-----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, GsMZ88XQhgq+f1S02EBy05MVzE7iz6MmTq9FqSYTp4fdO1cFK7e5PdbKDQZXpe/J g4ONSGEwRsRS5cSDcttUBQ== 0000950109-98-003598.txt : 19980610 0000950109-98-003598.hdr.sgml : 19980610 ACCESSION NUMBER: 0000950109-98-003598 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980609 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: 98644287 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 JAPAN FUND SAR Semiannual Report JAPAN FUND -------------- APRIL 30, 1998 -------------- [LOGO OF T. ROWE PRICE APPEARS HERE] T. ROWE PRICE REPORT HIGHLIGHTS ----------------------------------------------------------------------------- Japan Fund . Japan's equity markets tumbled once again following turmoil in Asia's currency markets in late 1997. . A serious banking crisis and a weak Japanese yen combined to depress corporate earnings and undermine domestic consumer confidence. . The Japan Fund suffered a significant loss for the period. It outperformed Japan's major large- and mid-cap market indexes, but fell behind the Lipper Japan Funds Average. . The fund concentrated on export-focused manufacturers while limiting investment in domestically centered businesses and the banking sector. . We see signs that Japanese officials are addressing structural problems that impede economic and market recoveries. FELLOW SHAREHOLDERS In the aftermath of last autumn's Asian currency crisis, the Japanese indices slipped significantly in the six months ended April 30, 1998. A difficult economic outlook and a loss of confidence in the financial sector combined to undermine hopeful signs in the market. The fund's returns for both the 6- and 12-month periods were further depressed by the weakness of the yen against the U.S. dollar. While declining sharply on an absolute basis, your fund held up somewhat better than the overall market indices for large stocks, as represented by the TSE First Section Index, and their smaller counterparts in the TSE Second Section Index. A focus on export-oriented manufacturing companies (sometimes called the nifty stocks), which used a weaker yen to keep earnings growth strong, provided some cushion against the worst of the losses. Limited exposure to the domestic-oriented companies that suffered from weak consumer spending and capital expenditure also prevented steeper losses. We avoided bank stocks, which were again plagued with scandals and concern over ballooning bad debts. However, your fund fell behind the Lipper average of similar funds because many competitors had higher percentages of assets in the major export stocks and lower percentages in domestic-oriented companies. - ---------------------- PERFORMANCE COMPARISON - ---------------------- Periods Ended 4/30/98 6 Months 12 Months - ----------------------------------------------------- Japan Fund -11.92% -16.92% ..................................................... TSE First Section Index -12.83 -18.49 ..................................................... TSE Second Section Index -14.91 -24.59 ..................................................... Lipper Japan Funds Average -7.32 -10.98 ..................................................... MARKET REVIEW The weak stock market reflected disappointment in corporate earnings growth and a worse-than-expected economic outlook. The currency crisis that enveloped Asia in the second half of 1997 cast a pall over Japan's attempts at recovery, dimming economic forecasts and weakening export markets across the region. Overseas investors reacted by selling major export-oriented stocks, which they had been aggressively 1 buying the previous year. This led to a broader sell-off. Financial stocks were hit particularly hard since their capital bases are linked to the fortunes of the equity market. The Japanese financial sector was thrown into a crisis in November with a series of unprecedented bankruptcies. Medium-sized Sanyo Securities broke the dam by seeking bankruptcy protection on November 3, 1997, after authorities gave up trying to find a "godfather" to merge it into. Hokkaido Takushoku, the tenth largest Japanese bank, closed on November 16 due to bad loans. On November 23, Yamaichi Securities, the fourth of the "Big Four" brokers, became Japan's largest corporate failure. Two days later, Tokuyo City Bank collapsed due to bad loans. On November 26, the Ministry of Finance and the Bank of Japan appealed to creditors and depositors of Japanese financial institutions to remain calm. Lengthy lines formed outside Japanese banks, as domestic depositors sought to retrieve their savings. Queues also formed outside Citibank's offices, with the same depositors seeking to open yen-denominated savings accounts with the only foreign-owned licensed deposit taker. THE NIKKEI 225 INDEX ENDED 1997 NOT FAR FROM ITS POST-BUBBLE LOW OF 14,500. The last weeks of 1997 saw further weak economic data. In addition, the Korean won fell 43% against the yen. This has significant implications for Japanese industry, which competes against Korean companies in many export markets and, increasingly, in Japan itself. In a marked change of fiscal policy, the government announced income tax rebates and cuts in corporate taxes. Although the plan was extensive, it did not have an immediate effect. The Nikkei 225 Index ended 1997 not far from its post-bubble low of 14,500. In April 1998, the government announced another package worth a record 16.6 trillion yen, but the markets have been slow to react. With overnight interest rates at 0.4% and 10-year bonds at 1.6%, both lower than the rates in the U.S. at the depths of the Great Depression, monetary policy offers limited opportunities to jump-start the economy. Wage growth was hit hard by deteriorating corporate earnings, and consumer sentiment was clearly affected. Although the tax rebate implied that the average household would gain nearly 70,000 yen in disposable income, consumers have shown little appetite for spending. Household spending fell 4.5% in February compared with the prior 2 year, while March housing starts dropped 11.9% from the prior year. Unemployment, still low by U.S. or European standards, hit a record high of 3.9% in March. The job-offer-to-applicants ratio hit 58 to 100, the lowest since July 1983. We expect that the economy will continue to slide until the late summer, at which point the large stimulus package announced in April should have a positive impact. The government is now aware of the extent of the difficulties faced by the Japanese economy and is prepared to spend heavily to prevent a deep recession. We are reasonably optimistic that this commitment, combined with better news from the rest of Asia later this year, will restore some confidence to the consumer and corporate sectors. PORTFOLIO STRATEGY [PIE CHART OF INDUSTRY DIVERSIFICATION APPEARS HERE] Other and Reserves 5% Materials 7% Financial 8% Services 20% Capital Equipment 37% Consumer Goods 23% Based on net assets as of 4/30/98. Unlike earlier in 1997, there was no clear winners' circle among Japanese equities during the past six months. A variety of stocks in disparate industries generated positive performances in this generally weak period. We therefore made only small adjustments to the fund's sector exposure and continued to focus on stocks we had previously identified as good investments. As we have for some time, we held an overweight position in blue chip exporters with solid growth prospects and reasonable valuations. Major holdings on April 30 included companies that should be familiar to fund shareholders, such as Sony, NEC, TDK, and Canon. These firms, among the best-managed and fastest-growing in the country, have traded below market valuations for most of the last decade. Although a recent increase in institutional interest has led to rising stock prices, strong earnings have kept price multiples modest. We continued to invest in domestic-focused blue chips that performed well despite the economic outlook. Major positions include retailers 3 Marui and Ito-Yokado, Tokyo-based East Japan Railway, financial services leader Nomura Securities, and telecom giant Nippon Telephone & Telecom. These companies are among the strongest in their respective industries and have the ability to take advantage of the deregulatory environment. Conversely, the bottom rung of the performance ladder was crowded with second tier domestic-oriented companies. Among our poor performers were firms in the housing industry, which continued to lag despite what we believe to be strong potential. Daiwa House and Sekisui Chemical suffered from the longer-than-anticipated downturn in new housing starts and growing pricing pressures. Our position in materials stocks fell from 12% of assets to 7% due to a combination of underperformance and selective selling. Mitsubishi Heavy Industries, in which your fund has a substantial position, fell sharply on concern that the company's earnings would be negatively affected by the economic problems in Asia. OUTLOOK In the ninth year of the Japanese bear market, it would be easy to conclude that nothing will improve. The Japanese economy may now be facing its most serious crisis since World War II, and its very structure is in urgent need of reform to tackle rigidities in the labor market, overregulation of the economy, inefficiency in the tax system, and the lack of adequate disclosure of government and corporate accounts. The government, for the time being, is hesitating to implement such measures. While economic stimulus packages and public expenditure programs may provide short-term boosts, they will not be a panacea for the structural distortions inherent in the economy. Unless these distortions are addressed, it will be very difficult for the economy to support sustained growth. WE STRONGLY BELIEVE . . . THAT THE FORCES OF CHANGE ARE GATHERING. We strongly believe, however, that the forces of change are gathering. Lending institutions are increasingly repricing credit to reflect risk, and international credit rating agencies have been rerating Japanese corporations to make it easier to discern quality Japanese companies. Cross-shareholding between corporations for business relationship purposes has gradually declined over the past 10 years to an estimated 45% in 1997, while the proportion of listed stocks held by investment entities (pension 4 funds, individuals, foreigners, and investment trusts) has increased by 9% during the same period. The increasing incidence of share buybacks and the introduction of management stock option incentive schemes are steps in the right direction. While these developments do not mean that Japan will transform itself overnight, the paralysis in thinking, which has deemed this a "lost decade," is under pressure like never before. The increasing focus on shareholder value, the greater alignment of management's interests with those of their companies, and a renewed focus on meeting financial targets are the most encouraging signs that the long period of underperformance of the Japanese market may be drawing to a close. Respectfully submitted, /s/ Martin G. Wade Martin G. Wade President May 20, 1998 5 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- - -------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 4/30/98 --------------------------------------------------------------------------- Sony 4.4% ........................................................................... NEC 4.2 ........................................................................... TDK 4.0 ........................................................................... Canon 3.7 ........................................................................... Mitsui Fudosan 3.3 --------------------------------------------------------------------------- Marui 3.3 ........................................................................... NTT Data 3.3 ........................................................................... Sankyo 3.2 ........................................................................... Matsushita Electric Industrial 3.0 ........................................................................... Denso 2.9 --------------------------------------------------------------------------- Ito-Yokado 2.9 ........................................................................... Nomura Securities 2.7 ........................................................................... Shin-Etsu Chemical 2.7 ........................................................................... Kyocera 2.7 ........................................................................... Murata Manufacturing 2.6 --------------------------------------------------------------------------- Nippon Telephone & Telecom 2.6 ........................................................................... Daiichi Pharmaceutical 2.1 ........................................................................... Sumitomo Electric Industries 2.1 ........................................................................... East Japan Railway 2.1 ........................................................................... Hitachi 2.0 --------------------------------------------------------------------------- Toppan Printing 2.0 ........................................................................... Kao 2.0 ........................................................................... Mitsubishi Heavy Industries 1.8 ........................................................................... Sekisui Chemical 1.6 ........................................................................... Kuraray 1.6 --------------------------------------------------------------------------- Total 68.8% 6 T. ROWE PRICE JAPAN 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. JAPAN FUND - -------------------------------------------------------------------------------- Date TSE First Section Index Lipper Japan Funds Average Japan Fund ---- ----------------------- -------------------------- ---------- 12/30/91 10000 10000 10000 Apr-92 7199 7995 8860 Apr-93 10609 10777 11160 Apr-94 11500 11930 12434 Apr-95 11539 11358 11576 Apr-96 11900 12296 12421 Apr-97 8266 9136 9920 Apr-98 6738 7626 8241 [GRAPH APPEARS 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 4/30/98 1 Year 3 Years 5 Years Inception Date - -------------------------------------------------------------------------------- Japan Fund -16.92% -10.71% -5.88% -3.01% 12/30/91 ................................................................................ Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. 7 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - --------------------------------------------------------------------------------
6 Months Year Ten Months++ 12/30/91 Ended Ended Ended to 4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92 NET ASSET VALUE Beginning of period $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64 $ 10.00 ................................................................................................... Investment activities Net investment income (0.01) (0.03) (0.05) (0.04) (0.06)* (0.05)* (0.01)* Net realized and unrealized gain (loss) (0.94) (1.02) (0.32) (1.40) 0.97 2.99 (1.35) ................................................................................................... Total from investment activities (0.95) (1.05) (0.37) (1.44) 0.91 2.94 (1.36) ................................................................................................... Distributions Net realized gain -- -- -- (0.81) (0.85) -- -- ................................................................................................... NET ASSET VALUE End of period $ 7.02 $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64 --------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Total return (11.92)% (11.64)% (3.94)% (12.87)% 9.25%* 33.72%* (13.40)%* .................................................................................................................................... Ratio of expenses to average net assets 1.27%+ 1.24% 1.32% 1.50% 1.50%* 1.50%*+ 1.50%* .................................................................................................................................... Ratio of net investment income to average net assets (0.22)%+ (0.39) (0.48)% (0.48)% (0.68)%* (0.58)%*+ (0.22)%* .................................................................................................................................... Portfolio turnover rate 36.4% 32.3% 29.8% 62.4% 61.5% 61.4%+ 41.6% .................................................................................................................................... Average commission rate paid $ 0.0262 $ 0.0457 $ 0.0540 $ -- $ -- $ -- $ -- .................................................................................................................................... Net assets, end of period (in thousands) $152,353 $170,830 $167,118 $181,383 $203,303 $ 87,163 $ 45,792 ....................................................................................................................................
* Excludes expenses in excess of a 1.50% voluntary expense limitation in effect through 12/31/95. + Annualized. ++ The fund's fiscal year-end was changed to 10/31. The accompanying notes are an integral part of these financial statements. 8 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited April 30, 1998 - ------------------------ PORTFOLIO OF INVESTMENTS Shares/Par Value - -------------------------------------------------------------------------------- In thousands JAPAN 95.0% Common Stocks 95.0% Capital Equipment 37.2% Apollo Electronics 17,000 $ 128 .......................................................................... Canon 240,000 5,676 .......................................................................... Daiwa House 214,000 1,730 .......................................................................... Denso 253,000 4,349 .......................................................................... Disco 8,000 230 .......................................................................... Fanuc 18,500 682 .......................................................................... Fuji Machine 14,000 400 .......................................................................... Fujitsu 182,000 2,125 .......................................................................... Hirose Electric 9,300 470 .......................................................................... Hitachi 433,000 3,105 .......................................................................... Horiba 3,000 34 .......................................................................... KOA 6,000 59 .......................................................................... Keyence 1,100 148 .......................................................................... Komori 127,000 2,159 .......................................................................... Kyocera 78,000 4,090 .......................................................................... Lasertec 7,000 159 .......................................................................... Mabuchi Motor 6,500 376 .......................................................................... Matsushita Communication Industrial 67,000 1,980 .......................................................................... Mitsubishi Heavy Industries 753,000 2,788 .......................................................................... Murata Manufacturing 137,000 4,017 .......................................................................... NEC 568,000 6,395 .......................................................................... National House Industrial 62,000 504 .......................................................................... Nichicon 7,000 76 .......................................................................... Nidec 6,800 365 .......................................................................... Nippon Denwa Shisetsu 39,000 164 .......................................................................... Rohm 20,000 2,258 .......................................................................... Seiko 12,000 49 .......................................................................... Shinkawa 12,600 219 .......................................................................... Sumitomo Electric Industries 272,000 3,241 .......................................................................... TDK 78,000 6,165 .......................................................................... Toa Medical Electronics 31,000 271 .......................................................................... Tokyo Electronics 57,000 2,240 .......................................................................... Zuiko 13,000 97 .......................................................................... Total Capital Equipment (Cost $66,340) 56,749 .............. 9 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Consumer Goods 23.0% Asahi Breweries 145,000 $ 1,899 ........................................................................... Citizen Watch 173,000 1,163 ........................................................................... Daiichi Pharmaceutical 227,000 3,257 ........................................................................... FCC 25,000 234 ........................................................................... Hokuto 4,400 120 ........................................................................... Honda Motor 31,000 1,124 ........................................................................... Hoya 12,000 397 ........................................................................... Kao 207,000 3,042 ........................................................................... Kawasumi Laboratories 36,000 562 ........................................................................... Kirin Beverage 15,000 294 ........................................................................... Matsushita Electric Industrial 286,000 4,582 ........................................................................... Pioneer Electronic 140,000 2,296 ........................................................................... Rohto Pharmaceutical 40,000 325 ........................................................................... Sankyo 194,000 4,808 ........................................................................... Santen Pharmaceutical 7,000 70 ........................................................................... Sharp 133,000 1,045 ........................................................................... Shiseido 121,000 1,596 ........................................................................... Sony 80,800 6,722 ........................................................................... Takeda Chemical Industries 50,000 1,428 ........................................................................... Total Consumer Goods (Cost $36,283) 34,964 .............. Financial 7.8% Mitsui Fudosan 557,000 5,084 ........................................................................... Nichiei 4,950 385 ........................................................................... Nomura Securities 341,000 4,161 ........................................................................... Promise 6,400 325 ........................................................................... Shohkoh Fund 600 191 ........................................................................... Tachihi Enterprise 4,000 95 ........................................................................... Toc 25,750 239 ........................................................................... Tokio Marine & Fire Insurance 128,000 1,393 ........................................................................... Total Financial (Cost $14,823) 11,873 .............. Materials 6.6% Chofu Seisakusho 2,500 37 ........................................................................... Fujimi 5,500 221 ........................................................................... Kuraray 286,000 2,416 ........................................................................... Noritsu Koki 10,000 298 ........................................................................... Sekisui Chemical 451,000 2,478 ........................................................................... Shin-Etsu Chemical 212,000 4,133 ........................................................................... Teijin 168,000 480 ........................................................................... Total Materials (Cost $12,897) 10,063 .............. 10 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Services 20.4% Circle K Japan 5,660 $ 233 ........................................................................... Computer Engineering & Consulting 6,000 80 ........................................................................... East Japan Railway 639 3,187 ........................................................................... Fuji Soft ABC 2,100 75 ........................................................................... Ito-Yokado 84,000 4,348 ........................................................................... Japan Airport Terminal 3,000 19 ........................................................................... Marui 315,000 4,975 ........................................................................... Marukyo 18,000 103 ........................................................................... Matsumotokiyoshi 7,300 252 ........................................................................... Meitec 7,600 250 ........................................................................... Mitsubishi 219,000 1,655 ........................................................................... NTT Data 115 4,971 ........................................................................... Nippon Telephone & Telecom 447 3,918 ........................................................................... Otsuka Kagu 1,900 87 ........................................................................... Paris Miki 16,600 267 ........................................................................... Ryohin Keikaku 2,100 179 ........................................................................... Sumitomo 407,000 2,337 ........................................................................... Toppan Forms 29,000 348 ........................................................................... Toppan Printing 256,000 3,043 ........................................................................... Uny 45,000 724 ........................................................................... Watami Food Service 4,000 83 ........................................................................... Total Services (Cost $33,995) 31,134 .............. Total Common Stocks (Cost $ 164,338) 144,783 .............. Total Japan (Cost $164,338) 144,783 .............. SHORT-TERM INVESTMENTS 5.5% Money Market Funds 5.5% Reserve Investment Fund, 5.65% 8,308,718 8,309 ........................................................................... Total Short-Term Investments (Cost $8,309) 8,309 .............. Total Investments in Securities 100.5% of Net Assets (Cost $172,647) $ 153,091 Other Assets Less Liabilities (738) .............. NET ASSETS $ 152,353 -------------- The accompanying notes are an integral part of these financial statements. 11 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited April 30, 1998 - ----------------------------------- STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value (cost $172,647) $ 153,091 Securities lending collateral pool 9,819 Other assets 9,148 .............. Total assets 172,058 .............. Liabilities Securities lending collateral 9,819 Other liabilities 9,886 .............. Total liabilities 19,705 .............. NET ASSETS $ 152,353 -------------- Net Assets Consist of: Accumulated net investment income - net of distributions $ (174) Accumulated net realized gain/loss - net of distributions (44,169) Net unrealized gain (loss) (19,586) Paid-in-capital applicable to 21,713,521 shares of $0.01 par value capital stock outstanding; 2,000,000,000 shares of the Corporation authorized 216,282 .............. NET ASSETS $ 152,353 -------------- NET ASSET VALUE PER SHARE $ 7.02 -------------- The accompanying notes are an integral part of these financial statements. 12 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited - ----------------------- STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- In thousands 6 Months Ended 4/30/98 Investment Income Income Dividend (net of foreign taxes of $ 107) $ 605 Interest 247 .............. Total income 852 .............. Expenses Investment management 664 Shareholder servicing 224 Custody and accounting 84 Prospectus and shareholder reports 21 Registration 18 Legal and audit 9 Directors 3 Miscellaneous 3 .............. Total expenses 1,026 .............. Net investment income (174) .............. Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities (32,649) Foreign currency transactions (339) .............. Net realized gain (loss) (32,988) .............. Change in net unrealized gain or loss Securities 12,236 Other assets and liabilities denominated in foreign currencies (21) .............. Change in net unrealized gain or loss 12,215 .............. Net realized and unrealized gain (loss) (20,773) .............. INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (20,947) -------------- The accompanying notes are an integral part of these financial statements. 13 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited - ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 4/30/98 10/31/97 Increase (Decrease) in Net Assets Operations Net investment income $ (174) $ (691) Net realized gain (loss) (32,988) (6,749) Change in net unrealized gain or loss 12,215 (13,653) ........................... Increase (decrease) in net assets from operations (20,947) (21,093) ........................... Capital share transactions* Shares sold 117,302 216,647 Shares redeemed (114,832) (191,842) ........................... Increase (decrease) in net assets from capital share transactions 2,470 24,805 ........................... Net Assets Increase (decrease) during period (18,477) 3,712 Beginning of period 170,830 167,118 ........................... End of period $ 152,353 $ 170,830 --------------------------- *Share information Shares sold 16,255 24,169 Shares redeemed (15,981) (21,257) ........................... Increase (decrease) in shares outstanding 274 2,912 The accompanying notes are an integral part of these financial statements. 14 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- Unaudited April 30, 1998 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price International Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940. The Japan Fund (the fund), a diversified, open-end management investment company, is one of the portfolios established by the corporation and commenced operations on December 30, 1991. 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. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Investments in open-end mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. 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 15 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- 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. Securities Lending The fund lends its securities to approved brokers to earn additional income and receives cash and U.S. Treasury securities as collateral against the loans. Cash collateral received is invested in a money market pooled account by the fund's lending agent. Collateral is maintained over the life of the loan in an amount not less than 100% of the value of loaned securities. 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 them. At April 30, 1998, the value of loaned securities was $9,500,000; aggregate collateral consisted of $9,819,000 in the securities lending collateral pool and U.S. Treasury securities valued at $263,000. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $58,396,000 and $56,944,000, respectively, for the six months ended April 30, 1998. NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund has unused realized capital loss carryforwards for federal income tax purposes of $11,181,000, of which $2,717,000 expires in 2003, $2,049,000 in 2004, and $6,415,000 in 2005. The fund intends to retain gains realized in future periods that may be offset by available capital loss carryforwards. 16 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- At April 30, 1998, the aggregate cost of investments for federal income tax and financial reporting purposes was $172,647,000, and net unrealized loss aggregated $19,556,000, of which 3,421,000 related to appreciated investments and $22,977,000 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 $103,000 was payable at April 30, 1998. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.50% 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 April 30, 1998, and for the six months then ended, the effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $203,000 for the six months ended April 30, 1998, of which $38,000 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 17 T. ROWE PRICE JAPAN FUND - -------------------------------------------------------------------------------- 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 3.6 % of the outstanding shares of the Japan Fund at April 30, 1998. For the six months then ended, the fund was allocated $18,000 of Spectrum expenses, $3,000 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 six months ended April 30, 1998, totaled $229,000 and are reflected as interest income in the accompanying Statement of Operations. During the six months ended April 30, 1998, the fund, in the ordinary course of business, placed security purchase and sale orders aggregating $5,373,000 with certain affiliates of the manager and paid commissions of $13,000 related thereto. 18 T. ROWE PRICE SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET. In Person Available in T. Rowe Price Investor Centers. ACCOUNT SERVICES Checking Available on most fixed income funds ($500 minimum). Automatic Investing From your bank account or paycheck. Automatic Withdrawal Scheduled, automatic redemptions. Distribution Options Reinvest all, some, or none of your distributions. Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price Web site on the Internet. Address: www.troweprice.com DISCOUNT BROKERAGE* Individual Investments Stocks, bonds, options, precious metals, and other securities at a savings over regular commission rates. INVESTMENT INFORMATION Combined Statement Overview of all your accounts with T. Rowe Price. Shareholder Reports Fund managers' reviews of their strategies and results. T. Rowe Price Report Quarterly investment newsletter discussing markets and financial strategies. Performance Update Quarterly review of all T. Rowe Price fund results. Insights Educational reports on investment strategies and financial markets. Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A Guide to International Investing, Personal Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit. *A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC. 19 T. ROWE PRICE MUTUAL FUNDS - -------------------------------------------------------------------------------- STOCK FUNDS ................................................................................ Domestic Blue Chip Growth Capital Appreciation Capital Opportunity Diversified Small-Cap Growth Dividend Growth Equity Income Equity Index 500* Extended Equity Market Index Financial Services Growth & Income Growth Stock Health Sciences Media & Telecommunications** Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons*** Real Estate Science & Technology Small-Cap Stock Small-Cap Value*** Spectrum Growth Total Equity Market Index Value International/Global Emerging Markets Stock European Stock Global Stock International Discovery International Stock Japan Latin America New Asia Spectrum International BOND FUNDS ................................................................................ Domestic Taxable Corporate Income GNMA High Yield New Income Short-Term Bond Short-Term U.S. Government Spectrum Income Summit GNMA Summit Limited-Term Bond U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-Free California Tax-Free Bond Florida Insured Intermediate Tax-Free Georgia Tax-Free Bond Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Insured Intermediate Bond Tax-Free Short-Intermediate Virginia Short-Term Tax-Free Bond Virginia Tax-Free Bond International/Global Emerging Markets Bond Global Bond+ International Bond MONEY MARKET FUNDS++ ................................................................................ Taxable Prime Reserve Summit Cash Reserves U.S. Treasury Money Tax-Free California Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money BLENDED ASSET FUNDS ................................................................................ Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced T. ROWE PRICE NO-LOAD VARIABLE ANNUITY ................................................................................ Equity Income Portfolio International Stock Portfolio Limited-Term Bond Portfolio Mid-Cap Growth Portfolio New America Growth Portfolio Personal Strategy Balanced Portfolio Prime Reserve Portfolio *Formerly named Equity Index. **Formerly the closed-end New Age Media Fund. Converted to open-end status on 7/28/97. ***Closed to new investors. +Formerly named Global Government Bond. ++Neither the funds nor their share prices are insured or guaranteed by the U.S. government. Please call for a prospectus. Read it carefully before investing. The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price refers to the underlying portfolios' investment managers and the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of Companies and the T. Rowe Price companies are not affiliated. The variable annuity may not be available in all states. The contract has limitations. Call a representative for costs and complete details of the coverage. 20 T. ROWE PRICE DISCOUNT BROKERAGE - -------------------------------------------------------------------------------- DISCOUNT BROKERAGE A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC This low-cost service gives you the opportunity to easily consolidate all your investments with one company. Through T. Rowe Price Discount Brokerage, you can buy and sell individual securities--stocks, bonds, options, and others--as well as mutual funds at considerable commission savings over full-service brokers.* We also provide a wide range of services, including: Automated Telephone and Internet Services You can enter trades, access quotes, and review account information 24 hours a day, seven days a week. Any trades executed through these programs provide additional savings on commissions.** Investor Information A variety of informative reports, such as our Brokerage Insights series, S&P Market Month newsletter, and select stock reports, can help you better evaluate economic trends and investment opportunities. Dividend Reinvestment Service Virtually all stocks held in customer accounts are eligible for this service, free of charge. *Based on an April 1998 survey for representative-assisted stock trades. Services vary by firm, and commissions may vary by size of order. **Discount applies to our current commission schedule. All trades subject to a $35 minimum commission except equity trades placed through Internet-Trader, which are subject to a $29.95 minimum commission. 21 For yield, price, last transaction, current balance, or to conduct transactions, 24 hours, 7 days a week, call Tele*Access(R): 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 Japan 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 LOGO APPEARS HERE] T. Rowe Price Investment Services, Inc., Distributor. -----END PRIVACY-ENHANCED MESSAGE-----