-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TkSpgvJewuL7AExnO7eB0PW+9DXzcI2/957onNxmWKjwW9mrKsMXWBYZBvWv/LGl E97bqFPmFUTZ7u35Fs9uQg== 0000313212-97-000067.txt : 19971209 0000313212-97-000067.hdr.sgml : 19971209 ACCESSION NUMBER: 0000313212-97-000067 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971208 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE INTERNATIONAL FUNDS INC CENTRAL INDEX KEY: 0000313212 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521175211 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02958 FILM NUMBER: 97733653 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 3015472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE INTERNATIONAL TRUST DATE OF NAME CHANGE: 19900301 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19890914 N-30D 1 LATIN AMERICA FUND - -------------------------------------------------------------------------------- T. Rowe Price - -------------------------------------------------------------------------------- Annual Report Latin America Fund - -------------------------------------------------------------------------------- October 31, 1997 - -------------------------------------------------------------------------------- REPORT HIGHLIGHTS ================================================================================ Latin America Fund * Strong returns in most Latin American stock markets were sharply undermined in late October when the Asian currency crisis spread to the region. * The fund slipped into negative territory for the six-month period ended October 31 but provided a double-digit gain for its fiscal year. * Relative performance versus the benchmark MSCI index suffered somewhat from the fund's overweighted position in Brazil, which was hit hard in the emerging markets sell-off. * Our country allocations were largely unchanged, with Brazil the largest commitment at 46% of net assets. * Despite recent weakness, the longer-term outlook remains promising because government policies seem on the right track in the major Latin economies. Fellow Shareholders The close of your fund's fiscal year coincided with a period of deep upheaval in the stock markets of emerging countries around the world. Latin American stock markets had been on their way to an outstanding year until the middle of October, when the Asian financial crisis suddenly spread to Latin America. Among the region's major markets, Brazil suffered the most, while Mexico held up relatively well. As a result, overall returns for the region and your fund were weak for the six months ended October 31 but remained strong for the 12-month period. The global emerging markets' loss of confidence that ultimately reached Latin America began during the summer in Southeast Asia. Thailand's deteriorating current account deficit and poor export performance, which followed years of excessive investment in low-return projects, ultimately forced a cut in the linkage between its currency and the U.S. dollar. This generated a spiraling loss of confidence that quickly spread to other Southeast Asian countries. Within a short period the currencies of Malaysia, Indonesia, and the Philippines were also forced to devalue. In the second half of October, the crisis spread first to Hong Kong, where heavy selling of the Hong Kong dollar pushed overnight interest rates to over 100%, and then abruptly to Latin America. Stock markets were particularly vulnerable in countries with dollar-linked currencies - even if their currency pegs were successfully maintained - and the largest, most liquid stocks bore the brunt as they were easiest to sell. During the month of October, the MSCI EMF Latin America Index fell 19%, with all the damage coming in the second half of the month. ================================================================================ Performance Comparison ================================================================================ Periods Ended 10/31/97 6 Months 12 Months Latin America Fund -4.00% 19.94% MSCI EMF Latin America Index -1.44 24.05 Lipper Latin America Funds Average -3.22 19.47 ================================================================================ The fund's six-month return reflected the dis-appointing turn of events in Latin American markets. Relative to the index, performance was hurt by the fund's overweighted position in the Brazilian market, which suffered the most in the October sell-off because of concerns relating to its large current account deficit-around 4.5% of its gross domestic product. For the longer period, the fund lagged the index but provided a solid return of almost 20%. Results were slightly below our mutual fund peer group average for the last six months but slightly above it for the 12 months. Portfolio Review In striking contrast to Southeast Asia, the government in BRAZIL has demonstrated a strong political will to protect its currency, even at the cost of pushing the economy into recession. President Cardoso has clarified that stability of the currency is the lynchpin of government policy and has staked his political credibility on its successful defense. He faces presidential elections by October 1998. On October 30, as a preemptive strike against currency speculation, overnight interest rates were raised from a floor of 20% to a new floor of 43%. This was simultaneously supported by sizable central bank currency purchases, which absorbed around $10 billion of the nation's currency reserves. Then, on November 10, after the close of the fund's reporting period, the government announced a sweeping fiscal auster-ity package amounting to $18 billion, or 2.4% of GDP. The package, designed to stem Brazil's ballooning internal debt, included higher industrial production taxes and a freeze on civil service wages and is likely to have an immediate dampening effect on economic growth. Crucially, the government has reaffirmed on a number of occasions its commitment to the $70 billion privatization program. At the beginning of November, and right in the middle of the current crisis, a Sao Paulo electricity distributor was successfully privatized at a 70% premium to the minimum price set by the government. This followed the sale of another state electricity company in the second half of October, this time at 90% above the minimum price. The government has also recently announced plans to sell off its stake in the giant telecom holding com-pany, TELECOMUNICACOES BRASILEIRAS (Telebras), in the middle of 1998. We view the privatization process very positively and are impressed by the government's resolve to continue the program unabated. So far in 1997, proceeds from privatizations exceed $20 billion. Even prior to the fiscal package and hike in interest rates, the economy was slowing and the consumer sector already weak. We now believe there is a strong chance that the economy will move into recession. Interest rates are unsustainably high and there is clearly a risk that banking asset quality will deteriorate. We believe the Brazilian banking system is far better equipped to deal with this sort of scenario than in recent years. Nonperforming loans have fallen significantly and loan loss provisions of the larger private-sector banks comfortably exceed 100%. It is our view that the decisive steps already taken by the government will be successful in supporting the currency. We are hopeful that inflation will fall from the end-of-September level of 4.6%, that import growth will slow abruptly, and that there will be a concurrent improvement in the current account deficit. We also believe that the political momentum for positive long-term structural reform has been accelerated by this financial crisis. In the long run, this is good news. We have structured the Brazilian portion of the fund to reflect these views. Our largest positions, Telebras, PETROL BRASILEIROS (Petrobras), ELETROBRAS, and TELECOMUNICACOES DE SAO PAULO (Telesp), are all reform and privatization plays. Together, these stocks compose nearly 28% of fund assets. Unfortunately, they were treated harshly during the October stock market upheaval as they are all highly liquid shares, but we retain confidence in their long-term outlook. ================================================================================ Market Performance ================================================================================ (In U.S. Dollar Terms) Periods Ended 10/31/97 6 Months 12 Months - -------------------------------------------------------------------------------- Argentina -3.08% 24.45% Brazil -14.18 18.82 Chile -1.93 3.10 Mexico 17.17 37.25 Peru -8.02 9.23 Venezuela 43.64 56.05 Source: FAME Information Services, Inc.; using MSCI indices. ================================================================================ Along with the other larger markets in the region, the MEXICAN stock market sold off sharply in October but still managed to post a 17% gain for the six months ended October 31. With currency reserves equivalent to only three months of imports, Mexico is in no position to manage its currency, and the peso fell to 9.00 pesos to the dollar (versus 7.80 at the end of September) before recovering to 8.40 by the end of October. Mexico has, of course, already faced a painful readjustment process following the peso devaluation at the end of 1994. Since then, the financial sector has been restructured and considerably strengthened. Foreign control over banking system assets has increased significantly to 17% of system assets (versus just 1.3% in 1994), and loan loss reserves of the private banks are over four times their levels in 1994. With the trade account in surplus in 1997, a current account deficit of less than 2% of GDP, inflation falling to around 15% in 1997, and the consumer at last beginning to show signs of life, foreign investors have been attracted to prospects of sustainable growth. At this stage we do not think that Mexico will be subject to a serious attack on its currency. Our exposure to Mexico increased from 20% to 26% over the last six months, partially due to outperformance of this market, and partially due to small additions. For example, we purchased shares in TV AZTECA, Mexico's second-largest broadcaster, which is enjoying significant market share gains and operates in an attractive industry structure. [pie chart showing Brazil 46%, Mexico 26%, Argentina 14%, Chile 8%, Peru 2%, Venezuela 2%, Other and Reserves 2%] [put on page 3 of report] ARGENTINA, your fund's third-largest weighting at 14% of net assets, was not spared from the wave of regional selling. Over and above the nervousness about emerging markets worldwide, the aggressive selling of the Hong Kong dollar in October focused investor attention on the sustainability of Argentina's Convertibility Plan, which pegs its peso to the U.S. dollar. There is almost unanimous domestic political support for the currency peg, and as in Brazil we believe it will be defended, if necessary, almost whatever the short-term costs. Similar to Mexico, Argentina's financial system has been considerably strengthened since the Mexican peso-related fallout of 1995-foreign capital now controls 40% of banking deposits versus 7% in 1994-and is far better able to weather the current storm. This greater confidence has been reflected in only a comparative trickle of currency outflows so far. Until the regional financial crisis unfolded, the Argentine economy was performing strongly. Third quarter GDP grew in excess of 8% year-on-year, and industrial growth in September was up 11%. Nevertheless, the Argentine economy is now intimately interlinked with Brazil's-with about 30% of its exports going to that country-and a Brazilian devaluation or recession would clearly have a negative impact on investor sentiment. Against a background of plunging stock markets, Congressional elections in October proved to be little more than a sideshow. The ruling Peronist party lost its absolute majority, and few major reforms are expected prior to presidential elections in 1999. The fund continues to emphasize the oil and gas sectors in Argentina, which we believe will be relatively untouched by current uncertainty. Gas is a particularly interesting growth situation. For example, YPF SOCIEDAD ANONIMA, the largest holding in Argentina, is planning a number of pipeline projects to Chile and Brazil, and we forecast YPF's gas output will grow by an average of 9% per year for the next 10 years. Once again CHILE is proving to be the "safe haven" market-unexciting when regional markets are rising but robust on the way down. Chile has restrictions that prevent capital flight during troubled times and also has the region's most stable economy. Economic growth has been accelerating, with industrial production up 7.4% for the 12 months through August. Chile will not be immune to the current difficult environment and is still heavily exposed to the price of copper, which has fallen over 30% from levels back in June. Copper makes up around 40% of Chile's exports. Despite its recent outperformance, Chile was the worst-performing market in the region for the 12-month period ended October 31, gaining only 3%. While recognizing its safe haven status, we still have difficulty finding interesting Chilean growth stocks, and the fund's 8% allocation is very underweighted versus the benchmark index. The PERUVIAN market proved to be surprisingly robust in the face of sharp regional market falls, although we believe the main reason for this has been its lower trading liquidity. As in other markets, the largest, most liquid shares were down the most. After a downturn last year, Peruvian economic recovery has come through stronger than expected-economic activity for the first nine months of 1997 was up over 7%. Your largest holding in Peru, TELEFONICA DEL PERU, is an interesting play on rising telephone penetration; Peru has six phones per 100 people compared with 15 in Chile. With inflation of 38% for the 12 months ended October, VENEZUELA still suffers from the highest inflation in the region. We have concerns over the sustainability of its currency policy and regard the bolivar as increasingly overvalued. Your fund has a small holding in COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV), the country's monopoly provider of basic telecommunications services. ================================================================================ Industry Diversification ================================================================================ Percent of Percent of Net Assets Net Assets 4/30/97 10/31/97 - -------------------------------------------------------------------------------- Services 37.0% 41.1% Energy 19.5 24.5 Consumer Goods 11.2 13.4 Finance 8.9 9.0 Materials 8.5 6.3 Multi-industry 3.3 2.4 All Other - 0.3 Reserves 11.6 3.0 - -------------------------------------------------------------------------------- Total 100.0% 100.0% ================================================================================ Outlook Once again the region's stock markets are having to contend with a sudden and unexpected loss of confidence. Rocketing interest rates and capital flight are an all-too-recent memory. The key to a return of confidence lies in events in Brazil. We are impressed by the government's firm and decisive actions to stem currency outflows and expect to see an immediate improvement in the country's financial imbalances. We are hopeful that over the coming months sentiment will improve sufficiently for interest rates to fall from current unsustainable levels. In the long run, we remain believers in the Brazilian reform story, led by an unprecedented privatization program that will generate easy and dramatic productivity improvements across key sectors of the economy. Until this crisis unfolded, economic statistics coming out of Mexico and Argentina painted a picture of broadening and balanced economic recovery. The superior fundamentals of these economies have so far deterred currency speculators, and we are confident their currencies are well supported. Clearly, regional equity valuations retreated during the October sell-off. The Brazilian market, for example, is now valued at a discount to book value. When interest rates do eventually fall, markets will look cheap on a number of fronts. Six months ago we said that the region's long-term potential should reward the patient investor, and perhaps we should have added the patient investor with nerves of steel. Clearly, shareholders must prepare themselves for further volatility. Nevertheless, the region's investment attractions, in particular the trend toward market-oriented reform, lead us to the view that the outlook continues to provide potentially profitable opportunities. Respectfully submitted, /s/ Martin G. Wade President November 20, 1997 T. Rowe Price Latin America Fund ================================================================================ Portfolio Highlights - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 10/31/97 - -------------------------------------------------------------------------------- Telecomunicacoes Brasileiras, Brazil ................................. 17.3% Telefonos de Mexico, Mexico .......................................... 6.2 YPF Sociedad Anonima, Argentina ...................................... 5.6 Cemex, Mexico ........................................................ 4.2 Petrol Brasileiros, Brazil ........................................... 3.6 Eletrobras, Brazil ................................................... 3.5 Telecomunicacoes de Sao Paulo, Brazil ................................ 3.4 Cia Energetica Minas Gerais, Brazil ................................. 2.9 Telefonica de Argentina, Argentina ................................... 2.9 Brahma, Brazil ....................................................... 2.7 Kimberly-Clark Mexico, Mexico ........................................ 2.6 Fomentos Economico Mexicano, Mexico .................................. 2.4 Perez Companc, Argentina ............................................. 2.3 Panamerican Beverages, Mexico ........................................ 2.1 Empresa Nacional de Electricidad de Chile, Chile ..................... 1.9 Banco Bradesco, Brazil ............................................... 1.8 Unibanco, Brazil ..................................................... 1.8 Grupo Modelo, Mexico ................................................. 1.7 Compania Anonima Nacional Telefonos de Venezuela, Venezuela .......... 1.7 Chilectra, Chile ..................................................... 1.6 TV Azteca, Mexico .................................................... 1.6 Banco Frances del Rio de la Plata, Argentina ......................... 1.5 Grupo Financiero Banamex, Mexico ..................................... 1.3 Grupo Elektra, Mexico ................................................ 1.3 Chilgener, Chile ..................................................... 1.2 - -------------------------------------------------------------------------------- Total ................................................................ 79.1% T. Rowe Price Latin America Fund ================================================================================ Performance Comparison ================================================================================ This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. [Latin America Fund SEC chart shown here] ================================================================================ 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. ================================================================================ Since Inception Periods Ended 10/31/97 1 Year 3 Years Inception Date Latin America Fund 19.94% -1.55% -0.40% 12/29/93 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 Latin America Fund ================================================================================ For a share outstanding throughout each period Financial Highlights ==============================================================================
Year 12/29/93 Ended to 10/31/97 10/31/96 10/31/95 10/31/94 NET ASSET VALUE Beginning of period ....................... $ 8.14 $ 6.49 $ 10.32 $ 10.00 Investment activities Net investment income ................. 0.13 0.10 0.05 (0.03) Net realized and unrealized gain (loss) ................ 1.44 1.60 (3.92) 0.29 Total from investment activities ................. 1.53 1.70 (3.87) 0.26 Distributions Net investment income ................. (0.11) (0.06) -- Net realized gain ..................... (0.03) -- -- -- Total distributions ................... (0.14) (0.06) -- Redemption fees added to paid-in-capital .................... 0.03 0.01 0.04 0.06 NET ASSET VALUE End of period ............................. $ 9.60 $ 8.14 $ 6.49 $ 10.32 Ratios/Supplemental Data Total return .............................. 19.94% 26.52% (37.11)% 3.20% Ratio of expenses to average net assets ........................ 1.47% 1.66% 1.82% 1.99%+ Ratio of net investment income to average net assets ................................ 1.30% 1.29% 0.76% (0.35)%+ Portfolio turnover rate ................... 32.7% 22.0% 18.9% 12.2%+ Average commission rate paid ................................. $ 0.0001 $ 0.0001 $- $- Net assets, end of period (in thousands) ............................ $ 398,066 $ 213,691 $ 148,600 $ 198,435 + Annualized.
The accompanying notes are an integral part of these financial statements. T. Rowe Price Latin America Fund ================================================================================ October 31, 1997 ================================================================================ Statement of Net Assets Shares/Par Value ================================================================================ In thousands ARGENTINA 13.6% Common Stocks 13.6% Banco Frances del Rio de la Plata ADR (USD) .......... 246,608 $ 6,073 Banco Rio de la Plata ADR (USD)* ..................... 229,160 2,406 Perez Companc (Class B) .............................. 1,479,229 9,266 Telecom Argentina Stet (Class B) ADR (USD) ........... 110,730 2,803 Telefonica de Argentina (Class B) ADR (USD) .......... 405,317 11,399 YPF Sociedad Anonima (Class D) ADR (USD) ............. 697,508 22,320 Total Argentina (Cost $54,024) ....................... 54,267 BRAZIL 45.9% Common Stocks and Rights 8.4% Cia Paranaense de Energia Cope ....................... 230,480,000 2,697 Companhia Siderurgica Nacional ....................... 77,649,696 2,817 Electricidade de Rio de Janeiro ......................6,493,093,000 4,064 Eletrobras ........................................... 34,750,863 14,027 Light Servicos de Electricidade ...................... 6,405,000 2,126 Pao de Acucar GDS (USD) .............................. 215,000 3,930 Telecomunicacoes Brasileiras ......................... 29,530,000 2,625 Telecomunicacoes de Minas Gerais ..................... 279,267 39 Telecomunicacoes de Sao Paulo* ....................... 728,808 155 Telecomunicacoes de Sao Paulo, Rights, 11/11/97* ..... 24,369 0 Unibanco GDR (USD) ................................... 42,000 1,145 33,625 Preferred Stocks and Rights 37.5% Banco Bradesco ....................................... 970,760,509 7,220 Banco Itau ........................................... 9,560,000 3,859 Brahma ............................................... 17,426,482 10,907 Brasmotor ............................................ 5,972,000 840 Cia Cimento Portland Itau ............................ 14,919,507 3,830 Cia Energetica de Sao Paulo* ......................... 26,200,000 1,640 Cia Energetica Minas Gerais .......................... 222,006,595 8,860 Cia Energetica Minas Gerais ADR (144a) (USD) ......... 5,141 204 Cia Energetica Minas Gerais ADR, Cv. (USD) ........... 1,129 45 Cia Energetica Minas Gerais ADR, Sponsored, Nonvoting (USD) ....................... 64,521 2,565 Electricidade de Sao Paulo* .......................... 4,720,000 805 Electricidade de Sao Paulo, Rights, 11/27/97* ........ 1,133,307 4 Ericsson Telecomunicacoes ............................ 48,340,000 1,425 Globex Utilidades .................................... 49,000 481 Lojas Americanas ..................................... 138,250,000 1,129 Lojas Renner ......................................... 8,673,000 311 Petrol Brasileiros ................................... 76,439,711 14,214 Telecomunicacoes Brasileiras ......................... 568,147 57 Telecomunicacoes Brasileiras ADR (USD) ............... 650,451 66,021 Telecomunicacoes de Minas Gerais (Class B) ........... 17,013,000 2,130 Telecomunicacoes de Minas Gerais (Class B), Preference Receipts* .................. 214,481 19 Telecomunicacoes de Sao Paulo ........................ 51,059,367 13,338 Telecomunicacoes de Sao Paulo, Rights, 11/11/97* ..... 1,755,486 2 Telecomunicacoes do Parana ........................... 1,733,526 904 Telecomunicacoes do Parana, Rights, 11/11/97* ........ 84,553 0 Telecomunicacoes do Rio de Janeiro ................... 9,058,272 863 Telecomunicacoes do Rio de Janeiro, Rights, 11/11/97* 351,225 3 Unibanco, Units (Each unit consists of 1 preferred share and 1 Unibanco Holdings (Class B) share)* ................................ 104,850,459 5,896 Usiminas ............................................. 223,998 1,625 149,197 Total Brazil (Cost $177,851) ......................... 182,822 CHILE 7.7% Common Stocks 7.7% Chile Fund (USD) ..................................... 65,605 1,476 Chilectra ADR (144a) (USD) ........................... 243,642 6,335 Chilgener ADS (USD) .................................. 172,233 4,693 Chilquinta ADR (USD) ................................. 34,000 459 Compania Cervecerias Unidas ADS (USD) ................ 89,116 2,172 Compania de Telecomunicaciones de Chile ADR (USD) .... 129,015 3,580 Empresa Nacional de Electricidad de Chile ADR (USD) .. 372,753 7,502 Enersis ADS (USD) .................................... 98,039 3,235 Santa Isabel ADR (USD) ............................... 28,000 518 Sociedad Quimica Minera de Chile (Class B) ADR (USD) . 9,425 489 Total Chile (Cost $30,479) ........................... 30,459 MEXICO 26.0% Common Stocks 26.0% Cemex* ............................................... 308,000 $ 1,220 Cemex (Class B)* ..................................... 1,482,746 6,507 Cemex ADS (USD)* ..................................... 290,000 2,247 Cemex ADS (144a) (USD) * ............................. 860,575 6,669 Cifra (Class B) ADR (USD) ............................ 1,158,087 2,218 Coca-Cola Femsa ADR (USD) ............................ 45,000 1,943 Control Commercial Mexicana, Units (Each unit consists of 3 Class B shares and 1 Class C share) ............................ 659,570 653 Corporacion Geo * .................................... 218,000 1,175 Fomentos Economico Mexicano (Class B) ................ 1,344,458 9,460 Gruma (Class B)* ..................................... 127,500 499 Grupo Elektra ........................................ 3,789,390 5,152 Grupo Financiero Banamex (Class B)* .................. 2,577,000 5,102 Grupo Financiero Banamex (Class L)* .................. 41,100 75 Grupo Financiero Bancomer ADR (144a) (USD) * ......... 4,575 42 Grupo Financiero Bancomer (Class B) GDS (USD)* ....... 1,277 12 Grupo Financiero Bancomer (Class L)* ................. 4,334 2 Grupo Financiero Inbursa ............................. 173,000 609 Grupo Industrial Maseca (Class B) .................... 1,397,605 1,350 Grupo Modelo (Class C) ............................... 905,970 6,764 Grupo Televisa GDR (USD)* ............................ 44,702 1,386 Kimberly-Clark Mexico (Class A) ...................... 2,345,941 10,296 Panamerican Beverages (Class A) (USD) ................ 268,978 8,338 Sigma Alimentos (Class B) ............................ 49,800 681 Telefonos de Mexico (Class L) ADR (USD) .............. 572,888 24,777 TV Azteca ADR (USD)* ................................. 330,100 6,313 Total Mexico (Cost $104,849) ......................... 103,490 PERU 2.1% Common Stocks 2.1% Credicorp (USD) ...................................... 122,280 2,193 Luz del Sur .......................................... 1,466,579 1,793 Minsur (Class T) ..................................... 110,751 298 Telefonica del Peru (Class B) ADS (USD) .............. 204,478 4,039 Total Peru (Cost $9,278) ............................. 8,323 VENEZUELA 1.7% Common Stocks 1.7% Compania Anonima Nacional Telefonos de Venezuela (Class D) ADR (USD) ................. 152,810 $ 6,686 Total Venezuela (Cost $4,967) ........................ 6,686 SHORT-TERM INVESTMENTS 1.7% Money Market Funds 1.7% Reserve Investment Fund, Inc., 5.65% ................. $6,684,729 6,685 Total Short-Term Investments (Cost $6,685) ........... 6,685 Total Investments in Securities 98.7% of Net Assets (Cost $388,133) .................. $ 392,732 Other Assets Less Liabilities 5,334 NET ASSETS $ 398,066 Net Assets Consist of: Accumulated net investment income - net of distributions $ 4,448 Accumulated net realized gain/loss - net of distributions (26,335) Net unrealized gain (loss) 4,588 Paid-in-capital applicable to 41,457,528 shares of $0.01 par value capital stock outstanding; 2,000,000,000 shares of the Corporation authorized 415,365 NET ASSETS $ 398,066 NET ASSET VALUE PER SHARE $ 9.60 * Non-income producing 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers - total of such securities at year-end amounts to 3.3% of net assets. USD U.S. dollar The accompanying notes are an integral part of these financial statements. ================================================================================ T. Rowe Price Latin America Fund ================================================================================ Statement of Operations ================================================================================ In thousands - -------------------------------------------------------------------------------- Year Ended 10/31/97 Investment Income Income Dividend (net of foreign taxes of $ 626) ...................... $ 9,226 Interest ...................................................... 1,080 Total income .................................................. 10,306 Expenses Investment management ......................................... 3,989 Shareholder servicing ......................................... 1,024 Custody and accounting ........................................ 265 Registration .................................................. 87 Prospectus and shareholder reports ............................ 62 Legal and audit ............................................... 16 Directors ..................................................... 7 Miscellaneous ................................................. 13 Total expenses ................................................ 5,463 Net investment income .......................................... 4,843 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities .................................................... 19,537 Foreign currency transactions ................................. (342) Net realized gain (loss) ...................................... 19,195 Change in net unrealized gain or loss Securities .................................................... 3,790 Other assets and liabilities denominated in foreign currencies ............................. 5 Change in net unrealized gain or loss ......................... 3,795 Net realized and unrealized gain (loss) ........................ 22,990 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......................................... $ 27,833 The accompanying notes are an integral part of these financial statements ================================================================================ T. Rowe Price Latin America Fund ================================================================================ Statement of Changes in Net Assets - -------------------------------------------------------------------------------- In thousands Year Year Ended Ended 10/31/97 10/31/96 Increase (Decrease) in Net Assets Operations Net investment income ........................... $ 4,843 $ 2,499 Net realized gain (loss) ........................ 19,195 (29,540) Change in net unrealized gain or loss ........... 3,795 65,785 Increase (decrease) in net assets from operations 27,833 38,744 Distributions to shareholders Net investment income ........................... (2,762) (1,323) Net realized gain ............................... (753) Decrease in net assets from distributions ....... (3,515) (1,323) Capital share transactions * Shares sold ..................................... 341,722 96,325 Distributions reinvested ........................ 3,342 1,236 Shares redeemed ................................. (186,039) (70,187) Redemption fees received ........................ 1,032 296 Increase (decrease) in net assets from capital share transactions ............................ 160,057 27,670 Net Assets Increase (decrease) during period ............... 184,375 65,091 Beginning of period ............................. 213,691 148,600 End of period ................................... $ 398,066 $ 213,691 *Share information Shares sold ..................................... 32,418 12,407 Distributions reinvested ........................ 406 180 Shares redeemed ................................. (17,619) (9,239) Increase (decrease) in shares outstanding ....... 15,205 3,348 The accompanying notes are an integral part of these financial statements. ================================================================================ T. Rowe Price Latin America Fund October 31, 1997 ================================================================================ 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 Latin America Fund (the fund), a nondiversified, open-end management investment company, is one of the portfolios established by the corporation and commenced operations on December 29, 1993. The accompanying financial statements are prepared in accordance with generally accepted accounting principles for the investment company industry; these principles may require the use of estimates by fund management. VALUATION Equity securities are valued at the last quoted sales price at the time the valuations are made. A security which is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Short-term debt securities are valued at amortized cost which, when combined with accrued interest, approximates fair value. For purposes of determining the fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. CURRENCY TRANSLATION Assets and liabilities are translated into U.S. dollars at the prevailing exchange rate at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing exchange rate on the dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains and losses. OTHER Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. 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, 1997, the fund held investments in securities of companies located in emerging markets. Future economic or political developments could adversely affect the liquidity or value, or both, of such securities. OTHER Purchases and sales of portfolio securities, other than short-term securities, aggregated $270,489,000 and $111,849,000, respectively, for the year ended October 31, 1997. NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund has unused realized capital loss carryforwards for federal income tax purposes of $26,336,000, which expire in 2004. Capital loss carryforwards utilized in 1997 amounted to $18,667,000. The fund intends to retain gains realized in future periods that may be offset by available capital loss carryforwards. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended October 31, 1997. The results of operations and net assets were not affected by the increases/(decreases) to these accounts. - -------------------------------------------------------------------------------- Undistributed net investment income $(46,000) Undistributed net realized gain 54,000 Paid-in-capital (8,000) - -------------------------------------------------------------------------------- For federal income tax purposes, the fund intends to elect to pass through foreign source income of $4,845,000 and foreign taxes paid of $626,000 for its tax year ended October 31, 1997; the per share effect of these pass-throughs is $0.12 and $0.02, respectively, based on fund shares outstanding on October 31, 1997. These amounts may differ from amounts reported in the accompanying financial statements due to differences in financial statement and federal income tax reporting requirements. At October 31, 1997, the aggregate cost of investments for federal income tax and financial reporting purposes was $388,133,000, and net unrealized gain aggregated $4,599,000, of which $34,556,000 related to appreciated investments and $29,957,000 to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by Rowe Price-Fleming International, Inc. (the manager), which is owned by T. Rowe Price Associates, Inc. (Price Associates), Robert Fleming Holdings Limited, and Jardine Fleming Holdings Limited under a joint venture agreement. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $463,000 was payable at October 31, 1997. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.75% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by the manager or Price Associates (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.30% for assets in excess of $80 billion. At October 31, 1997, and for the year then ended, the effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. (TRPS) is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $946,000 for the year ended October 31, 1997, of which $109,000 was payable at period-end. Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying funds for the purpose of exercising management or control. Expenses associated with the operation of Spectrum are borne by each underlying fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by Spectrum, pursuant to special servicing agreements between and among Spectrum, the underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum International, Rowe Price-Fleming International. Spectrum International Fund held approximately 0.2% of the outstanding shares of the Latin America Fund at October 31, 1997. For the year then ended, the fund was allocated $8,000 of Spectrum expenses, $1,000 of which was payable at period-end. The fund may invest in the Reserve Investment Fund and Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by T. Rowe Price and its affiliates and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the year ended October 31, 1997 totaled $131,000 and are reflected as interest income in the accompanying Statement of Operations. During the year ended October 31, 1997, the fund, in the ordinary course of business, placed security purchase and sale orders aggregating $27,698,000 with certain affiliates of the manager and paid commissions of $95,000 related thereto. T. Rowe Price Latin America Fund ================================================================================ ================================================================================ Report of Independent Accountants - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF T. ROWE PRICE LATIN AMERICA FUND In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Latin America Fund (one of the portfolios constituting T. Rowe Price International Funds, Inc., hereafter referred to as the "Fund") at October 31, 1997, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 1997 by correspondence with custodians and, where appropriate, the application of alternative auditing procedures for unsettled security transactions, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Baltimore, Maryland November 19, 1997 For yield, price, last transaction, current balance, or to conduct transactions, 24 hours, 7 days a week, call Tele*AccessRegistration Mark: 1-800-638-2587 toll free For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 410-625-6500 Baltimore area To open a Discount Brokerage account or obtain information, call: 1-800-638-5660 toll free Internet address: www.troweprice.com T. Rowe Price Associates 100 East Pratt Street Baltimore, Maryland 21202 This report is authorized for distribution only to shareholders and to others who have received a copy of the prospectus of the T. Rowe Price Latin America Fund. Investor Centers: 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 T. Rowe Price Investment Services, Inc., Distributor. F97-050 10/31/97 -----END PRIVACY-ENHANCED MESSAGE-----