Annual Report
Emerging
Markets
Stock Fund
October 31, 1998
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Emerging Markets Stock Fund
o The past six months were extremely challenging for emerging markets,
and the sell-off took a severe toll on investors in these regions.
o The fund posted sharp losses of -35.31% and -27.31% for the six and
12 months, respectively, trailing the average for the competition over the
half year but surpassing it for the 12 months ended October 31.
o Exposure to some better-performing markets helped the portfolio
during the 12-month period, but an underweighting in Asia, which rallied
in October, hurt more recent results.
o Key positions in Brazil, Mexico, Argentina, Hungary, and Greece
constitute about one-fifth of portfolio holdings.
o We believe current emerging market stock prices already reflect much of
the bad news, and any positive developments could lead to a renewal of
stock market advances.
Fellow Shareholders
The past six months were one of the most challenging periods ever for investing
in emerging markets. Since virtually all the markets in which your fund invests
fell sharply, the only places to find refuge from the widespread selling were in
U.S. dollar-denominated cash positions or U.S. Treasury securities. The
contagion that swept across the entire emerging markets universe was savage and
unrelenting and exacted a toll on equity investors in these regions.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 10/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Emerging Markets Stock Fund -35.31% -27.31%
MSCI Emerging Markets
Free Index -33.41 -30.99
Lipper Emerging Markets
Funds Average -34.20 -31.83
The problems started in Asia in the summer of 1997 with a large build-up of
corporate debt, industrial overcapacity, widening current account deficits, and
sharply devaluing currencies, all of which led to severe recession and a
persistent economic hangover. The turmoil spread rapidly to other emerging areas
as credit contracted, equity inflows dwindled, syndicated lending dried up, and
investors demanded much higher interest rate risk premiums. As a result, the
difference in yields between emerging market bonds and U.S. Treasury bonds
expanded from under three percentage points to more than 15. All in all,
investors in every asset class became far more risk averse. Slowing economic
growth dropped commodity prices to 20-year lows and further exacerbated the
situation in these regions, since emerging markets often depend on commodities
as a major source of income. The price of oil fell from more than $18 per barrel
to around $12, hurting Russia and other oil-producing nations. Russia's budget
deficit increased. Since Russia finances its operations largely through
short-term foreign loans, the country's financial underpinnings became untenable
when interest rates rocketed to more than 125% as global lenders grew
increasingly risk-averse. The combination of currency devaluation and debt
default led to a collapse in Russian stock prices, in U.S. dollar terms.
Fortunately, your fund had only a minimal exposure to this market, with less
than 1% of assets invested there.
Preparing For The Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We plan to complete all
reprogramming efforts for the major application systems, including business
applications required to service our customers and processing infrastructure
necessary to ensure the integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. Our goal is to
identify any noncompliant files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we are taking steps to modify them where necessary for the
Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
Soaring interest rates spread across emerging markets into Malaysia, which
imposed capital controls, to Brazil where $25 billion flowed out of the economy
as investors worried about a devaluation of the real (the local currency) and
finally throughout the entire fragile emerging markets universe. In this
environment, your fund posted severe double-digit losses for both the 6- and
12-month periods ended October 31, 1998, as shown on page 1.
Market Performance
- --------------------------------------------------------------------------------
In U.S. Dollar Terms
Periods Ended 10/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Argentina -19.82% -8.82%
Brazil -39.65 -29.63
Chile -27.47 -37.74
China (Free) -31.04 -51.62
Greece -9.23 36.13
Hungary -28.49 -6.99
Israel (Nondomestic) 2.99 9.89
Malaysia (Emerging) -56.77 -63.00
Mexico -30.85 -21.09
South Africa -35.04 -23.05
Taiwan -15.06 -14.10
Source: FAME Information Services, Inc.; based on MSCI indices.
Fund results were ahead of both the MSCI Emerging Markets Free Index and the
Lipper Emerging Markets Funds Average over the fiscal year. This performance can
be attributed to our overweighted positions in Greece, Israel, and Hungary,
markets that did not fare as poorly as other regions. Your fund also had
relatively light exposure to Malaysia and Indonesia, which was beneficial during
the 12 months. Our focus on steady growth stocks, such as telecommunications and
utilities shares, aided the return relative to the competition. However, our
smaller exposure to Asia, which declined the least during the summer, hurt the
fund during the past six months. Our Eastern European holdings fell sharply in
value after the Russian collapse, and the portfolio's 15% exposure to Brazil,
which fell nearly 40% during the past six months, hurt results in the shorter
term.
MARKET REVIEW
Latin America
In Latin America, yields soared on Brady bonds (typically, U.S.
dollar-denominated securities issued in less developed countries), and their
spreads over U.S. bond yields expanded generally as regional interest rates were
forced up to defend the local currencies. At one point, access to international
capital markets was more or less totally cut off for both the government and
corporate markets. The Brazilian government deficit was seriously strained when
public sector debt rose from around 28% of GDP in 1995 to nearly 40% at the end
of October. With current levels of real interest rates around 40%, the damage in
terms of financing cost is severe. However, the government has behaved admirably
throughout this crisis. Despite the economic pain, President Cardoso was
comfortably reelected in October and announced a $23 billion Fiscal Stability
Program shortly afterward. Its central feature is an increase in the primary
budget surplus (before interest payments) from 0% to 2.6% of GDP in 1999 and
3.0% in 2001. Crucially, it will address longer-term issues such as pension
reform as well as more immediate spending cuts. Coupled with internal efforts,
the IMF also pledged greater support for Brazil, and the U.S. has strong vested
interests there because of high exposure to the Latin American economy. The
downside is that the economy is likely to be weak for a while as a result of
needed reforms, and we have positioned the portfolio defensively with a heavy
focus on telecommunications and utilities stocks.
Geographic Diversification
Latin America Asia Europe Africa Other
37 26 24 9 4
Based on net assets as of 10/31/98.
Elsewhere in the region, the Mexican economy has so far held up remarkably well
despite rising interest rates, a weak peso, and a fragile banking sector. August
industrial production increased 7%, and third quarter corporate earnings came in
well ahead of expectations. Similarly, Argentina's Convertibility Plan remained
intact during the recent turmoil. The government showed its commitment to fiscal
discipline by cutting spending by more than $1.3 billion to achieve the deficit
target of 1% of GDP agreed to with the IMF. Given this success, Argentina was
the region's best-performing market over the 12 months ended October 31, with a
drop of only 8.8% in dollar terms compared with nearly 30% in Brazil and 21% in
Mexico. Key holdings in Latin America included Telebras in Brazil, Telmex in
Mexico, and YPF Sociedad Anonima in Argentina, which are the three top positions
in the portfolio.
Eastern Europe
The situation was similar in Emerging Europe, the worst-performing region
overall during the past six months. The 82% drop in Russia exceeded all others
and led to punishing declines in Hungary and Poland, and a sharp drop in Greece
in U.S. dollar terms. Russia tried hard to avoid a devaluation of the ruble, but
once the official currency band had been widened from 6.5 to the dollar, the
ruble rapidly collapsed to almost 20 versus the greenback. The new government of
Kiriyenko had strongly pursued a reformist line with tax cuts and a fiscal
austerity package that eliminated a full 2% of GDP from government expenditures.
However, the structure of public sector financing, the vast burden of
nonpayments within the economy, and an inefficient banking system were
ultimately overwhelming. This was an unfortunate development, since Russia was
arguably as close as it had been in many years to becoming a stable free market
economy with low inflation, a stable currency, and an improved savings rate.
We reduced our Russian positions before the devaluation as the risk levels had
clearly increased, and then reduced them further afterward, focusing on domestic
earners such as the electric utilities Unified Energy Systems and AO Mosenergo.
We held onto Lukoil, which has vast oil reserves that are undervalued, in our
view. The rest of Emerging Europe, sadly, was caught in the downdraft. This was
somewhat unjustified as the trade ties to Russia are low in the cases of Poland,
Hungary, and the Czech Republic, all of which send less than 6% of their exports
to Russia compared with about 70% for the developed nations in the European
Union. However, in the short term, interest rates rose and the local currencies
came under pressure. Fortunately, this situation has now been largely corrected,
but several stocks were casualties in the sell-off, including Richter Gedeon,
the Hungarian pharmaceutical company with 35% of its sales going to Russia, and
some Polish banks with Russian debt exposure. Nevertheless, Eastern European
balance sheets are strong for the most part, and Russia's financial impact on
these countries has been small so far.
Further south, Greece was hit by the general decline in developed European
markets. Doubts were raised about Greece's chances of entering EMU during the
second phase, but the doubts have pretty much subsided thanks to the
government's strong privatization drive. Israel largely avoided the crisis but
suffered a bit once the dollar fell sharply against the yen, putting pressure on
the shekel and forcing the Bank of Israel to hike interest rates.
Far East
While Asian economies sank further into recession, several markets rallied in
October once the yen strengthened against the dollar. Over the six-month period,
the stock markets of South Korea, Thailand, Malaysia, and Indonesia fell 4%,
23%, 57%, and 39%, respectively, in U.S. dollars. Interest rates across the
region dropped, relieving heavily indebted companies. Financial and property
stocks that had been hit hardest earlier rallied the most. However, this was not
before the region had suffered considerable pain. The spotlight was focusedon
Malaysia as its government imposed capital controls and banned the withdrawal of
investment capital from the country for a year. This policy was implemented in
an attempt to break the vicious cycle of ever-higher interest rates needed to
defend the currency. The economy was brought to its knees with industrial
production falling 11% in August, and the money supply contracting 16%.
Indonesia and the Philippines suffered similar fates. November 23, 1998
Industry Diversification
Percent of Net Assets
10/31/98
- --------------------------------------------
Services 35.2%
Finance 19.4
Consumer Goods 16.4
Energy 15.8
Capital Equipment 6.2
Materials 3.9
Multi-industry 0.1
All Other 0.4
Reserves 2.6
- -------------------------------------------
Total 100.0%
We kept most of our Asian exposure in India and Taiwan where economies remain in
far better shape. The Indian economy slowed but remained positive and was buoyed
by healthy domestic consumption. We continued to find well-managed companies
there with attractive returns on capital, a criterion that we view as
particularly important in the selection of securities. Similarly, Taiwan was in
relatively good shape with an ongoing positive current account balance, coupled
with low inflation and economic growth around 5%. The electronics sector is
particularly vibrant, and recent signs of falling global inventories bode well
for the future. We will most likely try to rebuild our Asian exposure somewhat
during the next 12 months. However, banking systems throughout the region are
still fragile, corporate debt levels remain high, and management is only slowly
coming to terms with the need to focus on the bottom line instead of just trying
to win market share. Therefore, increasing our commitment to these markets is
likely to be a gradual process.
Africa
South African shares fell 35% in U.S. dollar terms over the past six months. The
story here was similar to that of other emerging markets but was exacerbated by
the economy's reliance on base metal exports and by the low level of foreign
currency reserves. We have maintained a significant underweighting in this
market for some time, believing that high levels of consumer debt, coupled with
low productivity and high wage levels, are major structural disadvantages.
President Mandela is also due to step down in May 1999, which may lead to
political instability.
OUTLOOK
Our outlook for emerging market stocks is growing cautiously optimistic. Stock
valuations have already fallen to levels rarely seen before in most emerging
markets, and many share prices appear to reflect much of the bad news. It is now
possible to buy stocks in Latin America and Emerging Europe for less than five
times earnings and for less than book value. Similarly, interest rates in most
countries are at unsustainable levels and are likely to fall over time. It is
true that the global environment, with slowing major economies and severe
weakness in many key commodity prices, is not helpful to emerging markets at
present. However, financial leaders in key developed nations have recently taken
a constructive approach to dealing with emerging nations. Monetary policy has
been eased in most of these countries, the IMF has been strengthened
financially, and specific packages have been targeted for Brazil and other
countries. In our view, with much of the bad news largely discounted, any
positive developments could lead to a renewal of strong stock market performance
in emerging markets during the months ahead.
Respectfully submitted,
Martin G. Wade
President
T. Rowe Price Emerging Markets Stock Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
10/31/98
- --------------------------------------------------------------------------------
Telecomunicacoes Brasileiras
(Telebras), Brazil 5.3%
Telefonos de Mexico (Telmex), Mexico 3.9
YPF Sociedad Anonima, Argentina 3.2
Matav, Hungary 3.0
Hellenic Telecommunication, Greece 2.5
- --------------------------------------------------------------------------------
National Bank of Greece, Greece 2.3
Bank Hapoalim, Israel 2.1
ITC, India 1.9
OTP Bank, Hungary 1.9
Bank Pekao, Poland 1.8
- --------------------------------------------------------------------------------
SPT Telecom, Czech Republic 1.8
Magyar Olaj Es Gazipari, Hungary 1.8
Hon Hai Precision Industry, Taiwan 1.7
Mahanagar Telephone, India 1.7
Hindustan Lever, India 1.6
- --------------------------------------------------------------------------------
Petrol Brasileiros, Brazil 1.5
Alpha Credit Bank, Greece 1.5
Samsung Electronics, South Korea 1.4
China Telecom, Hong Kong 1.3
Cemex, Mexico 1.3
- --------------------------------------------------------------------------------
Huaneng Power International, China 1.3
President Chain Store, Taiwan 1.3
ECI Telecom, Israel 1.2
Grupo Modelo, Mexico 1.2
Telefonica de Argentina, Argentina 1.1
- --------------------------------------------------------------------------------
Total 49.6%
T. Rowe Price Emerging Markets Stock Fund
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
EMERGING MARKETS STOCK FUND SEC PLOT POINTS 10/98
MSCI Lipper Emerging Markets Stock Fund
3/95 10,000 10,000 10,000
10/95 10,547 10,573 10,480
10/96 11,231 11,542 11,601
10/97 10,278 11,653 11,415
10/98 7,093 7,971 8,298
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 10/31/98 1 Year 3 Years Since Inception
Inception Date
- --------------------------------------------------------------------------------
Emerging Markets
Stock Fund -27.31% -7.49% -5.07% 3/31/95
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 Emerging Markets Stock Fund
Financial Highlights
- --------------------------------------------------------------------------------
For a share outstanding throughout each period
Year 3/31/95
Ended Through
10/31/98 10/31/97 10/31/96 10/31/95
NET ASSET VALUE
Beginning of
period $ 11.08 $ 11.59 $ 10.48 $ 10.00
Investment activities
Net investment income 0.05* 0.02 0.02* 0.02*
Net realized and
unrealized gain (loss) (3.06) (0.23) 1.08 0.44
Total from
investment activities (3.01) (0.21) 1.10 0.46
Distributions
Net investment
income -- (0.04) (0.01) --
Net realized gain (0.15) (0.30) -- --
Total distributions (0.15) (0.34) (0.01) --
Redemption fees added
to paid-in-capital 0.03 0.04 0.02 0.02
NET ASSET VALUE
End of period $ 7.95 $ 11.08 $ 11.59 $ 10.48
---------------------------------------------
Ratios/Supplemental Data
Total return(copyright) (27.31)%* (1.60)% 10.69%* 4.80%*
Ratio of expenses to
average net assets 1.75%* 1.75% 1.75%* 1.75%!*
Ratio of net investment
income to average
net assets 0.46%* 0.21% 0.44%* 0.54%!*
Portfolio turnover rate 54.5% 84.3% 41.7% 28.8%!
Net assets, end of period
(in thousands) $ 69,752 $119,285 $ 67,896 $ 14,399
(copyright) 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.
* Excludes expenses in excess of a 1.75% voluntary expense
limitation in effect through 10/31/99.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
October 31, 1998
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
ARGENTINA 7.5%
Common Stocks 7.5%
Banco Frances del
Rio de la Plata ADR (USD) 16,060 $ 335
Banco Rio de la Plata
(Class B) ADR (USD) 45,970 414
Perez Companc (Class B) 154,602 764
Telecom Argentina Stet
(Class B) ADR (USD) 19,800 638
Telefonica de Argentina
(Class B) ADR (USD) 24,160 799
YPF Sociedad Anonima
(Class D) ADR (USD) 78,050 2,259
Total Argentina (Cost $5,858) 5,209
BRAZIL 14.7%
Common Stocks 4.5%
Centrais Geradoras do
Sul do Brasil * 31,575,000 32
Companhia Vale do
Rio Doce ADR (USD) 32,000 488
Electricidade
de Rio de Janeiro * 1,315,772,000 430
Eletrobras 24,999,000 541
Pao de Acucar ADR (USD) 48,000 774
Telebras * 8,468,000 360
Unibanco GDR (USD) 29,522 517
3,142
Preferred Stocks 10.2%
Banco Bradesco 50,928,455 290
Banco Itau 1,573,960 765
Brahma 900,141 423
Cia Energetica Minas Gerais 33,599,123 653
Petrol Brasileiros 8,271,000 1,040
Telebras ADR (USD) 43,839 3,329
Telecomunicacoes de Sao Paulo
Celular (Class B) * 7,006,803 347
Telecomunicacoes do Rio de Janeiro 1,287,988 40
Telecomunicacoes do Rio de
Janeiro Celular (Class B) * 6,431,988 200
7,087
Total Brazil (Cost $16,204) 10,229
CHILE 2.8%
Common Stocks 2.8%
Chilectra ADR (144a) (USD) 39,157 $ 759
Compania Cervecerias Unidas ADS (USD) 14,672 264
Compania de Telecomunicaciones d
e Chile (Class A) ADR (USD) 13,955 306
Embotelladora Andina
(Class A) ADR (USD) 28,636 381
Enersis ADS (USD) 11,654 243
Santa Isabel ADR (USD) 1,793 11
Total Chile (Cost $2,469) 1,964
CHINA 2.3%
Common Stocks 2.3%
Huaneng Power International ADR (USD) * 67,000 921
Shenzhen Expressway (Class H) (HKD) 2,870,000 649
Total China (Cost $2,316) 1,570
CROATIA 1.1%
Common Stocks 1.1%
Pliva D D GDR (USD) 52,680 774
Total Croatia (Cost $874) 774
CZECH REPUBLIC 2.8%
Common Stocks 2.8%
Ceske Radiokomunikace 23,200 712
SPT Telecom 83,760 1,267
Total Czech Republic (Cost $1,598) 1,979
GREECE 8.0%
Common Stocks 8.0%
Alpha Credit Bank 12,930 1,032
Hellenic Bottling 16,870 410
Hellenic Telecommunication 77,416 1,758
Intracom 9,640 402
National Bank of Greece 11,166 1,585
Stet Hellas Telecommunications ADR (USD) * 15,730 413
Total Greece (Cost $4,678) 5,600
HONG KONG 1.6%
Common Stocks 1.6%
China Telecom 497,000 $ 934
Legend Holdings 464,000 156
Total Hong Kong (Cost $1,057) 1,090
HUNGARY 7.9%
Common Stocks 6.0%
Fotex 135,301 71
Magyar Olaj Es Gazipari 55,184 1,233
Matav 409,676 2,122
Richter Gedeon GDS (USD) 21,748 729
4,155
Preferred Stocks 1.9%
OTP Bank 37,818 1,341
1,341
Total Hungary (Cost $6,462) 5,496
INDIA 8.7%
Common Stocks 8.7%
HDF Corporation 12,050 635
Hindustan Lever 29,500 1,116
Hindustan Petroleum 67,000 421
Industrial Credit & Investment
Corporation of India 615,450 592
ITC 63,800 1,058
ITC GDR (USD) 15,000 300
Mahanagar Telephone 279,000 1,205
Ranbaxy Laboratories 62,000 730
Total India (Cost $8,436) 6,057
INDONESIA 0.6%
Common Stocks 0.6%
Gulf Indonesia Resources (USD) * 42,000 415
Total Indonesia (Cost $784) 415
ISRAEL 6.8%
Common Stocks 6.8%
Bank Hapoalim 805,520 $ 1,457
Bank Leumi 336,260 428
ECI Telecom (USD) 25,200 835
NICE-Systems ADR (USD) * 21,130 401
Orbotech (USD) * 12,735 446
Super Sol 233,757 602
Teva Pharmaceutical Industries ADR (USD) 15,050 594
Total Israel (Cost $5,787) 4,763
MEXICO 11.4%
Common Stocks 11.4%
Cemex, Participating Certificates
(Represents 1 Class A Share) 9,736 23
Cemex (Class B) 324,540 902
Cifra (Class V) ADR (USD) * 22,113 300
Coca-Cola Femsa (Class L) ADR (USD) 25,000 412
Femsa UBD
(Represents 1 Class B,
2 Series D (Class B) and
2 Series D (Class L) shares) * 298,040 768
Gruma (Class B) * 63,825 152
Grupo Elektra Participating Certificates
(Represents 1 Class L Share
and 2 Class B Shares) 706,000 312
Grupo Industrial Maseca (Class B) 541,000 439
Grupo Modelo (Class C) 388,000 818
Kimberly-Clark de Mexico (Class A) 150,000 435
Panamerican Beverages (Class A) (USD) 22,380 453
Telefonos de Mexico (Class L) ADR (USD) 50,995 2,693
TV Azteca ADR (USD) 26,500 232
Total Mexico (Cost $8,902) 7,939
PERU 0.6%
Common Stocks 0.6%
Credicorp (USD) 10,560 71
Telefonica del Peru (Class B) ADR (USD) 28,160 366
Total Peru (Cost $804) 437
PHILIPPINES 1.4%
Common Stocks 1.4%
Bank of the Philippine Islands 180,700 $ 349
La Tondena Distillers * 398,000 232
San Miguel (Class B) 243,700 359
Total Philippines (Cost $1,770) 940
POLAND 3.4%
Common Stocks 3.4%
Bank Pekao 111,114 1,274
Bank Slaski 8,596 429
BIG Bank Gdanski 641,373 661
Total Poland (Cost $3,593) 2,364
RUSSIA 0.8%
Common Stocks 0.8%
Lukoil (USD) 24,351 99
Lukoil ADR (USD) 30,350 493
Total Russia (Cost $3,208) 592
SOUTH AFRICA 2.2%
Common Stocks 2.2%
Metropolitan Life 163,400 299
Pick 'N Pay Stores 545,700 668
Pick 'N Pay Stores (Class N) 12,971 14
South African Breweries ADS (USD) 27,300 539
Total South Africa (Cost $2,127) 1,520
SOUTH KOREA 1.4%
Common Stocks 1.4%
Samsung Electronics 23,757 972
Total South Korea (Cost $1,431) 972
TAIWAN 8.3%
Common Stocks 8.3%
Asustek Computer GDR (USD) * 46,500 $ 356
Asustek Computer GDR (144a) (USD) * 91 1
Bank Sino Pacific 833,458 356
Cathay Life Insurance 196,800 695
Chuntex Electronics 206,940 239
Compal Electronics 201,000 626
Compeq Manufacturing 37,000 235
D-Link Corporation 66,300 146
Far East Textile 297,920 208
Far Eastern Silo & Shipping 753,960 412
Hon Hai Precision Industry 252,000 1,212
President Chain Store 276,792 883
Standard Foods Taiwan 176,000 358
Taiwan Semiconductor Manufacturing 31,950 65
Total Taiwan (Cost $6,090) 5,792
THAILAND 1.8%
Common Stocks 1.8%
PTT Exploration & Production 84,800 785
Siam Makro 271,000 494
Total Thailand (Cost $1,561) 1,279
VENEZUELA 0.4%
Common Stocks 0.4%
Compania Anonima Nacional Telefonos
de Venezuela (Class D) ADR (USD) 18,935 294
Total Venezuela (Cost $690) 294
UNITED STATES 0.9%
Common Stocks 0.9%
AT Entertainment * 89,583 605
Total United States (Cost $1,177) 605
SHORT-TERM INVESTMENTS 2.8%
Money Market Funds 2.8%
Reserve Investment Fund, 5.41% # 1,987,683 $ 1,987
Total Short-Term Investments
(Cost $1,987) 1,987
Total Investments in Securities
100.2% of Net Assets (Cost $89,863) $ 69,867
Other Assets Less Liabilities (115)
NET ASSETS $ 69,752
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 308
Accumulated net realized gain/loss -
net of distributions (23,079)
Net unrealized gain (loss) (20,006)
Paid-in-capital applicable to 8,772,097
shares of $0.01 par value capital stock
outstanding; 2,000,000,000 shares of the
Corporation authorized 112,529
NET ASSETS $69,752
-------
NET ASSET VALUE PER SHARE $7.95
* Non-income producing
# Seven-day yield
144a Security was purchased pursuant to Rule 144a under the Securities
Act of 1933 and may not be resold subject to that rule except to
qualified institutional buyers -total of such securities at year-end
amounts to 1.1% of net assets.
ADR American depository receipt
ADS American depository share
GDR Global depository receipt
GDS Global depository share
HKD Hong Kong dollar
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/98
Investment Income
Income
Dividend (net of foreign taxes of $174) $ 2,098
Interest 170
Total income 2,268
Expenses
Investment management 1,092
Shareholder servicing 396
Custody and accounting 153
Prospectus and shareholder reports 62
Registration 42
Legal and audit 24
Directors 6
Miscellaneous 20
Total expenses 1,795
Net investment income 473
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (22,811)
Foreign currency transactions (361)
Net realized gain (loss) (23,172)
Change in net unrealized gain or loss
Securities (6,175)
Other assets and liabilities
denominated in foreign currencies 87
Change in net unrealized gain or loss (6,088)
Net realized and unrealized gain (loss) (29,260)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (28,787)
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/98 10/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 473 $ 251
Net realized gain (loss) (23,172) 1,407
Change in net unrealized gain or loss (6,088) (12,011)
Increase (decrease) in net assets
from operations (28,787) (10,353)
Distributions to shareholders
Net investment income -- (243)
Net realized gain (1,562) (1,829)
Decrease in net assets
from distributions (1,562) (2,072)
Capital share transactions*
Shares sold 33,862 102,370
Distributions reinvested 1,518 2,007
Shares redeemed (54,808) (40,915)
Redemption fees received 244 352
Increase (decrease) in
net assets from capital
share transactions (19,184) 63,814
Net Assets
Increase (decrease) during period (49,533) 51,389
Beginning of period 119,285 67,896
End of period $ 69,752 $ 119,285
----------------------------------
*Share information
Shares sold 3,277 7,922
Distributions reinvested 133 173
Shares redeemed (5,401) (3,192)
Increase (decrease) in
shares outstanding (1,991) 4,903
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
October 31, 1998
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 Markets Stock Fund (the fund),
a diversified, open-end management investment company, is one of the portfolios
established by the corporation and commenced operations on March 31, 1995.
The accompanying financial statements are prepared in accordance with generally
accepted accounting principles for the investment company industry; these
principles may require the use of estimates by fund management.
Valuation Equity securities are valued at the last quoted sales price at the
time the valuations are made. A security which is listed or traded on more than
one exchange is valued at the quotation on the exchange determined to be the
primary market for such security.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
For the purpose of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars as quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
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, 1998, the fund held investments in securities of
companies located in emerging markets. Future economic or political developments
could adversely affect the liquidity or value, or both, of such securities.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $53,674,000 and $70,267,000, respectively, for the year
ended October 31, 1998.
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. The fund has unused realized capital loss carryforwards for
federal income tax purposes of $22,811,000, all of which expires in 2006. The
fund intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
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, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ (165,000)
Undistributed net realized gain 154,000
Paid-in-capital 11,000
At October 31, 1998, the cost of investments for federal income tax purposes was
substantially the same as for financial reporting and totaled $89,863,000. Net
unrealized loss aggregated $19,996,000 at period end, of which $4,484,000
related to appreciated investments and $24,480,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc. (the manager),
which is owned by T. Rowe Price Associates, Inc. (Price Associates), Robert
Fleming Holdings Limited, and Jardine Fleming Holdings Limited under a joint
venture agreement.
The investment management agreement between the fund and the manager provides
for an annual investment management fee, of which $48,000 was payable at October
31, 1998. The fee is computed daily and paid monthly, and consists of an
individual fund fee equal to 0.75% of average daily net assets and a group fee.
The group fee is based on the combined assets of certain mutual funds sponsored
by the manager or Price Associates (the group). The group fee rate ranges from
0.48% for the first $1 billion of assets to 0.30% for assets in excess of $80
billion. At October 31, 1998, 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. Under the terms of the
investment management agreement, the manager is required to bear any expenses
through October 31, 1999, which would cause the fund's ratio of expenses to
average net assets to exceed 1.75%. Thereafter, through October 31, 2001, 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 expenses to average net assets
to exceed 1.75%. Pursuant to this agreement, $9,000 of management fees were not
accrued by the fund for the year ended October 31, 1998.
In addition, the fund has entered into agreements with Price Associates and two
wholly owned subsidiaries of Price Associates, pursuant to which the fund
receives certain other services. Price Associates computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services, Inc.
(TRPS) is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. The fund incurred expenses
pursuant to these related party agreements totaling approximately $418,000 for
the year ended October 31, 1998, of which $42,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds
(underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may
invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings to
it and in proportion to the average daily value of its shares owned by Spectrum,
pursuant to special servicing agreements between and among Spectrum, the
underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum International Fund
held approximately 2.0% of the outstanding shares of the Emerging Markets Stock
Fund at October 31, 1998. For the year then ended, the fund was allocated
$10,000 of Spectrum expenses, $2,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve and
Government Reserve Funds are offered as cash management options only to mutual
funds and other accounts managed by T. Rowe Price and its affiliates and are not
available to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the year ended October 31,
1998, totaled $133,000 and are reflected as interest income in the accompanying
Statement of Operations.
During the year ended October 31, 1998, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $25,278,000 with
certain affiliates of the manager and paid commissions of $92,000 related
thereto.
Report of Independent Accountants
To the Board of Directors T. Rowe Price International Funds, Inc. and
Shareholders of Emerging Markets Stock Fund
In our opinion, the accompanying statement of net assets and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Emerging Markets Stock Fund (one of the portfolios
constituting T. Rowe Price International Funds, Inc., hereafter referred to
as the "Fund") at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at October 31,
1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 18, 1998
T. Rowe Price Emerging Markets Stock Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 10/31/98
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 $1,562,000 from long-term
capital gains; all of which was subject to the 20% rate gains category.
The fund will pass through foreign source income of $555,000 and foreign taxes
paid of $177,000.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Emerging Markets
Stock Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F05-050 10/31/98
T. Rowe Price, Invest With Confidence (registered trademark)
