N-CSRS 1 ibf.txt T. ROWE PRICE INTERNATIONAL BOND FUND Item 1. Report to Shareholders T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- June 30, 2004 Certified Semiannual Report This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) FINANCIAL HIGHLIGHTS For a share outstanding throughout each period -------------------------------------------------------------------------------- Investor Class 6 Months Year Ended Ended 6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 NET ASSET VALUE Beginning of period $ 10.25 $ 9.29 $ 7.86 $ 8.47 $ 9.16 $ 10.46 Investment activities Net investment income (loss) 0.12 0.25 0.25 0.32 0.40 0.37 Net realized and unrealized gain (loss) (0.31) 1.46 1.43 (0.61) (0.70) (1.18) Total from investment activities (0.19) 1.71 1.68 (0.29) (0.30) (0.81) Distributions Net investment income (0.12) (0.25) (0.25) -- -- (0.33) Net realized gain (0.06) (0.50) -- -- -- (0.11) Tax return of capital -- -- -- (0.32) (0.39) (0.05) Total distributions (0.18) (0.75) (0.25) (0.32) (0.39) (0.49) NET ASSET VALUE End of period $ 9.88 $ 10.25 $ 9.29 $ 7.86 $ 8.47 $ 9.16 ----------------------------------------------------------------- Ratios/Supplemental Data Total return^ (1.86)% 18.77% 21.80% (3.41)% (3.13)% (7.86)% Ratio of total expenses to average net assets 0.89%! 0.91% 0.93% 0.95% 0.91% 0.90% Ratio of net investment income (loss) to average net assets 2.46%! 2.58% 3.01% 3.98% 4.76% 3.93% Portfolio turnover rate 49.8%! 38.5% 113.9% 107.6% 160.5%+ 94.9% Net assets, end of period (in millions) $ 1,351 $ 1,306 $ 1,058 $ 762 $ 753 $ 779 ^ 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. + Excludes the effect of the acquisition of the T. Rowe Price Global Bond Fund's assets. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) FINANCIAL HIGHLIGHTS For a share outstanding throughout each period -------------------------------------------------------------------------------- Advisor Class 6 Months Year 3/31/00 Ended Ended Through 6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 NET ASSET VALUE Beginning of period $ 10.24 $ 9.28 $ 7.85 $ 8.47 $ 8.88 Investment activities Net investment income (loss) 0.12 0.24 0.24 0.31* 0.30* Net realized and unrealized gain (loss) (0.31) 1.46 1.43 (0.62) (0.42) Total from investment activities (0.19) 1.70 1.67 (0.31) (0.12) Distributions Net investment income (0.12) (0.24) (0.24) -- -- Net realized gain (0.06) (0.50) -- -- Tax return of capital -- -- -- (0.31) (0.29) Total distributions (0.18) (0.74) (0.24) (0.31) (0.29) NET ASSET VALUE End of period $ 9.87 $ 10.24 $ 9.28 $ 7.85 $ 8.47 ----------------------------------------------------------- Ratios/Supplemental Data Total return^ (1.93)% 18.62% 21.65% (3.73)%* (1.29%)* Ratio of total expenses to average net assets 1.03%! 1.06% 1.08% 1.15%* 1.15%*! Ratio of net investment income (loss) to average net assets 2.31%! 2.43% 2.82% 3.28%* 4.60%*! Portfolio turnover rate 49.8%! 38.5% 113.9% 107.6% 160.5%+ Net assets, end of period (in thousands) $ 57,560 $ 50,217 $ 14,760 $ 5,026 $ 120 ^ 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. * Excludes expenses in excess of a 1.15% voluntary expense limitation in effect through 4/30/06. + Excludes the effect of the acquisition of the T. Rowe Price Global Bond Fund's assets. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 PORTFOLIO OF INVESTMENTS (1) $ Par/Shares Value -------------------------------------------------------------------------------- (Cost and value in $ 000s) AUSTRALIA 0.2% Government Bonds 0.2% New South Wales Treasury, 6.00%, 5/1/12 5,070,000 3,517 Total Australia (Cost $3,162) 3,517 AUSTRIA 4.5% Government Bonds 4.5% Republic of Austria, 3.40%, 10/20/04 12,000,000 14,668 Republic of Austria, 144A, 3.80%, 10/20/13 2,700,000 3,164 Republic of Austria, 4.00%, 7/15/09 16,400,000 20,285 Republic of Austria, 5.50%, 1/15/10 18,750,000 24,781 Total Austria (Cost $54,841) 62,898 BELGIUM 2.8% Government Bonds 2.8% Kingdom of Belgium, 4.25%, 9/28/13 7,500,000 9,097 Kingdom of Belgium, 6.25%, 3/28/07 8,100,000 10,683 Kingdom of Belgium, 6.50%, 3/31/05 15,600,000 19,591 Total Belgium (Cost $34,646) 39,371 CANADA 1.1% Government Bonds 1.1% Government of Canada, 5.25%, 6/1/12 11,600,000 8,909 Government of Canada, 5.75%, 6/1/29 8,200,000 6,444 Total Canada (Cost $12,711) 15,353 DENMARK 1.4% Government Bonds 1.4% Kingdom of Denmark, 6.00%, 11/15/11 19,400,000 3,529 Kingdom of Denmark, 7.00%, 11/10/24 12,000,000 2,473 Kingdom of Denmark, 8.00%, 3/15/06 76,850,000 13,670 Total Denmark (Cost $14,295) 19,672 FINLAND 1.7% Government Bonds 1.7% Republic of Finland, 5.00%, 7/4/07 4,500,000 5,773 Republic of Finland, 5.00%, 4/25/09 14,000,000 18,091 Total Finland (Cost $19,077) 23,864 FRANCE 9.6% Government Bonds 9.6% Government of France, 4.00%, 4/25/09 21,470,000 26,645 Government of France, 5.00%, 7/12/05 3,130,000 3,914 Government of France, 5.00%, 1/12/06 26,100,000 32,941 Government of France, 5.00%, 4/25/12 19,800,000 25,562 Government of France, 5.25%, 4/25/08 2,200,000 2,856 Government of France, 5.50%, 4/25/10 10,270,000 13,603 Government of France, 5.50%, 4/25/29 5,000,000 6,574 Government of France, 5.75%, 10/25/32 16,672,000 22,771 Total France (Cost $116,947) 134,866 GERMANY 15.8% Government Bonds 15.8% Bundesobligation, 5.00%, 8/19/05 43,470,000 54,452 Bundesrepublic, 4.50%, 7/4/09 37,000,000 46,870 Bundesrepublic, 4.75%, 7/4/08 14,240,000 18,180 Bundesrepublic, 4.75%, 7/4/28 5,685,000 6,780 Bundesrepublic, 5.00%, 1/4/12 21,650,000 27,973 Bundesrepublic, 5.50%, 1/4/31 19,250,000 25,485 Bundesrepublic, 6.00%, 1/5/06 19,350,000 24,742 Bundesrepublic, 6.00%, 7/4/07 14,000,000 18,447 Total Germany (Cost $191,923) 222,929 GREECE 4.2% Government Bonds 4.2% Hellenic Republic, 2.84%, 8/25/04 16,100,000 19,700 Hellenic Republic, 4.60%, 5/20/13 13,030,000 16,139 Hellenic Republic, 6.00%, 2/19/06 6,000,000 7,685 Hellenic Republic, 6.50%, 1/11/14 11,063,940 15,597 Total Greece (Cost $51,816) 59,121 HUNGARY 0.1% Government Bonds 0.1% Government of Hungary, 6.25%, 6/12/07 236,150,000 1,027 Total Hungary (Cost $1,036) 1,027 IRELAND 0.8% Government Bonds 0.8% Republic of Ireland, 4.00%, 4/18/10 3,150,000 3,870 Republic of Ireland, 5.00%, 4/18/13 6,100,000 7,843 Total Ireland (Cost $9,141) 11,713 ITALY 9.1% Government Bonds 9.1% Republic of Italy, 5.00%, 10/15/07 10,940,000 14,034 Republic of Italy, 5.25%, 8/1/11 5,400,000 7,045 Republic of Italy, 5.50%, 11/1/10 13,800,000 18,247 Republic of Italy, 6.00%, 11/1/07 33,800,000 44,667 Republic of Italy, 6.00%, 5/1/31 29,400,000 40,739 Republic of Italy, 7.25%, 11/1/26 2,483,653 3,957 Total Italy (Cost $100,524) 128,689 JAPAN 11.9% Government Bonds 11.9% Government of Japan, 1.00%, 12/20/12 2,432,200,000 21,193 Government of Japan, 1.30%, 6/20/11 4,923,000,000 45,050 Government of Japan, 1.30%, 12/20/13 800,600,000 7,049 Government of Japan, 1.40%, 3/20/12 3,050,000,000 27,779 Government of Japan, 1.70%, 9/20/10 2,431,800,000 23,031 Government of Japan, 1.80%, 9/21/09 2,307,100,000 22,107 Government of Japan, 2.00%, 6/20/22 732,000,000 6,491 Government of Japan, 2.20%, 6/22/20 1,663,000,000 15,433 Total Japan (Cost $163,441) 168,133 MEXICO 0.8% Common Stocks 0.0% United Mexican States, Series C, Warrants, 6/1/05 (USD) 1,334,506 30 30 Government Bonds 0.8% United Mexican States, 8.00%, 12/7/23 128,000,000 8,245 United Mexican States, 10.50%, 8/24/06 35,450,000 3,197 11,442 Total Mexico (Cost $11,786) 11,472 NETHERLANDS 3.0% Government Bonds 3.0% Government of Netherlands, 5.00%, 7/15/11 6,200,000 7,995 Government of Netherlands, 5.25%, 7/15/08 11,000,000 14,312 Government of Netherlands, 5.50%, 1/15/28 235,000 310 Government of Netherlands, 7.25%, 10/1/04 15,500,000 19,107 Total Netherlands (Cost $39,653) 41,724 POLAND 0.4% Government Bonds 0.4% Government of Poland, 8.50%, 11/12/06 21,900,000 6,042 Total Poland (Cost $6,098) 6,042 PORTUGAL 3.7% Government Bonds 3.7% Republic of Portugal, 3.00%, 7/17/06 28,000,000 34,247 Republic of Portugal, 3.625%, 8/19/04 5,400,000 6,589 Republic of Portugal, 5.15%, 6/15/11 8,275,000 10,743 Total Portugal (Cost $50,287) 51,579 SOUTH AFRICA 0.6% Government Bonds 0.6% Republic of South Africa, 13.00%, 8/31/10 ss. 44,900,000 8,223 Total South Africa (Cost $6,857) 8,223 SPAIN 4.7% Government Bonds 4.7% Kingdom of Spain, 4.95%, 7/30/05 12,350,000 15,448 Kingdom of Spain, 5.75%, 7/30/32 4,200,000 5,737 Kingdom of Spain, 6.00%, 1/31/08 34,200,000 45,492 Total Spain (Cost $54,868) 66,677 SWEDEN 1.0% Government Bonds 1.0% Kingdom of Sweden, 5.00%, 1/28/09 100,000,000 13,827 Total Sweden (Cost $11,856) 13,827 UNITED KINGDOM 4.7% Government Bonds 4.7% United Kingdom Treasury, 4.25%, 6/7/32 18,000,000 29,819 United Kingdom Treasury, 5.00%, 3/7/08 8,540,000 15,465 United Kingdom Treasury, 5.00%, 3/7/12 5,000,000 9,001 United Kingdom Treasury, 5.75%, 12/7/09 5,100,000 9,545 United Kingdom Treasury, 8.50%, 12/7/05 1,250,000 2,382 Total United Kingdom (Cost $59,851) 66,212 UNITED STATES 15.6% Money Market Funds 15.6% T. Rowe Price Reserve Investment Fund, 1.16% # 219,435,406 219,435 Total United States (Cost $219,435) 219,435 SECURITIES LENDING COLLATERAL 0.6% Money Market Pooled Account 0.6% Investment in money market pooled account managed by JP Morgan Chase Bank, London, 1.15% # 8,012,000 8,012 Total Securities Lending Collateral (Cost $8,012) 8,012 Total Investments in Securities 98.3% of Net Assets (Cost $1,242,263) $ 1,384,356 --------------- T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report -------------------------------------------------------------------------------- FORWARD CURRENCY EXCHANGE CONTRACTS Amounts in (000s) Unrealized Counterparty Settlement Receive Deliver Gain (Loss) ------------ ---------- ----------------- --------------- ----------- Chase 7/21/04 BRL 20,448 USD 6,800 $ (214) ABN AMRO 7/21/04 USD 6,751 BRL 20,448 165 CSFB 8/17/04 TWD 466,336 USD 14,155 (267) Chase 8/17/04 USD 14,013 TWD 466,336 125 UBS 8/18/04 AUD 6,958 USD 4,843 (33) Morgan Stanley 8/18/04 CAD 9,409 USD 6,850 163 Chase 8/18/04 CAD 4,035 USD 2,958 49 State Street 8/18/04 CAD 15,740 USD 11,517 215 Morgan Stanley 8/18/04 CZK 58,664 USD 2,230 5 Chase 8/18/04 DKK 11,157 USD 1,831 (4) ABN AMRO 8/18/04 GBP 9,661 USD 17,321 119 Chase 8/18/04 GBP 851 USD 1,549 (14) State Street 8/18/04 HUF 583,946 USD 2,737 59 ABN AMRO 8/18/04 JPY 23,424 EUR 173,017 4,089 UBS 8/18/04 JPY 11,255,781 USD 100,140 3,005 Chase 8/18/04 JPY 1,742,450 USD 15,831 136 Chase 8/18/04 KRW 14,711,347 USD 12,433 252 State Street 8/18/04 MXN 24,971 USD 2,153 (5) ABN AMRO 8/18/04 PLN 26,401 USD 5,658 203 Citibank 8/18/04 PLN 107,266 USD 27,644 1,155 UBS 8/18/04 SEK 333,498 USD 44,014 257 CSFB 8/18/04 SGD 6,540 USD 3,813 (11) State Street 8/18/04 USD 2,497 CAD 3,425 (56) State Street 8/18/04 USD 2,973 DKK 18,350 (32) Chase 8/18/04 USD 24,027 EUR 19,855 (137) State Street 8/18/04 USD 5,954 EUR 4,840 63 State Street 8/18/04 USD 8,639 MXN 99,337 96 Chase 8/18/04 ZAR 2,113 SEK 15,817 13 State Street 8/18/04 ZAR 14,352 USD 2,130 156 Net unrealized gain (loss) on open forward currency exchange contracts $ 9,552 -------- (1) Denominated in currency of country of incorporation unless otherwise noted # Seven-day yield ss. All or a portion of this security is on loan at June 30, 2004 - See Note 2 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 $3,164 and represents 0.2% of net assets AUD Australian dollar BRL Brazilian real CAD Canadian dollar CZK Czech koruna DKK Danish krone EUR Euro GBP British pound HUF Hungarian forint JPY Japanese yen KRW South Korean won MXN Mexican peso PLN Polish zloty SEK Swedish krona SGD Singapore dollar TWD Taiwan dollar USD U.S. dollar ZAR South African rand The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- (In thousands except shares and per share amounts) Assets Investments in securities, at value (cost $1,242,263) $ 1,384,356 Other assets 40,237 Total assets 1,424,593 Liabilities Total liabilities 16,183 NET ASSETS $ 1,408,410 -------------------- Net Assets Consist of: Undistributed net realized gain (loss) $ (7,359) Net unrealized gain (loss) 151,762 Paid-in-capital applicable to 142,590,586 shares of $0.01 par value capital stock outstanding; 2,000,000,000 shares of the Corporation authorized 1,264,007 NET ASSETS $ 1,408,410 -------------------- NET ASSET VALUE PER SHARE Investor Class ($1,350,850,962/136,756,551 shares outstanding) $ 9.88 -------------------- Advisor Class ($57,559,506/5,834,035 shares outstanding) $ 9.87 -------------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF OPERATIONS -------------------------------------------------------------------------------- ($ 000s) 6 Months Ended 6/30/04 Investment Income (Loss) Income Interest $ 22,294 Dividend 956 Securities lending 19 Total income 23,269 Expenses Investment management 4,625 Shareholder servicing Investor Class 1,119 Advisor Class 11 Custody and accounting 272 Rule 12b-1 fees - Advisor Class 65 Registration 60 Prospectus and shareholder reports Investor Class 52 Advisor Class 4 Legal and audit 15 Directors 3 Miscellaneous 4 Total expenses 6,230 Net investment income (loss) 17,039 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 32,384 Futures 18 Foreign currency transactions (11,233) Net realized gain (loss) 21,169 Change in net unrealized gain (loss) Securities (77,682) Futures 7 Other assets and liabilities denominated in foreign currencies 11,319 Change in net unrealized gain (loss) (66,356) Net realized and unrealized gain (loss) (45,187) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (28,148) -------------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- ($ 000s) 6 Months Year Ended Ended 6/30/04 12/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 17,039 $ 30,980 Net realized gain (loss) 21,169 55,048 Change in net unrealized gain (loss) (66,356) 123,718 Increase (decrease) in net assets from operations (28,148) 209,746 Distributions to shareholders Net investment income Investor Class (16,442) (30,305) Advisor Class (604) (668) Net realized gain Investor Class (7,796) (61,184) Advisor Class (299) (2,235) Decrease in net assets from distributions (25,141) (94,392) Capital share transactions * Shares sold Investor Class 234,046 412,857 Advisor Class 19,818 42,114 Distributions reinvested Investor Class 22,553 86,713 Advisor Class 837 2,656 Shares redeemed Investor Class (160,638) (364,191) Advisor Class (11,451) (11,647) Increase (decrease) in net assets from capital share transactions 105,165 168,502 Net Assets Increase (decrease) during period 51,876 283,856 Beginning of period 1,356,534 1,072,678 End of period $ 1,408,410 $ 1,356,534 --------------- --------------- (Including undistributed net investment income of $0 at 6/30/04 and $7 at 12/31/03) T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- ($ 000s) 6 Months Year Ended Ended 6/30/04 12/31/03 *Share information Shares sold Investor Class 23,159 42,028 Advisor Class 1,974 4,214 Distributions reinvested Investor Class 2,229 8,617 Advisor Class 83 263 Shares redeemed Investor Class (16,038) (37,148) Advisor Class (1,127) (1,164) Increase (decrease) in shares outstanding 10,280 16,810 The accompanying notes are an integral part of these financial statements. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 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 International Bond Fund (the fund), a nondiversified, open-end management investment company, is one portfolio established by the corporation. The fund seeks to provide high current income and capital appreciation by investing primarily in high-quality, nondollar-denominated bonds outside the U.S. The fund has two classes of shares: the International Bond Fund original share class, referred to in this report as the Investor Class, offered since September 10, 1986, and International Bond Fund--Advisor Class (Advisor Class), offered since March 31, 2000. Advisor Class shares are sold only through brokers and other financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or certain administrative services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights on matters related solely to that class, separate voting rights on matters that relate to both classes, and, in all other respects, the same rights and obligations as the other class. 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. Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with original maturities of less than one year are stated at fair value, which is determined by using a matrix system that establishes a value for each security based on bid-side money market yields. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Financial futures contracts are valued at closing settlement prices. 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. 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. Class Accounting The Advisor Class pays distribution, shareholder servicing, and/or certain administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class's average daily net assets. Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to both classes and investment income are allocated to the classes based upon the rela-tive daily net assets of each class's settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each class's outstanding shares. Credits The fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund's custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits. Redemption Fees A 2% fee is assessed on redemptions of Investor Class and Advisor Class fund shares held less than 90 days 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. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. 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. Payments ("variation margin") made or received to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unrealized gains and losses on forward currency exchange contracts are included in other assets and other liabilities, respectively, and in the change in net realized gains or losses in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared by each class on a daily basis and paid monthly. 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. Forward Currency Exchange Contracts During the six months ended June 30, 2004, the fund was a party to forward currency exchange contracts under which it is obligated to exchange currencies at specified future dates and exchange rates. Risks arise from the possible inability of counterparties to meet the terms of their agreements and from movements in currency values. Futures Contracts During the six months ended June 30, 2004, the fund was a party to futures contracts, which provide for the future sale by one party and purchase by another of a specified amount of a specific financial instru-ment at an agreed upon price, date, time, and place. Risks arise from possible illiquidity of the futures market and from movements in security values and/or interest rates. 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 June 30, 2004, the value of loaned securities was $7,326,000; aggregate collateral consisted of $8,012,000 in the money market pooled account. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $260,984,000 and $255,063,000, respectively, for the six months ended June 30, 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 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. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2004. At June 30, 2004, the cost of investments for federal income tax purposes was $1,242,263,000. Net unrealized gain aggregated $151,762,000 at period-end, of which $157,610,000 related to appreciated investments and $5,848,000 related to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price International, Inc. (the manager), a wholly owned subsidiary of T. Rowe Price Associates, Inc. (Price Associates), 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 0.35% 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 June 30, 2004, the effective annual group fee rate was 0.31%, and investment management fee payable totaled $764,000. The Advisor Class is also subject to a contractual expense limitation through April 30, 2006. During the limitation period, the manager is required to waive its management fee and reimburse the class for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the class's ratio of total expenses to average net assets (expense ratio) to exceed its expense limitation of 1.15%. Through April 30, 2008, the class is required to repay the manager for expenses previously reimbursed and management fees waived to the extent its net assets have grown or expenses have declined sufficiently to allow repayment without causing the class's expense ratio to exceed its expense limitation. For the six months ended June 30, 2004, the Advisor Class operated below its expense limitation. 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 prices 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 Investor Class. Expenses incurred pursuant to these service agreements totaled $359,000 for the six months ended June 30, 2004, of which $140,000 was payable at period-end. 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 six months ended June 30, 2004, the fund was allocated $610,000 of Spectrum Funds' expenses, of which $397,000 related to services provided by Price and $194,000 was payable at period-end. At June 30, 2004, approximately 43.1% of the outstanding shares of the Investor Class 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. 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 six months ended June 30, 2004, dividend income from the Reserve Funds totaled $956,000. T. Rowe Price International Bond Fund -------------------------------------------------------------------------------- Certified Semiannual Report INFORMATION ON PROXY VOTING -------------------------------------------------------------------------------- A description of the policies and procedures that the T. Rowe Price International Bond fund Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling 1-800-225-5132. It also appears in the fund's Statement of Additional Information (Form 485B), which can be found on the SEC's Web site, www.sec.gov. Item 2. Code of Ethics. 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 is filed as an exhibit to the registrant's annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrant's most recent fiscal half-year. Item 3. Audit Committee Financial Expert. Disclosure required in registrant's annual Form N-CSR. Item 4. Principal Accountant Fees and Services. Disclosure required in registrant's annual Form N-CSR. 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. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. 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 changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed with the registrant's annual Form N-CSR. (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: August 16, 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: August 16, 2004 By: /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date: August 16, 2004