Annual Report
Emerging Europe &
Mediterranean Fund
October 31, 2000
T. Rowe Price
REPORT HIGHLIGHTS
Emerging Europe &
Mediterranean Fund
o Emerging markets were weak in the two-month period ended October 31 amid a
global decline in technology stocks and signs of slowing growth in major
global economies.
o Russian stocks suffered from corporate governance scandals, while other
Emerging European markets were hurt by the weak euro. Middle East markets
fell amid political violence in Israel and Egypt's decision to let its
currency depreciate.
o We emphasized service and financial sectors over cyclical industries. Our
largest country allocations were Israel (19%), Turkey (17%), Greece (15%),
and Russia (14%).
o Given the international uncertainty, we will focus on companies that depend
on domestic economic conditions more than on global factors.
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
This is our first report since the fund's inception on August 31, 2000, and we
would like to welcome all shareholders. Emerging markets in Europe and the
Mediterranean region were weak in the fund's first two months of operation as
technology stocks continued to fall worldwide and investors worried about signs
of slowing growth in the U.S., Europe, and Japan.
Performance Comparison
--------------------------------------------------------------------------------
Period Ended 10/31/00 2 Months
Emerging Europe &
Mediterranean Fund -13.50%
MSCI Emerging Europe and
Middle East Index -8.64
The fund's two-month return was -13.50% versus -8.64% for our benchmark,
the Morgan Stanley Capital International (MSCI) Emerging Europe and Middle
East Index. Underweighting the Greek market, whose modest 1% gain for the
period still ranked as one of the best performers in these regions, hurt
relative performance. Because we believe many Greek stocks are overvalued,
we expect to remainunderweighted. Our emphasis on the hard-hit wireless
telecommunications sector was also a negative. The decline in these stocks
was especially sharp in Russia, where the government attempted to reclaim
mobile telecom frequencies that had been previously granted to mobile phone
operators Mobile Telesystems and Vimpel-Communications. Although the
government backed down, investor confidence in the market was greatly
damaged. In addition, underweighting Israeli Internet security stock Check
Point Software Technologies-which we believed was overvalued but continued
rising after other technology stocks fell-hurt relative results.
INVESTMENT THEMES
Before we review the performance of individual markets and our positions,
we would like to summarize four main themes that drive many of our
investment decisions:
1. In Central Europe, where economies and interest rates are converging
toward those in the European Union (in anticipation of EU membership), we
look for steady growth companies that can benefit from these trends. Two
examples are Komercni Banka in the Czech Republic and OTP Bank in Hungary.
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 1.1560
1/13/1999 1.1669
1/14/1999 1.1690
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 1.1560
1/27/1999 1.1444
1/28/1999 1.1420
1/29/1999 1.1362
2/1/1999 1.1309
2/2/1999 1.1351
2/3/1999 1.1314
2/4/1999 1.1340
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 1.0870
3/25/1999 1.0839
3/26/1999 1.0800
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 1.0830
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 1.0660
4/20/1999 1.0625
4/21/1999 1.0584
4/22/1999 1.0646
4/23/1999 1.0599
4/26/1999 1.0590
4/27/1999 1.0662
4/28/1999 1.0620
4/29/1999 1.0608
4/30/1999 1.0570
5/3/1999 1.0567
5/4/1999 1.0630
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 1.0420
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 1.0430
6/28/1999 1.0331
6/29/1999 1.0319
6/30/1999 1.0351
7/1/1999 1.0230
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 1.0170
7/14/1999 1.0136
7/15/1999 1.0190
7/16/1999 1.0201
7/19/1999 1.0313
7/20/1999 1.0400
7/21/1999 1.0500
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 1.0680
8/4/1999 1.0776
8/5/1999 1.0758
8/6/1999 1.0742
8/9/1999 1.0717
8/10/1999 1.0710
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 1.0520
8/19/1999 1.0644
8/20/1999 1.0672
8/23/1999 1.0490
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 1.0690
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 1.0300
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 1.0170
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 1.0110
12/27/1999 1.0132
12/28/1999 1.0070
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 0.9920
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 0.9610
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 0.9610
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 0.9590
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 0.9380
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 0.9100
5/3/2000 0.8948
5/4/2000 0.8895
5/5/2000 0.8970
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 0.9380
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 0.9560
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 0.9650
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 0.9520
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 0.9230
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 0.8940
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 0.8640
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 0.8560
10/16/2000 0.8499
10/17/2000 0.8544
10/18/2000 0.8389
10/19/2000 0.8435
10/20/2000 0.8420
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.
2. In Russia, we focus on large natural resource companies that are
undervalued relative to their international peers, such as LUKoil and
Surgutneftegaz. We also look for companies that should benefit over the
long term from economic and regulatory reforms, such as mobile telecom
company Mobile Telesystems.
3. In Israel, where the government's heavy investment in high-tech research
has produced a vibrant technology sector, we emphasize internationally
recognized, high-quality companies such as Orbotech and Teva
Pharmaceutical.
4. In other Middle East countries, we seek companies that could benefit
from economic reforms and peace between Israel and its Arab and Palestinian
neighbors. Two examples are Egyptian Company for Mobile Services and
Orascom Telecom, also an Egyptian company.
PORTFOLIO REVIEW
As you can see in the pie chart below, the fund's assets are concentrated
in a handful of markets that we believe represent the best long-term
investment opportunities in Emerging Europe and the Middle East. Israel,
our largest single-country exposure, represented 19% of fund assets at the
end of October. Our Turkish holdings totaled 17% of assets, while Greece
and Russia accounted for 15% and 14%, respectively.
Geographic Diversification
Israel 19
Turkey 17
Greece 15
Russia 14
Other & Reserves 12
Hungary 9
Egypt 7
Poland 7
Based on net assets as of 10/31/00.
Regarding our industry allocations, shown on the next page, services and
financial companies together represented nearly 60% of fund assets. The
remainder was diversified mostly among companies in cyclical industries
with more modest growth prospects, such as materials, energy, and capital
equipment.
MARKET REVIEW
Europe
In Emerging Europe, stocks in the Czech Republic, Hungary, and Poland fell
8%, 11%, and 21%, respectively, partially because their currencies were
dragged lower by the weakening euro. Economic recovery remained strong in
Hungary and the Czech Republic, but Poland still has a large trade deficit.
One of our top holdings is Hungarian pharmaceutical company EGIS. Its
valuation is reasonable, in our opinion, and its growth is accelerating
because of increased sales in Russia and the global trend toward greater
use of generic drugs.
In Russia, the good news was that the economy began to recover strongly
thanks to high oil prices. In addition, the country's trade surplus
increased to 14% of GDP, and foreign exchange reserves rose. The Putin
government, with the majority support of the legislature, also made
progress with structural reforms regarding tax collection and the budget.
The bad news, however, was that Russian stocks declined 23% in the last two
months, as investors were rattled by a couple of corporate governance
scandals, notably at Norilsk Nickel, and by the government's failed attempt
to reclaim mobile telecom frequencies from two mobile phone operators, as
mentioned earlier.
Industry Diversification
Percent of Net Assets
10/31/00
--------------------------------------------------------------------------------
Services 38.0%
Finance 21.7
Consumer Goods 9.3
Energy 9.0
Capital Equipment 6.4
Miscellaneous 5.1
Materials 2.6
Multi-industry 2.5
Reserves 5.4
--------------------------------------------------------------------------------
Total 100.0%
Middle East
In Israel, the market declined 10% in the last two months. All of our
Israeli holdings are in the technology or biotechnology areas, and they
have not been immune to negative global sentiment toward high-growth
stocks. However, they have been relatively unscathed by the political
turmoil and violence because their sales are almost entirely outside of
Israel and their production is geographically diversified. History tells us
that it is generally best to ignore the political situation and focus on
company fundamentals. Our largest Israeli holdings, in addition to those
mentioned previously, include Gilat Satellite Networks, Partner
Communications, and NICE Systems.
Stocks in Turkey and Egypt fell 2% and 18%, respectively. In Turkey, the
IMF stabilization program remained on track, and inflation should fall to
around 25% by early next year. The country's fiscal position is also
greatly improved following some successful privatizations. Major holdings
in Turkey include bank stocks Turkiye Garanti Bankasi and Yapi ve Kredi
Bankasi and leading media group Dogan Yayin Holding. In Egypt, the market
has been undermined by macroeconomic uncertainty surrounding the decision
of the monetary authorities to let the country's overvalued currency
depreciate. Stocks are very cheap but unlikely to rebound until investor
confidence in the economy is restored.
OUTLOOK
The short two-month period since your fund was launched has been a
difficult time for emerging markets in Europe and the Middle East, largely
due to a weak global backdrop. Based on their fundamentals, we find the
outlook for these regions to be promising. Emerging European economies have
been rebounding, fiscal positions have improved, and valuations look
attractive. Russia has also been greatly helped by rising oil prices.
If the world's developed economies can achieve a soft landing (i.e., slower
growth without slipping into a recession) and if technology stocks
worldwide stop falling, the year could end on a positive note. However, if
the situation in the Middle East worsens and major tech companies continue
to report disappointing earnings, all bets are off. Given the international
uncertainty, we will position the fund for long-term appreciation by
focusing on steady growth stocks of high-quality companies that depend more
on conditions in their domestic economies than on global factors.
Respectfully submitted,
John R. Ford President, T. Rowe Price International Funds, Inc.
November 30, 2000
T. Rowe Price Emerging Europe & Mediterranean Fund
--------------------------------------------------------------------------------
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS Percent of
Net Assets
10/31/00
--------------------------------------------------------------------------------
Antenna TV, Greece 6.1%
LUKoil, Russia 5.2
Dogan Yayin Holding, Turkey 5.1
Orbotech, Israel 4.5
Turkiye Garanti Bankasi, Turkey 4.4
--------------------------------------------------------------------------------
Gilat Satellite Networks, Israel 3.9
Yapi ve Kredi Bankasi, Turkey 3.9
EGIS, Hungary 3.5
Teva Pharmaceutical, Israel 3.3
Surgutneftegaz, Russia 3.2
--------------------------------------------------------------------------------
Mobile Telesystems, Russia 3.0
Komercni Banka, Czech Republic 2.8
OTP Bank, Hungary 2.8
Egyptian Company for Mobile Services, Egypt 2.7
Alpha Bank, Greece 2.7
--------------------------------------------------------------------------------
Elektrim Spolka Akcyjna, Poland 2.5
Hellenic Telecommunications Organization, Greece 2.5
Comverse Technology, United States 2.4
Partner Communications, Israel 2.3
Check Point Software Technologies, Israel 2.1
--------------------------------------------------------------------------------
Orascom Telecom, Egypt 1.9
ComputerLand, Poland 1.9
NICE Systems, Israel 1.8
Cosmote Mobile Communication, Greece 1.8
Al Ahram Beverages, Egypt 1.8
--------------------------------------------------------------------------------
Total 78.1%
Note: Table excludes reserves.
T. Rowe Price Emerging Europe & Mediterranean Fund
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
8/31/00
Through
10/31/00
NET ASSET VALUE
Beginning of period $ 10.00
Investment activities
Net investment income (loss) (0.01)*
Net realized and unrealized gain (loss) (1.34)
Total from investment activities (1.35)
NET ASSET VALUE
End of period $ 8.65
----------
Ratios/Supplemental Data
Total return(diamond) (13.50)%*
Ratio of total expenses to average net assets 1.75%!*
Ratio of net investment income (loss)
to average net assets (0.73)%!*
Portfolio turnover rate 62.9%!
Net assets, end of period (in thousands) $ 25,533
(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. ! Annualized *
Excludes expenses in excess of a 1.75% voluntary expense limitation in
effect through 10/31/02.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Europe & Mediterranean Fund
--------------------------------------------------------------------------------
October 31, 2000
Statement of Net Assets Shares Value
-------------------------------------------------------------------------------
In thousands
CZECH REPUBLIC 3.4%
Common Stocks 3.4%
Ceska Sporitelna * 25,446 $ 145
Komercni Banka * 33,832 717
Total Czech Republic (Cost $928) 862
EGYPT 7.3%
Common Stocks 7.3%
Al Ahram Beverages GDR (USD) * 35,191 447
EFG-Hermes Holding (USD) 111,095 219
Egyptian Company for Mobile Services * 34,852 689
Orascom Telecom GDR (USD) * 81,402 497
Total Egypt (Cost $2,450) 1,852
ESTONIA 1.0%
Common Stocks 1.0%
Eesti Telekom GDR (USD) 17,042 264
Total Estonia (Cost $306) 264
GREECE 14.7%
Common Stocks 14.7%
Alpha Bank 18,460 682
Antenna TV ADR (USD) * 78,800 1,554
Cosmote Mobile Communication * 60,420 453
Hellenic Telecommunications Organization 36,350 635
National Bank of Greece 11,400 433
Total Greece (Cost $3,915) 3,757
HUNGARY 9.1%
Common Stocks 9.1%
EGIS 21,291 899
Gedeon Richter GDR (USD) 7,636 368
Matav ADR (USD) 14,538 342
OTP Bank GDR (USD) 15,490 713
Total Hungary (Cost $2,634) 2,322
ISRAEL 18.8%
Common Stocks 18.8%
Check Point Software Technologies (USD) 3,320 $ 526
Commtouch Software (USD) * 19,047 229
Gilat Satellite Networks (USD) * 19,380 995
NICE Systems ADR (USD) * 9,940 463
Orbotech (USD) * 21,809 1,154
Partner Communications ADR (USD) * 98,920 597
Teva Pharmaceutical ADR (USD) 14,120 835
Total Israel (Cost $6,611) 4,799
POLAND 7.1%
Commmon Stocks 7.1%
Bank Polska Kasa Opieki GDR (USD) * 11,184 113
Comarch * 18,745 214
ComputerLand * 20,514 495
Elektrim Spolka Akcyjna * 79,070 636
Pekao Bank * 35,200 352
Total Poland (Cost $2,345) 1,810
RUSSIA 14.2%
Common Stocks 14.2%
LUKoil ADR (USD) 23,918 1,334
Mobile Telesystems ADR (USD) * 27,319 755
Norilsk Nickel (USD) * 37,459 292
Surgutneftegaz ADR (USD) 62,400 811
Tatneft ADR (USD) 18,773 195
Vimpel-Communications ADR (USD) * 12,430 242
Total Russia (Cost $4,391) 3,629
TURKEY 16.6%
Common Stocks 16.6%
Anadolu Efes Biracilik
ve Malt Sanayii* 3,961,198 232
Dogan Yayin Holding * 100,075,161 1,305
Hurriyet Gazetecilik
ve Matbaacilik * 25,679,716 309
Migros Turk 2,071,302 285
Turkiye Garanti Bankasi * 110,001,957 1,128
Yapi ve Kredi Bankasi * 114,547,165 990
Total Turkey (Cost $4,096) 4,249
UNITED STATES 2.4%
Common Stocks 2.4%
Comverse Technology * 5,380 601
Total United States (Cost $501) 601
SHORT-TERM INVESTMENTS 7.1%
Money Market Funds 7.1%
Reserve Investment Fund, 6.68% # 1,819,644 1,820
Total Short-Term Investments (Cost $1,820) 1,820
Value
--------------------------------------------------------------------------------
In thousands
Total Investments in Securities
101.7% of Net Assets (Cost $29,997) $ 25,965
Other Assets Less Liabilities (432)
NET ASSETS $ 25,533
---------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 5
Accumulated net realized gain/loss - net of distributions 197
Net unrealized gain (loss) (4,034)
Paid-in-capital applicable to 2,953,502shares of $0.01
par value capital stock outstanding; 2,000,000,000
shares of theCorporation authorized 29,365
NET ASSETS $ 25,533
---------
NET ASSET VALUE PER SHARE $ 8.65
---------
* Non-income producing
# Seven-day yield
ADR American depository receipt
GDR Global depository receipt
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Europe & Mediterranean Fund
Statement of Operations
--------------------------------------------------------------------------------
In thousands
8/31/00
Through
10/31/00
Investment Income (Loss)
Interest income $ 44
Expenses
Organization and initial registration 37
Shareholder servicing 19
Custody and accounting 19
Legal and audit 2
Registration 1
Directors 1
Reimbursed by manager (3)
Total expenses 76
Net investment income (loss) (32)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 185
Foreign currency transactions 12
Net realized gain (loss) 197
Change in net unrealized gain or loss
Securities (4,032)
Other assets and liabilities
denominated in foreign currencies (2)
Change in net unrealized gain or loss (4,034)
Net realized and unrealized gain (loss) (3,837)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (3,869)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Europe & Mediterranean Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
8/31/00
Through
10/31/00
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (32)
Net realized gain (loss) 197
Change in net unrealized gain or loss (4,034)
Increase (decrease) in net assets from operations (3,869)
Capital share transactions *
Shares sold 29,884
Shares redeemed (483)
Redemption fees received 1
Increase (decrease) in net assets from capital
share transactions 29,402
Net Assets
Increase (decrease) during period 25,533
Beginning of period --
End of period $ 25,533
----------
*Share information
Shares sold 3,008
Shares redeemed (54)
Increase (decrease) in shares outstanding 2,954
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Europe & Mediterranean 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 Emerging
Europe & Mediterranean Fund (the fund), a diversified, open-end
management investment company, is one of the portfolios established by
the corporation, and commenced operations on August 31, 2000. The fund
seeks long-term growth of capital through investments primarily in the
common stocks of companies in the emerging market countries of Europe
and the Mediterranean region.
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.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
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. Credits
earned on daily uninvested cash balances at the custodian are used to
reduce the fund's custody charges.
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, 2000, approximately 92% of the fund's
net assets were invested 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.
Other Purchases and sales of portfolio securities, other than
short-term securities, aggregated $30,623,000 and $2,632,000,
respectively, for the period ended October 31, 2000.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund
intends to qualify as a regulated investment company and distribute
all of its 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 period ended October
31, 2000.
--------------------------------------------------------------------------------
Undistributed net investment income $ 37,000
Paid-in-capital (37,000)
At October 31, 2000, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and
totaled $29,997,000. Net unrealized loss aggregated $4,032,000 at
period-end, of which $419,000 related to appreciated investments and
$4,451,000 to depreciated investments.
NOTE 4 - 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.
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 period 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.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through October 31, 2002, which would
cause the fund's ratio of total expenses to average net assets to
exceed 1.75%. Thereafter, through October 31, 2004, the fund is
required to reimburse the manager for these expenses, provided that
average net assets have grown or expenses have declined sufficiently
to allow reimbursement without causing the fund's ratio of total
expenses to average net assets to exceed 1.75%. Pursuant to this
agreement, $46,000 of management fees were not accrued by the fund for
the period ended October 31, 2000, and $3,000 of other expenses were
borne by the manager.
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 $33,000 for the period ended October 31, 2000, of which
$12,000 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 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 period ended October 31, 2000, totaled
$26,000 and are reflected as interest income in the accompanying
Statement of Operations.
T. Rowe Price Emerging Europe & Mediterranean Fund
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Directors of T. Rowe Price International Funds,
Inc. and Shareholders of Emerging Europe & Mediterranean 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 Emerging Europe & Mediterranean 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 the fiscal period 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 audit.
We conducted our audit 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 audit, which
included confirmation of securities at October 31, 2000 by
correspondence with the custodian, provides a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 17, 2000
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).
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Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
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BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
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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.
T. Rowe Price Mutual Funds
--------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Developing Technologies
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
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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
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Europe & Mediterranean
Emerging Markets Stock
European Stock
Global Stock
Global Technology
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Spectrum Income
Summit GNMA
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida 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 IntermediateBond
Tax-Free Short-Intermediate
Virginia Tax-Free Bond
International/Global
Emerging Markets 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
* Closed to new investors.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds. Please call for a prospectus, which contains
complete information, including fees and expenses. Read it carefully before
investing.
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.
T. Rowe Price Advisory Services and Retirement Resources
--------------------------------------------------------------------------------
Advisory Services, Retirement Resources
T. Rowe Price is your full-service retirement specialist. We have developed
unique advisory services that can help you meet the most difficult
retirement challenges. Our broad array of retirement plans is suitable for
individuals, the self-employed, small businesses, corporations, and
nonprofit organizations. We also provide recordkeeping, communications, and
investment management services, and our educational materials, self-help
planning guides, and software tools are recognized as among the industry's
best. For information or to request literature, call us at 1-800-638-5660,
or visit our Web site at www.troweprice.com.
ADVISORY SERVICES
T. Rowe Price Retirement Income ManagerSM helps retirees or those within
two years of retirement determine how much income they can take in
retirement. The program uses extensive statistical analysis and the input
of financial planning professionals to suggest an income plan that best
meets your objectives.
T. Rowe Price Rollover Investment Service offers asset allocation advice to
those planning a major change in their qualified retirement plans, such as
a 401(k) rollover from a previous employer or an IRA transfer.
RETIREMENT RESOURCES AT T. ROWE PRICE
Traditional, Roth, and Rollover IRAs
SEP-IRA and SIMPLE IRA
Profit Sharing Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k) and 403(b) 457 Deferred Compensation
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit Retirees Financial Guide
Tax Considerations for Investors
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning
AnalyzerTM CD-ROM or diskette $19.95.
To order, please call 1-800-541-5760.
Also available on the Internet for $9.95.
T. Rowe Price Variable Annuity AnalyzerTM
CD-ROM or diskette, free. To order,
please call 1-800-469-5304.
T. Rowe Price Immediate Variable
Annuity (Income Account)
Investment Kits
We will be happy to send you one of our easy-to-follow investment kits
when you are ready to invest in any T. Rowe Price retirement vehicle,
including IRAs, qualified plans, small-business plans, or our no-load
variable annuities.
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
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Owings Mills
Three Financial Center
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T. Rowe Price, Invest With Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F131-050 10/31/00
