N-30D 1 idf39925.txt T. ROWE PRICE INTERNATIONAL DISCOVERY FUND Semiannual Report INTERNATIONAL DISCOVERY FUND APRIL 30, 2001 T. ROWE PRICE REPORT HIGHLIGHTS INTERNATIONAL DISCOVERY FUND o International small-cap growth stocks fell sharply during the six months ended April 30, driven lower by the plunging technology sector. o The fund posted negative returns, lagging its benchmarks for both the 6- and 12-month periods as investors rotated into value stocks. o We adhered to our growth stock strategy but tempered our approach in light of the current business cycle. o Aggressive interest rate cuts worldwide should provide a better environment for growth stocks. 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 Apart from relief rallies in January and April, the six months ended April 30, 2001, were punishing for international small-cap growth stocks. The severe downturn in demand from key sectors of the U.S. economy drove the technology-heavy Nasdaq Composite Index lower, taking with it many of the newly formed emerging-growth indices, which have acted as proxies for the Nasdaq. For example, the Neuer Markt Price Index of German high-growth companies plunged 55.65% during the six months. Overcapacity in certain sectors, especially telecommunications equipment, the failure of the pure online business model, and a delay in the implementation of next-generation mobile phones compounded the difficulties. PERFORMANCE COMPARISON ---------------------- Periods Ended 4/30/01 6 Months 12 Months ----------------------------------------------------------------------------- International Discovery Fund -18.40% -28.47% MSCI EAFE Small Cap Index * 0.45 -6.13 Salomon Non-U.S. Extended Market Index -4.25 -10.32 Lipper International Small-Cap Funds Average -14.36 -22.84 * Principal return only The fund posted sharply negative returns for the 6- and 12-month periods ended April 30, lagging its benchmark indices, as shown in the table. The year was marked by a reversal of market conditions, as investors rotated out of the high-potential growth stocks your fund favors into more defensive "value" sectors, which are a large component of the MSCI EAFE Small Cap and Salomon indices. Returns were closer to our Lipper peer group. (With this report we introduce the Lipper International Small-Cap Funds Average as one of the fund's benchmarks. The Lipper average now covers 83 funds, up from 59 three years ago, and has become more meaningful as the number of funds in this investment area has grown. With its inception in 1988, International Discovery is one of the older funds in the group.) While we're disappointed in recent results, our longer-term average annual returns remain strong due to persistent efforts to reposition the fund, as you can see from the table on page 9. The negative returns over the past year, as well as the very positive returns the previous year, serve as a reminder of the volatility this investment class can experience. As we said a year ago regarding the fund's 119.65% 12-month return, "Both strong gains and sharp losses are possible in the short term, and for this reason the fund is most appropriate as a long-term holding." PORTFOLIO AND MARKET REVIEW MARKET PERFORMANCE ---------'--------- Six Months Local Local Currency U.S. Ended 4/30/01 Currency vs. U.S. Dollars Dollars ------------------------------------------------------------------------- Australia 7.05% -1.43% 5.52% Brazil 10.06 -12.57 -3.78 France -10.87 4.60 -6.77 Germany -12.25 4.60 -8.22 Hong Kong -4.50 0.00 -4.50 India -9.92 0.01 -9.91 Japan -0.48 -11.61 -12.04 Mexico -3.64 3.48 -0.29 Netherlands -9.49 4.59 -5.33 Sweden -23.69 -2.44 -25.55 United Kingdom -5.07 -1.46 -6.46 Source: RIMES Online, using MSCI indices. Before looking at country and regional markets, a review of the fund's strategy and some of our investment themes is in order. We continued to seek opportunities in companies that have a solid position in growing markets with high prospective returns on equity. Given the current state of the business cycle, we tempered our style, mindful of two issues. Capital markets, whether through new stock offerings or high-yield debt, are essentially closed, so we avoided companies that needed funding. And with the difficult environment for corporate profitability, we assumed that earnings momentum would remain negative. Therefore, we looked for companies with strong business pipelines that offer high earnings predictability. Developing this theme, we built positions in syndicated market research companies Taylor Nelson (U.K.), GFK (Germany), and Cegedim (France). We also continued to look for ways to take advantage of pension reform and changing saving habits in Europe. This became more problematic because general weakness in equity markets means that the operating environment for brokers and "asset gatherers" is more difficult. We made some key related picks, however, in FJA (software for insurance companies, Germany), MPC Muenchmeyer Petersen Capital (asset management, Germany), and Corporacion Mapfre (life insurance, Spain). In our last report we alluded to a recovery in capital expenditure in oil exploration and production. We broadened our position in oil services, particularly in engineering and seismic surveys, purchasing TGS Nopec Geophysical (Norway) and Technip (France), and adding to IHC Caland (Netherlands). Our commitment to the energy sector stood at 6.0% at the end of the period, up from 4.8% in October. With Information technology (IT) spending receding . . . the factors that caused all boats to simultaneously rise, then fall, have gone away. We've become more ambivalent on technology than we were previously. Because product cycles are so short, technology will always be a fertile area for emerging-growth stocks, but technology can no longer be considered a homogenous asset class. With information technology (IT) spending receding to normal growth levels, the factors that caused all boats to simultaneously rise, then fall, have gone away. There will be pockets of strong growth in the sector, however. We think it is the right stage in the cycle to own computer gaming stocks as the next-generation (128-bit) consoles are released. Our preferences in this area are Eidos (U.K.) and Konami (Japan). Capital expenditure on digitizing TV networks is another growth area, and our top pick is Tandberg Televisjo (Norway). Europe Stalling economic growth compounded by fears of slowing exports to the key U.S. market led to a disastrous period for European emerging-growth stocks. Despite calls for lower interest rates to spur growth, the European Central Bank stuck to its no-change, anti-inflationary stance until just after the reporting period, when it lowered short-term rates by a quarter point. Even though the ECB held firm while the Federal Reserve aggressively lowered rates, there was no significant strengthening of the euro versus the dollar. In our last report we noted that the market for initial public offerings remained strong despite the carnage of the previous six months. Funding for IPOs has now effectively dried up, compounding the woes of small-cap growth companies. In this difficult environment for tech and telecom companies, we reduced our total European exposure to 42% from 52%. The following table was depicted as a pie chart in the printed material. Europe 42% Japan 22% Other and Reserves 13% Far East 23% Based on net assets as of 4/30/01. We trimmed technology during two periods of strength in January and April. For example, we reduced holdings in Articon Integralis (IT services, Germany) and Bright Station (Internet software, U.K.) and eliminated Aubay (IT services, France), Baltimore Technologies (Internet software, U.K.), Dialog Semiconductors (U.K.), and Lynx Group (IT services, U.K.). Given the overcapacities in the telecom equipment sector, we lightened our holdings in Teleste (Finland) and LPG Telecom Holding (Sweden) and sold Draka Holdings (Netherlands). Because of its high penetration of mobile phones and Internet connections, Sweden's economy was most affected by the New Economy downturn. Restructuring by mobile handset maker Ericsson hurt many supporting businesses. As a result, we eliminated temporary employment agencies Poolia and Proffice and trimmed our holdings in IT services company Cyber Com Consulting Group Scandinavia. We also sold mobile phone operator Europolitan Holdings and reduced our position in biotech firm PyroSequencing. Overall, our weighting in Sweden dropped to 3.4% of assets from 8.1% six months ago. We also eliminated holdings in advertising-related businesses, notably Aegis Group (media buying, U.K.), PubliGroupe (media buying, Switzerland), and Ipsos (market research, France), which are particularly sensitive to the business cycle. As mentioned earlier, we continued to purchase oil services companies, but we sold our successful position in Coflexip (France) because it reached our price target. Other European purchases included Sabate Diosos (wine barrels and stoppers, France), and Snia Spa (medical equipment, Italy). Japan A deteriorating outlook for the economy and record bankruptcies weakened the yen 12% against the dollar, considerably reducing the stock market's return for U.S. investors. In contrast to Europe, technology companies--though weak--were not the market's biggest losers. Instead, Japan's troubled banking sector fell sharply. We began the period with 19% of fund assets in Japan, but reduced that weighting to 14% by mid-February amid indications of further economic deterioration. When the major indices reached the bottom of their trading ranges--the tech-heavy Nikkei-225 Index fell to 15-year lows--we traded back into the market. The election of new reform-minded Prime Minister Koizumi and his unprecedentedly high approval ratings gave us renewed enthu-siasm for Japanese equities, and we ended the period with a 22% allocation. INDUSTRY DIVERSIFICATION ------------------------ Percent of Net Assets 10/31/00 4/30/01 --------------------------------------------------------- Information Technology 24.7% 21.6% Consumer Discretionary 17.0 17.1 Financials 9.5 12.8 Industrials 12.2 9.9 Health Care 10.5 9.5 Energy 4.8 6.0 Consumer Staples 4.0 5.6 Telecommunication Services 6.1 2.7 Materials 1.9 2.3 All Other 1.4 0.8 Reserves 7.9 11.7 ......................................................... Total 100.0% 100.0% Key new purchases included consumer electronics and online building company e-Lux, Ricoh, the number two photo-copier and fax machine maker, and Welfide, newly formed from the merger of two pharmaceutical groups. We also added significantly to our positions in Aiful (consumer credit) and Yakult Honsha (dairy products). Rest of the World The Hong Kong market sold off heavily in February and March because of concerns that the weakening U.S. economy and falling yen would curtail exports from the region. In China, the previously foreigners-only "B" shares were opened to local investors and subsequently doubled. We had a notable winner in Denway Motors, an auto assembler that has a joint venture with Honda. New offerings showed signs of life, and we participated in the IPO of chemicals company Global Bio-chem Technology Group. We also initiated a position in air-conditioning company Greencool Technology. As a whole, the Australia and New Zealand markets were resilient. As a value play, New Zealand actually traded up during the period. We sold our long-standing position in Australian ports operator Lang on valuation grounds, but added to New Zealand's Fisher & Paykel on the growth prospects of its medical-device business. India has been rocked by a series of political and stock-price manipulation scandals, which have clouded the country's long-term growth attractions. We took profits in Cipla, a drug producer whose price ran up following a favorable court ruling in South Africa regarding the use of cheaper generic drugs. Selective purchases, including Reliance Industries, which has exposure to the burgeoning mobile telephone market, and IT services firm Infosys Technologies, increased our allocation slightly to 6.5% from 4.7%. Stocks in Israel also suffered through the tech downturn. We eliminated Gilat Satellite Networks and call-center technology provider NICE Systems, lowering our Israeli exposure to 0.8% from 3%. INVESTMENT OUTLOOK With most major world economies in a simultaneous downturn, central bankers have met the challenge by cutting interest rates--aggressively in the case of the Federal Reserve. This is generally a good environment for financial assets, including growth stocks, and puts international markets on a more solid footing. We are sticking to our strategy of investing in emerging-growth stocks, but we have tempered our approach in light of the current business cycle and the changing dynamics of the technology sector. Still, long- term trends favoring high-growth companies--such as the need for technology infrastructure spending, oil and gas exploration, European pension reform, and deregulation in Japan--remain in place. While international markets are likely to be volatile, and the small-cap growth arena especially so, we are confident in the long-term prospects. Respectfully submitted, /s/ John R. Ford John R. Ford President, T. Rowe Price International Funds, Inc. May 22, 2001 T. ROWE PRICE INTERNATIONAL DISCOVERY FUND -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS -------------------- TWENTY-FIVE LARGEST HOLDINGS ---------------------------- Percent of Net Assets 4/30/01 -------------------------------------------------------------------------------- IHC Caland, Netherlands 3.1% Eidos, United Kingdom 2.0 Housing Development Finance, India 2.0 Tandberg Televisjo, Norway 1.9 NH Hoteles, Spain 1.8 ................................................................................ Aiful, Japan 1.7 Yakult Honsha, Japan 1.6 Aldata Solutions, Finland 1.6 Saipem, Italy 1.5 Kose, Japan 1.3 ................................................................................ Nissho Electronics, Japan 1.3 Fisher & Paykel, New Zealand 1.2 Sumitomo Rubber Industries, Japan 1.2 Taylor Nelson, United Kingdom 1.1 Corporacion Mapfre, Spain 1.1 ................................................................................ FJA, Germany 1.0 Galen Holdings, United Kingdom 1.0 QBE Insurance Group, Australia 1.0 Euler, France 1.0 GFK, Germany 1.0 ................................................................................ Sonic Healthcare, Australia 1.0 Rapala Normark, Finland 0.9 Orbital Engine, Australia 0.9 Serco Group, United Kingdom 0.9 HDFC Bank, India 0.9 ................................................................................ Total 34.0% 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. 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 4/30/01 1 Year 3 Years 5 Years 10 Years ............................................................................... International Discovery Fund -28.47% 19.95% 14.53% 10.03% ............................................................................... 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 -------------------------------------------------------------------------------- Unaudited For a share outstanding throughout each period FINANCIAL HIGHLIGHTS -------------------- 6 Months Year Ended Ended 4/30/01 10/31/00 10/31/99 10/31/98 10/31/97 10/31/96 NET ASSET VALUE Beginning of period $ 34.52 $ 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) (5.61) 10.39 12.09 (0.92) 0.25 1.59 ................................................................................ Total from investment activities (5.61) 10.45 12.06 (0.87) 0.27 1.66 ................................................................................ Distributions Net investment income - - (0.01) - (0.07) (0.10) Net realized gain (5.83) (2.81) (0.30) (0.25) (0.06) (0.02) ................................................................................ Total distributions (5.83) (2.81) (0.31) (0.25) (0.13) (0.12) ................................................................................ Redemption fees added to paid-in-capital 0.02 0.13 0.01 - - - ............................................................................... NET ASSET VALUE End of period $ 23.10 $ 34.52 $ 26.75 $ 14.99 $ 16.11 $ 15.97 RATIOS/SUPPLEMENTAL DATA Total return** (18.40)% 40.07% 82.11% (5.40)% 1.69% 11.60% ............................................................................... Ratio of total expenses to average net assets 1.36%+ 1.27% 1.42% 1.47% 1.41% 1.45% ............................................................................... Ratio of net investment income (loss) to average net assets (0.01)%+ 0.15% 0.17)% 0.25% 0.13% 0.40% ............................................................................... Portfolio turnover rate 54.2%+ 81.0% 98.2% 34.2% 72.7% 52.0% Net assets, end of period (in thousands) $647,290 $ 905,387 $381,462 $189,001 $254,430 $325,639 ............................................................................... ** 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 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE INTERNATIONAL DISCOVERY FUND -------------------------------------------------------------------------------- Unaudited April 30, 2001 PORTFOLIO OF INVESTMENTS ------------------------ In thousands Shares Value ------ ----- AUSTRALIA 6.0% Common Stocks 6.0% Aristocrat Leisure 1,025,000 $ 3,394 Circadian Technologies *+ 3,073,207 4,688 Energy Development 901,221 5,039 Foundation Healthcare * 2,858,000 2,843 Frucor Beverages Group (NZD) * 866,000 798 Orbital Engine * 11,678,000 5,981 PowerLan * 3,913,400 1,857 QBE Insurance Group 1,164,000 6,710 Sonic Healthcare 1,522,309 6,337 United Group 913,000 903 .......................................................................... Total Australia (Cost $42,213) 38,550 .......................................................................... BELGIUM 0.3% Common Stocks 0.3% Ubizen (EUR) * 197,256 1,978 .......................................................................... Total Belgium (Cost $9,045) 1,978 .......................................................................... CHINA 0.2% Common Stocks 0.2% Nanjing Panda Electric * 4,148,000 1,463 .......................................................................... Total China (Cost $751) 1,463 .......................................................................... FINLAND 2.6% Common Stocks 2.6% Aldata Solutions (EUR) * 2,425,000 10,048 Rapala Normark (EUR) 1,709,821 6,144 Teleste (EUR) 78,375 806 .......................................................................... Total Finland (Cost $17,037) 16,998 .......................................................................... FRANCE 5.2% Common Stocks 5.2% Boiron (EUR) 33,000 2,445 Cegedim (EUR) 70,000 2,913 Coface (EUR) 43,163 $ 3,249 Euler (EUR) * 140,000 6,602 Genesys (EUR) * 92,571 2,222 Neopost (EUR) * 153,333 3,673 Sabate Diosos (EUR) 150,000 3,760 Technip (EUR) 34,000 5,294 Ubiqus (EUR) * 417,780 3,707 .......................................................................... Total France (Cost $35,715) 33,865 .......................................................................... GERMANY 5.7% Common Stocks 4.8% Articon Integralis (EUR) * 40,938 1,555 Boewe Systec (EUR) 67,390 1,465 CargoLifter (EUR) * 443,215 3,193 Deutsche Boerse (EUR) 5,970 1,912 Evotec Biosystems (EUR) * 151,351 2,847 FJA (EUR) 111,552 6,780 GFK (EUR) 209,077 6,493 Medion (EUR) 36,430 3,119 MPC Muenchmeyer Petersen Capital (EUR) * 75,403 1,739 QS Communications (EUR) * 564,217 2,017 31,120 .......................................................................... PREFERRED STOCKS 0.9% Rhon-Klinikum (EUR) 100,000 5,607 5,607 .......................................................................... Total Germany (Cost $43,799) 36,727 .......................................................................... HONG KONG 5.9% Common Stocks 5.9% Denway Motors * 12,792,000 3,813 ehealthcareasia * 528,000 13 Esprit Holdings * 4,162,889 4,724 Global Bio-chem Technology Group * 27,866,000 3,752 Greencool Technology 4,758,000 1,434 Hengan International 8,694,000 1,784 Hong Kong Exchanges & Clearing 1,643,000 2,949 Li & Fung 1,530,000 2,894 Quality Healthcare Asia * 15,598,000 $ 1,540 South China Morning Post Holdings 8,095,000 5,164 Sun Television * 181,920,000 2,706 SUNDAY Communications * 22,376,000 1,406 Technology Venture Holdings 9,356,000 1,331 Varitronix International 4,886,000 3,634 Vodatel Networks 9,558,000 1,103 .......................................................................... Total Hong Kong (Cost $56,607) 38,247 .......................................................................... INDIA 6.5% Common Stocks 6.5% Apollo Hospitals 509,050 1,109 Britannia Industries * 79,499 1,178 Global Tele-Systems 284,000 1,209 HDFC Bank 1,183,000 5,816 Housing Development Finance * 1,015,600 12,860 ICICI 1,005,451 1,795 ICICI ADR (USD) 210,560 2,506 ICICI Bank * 997,938 3,327 ICICI Bank ADR (USD) * 119,700 795 Infosys Technologies 28,800 2,303 McDowell 671,786 555 Ranbaxy Laboratories * 266,820 2,854 Reliance Industries 476,000 3,492 Wipro * 41,000 1,266 Wipro ADR (USD) * 21,700 747 .......................................................................... Total India (Cost $53,369) 41,812 .......................................................................... IRELAND 0.6% Common Stocks 0.6% Icon ADR (USD) * 169,400 3,898 .......................................................................... Total Ireland (Cost $2,481) 3,898 .......................................................................... ISRAEL 0.8% Common Stocks 0.8% Partner Communications ADR (USD) * 1,134,000 4,904 .......................................................................... Total Israel (Cost $21,054) 4,904 .......................................................................... ITALY 2.0% Common Stocks 2.0% Saipem (EUR) 1,500,000 $ 9,848 Snia Spa (EUR) 1,638,000 3,270 .......................................................................... Total Italy (Cost $9,552) 13,118 .......................................................................... JAPAN 22.4% Common Stocks 22.4% Aiful 121,600 11,307 Cresco 58,220 1,885 Disco 60,000 5,060 e-LUX * 423,000 1,335 Fuji Machine 52,500 1,355 Funai Electric 20,000 1,358 Furukawa Electric 266,000 3,175 Goldcrest 79,200 4,948 Hokuto 108,380 3,964 Homac 100,800 757 Hoya 67,900 4,451 Hurxley 65,000 1,026 Internet Initiative ADR (USD) * 75,911 745 Ito 29,000 1,772 Japan Business Computer 66,000 731 Joint 162,000 5,533 Kaneka 282,000 2,383 Konami 80,000 3,839 Kose 243,200 8,365 Koyo Seiko 894,000 4,978 Kuraya Sanseido 389,500 2,550 Megachips 47,500 1,776 Moritex 107,200 3,453 Net One Systems 106 2,170 Nidec 48,900 2,537 Nissho Electronics 324,000 8,155 Relocation Services 49,000 2,974 Ricoh 277,000 5,190 Roland 84,500 1,135 Santen Pharmaceutical 284,000 4,815 Sumisho Electronic 30,500 $ 296 Sumitomo Rubber Industries 1,383,000 7,499 Sunkus & Associates 115,300 2,986 Tomen Electronics 184,100 5,811 Toyo Information 53,800 1,911 Toys "R" Us-Japan 30,000 3,205 Trend Micro * 62,000 2,805 Watami Food Service 62,665 2,520 Welfide 475,000 4,102 Yakult Honsha 850,000 10,167 .......................................................................... Total Japan (Cost $152,178) 145,024 .......................................................................... NETHERLANDS 4.9% Common Stocks 4.9% Crucell (EUR) * 656,510 3,903 IFCO Systems (EUR) * 671,357 1,983 IHC Caland (EUR) 432,193 19,940 New Skies Satellites (EUR) * 236,320 1,709 SNT Group (EUR) * 186,208 3,965 .......................................................................... Total Netherlands (Cost $42,932) 31,500 .......................................................................... NEW ZEALAND 2.2% Common Stocks 2.2% Baycorp Holdings * 600,030 3,099 Fisher & Paykel 2,209,000 7,941 Sky Network Television * 2,409,000 3,285 .......................................................................... Total New Zealand (Cost $12,940) 14,325 .......................................................................... NORWAY 4.1% Common Stocks 4.1% EDB Business Partner * 440,229 5,128 Petroleum Geo-Services * 330,700 3,435 Tandberg Televisjo * 1,512,082 12,297 TGS Nopec Geophysical * 343,900 5,782 .......................................................................... Total Norway (Cost $29,546) 26,642 .......................................................................... SINGAPORE 1.7% Common Stocks 1.7% Chartered Semiconductor Manufacturing * 703,000 $ 2,162 Datacraft Asia (USD) 396,000 2,019 Parkway Holdings 7,026,000 3,820 Venture Manufacturing 465,000 3,243 .......................................................................... Total Singapore (Cost $18,003) 11,244 .......................................................................... SPAIN 3.4% Common Stocks 3.4% Corporacion Mapfre (EUR) 345,800 6,845 Gamesa (EUR) * 138,289 3,251 NH Hoteles (EUR) 900,000 11,970 .......................................................................... Total Spain (Cost $20,209) 22,066 .......................................................................... SWEDEN 3.4% Common Stocks 3.4% A-Com *+ 748,721 1,460 Assa Abloy 188,619 3,283 Bergman & Beving 500,000 5,363 Cyber Com Consulting Group Scandinavia * 114,350 635 LPG Telecom Holding 79,850 1,106 Observer 431,123 3,615 PyroSequencing * 541,031 2,875 Semcon 409,150 3,590 .......................................................................... Total Sweden (Cost $30,595) 21,927 .......................................................................... SWITZERLAND 0.9% Common Stocks 0.9% Kaba Holding 17,260 4,318 Valora Holdings 7,350 1,284 .......................................................................... Total Switzerland (Cost $5,125) 5,602 .......................................................................... TAIWAN 0.2% Common Stocks 0.2% Intcera High Tech * 7,588,000 $ 1,158 .......................................................................... Total Taiwan (Cost $1,124) 1,158 .......................................................................... THAILAND 0.0% Common Stocks 0.0% Total Access Communications (USD) * 100,000 275 .......................................................................... Total Thailand (Cost $297) 275 .......................................................................... UNITED KINGDOM 9.3% Common Stocks 9.3% Bell Group 851,500 566 Bright Station * 1,943,807 445 Eidos * 3,082,990 12,878 Eyretel * 4,001,880 4,465 Galen Holdings 524,590 6,776 Gemini Genomics ADR (USD) * 439,800 1,693 Gullane Entertainment 284,000 2,092 Incepta Group 3,137,000 3,646 N Brown Group 252,680 897 NDS Group ADR (USD) * 82,533 3,094 Pace Micro Technology 399,050 3,074 Psion 1,418,651 2,060 Regus * 497,500 2,071 Serco Group 1,024,022 5,860 Shire Pharmaceuticals Group * 220,900 3,729 Taylor Nelson 2,165,584 6,970 .......................................................................... Total United Kingdom (Cost $66,918) 60,316 -------------------------------------------------------------------------- UNITED STATES 4.6% Money Market Funds 4.6% T. Rowe Price Reserve Investment Fund, 5.18% # 29,480,177 29,480 .......................................................................... Total United States (Cost $29,480) 29,480 .......................................................................... Total Investments in Securities 92.9% of Net Assets (Cost $700,970) $ 601,119 .......................................................................... Other Assets Less Liabilities 46,171 .......................................................................... NET ASSETS $ 647,290 .......................................................................... * Non-income producing # Seven-day yield + Affiliated company ADR American depository receipt 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 -------------------------------------------------------------------------------- Unaudited April 30, 2001 STATEMENT OF ASSETS AND LIABILITIES ----------------------------------- In thousands ASSETS Investments in securities, at value (cost $700,970) $ 601,119 Securities lending collateral 76,256 Other assets 57,608 ............................................................................... Total assets 734,983 LIABILITIES Obligation to return securities lending collateral 76,256 Other liabilities 11,437 ............................................................................... Total liabilities 87,693 ............................................................................... NET ASSETS $ 647,290 ............................................................................... Net Assets Consist of: Accumulated net investment income - net of distributions $ (40) Accumulated net realized gain/loss - net of distributions (88,739) Net unrealized gain (loss) (101,046) Paid-in-capital applicable to 28,017,381 shares of $0.01 par value capital stock outstanding; 2,000,000,000 shares of the Corporation authorized 837,115 ............................................................................... NET ASSETS $ 647,290 ............................................................................... NET ASSET VALUE PER SHARE $ 23.10 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE INTERNATIONAL DISCOVERY FUND -------------------------------------------------------------------------------- Unaudited STATEMENT OF OPERATIONS ----------------------- In thousands 6 Months Ended 4/30/01 Investment Income (Loss) Income Dividend (net of foreign taxes of $264) $ 2,432 Interest (net of foreign taxes of $46) 2,001 Securities Lending 573 Total income 5,006 Expenses Investment management 3,981 Shareholder servicing 748 Custody and accounting 182 Prospectus and shareholder reports 78 Registration 40 Legal and audit 11 Directors 4 Miscellaneous 2 Total expenses 5,046 Net investment income (loss) (40) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Securities (net of foreign taxes of $133) (87,740) Foreign currency transactions (1,639) Net realized gain (loss) (89,379) Change in net unrealized gain or loss Securites (net of decrease in deferred foreign taxes of $79) (68,291) Other assets and liabilities denominated in foreign currencies (1,148) Change in net unrealized gain or loss (69,439) Net realized and unrealized gain (loss) (158,818) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (158,858) The accompanying notes are an integral part of these financial statements. T. ROWE PRICE INTERNATIONAL DISCOVERY FUND -------------------------------------------------------------------------------- Unaudited STATEMENT OF CHANGES IN NET ASSETS ---------------------------------- In thousands 6 Months Year Ended Ended 4/30/01 10/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (40) $ 1,479 Net realized gain (loss) (89,379) 219,104 Change in net unrealized gain or loss (69,439) (139,122) Increase (decrease) in net assets from operations (158,858) 81,461 Distributions to shareholders Net realized gain (147,662) (46,342) Capital share transactions * Shares sold 105,812 1,169,171 Distributions reinvested 142,146 44,299 Shares redeemed (200,164) (727,954) Redemption fees received 629 3,290 Increase (decrease) in net assets from capital share transactions 48,423 488,806 Net Assets Increase (decrease) during period (258,097) 523,925 Beginning of period 905,387 381,462 End of period $ 647,290 $ 905,387 *Share information Shares sold 3,971 28,991 Distributions reinvested 5,348 1,347 Shares redeemed (7,528) (18,374) Increase (decrease) in shares outstanding 1,791 11,964 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE INTERNATIONAL DISCOVERY FUND -------------------------------------------------------------------------------- Unaudited April 30, 2001 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. Redemption Fees The fund assesses a 2% fee on redemptions of fund shares held less than twelve months. Such fees are retained by the fund, and have the primary effect of increasing paid-in-capital. 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 April 30, 2001, approximately 15% 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. Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and U.S. government securities valued at 102%-105% of the value of the securities on loan. Cash collateral 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 the value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund the next business day. 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 the securities. At April 30, 2001, the value of loaned securities was $74,961,000; aggregate collateral consisted of $76,256,000 in the securities lending collateral pool. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $183,662,000 and $290,282,000, respectively, for the six months ended April 30, 2001. 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. At April 30, 2001, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $700,970,000. Net unrealized loss aggregated $99,851,000 at period-end, of which $67,943,000 related to appreciated investments and $167,794,000 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 $62,000 at April 30, 2001. 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), which is wholly owned by T. Rowe Price Group.The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $556,000 was payable at April 30, 2001. 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 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 April 30, 2001, and for the six months 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 $679,000 for the six months ended April 30, 2001, of which $109,000 was payable at period-end. Additionally, the fund is one of several mutual funds sponsored by Price Associates (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 0.29% of the outstanding shares of the International Discovery at April 30, 2001. For the six months then ended, the fund was allocated $5,000 of Spectrum expenses, $1,000 of which was payable at period-end. The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price 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 sponsored by Price Associates, 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 six months ended April 30, 2001, totaled $1,667,000 and are reflected as interest income in the accompanying Statement of Operations. T. ROWE PRICE SHAREHOLDER SERVICES -------------------------------------------------------------------------------- INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone 1-800-225-5132 Available Monday through Friday from 7 a.m. to midnight ET and weekends from 8:30 a.m. to 5 p.m. ET. In Person Available in T. Rowe Price Investor Centers. ACCOUNT SERVICES Checking Available on most fixed-income funds ($500 minimum). Automatic Investing From your bank account or paycheck. Automatic Withdrawal Scheduled, automatic redemptions. Distribution Options Reinvest all, some, or none of your distributions. Automated 24-Hour Services Including Tele*Access(R)and 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, Retirement Readiness 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 January 2001 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 Media & Telecommunications Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons* Real Estate Science & Technology Small-Cap Stock Small-Cap Value Spectrum Growth Tax-Efficient Growth Tax-Efficient Multi-Cap Growth Total Equity Market Index Value BLENDED ASSET FUNDS Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced Bond Funds Domestic Taxable Corporate Income GNMA High Yield New Income Short-Term Bond Spectrum Income Summit GNMA U.S. Bond Index 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 Intermediate Bond Tax-Free Short-Intermediate Virginia Tax-Free Bond MONEY MARKET FUNDS+ TAXABLE Prime Reserve Summit Cash Reserves U.S. Treasury Money TAX-FREE California Tax-Free Money Maryland Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money INTERNATIONAL/GLOBAL FUNDS STOCK Emerging Europe & Mediterranean Emerging Markets Stock European Stock Global Stock Global Technology International Discovery* International Equity Index International Growth & Income International Stock Japan Latin America New Asia Spectrum International BOND Emerging Markets Bond International Bond T. ROWE PRICE NO-LOAD VARIABLE ANNUITY Blue Chip Growth Portfolio Equity Income Portfolio Equity Index 500 Portfolio Health Sciences 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 risks, 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 has developed unique advisory services and retirement resources that can help you meet the most difficult personal financial 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 and self-help planning guides 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(R) Retirement Income Manager 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. Investment CheckupSM offers a second opinion on your portfolio. We analyze your investments using proprietary software and provide asset allocation suggestions based on your personal profile. 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 INFORMATION ---------------------- PLANNING AND INFORMATIONAL GUIDES Minimum Required Distributions Guide Retirement Planning Kit Retirement Readiness Guide Tax Considerations for Investors INSIGHTS REPORTS The Challenge of Preparing for Retirement Financial Planning After Retirement The Roth IRA: A Review * The services described below are provided by T. Rowe Price Advisory Services, Inc., a federally registered investment adviser. The services involve costs. T. ROWE PRICE INSIGHTS REPORTS -------------------------------------------------------------------------------- THE FUNDAMENTALS OF INVESTING Whether you are unsure how to get started or are saving for a specific goal, such as retirement or college, the T. Rowe Price Insights series can help you make informed investment decisions. These reports, written in plain English about fundamental investment topics, can be useful at every stage of your investment journey. They cover a range of topics, from the basic, such as getting started with mutual funds, to the more advanced, such as managing risk through diversification or buying individual securities through a broker. To request one or more Insights, call us at 1-800-638-5660. T. Rowe Price Insights are also available for reading or downloading on the Internet at www.troweprice.com. INSIGHTS REPORTS ---------------- GENERAL INFORMATION The ABCs of Giving Back to Basics: The ABCs of Investing The Challenge of Preparing for Retirement Financial Planning After Retirement Getting Started: Investing With Mutual Funds The Roth IRA: A Review Tax Information for Mutual Fund Investors INVESTMENT STRATEGIES Conservative Stock Investing Dollar Cost Averaging Equity Index Investing Growth Stock Investing Investing for Higher Yield Managing Risk Through Diversification The Power of Compounding Value Investing TYPES OF SECURITIES The Basics of International Stock Investing The Basics of Tax-Free Investing The Fundamentals of Fixed-Income Investing Global Bond Investing Investing in Common Stocks Investing in Emerging Growth Stocks Investing in Financial Services Stocks Investing in Health Care Stocks Investing in High-Yield Municipal Bonds Investing in Industry-Focused Stock Funds Investing in Money Market Securities Investing in Mortgage-Backed Securities Investing in Natural Resource Stocks Investing in Science and Technology Stocks Investing in Small-Company Stocks Understanding Derivatives Understanding High-Yield "Junk" Bonds BROKERAGE INSIGHTS Combining Individual Securities With Mutual Funds Getting Started: An Introduction to Individual Securities What You Should Know About Bonds What You Should Know About Margin and Short-Selling What You Should Know About Options What You Should Know About Stocks 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. Investor Centers: For directions, call 1-800-225-5132 or visit our Web site at www.troweprice.com/investorcenters Baltimore Area Downtown 105 East Lombard Street Owings Mills Three Financial Center 4515 Painters Mill Road Boston Area 386 Washington Street Wellesley Chicago Area 1900 Spring Road, Suite 104 Oak Brook Opening June 2001 Colorado Springs 2260 Briargate Parkway Los Angeles Area Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills New Jersey/New York Area 51 JFK Parkway, 1st Floor Short Hills, New Jersey San Francisco Area 1990 North California Boulevard, Suite 100 Walnut Creek Tampa 4200 West Cypress Street 10th Floor Washington, D.C. Area Downtown 900 17th Street N.W. Farragut Square Tysons Corner 1600 Tysons Boulevard Suite 150 Opening July 2001 T. Rowe Price Investment Services, Inc., Distributor. F38-051 4/30/01