N-CSR 1 ems.txt T. ROWE PRICE EMERGING MARKETS STOCK FUND Item 1. Report to Shareholders OCTOBER 31, 2004 EMERGING MARKETS STOCK FUND Annual Report T. ROWE PRICE -------------------------------------------------------------------------------- The views and opinions in this report were current as of October 31, 2004. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund's future investment intent. The report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects. -------------------------------------------------------------------------------- REPORTS ON THE WEB Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log in to your account at troweprice.com for more information. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- Fellow Shareholders Emerging stock markets posted solid gains in the 6- and 12-month periods through October 31, 2004, that far surpassed the returns for developed stock markets. During the past year, world economies staged a broad-based recovery. Emerging markets generally benefited from ongoing price increases of oil and raw materials and stronger currencies. The energy sector was by far the best performer throughout the year, and materials and utilities stocks chipped in solid gains since April--explaining why value indexes outdistanced their growth counterparts. As in the developed markets, small-cap stocks outperformed large-caps across emerging markets. PERFORMANCE REVIEW The Emerging Markets Stock Fund returned 9.47% for six months and 19.61% for the year ended October 31, 2004. As shown in the table, the portfolio's performance was about the same in the first and second half of our fiscal year. However, these results mask several sharp market swings. Nevertheless, we are pleased to report that your portfolio's results were better than the MSCI and Lipper benchmarks for both periods. PERFORMANCE COMPARISON -------------------------------------------------------------------------------- Periods Ended 10/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Emerging Markets Stock Fund 9.47% 19.61% MSCI Emerging Markets Index 9.16 19.40 Lipper Emerging Markets Funds Average 8.63 19.50 Please see the fund's quarter-end returns following this letter. From a regional perspective, Latin American stocks performed the best over the past six months, paced by rising oil and materials prices and stellar results in Brazil. Asian markets were basically flat due to weakness in South Korea and Taiwan--the technology sector was a significant drag on returns in both countries. Emerging Europe, the Mediterranean, and Africa performed well, but individual country performance was mixed. Eastern European countries, Turkey, and Egypt were strongest, while Israel (weak technology and pharmaceuticals) and Russia (primarily due to the problems at Yukos) were lower. CHINA: A POWERFUL GLOBAL GROWTH ENGINE -------------------------------------------------------------------------------- China has increasingly become the growth engine for Asia, and T. Rowe Price investment managers believe that it will have an expanding impact on the global economy. Investing in China, however, presents unique challenges that warrant a cautious investment approach. China's economy has grown rapidly over the past year, fueled by massive fixed-asset investment by the government, high levels of foreign investment, and the rapid emergence of its urban middle class. In December 2003, money supply was growing at a 30% annual pace, and the supply of raw materials could not keep pace. China currently consumes 25% of the world's raw materials, and this will continue to rise. Over the past year, the Chinese government has attempted to cool this boom, and the continuing challenge will be achieving a manageable rate of growth. We believe the next stage of China's modernization must be to tackle its financial architecture. Due to the lack of a functioning bond market, interest rate inflexibility, and a rigid foreign exchange structure, the government has had to rely on administrative measures to slow the economy. The secular rise in inflation is another growing concern. The country is reaching the limit of its ability to supply domestic raw materials to its industries, meaning that growth will have to be met by imported raw materials and paid for with hard currency. These trends probably mean that China's low interest rates are likely to climb further, which could have major implications for its economy and potentially for inflation trends around the world. (The government edged rates higher in October for the first time in nearly a decade.) More importantly, it raises some question about the long-term sustainability of China's blistering growth. [Graphic Omitted] WILL CHINA'S GDP GROWTH SLOW? -------------------------------------------------------------------------------- Real GDP Growth '97 10.29% '98 6.39% '99 3.14% '00 8.96% '01 7.3% '02 6.74% '03 14.16% '04* 9.2% '05* 8.0% * Estimates Sources: FactSet Research Systems, OECD, Consensus Economics Inc. Accordingly, we have remained cautious about the quality of investment opportunities in China, almost exclusively focusing on industry leaders that we believe are capable of achieving sustained profitability through economic peaks and troughs. An alternative strategy has been to invest in non-Chinese companies that we believe will benefit from accelerating Chinese demand. While we are pleased that more high-growth, privately owned mainland companies are starting to be listed, we remain extremely selective and seek to avoid owning Chinese companies with opaque ownership structures and a lack of corporate transparency. PORTFOLIO REVIEW Far East Asia's markets languished during the past six months. On a macro level, Asia appears strong, but from a micro view, the outlook is more difficult. Within North Asia, domestic-oriented companies in Taiwan and South Korea appear relatively attractive, although we think the sizable technology markets in both of these economies may be nearing a cyclical peak. Therefore, we reduced our exposure in the tech sector significantly over the past six months. South Asia looks less attractive on a valuation basis, despite strong growth in a number of previously red-hot markets, including India. We are similarly cautious about investing directly in China (see the special report on China on page 2). Although economic growth is strong, in our view, there is an absence of high-quality, industry-leading companies that can sustain profitability throughout a full business cycle. GEOGRAPHIC DIVERSIFICATION -------------------------------------------------------------------------------- Percent of Percent of Net Assets Net Assets Periods Ended 4/30/04 10/31/04 -------------------------------------------------------------------------------- Far East 51.0% 44.3% Africa and Middle East 19.2 20.2 Latin America 17.1 19.0 Europe 8.4 8.8 Other and Reserves 4.3 7.7 -------------------------------------------------------------------------------- Total 100.0% 100.0% Hyundai Motor, the largest auto manufacturer in South Korea, was a leading Asian contributor for the last six months. The company's new product offerings have been well received, and it has been gaining market share in the U.S., Europe, and in several emerging markets including China and India. (Please refer to our portfolio of investments for a complete listing of the fund's holdings and the amount each represents of the portfolio.) Asian information technology companies (specifically semiconductors and related equipment holdings) were among the worst performers for the six-month period. Samsung Electronics, Via Technologies, and Taiwan Semiconductor Manufacturing, for example, were significant detractors since April. However, Samsung was a top contributor for the year. As we reduced exposure to the Asian tech and telecom sectors, we added to positions in energy and financials. The portfolio's largest purchase in Asia over the last six months was S-Oil Corporation, one of South Korea's largest oil refiners, and in Taiwan, we bought Cathay Financial Holding and Chinatrust Financial. We initiated a position in S-Oil because there is a shortage of Asian oil refining capacity, and coupled with higher oil prices, we expect margins and profits to improve. We eliminated China Mobile, the leading provider of mobile telecommunications services in China, because, in our view, the company's growth prospects have diminished and we see increasing competition that could pressure profit margins. MARKET PERFORMANCE -------------------------------------------------------------------------------- (In U.S. Dollar Terms) Periods Ended 10/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Brazil 32.68% 40.67% India 1.94 17.64 Israel -9.27 6.34 Malaysia 2.12 5.54 Mexico 14.66 36.89 Russia 7.39 32.42 South Africa 28.59 32.84 South Korea -3.16 10.85 Taiwan -5.94 -6.79 Thailand -0.66 15.69 Source: RIMES Online, using MSCI indices. Latin America Latin American stocks continued their strong performance over the past six months, posting the best results among emerging markets and contributing to the fund's solid returns. Markets in the region generally benefited from stronger currencies and ongoing increases in the price of oil and raw materials, which led energy and materials stocks higher for the period. Consumer and financial stocks also performed well in the region as economic growth fueled stronger consumer demand. As is often the case in Latin America, performance was extremely volatile over the course of the past year. Markets more exposed to rising rates, such as Brazil, declined the most but also bounced back higher. High commodity prices and still relatively low interest rates favored materials and companies with higher leverage, a detriment to our investment style, which focuses on high-quality, steady-growth companies in the region. Brazil was the region's top performer over the last six months. Brazilian energy and materials stocks, which make up about half of the market, surged on news of better-than-expected economic growth, industrial production, jobless rates, and trade surpluses. Petroleo Brasileiro (Petrobras) was the top contributor for both the six and 12 months, supported by record-high oil prices and expectations of rising oil production. We increased our position, and the stock remains the portfolio's largest holding (3.4% of net assets). New purchases included Natura Cosmeticos, the largest Brazilian cosmetic company with a direct distribution model and over 400,000 sales representatives. We participated in the company's initial public offering in late May and have continued to add to the position. The company is benefiting from strong underlying growth in the cosmetics market. We also added low-cost airline GOL and toll-road operator Cia Concessoes Rodoviarias on their initial public offerings. Although both are quality companies that we'd like to own, we eliminated them after they reached our target price. SECTOR DIVERSIFICATION -------------------------------------------------------------------------------- Percent of Percent of Net Assets Net Assets 4/30/04 10/31/04 -------------------------------------------------------------------------------- Financials 18.0% 22.7% Telecommunication Services 15.2 14.4 Consumer Discretionary 12.2 13.5 Energy 8.5 11.6 Materials 11.4 8.9 Information Technology 16.9 8.2 Consumer Staples 5.8 7.7 Industrials and Business Services 5.6 3.9 Trusts 0.0 1.9 Utilities 0.6 1.4 Health Care 1.5 0.0 Reserves 4.3 5.8 -------------------------------------------------------------------------------- Total 100.0% 100.0% Wireless operator America Movil was the fund's second-largest holding and second-best contributor for six and 12 months, benefiting from faster-than-expected penetration in many markets. Rebounding economies have spurred consumer spending, which in turn has led to rising growth. The company remains the dominant player in Mexico, well ahead of its closest competitors, and it is aggressively gaining market share in Brazil and other parts of Latin America. Wal-Mart de Mexico is now among the portfolio's 10-largest holdings, thanks to additional purchases over the past six months. This leading retailer has significant advantages over its competition, including a much more efficient distribution network. It continues to benefit from expansion opportunities and solid same-store sales growth. Margins are improving as well, and we believe that the valuation is still attractive. Africa, Emerging Europe, and the Middle East Stocks in European emerging markets, the Middle East, and African countries produced strong returns over the past year. However, for the past six months, gains were more moderate, and returns among countries were mixed. Stocks in Egypt, Turkey, and central European countries fared best, while the Russian market was hobbled by the government's ongoing political and tax disputes with oil company Yukos. Israeli stocks also fell sharply amid weakness among technology and pharmaceutical shares. This is the most expensive region among emerging markets. Within Central and Eastern Europe, the macroeconomic outlook is problematic, and many sustainable growth companies are expensive. However, we are finding good investment opportunities at the periphery of the region. Israel's economy has begun to recover from several years of recession, and we believe that our Israeli stock positions will benefit from this improvement over the long term. In the period, we initiated a position in Bank Leumi, a leading retail bank, after the company reported strong results. Turkey's economy is also strong, and its leaders are optimistic that the European Union will set a timetable in mid-December for Turkey to work toward full EU membership. However, rising global interest rates have had a negative impact on the country, due to very high debt levels. We have reduced our exposure in Turkey by trimming several strong performers. Turkcell, for example, was among the portfolio's top contributors over the last 12 months and our largest sale in Turkey. We added several new companies in Egypt during the last six months because we are encouraged by the reform efforts of the new government that came into power in July. Our largest new Egyptian purchase is Commercial International Bank, which should benefit from new banking reform proposals. We also added telecommunication services companies Vodafone Egypt, Egyptian Company for Mobile Services (MobNil), and Orascom Telecom to the portfolio. Subscriber growth in the wireless industry appears to be strong and could increase as the economy and consumer spending strengthens. The Russian economy, which is leveraged to energy and raw materials prices, remained strong in the last six months. Wireless companies have greatly benefited from this upturn, and consumers have been driving wireless penetration growth at an accelerating rate, particularly in the regions outside Moscow. Our large positions in Mobile TeleSystems and AO VimpelCom, Russia's two largest wireless providers, were solid performance contributors for the last six months. In contrast, Yukos was the portfolio's largest detractor in both the 6- and 12-month periods. Yukos was one of the most attractive Russian energy companies because of its strong production growth, lower relative costs, and a significant reserve base. The company has been a significant (and hugely profitable) portfolio holding for several years. However, the government's recent attempts to force the company to pay back taxes have jeopardized its ability to produce oil and pushed it to the verge of bankruptcy. We decided to eliminate the stock when the government prepared to circumvent Russian law by selling Yukos' assets at deep discounts to cover the tax liabilities. Naspers, a South Africa-based pay-TV, Internet, and print media company that we purchased earlier this year, was another top performer. The company continues to produce strong earnings gains, primarily driven by good subscriber growth and cost controls in South Africa, and huge subscriber growth and solid margins in its Greek pay-TV business. OUTLOOK Although emerging markets are generally healthy, they face several areas of vulnerability. Economic growth and commodity prices are both strong, and currencies are attractive. Valuations remain appealing as well,although the valuation gap with developed markets has narrowed over the last two years. However, in an environment of rising global inflation and higher interest rates, emerging markets would not be immune to a tightening of global liquidity and increased risk aversion. These factors impacted second-quarter results, but softer economic data from the U.S. and Japan supported a third-quarter rally. With the balance of these economic forces in mind, we remain somewhat cautious. Emerging market equities are a cyclical asset class. If global growth rises rapidly and interest rates increase sharply, we could see a repeat of the second quarter's sharp sell-off. If global growth stabilizes, liquidity expands, and the valuation and currency benefits remain in place, emerging markets could continue to provide solid returns. Respectfully submitted, David J. L. Warren President, T. Rowe Price International Funds, Inc. November 21, 2004 -------------------------------------------------------------------------------- RISKS OF INTERNATIONAL INVESTING Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Funds investing in a single country or in a limited geographic region tend to be riskier than more diversified funds. Risks can result from varying stages of economic and political development, differing regulatory environments, trading days, and accounting standards, and higher transaction costs of non-U.S. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency. GLOSSARY Lipper averages: The averages of all mutual funds in a particular category as tracked by Lipper Inc. MSCI Emerging Markets Index: A capitalization-weighted index of stocks from 26 emerging market countries that only includes securities that may be traded by foreign investors. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 10/31/04 -------------------------------------------------------------------------------- Petrobras, Brazil 3.4% America Movil, Mexico 2.9 Samsung Electronics, South Korea 2.7 iShares MSCI Emerging Markets Index Fund, Europe/Far East 1.9 AO VimpelCom, Russia 1.7 -------------------------------------------------------------------------------- Naspers, South Africa 1.6 Wal-Mart de Mexico, Mexico 1.6 Lukoil Oil, Russia 1.6 Cathay Financial Holding, Taiwan 1.5 Hyundai Motor, South Korea 1.4 -------------------------------------------------------------------------------- Impala Platinum Holdings, South Africa 1.4 Chinatrust Financial, Taiwan 1.3 Kookmin Bank, South Korea 1.3 Mobile Telesystems, Russia 1.3 PetroKazakhstan, Kazakhstan 1.2 -------------------------------------------------------------------------------- Makhteshim-Agan Industries, Israel 1.2 Sanlam, South Africa 1.1 Tele Norte Leste Participaco, Brazil 1.1 S-Oil, South Korea 1.1 Zee Telefilms, India 1.1 -------------------------------------------------------------------------------- Shinsegae, South Korea 1.0 Grupo Televisa, Mexico 1.0 Bank Hapoalim, Israel 1.0 South Korea Telecom, South Korea 1.0 Taishin Financial Holdings, Taiwan 1.0 -------------------------------------------------------------------------------- Total 37.4% Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund and collateral for securities funding. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- GROWTH OF $10,000 -------------------------------------------------------------------------------- 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. EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- As of 10/31/04 Emerging Markets Stock Fund $17,994 MSCI Emerging Markets Index $13,791 Lipper Emerging Markets Funds Average $15,808 MSCI Emerging Lipper Emerging Emerging Markets Markets Index Markets Funds Average Stock Fund 03/31/95 $ 10,000 $ 10,000 $ 10,000 10/95 10,547 10,728 10,480 10/96 11,231 12,083 11,601 10/97 10,278 12,378 11,415 10/98 7,093 8,689 8,298 10/99 10,259 11,743 11,623 10/00 9,355 11,375 13,029 10/01 7,161 8,601 9,599 10/02 7,765 9,141 10,364 10/03 11,550 13,343 15,044 10/31/04 13,791 15,808 17,994 AVERAGE ANNUAL COMPOUND TOTAL RETURN -------------------------------------------------------------------------------- This table shows how the fund and its benchmarks would have performed if their actual (or cumulative) returns for the periods shown had been earned at a constant rate. Since Inception Periods Ended 10/31/04 1 Year 5 Years 3/31/95 -------------------------------------------------------------------------------- Emerging Markets Stock Fund 19.61% 9.13% 6.32% MSCI Emerging Markets Index 19.40 6.09 3.41 Lipper Emerging Markets Funds Average 19.50 7.93 4.69 Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. Past performance cannot guarantee future results. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- FUND EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs such as redemption fees or sales loads and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period. Actual Expenses The first line of the following table ("Actual") provides information about actual account values and actual expenses. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The information on the second line of the table ("Hypothetical") is based on hypothetical account values and expenses derived from the fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund's actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Note: T. Rowe Price charges an annual small-account maintenance fee of $10, generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $25,000 or more, accounts employing automatic investing, and IRAs and other retirement plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although a separate custodial or administrative fee may apply to such accounts). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During Period* 5/1/04 10/31/04 5/1/04 to 10/31/04 -------------------------------------------------------------------------------- Actual $ 1,000 $ 1,094.70 $ 6.97 Hypothetical (assumes 5% return before expenses) 1,000 1,018.48 6.72 *Expenses are equal to the fund's annualized expense ratio for the six-month period (1.32%), multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half year (184) by the days in the year (366) to reflect the half-year period. QUARTER-END RETURNS -------------------------------------------------------------------------------- Since Inception Periods Ended 9/30/04 1 Year 5 Years 3/31/95 -------------------------------------------------------------------------------- Emerging Markets Stock Fund 25.97% 9.09% 6.04% MSCI Emerging Markets Index 26.53 6.04 3.18 Lipper Emerging Markets Funds Average 25.55 8.05 4.44 Current performance may be higher or lower than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance information, please visit our Web site (troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132. This table provides returns through the most recent calendar quarter-end rather than through the end of the fund's fiscal period. It 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. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period -------------------------------------------------------------------------------- Year Ended 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 NET ASSET VALUE Beginning of period $ 14.30 $ 9.87 $ 9.15 $ 12.42 $ 11.08 Investment activities Net investment income (loss) 0.14 0.09 0.04 0.02 (0.02) Net realized and unrealized gain (loss) 2.64 4.36 0.68 (3.30) 1.34 Total from investment activities 2.78 4.45 0.72 (3.28) 1.32 Distributions Net investment income (0.09) (0.02) (0.01) - - Redemption fees added to paid-in-capital 0.01 - 0.01 0.01 0.02 NET ASSET VALUE End of period $ 17.00 $ 14.30 $ 9.87 $ 9.15 $ 12.42 ----------------------------------------------- Ratios/Supplemental Data Total return^ 19.61% 45.16% 7.97% (26.33)% 12.09% Ratio of total expenses to average net assets 1.33% 1.43% 1.51% 1.58% 1.50% Ratio of net investment income (loss) to average net assets 1.08% 1.12% 0.41% 0.19% (0.12)% Portfolio turnover rate 70.0% 65.6% 70.5% 70.3% 56.1% Net assets, end of period (in thousands) $608,257 $345,380 $158,465 $131,436 $152,990 ^Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- October 31, 2004 PORTFOLIO OF INVESTMENTS (1) Shares Value -------------------------------------------------------------------------------- (Cost and value in $ 000s) ARGENTINA 0.7% Common Stocks 0.7% Quilmes Industrial ADR (USD) 20,718 339 Tenaris ADR (USD) 82,700 3,702 Total Argentina (Cost $2,757) 4,041 BRAZIL 9.6% Common Stocks 9.3% Banco Itau Holdings Financiera * 47,250 5,729 Cia Energetica Minas Gerais (Cemig) 151,865,000 3,512 Companhia Siderurgica Nacional 212,266 3,135 Companhia Vale do Rio Doce ADR (USD) 122,100 2,222 Companhia Vale do Rio Doce ADR (1 ADR represents 1 common share) (USD) 137,400 2,908 Embraer Aircraft ADR (USD) 33,105 879 Grendene * 34,000 414 Natura Cosmeticos 124,500 2,531 Petroleo Brasileiro (Petrobras) ADR (USD) 465,590 15,178 Petroleo Brasileiro (Petrobras) ADR (1 ADR represents 1 common share) (USD)(ss.) 158,000 5,611 Tele Centro Oeste Celular ADR (USD)(ss.) 1 0 Tele Norte Leste ADR (USD)(ss.) 258,600 3,382 Tele Norte Leste Participaco * 249,440 3,164 Telesp Celular Participacoes ADR (USD) *(ss.) 591,300 3,542 Votorantim Celulose ADR (USD)(ss.) 125,700 4,343 56,550 Preferred Stocks 0.3% Caemi Mineracao e Metalurgica * 2,091,200 1,253 Suzano Bahia Sul Papel 182,001 773 2,026 Total Brazil (Cost $47,240) 58,576 CHINA 4.7% Common Stocks 4.7% China Insurance (HKD) 4,316,000 1,969 China Resources Enterprise (HKD)(ss.) 1,924,000 2,694 China Telecom, 144A (HKD) * 5,480,000 1,760 China Telecom (H shares) (HKD) 7,384,000 2,372 Cnooc (HKD) 10,723,000 5,545 Gome Electrical Appliances (HKD) * 1,068,000 858 Gome Electrical Appliances (Regulation S shares) (HKD) * 3,204,000 2,573 Luen Thai Holdings (HKD) * 4,120,000 2,117 Pacific Basin Shipping, 144A (HKD) * 2,298,000 1,078 Pacific Basin Shipping (HKD) * 2,150,000 1,008 Panva Gas Holdings (HKD) * 5,609,000 2,378 Shanghai Forte Land Company (H shares) (HKD)(ss.) 6,712,000 2,091 tom.com (HKD) *(ss.) 10,198,000 1,978 Total China (Cost $26,153) 28,421 CZECH REPUBLIC 0.5% Common Stocks 0.5% Komercni Banka 26,134 3,295 Total Czech Republic (Cost $2,431) 3,295 EGYPT 2.9% Common Stocks 2.9% Commercial International Bank 858,618 4,894 Egyptian Company for Mobile Services 222,793 4,255 Orascom Construction Industries 290,600 3,339 Orascom Telecom GDR (USD) * 69,200 1,183 Orascom Telecommunications * 65,910 2,276 Vodafone Egypt * 209,160 1,578 Total Egypt (Cost $13,991) 17,525 ESTONIA 0.3% Common Stocks 0.3% Hansabank (EUR) 180,200 1,815 Total Estonia (Cost $1,636) 1,815 EUROPE/FAR EAST 1.9% Common Stocks 1.9% iShares MSCI Emerging Markets Index Fund (USD)(ss.) 66,000 11,709 Total Europe/Far East (Cost $10,965) 11,709 HONG KONG 0.4% Common Stocks 0.4% Kingboard Chemical Holdings, 144A * 1,068,000 2,237 Total Hong Kong (Cost $2,022) 2,237 HUNGARY 0.3% Common Stocks 0.3% OTP Bank 77,800 1,965 Total Hungary (Cost $1,665) 1,965 INDIA 6.5% Common Stocks 6.5% Arvind Mills * 1,929,157 3,369 Ballarpur Industries, 144A * 652,650 1,070 Bharti Tele-Ventures * 27,000 94 HDFC Bank 317,000 2,903 Hindalco Industries 69,780 1,825 I-Flex Solutions 205,800 2,702 I-Flex Solutions, 144A 58,800 772 ITC 128,160 3,077 Kotak Mahindra Finance 657,700 2,610 LIC Housing Finance GDR (USD)@ 278,787 1,724 National Thermal Power, 144A * 341,700 467 Oil & Natural Gas 92,800 1,612 Oil & Natural Gas (Regulation S shares) 83,600 1,453 Petronet LNG * 4,029,700 2,081 Power Trading 1,372,600 1,592 Tata Tea 287,200 2,595 UTI Bank 915,400 3,092 Zee Telefilms 1,949,300 6,426 Total India (Cost $33,843) 39,464 INDONESIA 0.9% Common Stocks 0.9% Indosat 6,477,500 3,364 Telekomunikasi, Series B 4,602,000 2,200 Total Indonesia (Cost $3,839) 5,564 ISRAEL 5.0% Common Stocks 5.0% Bank Hapoalim 2,267,098 6,227 Bank Leumi 1,620,400 3,414 Check Point Software Technologies (USD) * 182,414 4,126 Lipman Electronic Engineering (USD) 101,100 2,408 Makhteshim-Agan Industries 1,709,400 7,141 NICE Systems ADR (USD) * 56,515 1,196 Orbotech (USD) * 134,600 2,276 Partner Communications ADR (USD) *(ss.) 559,930 3,668 Total Israel (Cost $30,747) 30,456 KAZAKHSTAN 1.2% Common Stocks 1.2% PetroKazakhstan (USD) 196,811 7,262 Total Kazakhstan (Cost $5,538) 7,262 MALAYSIA 4.9% Common Stocks 4.9% Astro All Asia (Ordinary shares) * 3,374,300 4,617 Astro All Asia (Regulation S shares) * 536,000 733 Berjaya Sports Toto 2,640,600 2,710 CIMB Berhad 1,910,200 2,463 Hong Leong Bank 1,916,100 2,647 IJM 1,841,200 2,277 Magnum 2,208,700 1,459 Malaysian Industrial Development Finance Berhad 4,793,100 1,514 MK Land Holdings 3,601,500 1,678 Multi-Purpose Holdings * 1,688,200 480 Multi-Purpose Holdings, Warrants, 2/26/09 * 355,350 39 Public Bank BHD 360,700 660 Sime Darby 1,319,000 1,978 Symphony House 3,789,750 768 Symphony House, Warrants 4/28/09 * 667,290 45 Telekom Malaysia 705,000 2,134 Telekom Malaysia (Regulation S shares) 184,000 557 Tenaga Nasional * 979,000 2,860 Total Malaysia (Cost $29,463) 29,619 MEXICO 8.7% Common Stocks 8.7% America Movil ADR, Series L (USD) 406,340 17,879 Cemex 513,372 2,967 Consorcio ARA * 794,800 2,125 Grupo Aeroportuario del Sureste ADR (USD) 64,200 1,471 Grupo Financiero Banorte 770,000 3,617 Grupo Modelo, Series C 934,000 2,394 Grupo Televisa ADR (USD) 114,569 6,301 Organizacion Soriana, Series B 483,300 1,554 Telmex ADR (USD) 77,351 2,648 Urbi Desarrollos Urbanos * 650,400 2,424 Wal-Mart de Mexico, Series V 2,920,627 9,556 Total Mexico (Cost $40,897) 52,936 RUSSIA 5.8% Common Stocks 5.8% AO VimpelCom ADR (USD) * 91,100 10,386 Gazprom ADS (USD)(ss.) 66,900 2,499 Lukoil Oil (USD) 86,520 2,692 Lukoil Oil ADR (USD)(ss.) 54,660 6,846 MMC Norilsk Nickel (USD) 79,100 4,928 Mobile Telesystems ADR (USD)(ss.) 53,660 7,787 Total Russia (Cost $23,017) 35,138 SOUTH AFRICA 9.4% Common Stocks 9.4% ABSA Group 492,900 5,381 African Bank Investments 2,102,081 4,894 Anglo American 245,910 5,365 Impala Platinum Holdings 106,860 8,587 Investec 109,100 2,489 Naspers (N shares) 1,046,500 9,583 Pick 'N Pay Stores 731,700 2,653 SABMiller 279,600 4,017 Sanlam 3,932,750 6,907 Sappi 154,529 2,216 Standard Bank Investment 573,191 5,024 Total South Africa (Cost $41,070) 57,116 SOUTH KOREA 16.1% Common Stocks 15.1% Amorepacific 25,220 4,929 Cheil Communications 16,620 2,195 Daewoo Shipbuilding & Marine Engineering 156,720 2,308 Hanaro Telecom * 753,641 2,156 Hyundai Department Store *(ss.) 49,320 1,431 Hyundai Motor * 13,710 664 Hyundai Motor GDR, 144A (USD) 71,300 1,692 Kookmin Bank * 219,056 7,312 Kookmin Bank ADR (USD) *(ss.) 19,900 669 Korean Air Lines * 73,400 1,123 Kumgang Korea Chemical 38,560 4,095 LG Chemical 142,670 5,335 LG Electronics *(ss.) 33,090 1,866 Lotte Chilsung Beverage 5,340 3,670 Ncsoft * 39,420 3,764 CJ Internet 143,800 1,457 S-Oil(ss.) 128,470 6,478 Samsung Electronics 41,455 16,260 Shinhan Financial 235,400 4,632 Shinsegae(ss.) 22,450 6,311 SK Corporation * 88,810 4,637 South Korea Telecom 37,600 5,889 Woori Finance Holdings 253,290 1,818 Woori Finance Holdings (Regulation S shares) * 158,070 1,134 91,825 Preferred Stocks 1.0% Hyundai Motor 226,140 6,257 6,257 Total South Korea (Cost $73,951) 98,082 SWITZERLAND 0.7% Common Stocks 0.7% Compagnie Financiere Richemont (ZAR) 1,503,000 4,212 Total Switzerland (Cost $3,292) 4,212 TAIWAN 9.3% Common Stocks 9.3% Acer 1,387,065 2,030 Advantech 1,358,544 2,908 Basso Industry * 1,236,400 2,554 Cathay Financial Holding 4,658,000 8,924 Cheng Shin Rubber Industry 1,722,968 2,048 Chinatrust Financial * 7,082,637 8,078 E.Sun Financial 4,589,000 3,132 E.Sun Financial GDR, 144A (USD) * 32,100 556 EVA Airways * 1 0 Evergreen Marine * 13 0 Far Eastern Department Stores 3,389,000 1,603 Far Eastern Textile * 5,405,795 3,609 Formosa Petrochemical * 1,413,000 2,369 Polaris Securities 3,278,000 1,678 Quanta Computer 2,302,414 3,722 Taishin Financial Holdings 7,170,051 5,860 Taiwan Cellular 2,092,001 2,092 Taiwan Semiconductor Manufacturing 1,799,416 2,359 Via Technologies * 2,749,000 1,580 Yuanta Core Pacific * 2,342,000 1,647 Total Taiwan (Cost $54,016) 56,749 THAILAND 1.5% Common Stocks 1.5% Bangkok Bank NVDR *(ss.) 1,067,300 2,431 C.P. 7-Eleven 1,020,900 1,343 Kasikornbank Public NVDR *(ss.) 1,238,600 1,381 Land & Houses NVDR(ss.) 8,626,800 1,892 Siam Commercial Bank 1,654,600 1,774 True Corp., Rights * 187,357 0 Total Thailand (Cost $8,758) 8,821 TURKEY 2.9% Common Stocks 2.9% Akbank 493,252,397 2,225 Anadolu Efes Biracilik ve Malt Sanayii 115,246,000 1,821 Arcelik * 278,293,600 1,689 Dogus Otomotiv * 111,463,300 367 Hurriyet Gazete 1,664,946,255 3,297 Turkcell Iletisim Hizmetleri 483,894,054 2,970 Turkcell Iletisim Hizmetleri ADR (USD) 37,161 569 Turkiye Garanti Bankasi * 1,099,013,618 2,937 Turkiye Is Bankasi (Isbank) 498,008,100 2,060 Total Turkey (Cost $12,584) 17,935 SHORT-TERM INVESTMENTS 2.6% Money Market Funds 2.6% T. Rowe Price Reserve Investment Fund, 1.81% #+ 15,636,926 15,637 Total Short-Term investments (Cost $15,637) 15,637 SECURITIES LENDING COLLATERAL 4.5% Money Market Pooled Account 4.5% Investment in money market pooled account managed by JP Morgan Chase Bank, London, 1.788% # 27,636,298 27,636 Total Securities Lending Collateral (Cost $27,636) 27,636 Total Investments in Securities 101.3% of Net Assets (Cost $513,148) $616,211 -------- (1) Denominated in currency of country of incorporation unless otherwise noted # Seven-day yield * Non-income producing (ss.) All or a portion of this security is on loan at October 31, 2004 - See Note 2 + Affiliated company - See Note 5 @ Valued by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors 144A Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration only to qualified institutional buyers - total value of such securities at period-end amounts to $9,632 and represents 1.6% of net assets ADR American Depository Receipts ADS American Depository Shares EUR Euro GDR Global Depository Receipts HKD Hong Kong dollar NVDR Non Voting Depository Receipt USD U.S. dollar ZAR South African rand The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- October 31, 2004 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- (In thousands except shares and per share amounts) Assets Investments in securities, at value Affiliated companies (cost $15,637) $ 15,637 Other companies (cost $497,511) 600,574 Total investments in securities 616,211 Other assets 26,002 Total assets 642,213 Liabilities Total liabilities 33,956 NET ASSETS $ 608,257 --------------- Net Assets Consist of: Undistributed net investment income (loss) $ 1,198 Undistributed net realized gain (loss) 6,617 Net unrealized gain (loss) 103,147 Paid-in-capital applicable to 35,769,330 shares of $0.01 par value capital stock outstanding; 2,000,000,000 shares of the Corporation authorized 497,295 NET ASSETS $ 608,257 --------------- NET ASSET VALUE PER SHARE $ 17.00 --------------- The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS -------------------------------------------------------------------------------- ($ 000s) Year Ended 10/31/04 Investment Income (Loss) Income Dividend (net of foreign taxes of $1,612) $ 11,579 Securities lending 250 Interest (net of foreign taxes of $1) 6 Total income 11,835 Expenses Investment management 5,239 Shareholder servicing 791 Custody and accounting 297 Registration 62 Prospectus and shareholder reports 48 Legal and audit 47 Directors 6 Miscellaneous 42 Total expenses 6,532 Net investment income (loss) 5,303 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities (net of foreign taxes of $3,031) 40,722 Foreign currency transactions (444) Net realized gain (loss) 40,278 Change in net unrealized gain (loss) Securities 33,455 Other assets and liabilities denominated in foreign currencies 102 Change in net unrealized gain (loss) 33,557 Net realized and unrealized gain (loss) 73,835 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 79,138 --------------- The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- ($ 000s) Year Ended 10/31/04 10/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 5,303 $ 2,286 Net realized gain (loss) 40,278 11,070 Change in net unrealized gain (loss) 33,557 70,925 Increase (decrease) in net assets from operations 79,138 84,281 Distributions to shareholders Net investment income (2,521) (328) Capital share transactions * Shares sold 321,619 177,771 Distributions reinvested 2,206 294 Shares redeemed (137,955) (75,225) Redemption fees received 390 122 Increase (decrease) in net assets from capital share transactions 186,260 102,962 Net Assets Increase (decrease) during period 262,877 186,915 Beginning of period 345,380 158,465 End of period $ 608,257 $ 345,380 ---------- ---------- (Including undistributed net investment income of $1,198 at 10/31/04 and $2,054 at 10/31/03) *Share information Shares sold 20,284 14,856 Distributions reinvested 150 28 Shares redeemed (8,826) (6,778) Increase (decrease) in shares outstanding 11,608 8,106 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- October 31, 2004 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 1940 Act). The Emerging Markets Stock Fund (the fund), a diversified, open-end management investment company, is one portfolio established by the corporation. The fund commenced operations on March 31, 1995. The fund seeks long-term growth of capital through investments primarily in the common stocks of companies located (or with primary operations) in emerging markets. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. 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. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Other investments and those 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 the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. In the course of making a good faith determination of a security's fair value, the fund reviews a variety of factors, including market and trading trends and the value of comparable securities, such as unrestricted securities of the same issuer. Most foreign markets close before the close of trading on the NYSE. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, which in turn will affect the fund's share price, the fund will adjust the previous closing prices to reflect the fair value of the securities as of the close of the NYSE, as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. A fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. In deciding whether to make fair value adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U. S. markets that represent foreign securities and baskets of foreign securities. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next day's opening prices in the same markets, and adjusted prices. Currency Translation Assets, including investments, 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 asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses. Redemption Fees A 2% fee is assessed on redemptions of fund shares held less than 1 year to deter short-term trading and protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund, and have the primary effect of increasing paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid on an annual basis. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. 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, 2004, approximately 90% 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. Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Although certain of these securities may be readily sold, for example, under Rule 144A, others may be illiquid, and their sale may involve substantial delays and additional costs, and prompt sale at an acceptable price may be difficult. 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% to 105% of the value of the securities on loan. Cash collateral is invested in a money market pooled account managed by the fund's lending agent in accordance with investment guidelines approved by fund management. 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. Securities lending revenue recognized by the fund consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower and compensation to the lending agent. At October 31, 2004, the value of loaned securities was $34,042,000; aggregate collateral consisted of $27,636,000 in the money market pooled account and U.S. government securities valued at $8,007,000. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $496,631,000 and $329,719,000, respectively, for the year ended October 31, 2004. 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 under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. Distributions during the year ended October 31, 2004 totaled $2,521,000 and were characterized as ordinary income for tax purposes. At October 31, 2004, the tax-basis components of net assets were as follows: -------------------------------------------------------------------------------- Unrealized appreciation $ 114,801,000 Unrealized depreciation (11,654,000) Net unrealized appreciation (depreciation) 103,147,000 Undistributed ordinary income 1,198,000 Undistributed long-term capital gain 6,617,000 Paid-in capital 497,295,000 Net assets $ 608,257,000 --------------- The fund intends to retain realized gains to the extent of available capital loss carryforwards for federal income tax purposes. During the fiscal year ended October 31, 2004, the fund utilized $36,306,000 of capital loss carryforwards. For the year ended October 31, 2004, the fund recorded the following permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. Reclassifications between income and gain relate primarily the character of foreign capital gain taxes. Results of operations and net assets were not affected by these reclassifications. -------------------------------------------------------------------------------- Undistributed net investment income $ (3,638,000) Undistributed net realized gain 2,647,000 Paid-in capital 991,000 At October 31, 2004, the cost of investments for federal income tax purposes was $513,148,000. 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 income. Gains realized upon disposition of certain Indian securities held by the fund are subject to capital gains tax in India, payable prior to repatriation of sale proceeds. The tax is computed on net realized gains, and realized losses in excess of gains may be carried forward eight years to offset future gains. In addition, the fund accrues a deferred tax liability for net unrealized gains on Indian securities when applicable. At October 31, 2004, the fund had no deferred tax liability, and $1,759,000 of capital loss carryforwards that expire in 2011 and $340,000 that expire in 2012. 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, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.75% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its average daily net assets to those of the group. At October 31, 2004, the effective annual group fee rate was 0.31%, and investment management fee payable totaled $521,000. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. For the year ended October 31, 2004, expenses incurred pursuant to these service agreements were $85,000 for Price Associates, $304,000 for T. Rowe Price Services, Inc., and $110,000 for T. Rowe Price Retirement Plan Services, Inc. At period-end, a total of $52,000 of these expenses was payable. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) may invest. The Spectrum Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Spectrum Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the year ended October 31, 2004, the fund was allocated $183,000 of Spectrum Funds' expenses, of which $128,000 related to services provided by Price and $15,000 was payable at period-end. Additionally, redemption fees received by the Spectrum Funds are allocated to each underlying Price fund in proportion to the average daily value of its shares owned by the Spectrum Funds. At October 31, 2004, approximately 17.9% of the outstanding shares of the fund were held by the Spectrum Funds. 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 and affiliates of the fund. The Reserve Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available for direct purchase by members of the public. The Reserve Funds pay no investment management fees. During the year ended October 31, 2004, dividend income from the Reserve Funds totaled $146,000, and the value of shares of the Reserve Funds held at October 31, 2004 and October 31, 2003 was $15,637,000 and $10,122,000, respectively. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Directors T. Rowe Price International Funds, Inc. and Shareholders of T. Rowe Price Emerging Markets Stock Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Emerging Markets Stock Fund (one of the portfolios comprising T. Rowe Price International Funds, Inc., hereafter referred to as the "Fund") at October 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Baltimore, Maryland November 22, 2004 T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 10/31/04 -------------------------------------------------------------------------------- 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 $821,000 from long-term capital gains, subject to the 15% rate gains category. For taxable non-corporate shareholders, $6,493,000 of the fund's income and short-term capital gains represents qualified dividend income subject to the 15% rate category. The fund will pass through foreign source income of $6,493,000 and foreign taxes paid of $4,642,000. INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS -------------------------------------------------------------------------------- A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund's Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC's Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words "Company Info" at the top of our homepage for individual investors. Then, in the window that appears, click on the "Proxy Voting Policy" navigation button in the top left corner. Each fund's most recent annual proxy voting record is available on our Web site and through the SEC's Web site. To access it through our Web site, follow the directions above, then click on the words "Proxy Voting Record" at the bottom of the Proxy Voting Policy page. HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS -------------------------------------------------------------------------------- The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available electronically on the SEC's Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC's Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330. T. ROWE PRICE EMERGING MARKETS STOCK FUND -------------------------------------------------------------------------------- ABOUT THE FUND'S DIRECTORS AND OFFICERS -------------------------------------------------------------------------------- Your fund is governed by a Board of Directors that meets regularly to review investments, performance, compliance matters, advisory fees and expenses, and other business affairs, and is responsible for protecting the interests of shareholders. The majority of the fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T. Rowe Price. The Board of Directors elects the fund's officers, who are listed in the final table. The business address of each director and officer is 100 East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132. INDEPENDENT DIRECTORS Name (Year of Birth) Principal Occupation(s) During Past 5 Years Year Elected* and Directorships of Other Public Companies Anthony W. Deering Director, Chairman of the Board, and Chief (1945) Executive Officer, The Rouse Company, real estate 1991 developers; Director, Mercantile Bank (4/03 to present) Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an (1943) acquisition and management advisory firm 1988 David K. Fagin Director, Golden Star Resources Ltd., Canyon (1938) Resources Corp. (5/00 to present), and Pacific 2001 Rim Mining Corp. (2/02 to present); Chairman and President, Nye Corporation Karen N. Horn Managing Director and President, Global Private (1943) Client Services, Marsh, Inc. (1999-2003); 2003 Managing Director and Head of International Private Banking, Bankers Trust (1996-1999) F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, (1934) Inc., consulting environmental and civil engineers 2001 John G. Schreiber Owner/President, Centaur Capital Partners, Inc., (1946) a real estate investment company; Blackstone Real 2001 Estate Advisors, L.P. *Each independent director oversees 111 T. Rowe Price portfolios and serves until retirement, resignation, or election of a successor. INSIDE DIRECTOR Name (Year of Birth) Year Elected * [Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and Portfolios Overseen] Directorships of Other Public Companies James S. Riepe Director and Vice President, T. Rowe Price; Vice (1943) Chairman of the Board, Director, and Vice 2002 President, T. Rowe Price Group, Inc.; Chairman [111] of the Board and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc.; Chairman of the Board, International Funds Inside directors serve until retirement, resignation, or election of a successor. OFFICERS Name (Year of Birth) Title and Fund(s) Served Principal Occupation(s) Christopher D. Alderson (1962) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc. Mark C.J. Bickford-Smith (1962) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price Trust Company Brian J. Brennan, CFA (1964) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price Trust Company Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe Treasurer, International Funds Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company Michael J. Conelius, CFA (1964) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc. Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Ann B. Cranmer, FCIS (1947) Vice President, T. Rowe Price Group, Inc., Assistant Vice President, and T. Rowe Price International, Inc.; International Funds Vice President and Secretary, T. Rowe Price Global Asset Management Limited and T. Rowe Price Global Investment Services Limited Julio A. Delgado, CFA (1965) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Frances Dydasco (1966) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Mark J.T. Edwards (1957) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company Gregory S. Golczewski (1966) Vice President, T. Rowe Price and T. Vice President, International Funds Rowe Price Trust Company M. Campbell Gunn (1956) Vice President, T. Rowe Price Global Vice President, International Funds Investment Services Limited, T. Rowe Price Group, Inc., and T. Rowe Price International, Inc. Henry H. Hopkins (1942) Director and Vice President, T. Rowe Vice President, International Funds Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company; Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc. Ian D. Kelson (1956) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc.; formerly Head of Fixed Income, Morgan Grenfell/ Deutsche Asset Management (to 2000) Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price Secretary, International Funds Price and T. Rowe Price Investment Services, Inc. Raymond A. Mills, Ph.D., CFA (1960) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc. George A. Murnaghan (1956) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., T. Rowe Price International, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company Philip A. Nestico (1976) Vice President, T. Rowe Price Vice President, International Funds Gonzalo Pangaro, CFA (1968) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Robert A. Revel-Chion (1965) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Christopher J. Rothery (1963) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. James B.M. Seddon (1964) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Robert W. Smith (1961) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc. Dean Tenerelli (1964) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Justin Thomson (1968) Vice President, T. Rowe Price Group, Inc., Vice President, International Funds and T. Rowe Price International, Inc. Julie L. Waples (1970) Vice President, T. Rowe Price Vice President, International Funds David J.L. Warren (1957) Director and Vice President, T. Rowe President, International Funds Price; Vice President, T. Rowe Price Group, Inc.; Chief Executive Officer, Director, and President, T. Rowe Price International, Inc.; Director, T. Rowe Price Global Asset Management Limited and T. Rowe Price Global Investment Services Limited Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. William F. Wendler II, CFA (1962) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price International, Inc. Richard T. Whitney, CFA (1958) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company Edward A. Wiese, CFA (1959) Vice President, T. Rowe Price, T. Rowe Vice President, International Funds Price Group, Inc., and T. Rowe Price Trust Company; Chief Investment Officer, Director, and Vice President, T. Rowe Price Savings Bank Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Item 2. Code of Ethics. The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report. Item 3. Audit Committee Financial Expert. The registrant's Board of Directors/Trustees has determined that Mr. David K. Fagin qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form N-CSR. Item 4. Principal Accountant Fees and Services. (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: 2004 2003 Audit Fees $12,481 $13,943 Audit-Related Fees 1,211 720 Tax Fees 5,686 4,637 All Other Fees 124 -- Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, specifically the issuance of a report on internal controls. Tax fees include amounts related to tax compliance, tax planning, and tax advice. Other fees include the registrant's pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant's Board of Directors/Trustees. (e)(1) The registrant's audit committee has adopted a policy whereby audit and non-audit services performed by the registrant's principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted. (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Less than 50 percent of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $849,000 and $819,000, respectively, and were less than the aggregate fees billed for those same periods by the registrant's principal accountant for audit services rendered to the T. Rowe Price Funds. (h) All non-audit services rendered in (g) above were pre-approved by the registrant's audit committee. Accordingly, these services were considered by the registrant's audit committee in maintaining the principal accountant's independence. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. Not applicable. Item 11. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is attached. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price International Funds, Inc. By /s/ James S. Riepe ----------------------------------- James S. Riepe Principal Executive Officer Date December 17, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ James S. Riepe ----------------------------------- James S. Riepe Principal Executive Officer Date December 17, 2004 By /s/ Joseph A. Carrier ----------------------------------- Joseph A. Carrier Principal Financial Officer Date December 17, 2004