Cost $177,094) 171,352
NETHERLANDS 4.8%
Common Stocks 4.8%
Draka Holdings (EUR) 129,128 $ 7,556
IFCO Systems (EUR) * 671,357 6,495
IHC Caland (EUR) 340,000 15,003
New Skies Satellites (EUR) * 1,213,460 10,915
SNT Group (EUR) * 120,257 3,679
Total Netherlands (Cost $45,673) 43,648
NEW ZEALAND 1.2%
Common Stocks 1.2%
Baycorp Holdings 600,030 2,808
Fisher & Paykel 1,683,000 4,806
Sky Network Television * 2,409,000 2,962
Total New Zealand (Cost $11,262) 10,576
NORWAY 2.9%
Common Stocks 2.9%
EDB Business Partner 440,229 5,314
Petroleum Geo-Services * 400,000 5,518
Tandberg Television * 1,508,282 15,279
Total Norway (Cost $27,030) 26,111
SINGAPORE 0.8%
Common Stocks 0.8%
Parkway Holdings 3,513,000 7,201
Total Singapore (Cost $10,117) 7,201
SOUTH KOREA 0.0%
Common Stocks 0.0%
Opicom * 51,800 266
Total South Korea (Cost $3,366) 266
SPAIN 1.2%
Common Stocks 1.2%
Gamesa (EUR) * 28,189 $ 520
NH Hoteles (EUR) 900,000 10,157
Total Spain (Cost $11,030) 10,677
SWEDEN 8.1%
Common Stocks 8.1%
A-Com * ! 748,721 4,421
Assa Abloy 188,619 3,473
Bergman & Beving 500,000 5,329
Cyber Com Consulting * 349,000 4,540
Europolitan Holdings 754,535 6,796
LGP Telecom Holding 310,000 7,756
Observer 412,603 5,409
Poolia (Class B) 190,606 8,012
Proffice 370,996 12,252
PyroSequencing * 826,531 10,257
Semcon 459,950 5,478
Total Sweden (Cost $66,551) 73,723
SWITZERLAND 3.4%
Common Stocks 3.4%
Bobst 3,800 4,799
Kaba Holding 2,450 3,305
PubliGroupe 7,030 4,126
Straumann Holding 4,100 8,861
Swisslog Holding 15,560 8,569
Valora Holding 7,350 1,494
Total Switzerland (Cost $16,682) 31,154
TAIWAN 0.0%
Common Stocks 0.0%
WYSE Technology Taiwan 239,700 129
Total Taiwan (Cost $611) 129
UNITED KINGDOM 11.5%
Common Stocks 11.5%
Aegis Group 1,744,000 $ 3,973
ARC International * 522,500 2,570
Baltimore Technologies * 314,000 2,415
Bell Group 851,500 787
Bright Station * 6,000,000 4,832
Dialog Semiconductor (EUR) * 245,544 5,626
Electron Boutique 2,867,071 2,600
Eyretel * 3,591,880 10,319
Galen Holdings 750,935 9,643
Gemini Genomics ADR (USD) * 439,800 5,058
Lynx Group 2,544,480 4,061
N Brown Group 252,680 935
NDS Group ADR (USD) * 127,000 9,565
Pace Micro Technology 519,400 3,730
Regus * 497,500 2,261
royalblue 350,000 7,516
Serco Group 825,000 7,577
Shire Pharmaceuticals Group * 555,000 11,274
Taylor Nelson 2,540,584 9,768
Total United Kingdom (Cost $111,838) 104,510
UNITED STATES 0.2%
Common Stocks 0.2%
LookSmart (AUD) * 4,603,000 1,503
Total United States (Cost $5,357) 1,503
SHORT-TERM INVESTMENTS 7.3%
Money Market Funds 7.3%
Reserve Investment Fund, 6.68% # 65,918,899 65,919
Total Short-Term Investments (Cost $65,919) 65,919
Total Investments in Securities
99.4% of Net Assets (Cost $931,579) $ 900,098
Other Assets Less Liabilities 5,289
NET ASSETS $905,387
* Non-income producing
# Seven-day yield
! Affiliated company
ADR American depository receipt
AUD Australian dollar
EUR Euro
NZD New Zealand dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
October 31, 2000
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (cost $931,579) $900,098
Securities lending collateral 113,648
Other assets 25,107
Total assets 1,038,853
Liabilities
Obligation to return securities lending collateral 113,648
Other liabilities 19,818
Total liabilities 133,466
NET ASSETS $905,387
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 148,302
Net unrealized gain (loss) (31,607)
Paid-in-capital applicable to 26,225,694 shares of
$0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized 788,692
NET ASSETS $905,387
NET ASSET VALUE PER SHARE $34.52
The accompanying notes are an integral part of these financial statements.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/00
Investment Income (Loss)
Income
Interest (net of foreign taxes of $14) $ 6,998
Dividend (net of foreign taxes of $683) 6,091
Securities lending 858
Total income 13,947
Expenses
Investment management 10,449
Shareholder servicing 1,344
Custody and accounting 421
Prospectus and shareholder reports 138
Registration 54
Legal and audit 43
Directors 7
Miscellaneous 13
Total expenses 12,469
Expenses paid indirectly (1)
Net expenses 12,468
Net investment income (loss) 1,479
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (net of foreign taxes of $2,190) 221,622
Foreign currency transactions (2,518)
Net realized gain (loss) 219,104
Change in net unrealized gain or loss
Securities (net of deferred foreign taxes of $892) (139,142)
Other assets and liabilities
denominated in foreign currencies 20
Change in net unrealized gain or loss (139,122)
Net realized and unrealized gain (loss) 79,982
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 81,461
The accompanying notes are an integral part of these financial statements.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/00 10/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 1,479 $ (418)
Net realized gain (loss) 219,104 43,912
Change in net unrealized gain or loss (139,122) 107,803
Increase (decrease) in net
assets from operations 81,461 151,297
Distributions to shareholders
Net investment income -- (123)
Net realized gain (46,342) (3,675)
Decrease in net assets from distributions (46,342) (3,798)
Capital share transactions *
Shares sold 1,169,171 143,230
Distributions reinvested 44,299 3,583
Shares redeemed (727,954) (101,987)
Redemption fees received 3,290 136
Increase (decrease) in net
assets from capital
share transactions 488,806 44,962
Net Assets
Increase (decrease) during period 523,925 192,461
Beginning of period 381,462 189,001
End of period $ 905,387 $ 381,462
-----------------------------
*Share information
Shares sold 28,991 6,469
Distributions reinvested 1,347 237
Shares redeemed (18,374) (5,049)
Increase (decrease) in shares outstanding 11,964 1,657
The accompanying notes are an integral part of these financial statements.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
October 31, 2000
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 fund seeks long-term growth of capital through
investments primarily in the common stocks of rapidly growing, small to
medium-sized companies outside the U.S.
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles, which require the use of
estimates made by fund management.
Valuation Equity securities are valued at the last quoted sales price at
the time the valuations are made. A security that is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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 denominated in foreign
currencies are translated into U.S. dollar values each day at the
prevailing exchange rate, using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank. 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.
Affiliated Companies As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the
outstanding voting securities.
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 net investment
income and realized gains determined in accordance with generally accepted
accounting principles. Expenses paid indirectly reflect credits earned on
daily uninvested cash balances at the custodian and are used to reduce the
fund's custody charges.
NOTE 2 - INVESTMENTTRANSACTIONS
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.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. government securities as
collateral against the loans. Cash collateral received is invested in a
money market pooled account by the fund's lending agent. Collateral is
maintained over the life of the loan in an amount not less than 100% of the
value of loaned securities. Although 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. At
October 31, 2000, the value of loaned securities was $114,272,000;
aggregate collateral consisted of $113,648,000 in the securities lending
collateral pool and U.S. government securities valued at $7,505,000.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $1,075,370,000 and $684,523,000, respectively, for
the year ended October 31, 2000.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended October 31, 2000. The
reclassifications relate primarily to a tax practice that treats a portion
of the proceeds from each redemption of capital shares as a distribution of
taxable net investment income and/or realized capital gain. The results of
operations and net assets were not affected by the increases/(decreases) to
these accounts.
--------------------------------------------------------------------------------
Undistributed net investment income $(1,479)
Undistributed net realized gain (67,716)
Paid-in-capital 69,195
At October 31, 2000, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$931,579,000. Net unrealized loss aggregated $31,481,000 at period-end, of
which $149,876,000 related to appreciated investments and $181,357,000 to
depreciated investments.
NOTE 4 - FOREIGN TAXES
The fund is subject to foreign income taxes imposed by certain countries in
which it invests. Foreign income taxes are accrued by the fund as a
reduction of dividend and interest income.
Gains realized upon disposition of Indian securities held by the fund are
subject to capital gains tax in India, payable prior to repatriation of
sales proceeds. The fund accrues a deferred tax liability for net
unrealized gains, which totaled $141,000 at October 31, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price International, Inc. (the manager), a
wholly owned subsidiary of T. Rowe Price Associates, Inc. (Price
Associates). The investment management agreement between the fund and the
manager provides for an annual investment management fee, of which $851,000
was payable at October 31, 2000. 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 0.295% for assets in excess of $120 billion. At October 31,
2000, 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.
In addition, the fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the
fund receives certain other services. Price Associates computes the daily
share price and maintains the financial records of the fund. T. Rowe Price
Services, Inc. is the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc. provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $1,186,000 for the year ended October 31, 2000, of which
$117,000 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, Price Associates, and, in
the case of T. Rowe Price Spectrum International, T. Rowe Price
International. Spectrum International Fund held approximately 0.2% of the
outstanding shares of the International Discovery Fund at October 31, 2000.
For the year then ended, the fund was allocated $10,000 of Spectrum
expenses.
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 Price Associates. The Reserve Funds are
offered as cash management options only to mutual funds and other accounts
managed by Price Associates or T. Rowe Price International, 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, 2000, totaled $6,936,000 and are reflected as interest income
in the accompanying Statement of Operations.
During the year ended October 31, 2000, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $91,068,000
with certain affiliates of the manager and paid commissions of $142,000
thereto.
T. Rowe Price International Discovery Fund
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Report of Independent Accountants
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To the Board of Directors of T. Rowe Price International Funds, Inc. and
Shareholders of International Discovery Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
International Discovery Fund (one of the portfolios comprising T. Rowe
Price International Funds, Inc., hereafter referred to as the "Fund") at
October 31, 2000, 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 accounting principles generally accepted in
the United States of America. 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 auditing
standards generally accepted in the United States of America, 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, 2000
by correspondence with the custodian, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 17, 2000
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 10/31/00
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We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $56,054,000 from short-term capital gains,
o $59,061,000 from long-term capital gains, subject to the 20% rate gains
category.
The fund will pass through foreign source income of $6,436,000 and foreign taxes
paid of $2,792,000.
T. Rowe Price International Discovery Fund
--------------------------------------------------------------------------------
Annual Meeting Results
--------------------------------------------------------------------------------
The T. Rowe Price International Discovery Fund held an annual meeting on October
25, 2000, to approve a new investment management agreement, to elect directors
to the fund, and to ratify the appointment of PricewaterhouseCoopers LLP as the
fund's independent accountants.
The results of voting were as follows (by number of shares):
For approval of a new investment management agreement:
Affirmative: 15,827,131.285
Against: 359,939.003
Abstain: 362,481.393
Total: 16,549,551.681
For nominees to the Board of Directors of the International Discovery Fund:
M. David Testa
Affirmative: 16,211,561.447
Withhold: 337,990.234
Total: 16,549,551.681
Martin G. Wade
Affirmative: 16,222,658.050
Withhold: 326,893.631
Total: 16,549,551.681
Anthony W. Deering
Affirmative: 16,221,707.177
Withhold: 327,844.504
Total: 16,549,551.681
Donald W. Dick, Jr.
Affirmative: 16,221,008.096
Withhold: 328,543.585
Total: 16,549,551.681
Paul M. Wythes
Affirmative: 16,141,501.466
Withhold: 408,050.215
Total: 16,549,551.681
To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants:
Affirmative: 16,134,906.251
Against: 167,772.046
Abstain: 246,873.384
Total: 16,549,551.681
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(registered trademark) and the
T. Rowe Price Web site on the Internet. Address: www.troweprice.com.
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
For the hearing impaired, call:
1-800-367-0763
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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
appropriate to the fund or funds covered
in this report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site.
Baltimore Area
Downtown - new address
105 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
2260 Briargate Parkway
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
San Francisco Area
1990 North California Boulevard
Suite 100
Walnut Creek
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest With Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F38-050 10/31/00
