<PAGE>
FELLOW SHAREHOLDERS
MARKET ENVIRONMENT
The favourable bond market conditions experienced in 1993 continued into the
first month of the new year. In the next five months, however, the trend
reversed. Global bond market yields rose sharply and prices declined.
The trigger for the sell-off in global bonds was the decision by the U.S.
central bank to raise the federal funds rate (a key short-term rate controlled
by the Fed) on February 4. The increase from 3.0% to 3.25% was modest, and the
real damage to bond markets ensued two weeks later when Federal Reserve
Chairman Greenspan testified before Congress that the Fed was concerned over
the potential for rising inflation, adding that short-term interest rates
might have to rise even further to prevent that from happening.
In the face of continued strong U.S. economic growth, the fed funds rate was
raised on three additional occasions between March and the end of June. The
increases clearly brought to an end the accommodative monetary policy the
Federal Reserve had pursued for the past five years. The U.S. bond market
continued its sell-off, and most other bond markets followed suit.
When the fed funds rate hit 4.25%, it appeared as if the Federal Reserve's
desired "neutral" ground had been reached. The effort to preempt a rise in
inflation began to have a stabilising effect on world government bond markets
during the latter part of the second quarter.
Even though central banks in most other countries were cutting short-term
interest rates, yields on longer-term bonds rose anywhere from one percentage
point (100 basis points) to more than two and one-half percentage points (250
basis points) before settling down toward the end of the second quarter.
The Bank of Japan cut a key short-term rate to help boost the economy, but
yields on 10-year Government bonds rose anyway during the global sell-off.
The UK economy began to recover last year but, faced with tighter fiscal
policy, the Bank of England cut official interest rates in February. Concern
over the prudence of this move to lower interest rates led to an erosion of
confidence in the UK Government bond market where yields on bonds with 10-year
maturities rose 200 basis points.
In the smaller dollar-bloc countries of Australia, Canada and New Zealand,
long-term interest rates rose sharply over the first half of the year in
response to events in the U.S.
WORLD GOVERNMENT BOND
MARKET PERFORMANCE
3 Months Ended 12 Months Ended
6/30/94 6/30/94
---------------- ----------------
In Local In U.S. In Local In U.S.
Currency Dollars Currency Dollars
---------------------------------
Australia -4.88% -0.85% -2.96% 6.58%
Belgium -1.64 3.34 2.64 9.59
Canada -4.07 -4.00 -1.69 -8.75
Denmark -3.91 0.90 0.47 5.41
France -3.03 1.28 2.64 7.99
Germany -0.95 3.90 4.92 12.33
Italy -4.11 -2.56 9.83 7.39
Japan -0.83 3.30 5.40 13.74
Netherlands -2.29 2.74 2.88 10.14
Spain -3.83 -0.52 7.10 5.96
Sweden -4.91 -3.87 1.27 1.92
United Kingdom -4.27 -0.47 1.76 5.06
United States -0.97 -0.97
- ------------------------------------------------
Source: J.P. Morgan
<PAGE>
The most positive background for government bonds lay in Continental Europe
where economies just barely coming out of recessions looked forward to the
prospect of lower short-term interest rates and subdued inflation. In Germany,
for instance, yields on three-month notes fell one and a half percentage
points. Despite the fact that short-term interest rates declined and inflation
remained under control, bond yields rose, and European government bond markets
performed as badly as their U.S. counterparts. Again using Germany as an
example, the yield on a 10-year bond rose by one and a half percentage points.
Since the rise in inflation failed to materialize, there was a significant
rise in real bond yields also.
The worst performers during the period were those markets where leveraged
and "hedge" fund positions were most pronounced and where governments were
borrowing heavily to finance their budget deficits. In local currency terms,
they were Sweden, Australia, the UK, and Italy.
At the beginning of the year, the consensus view was for a stronger U.S.
dollar in the first half of 1994, and most bond investors had heavy exposure
to the dollar. The demand for capital in Europe and the repatriation of assets
back to Japan created demand for both the yen and European currencies,
particularly the deutschemark. As this demand increased, the dollar weakened.
Concern over U.S. monetary policy, certain Administration policies, and a
widening trade deficit also contributed to the dollar's decline. During the
first half of 1994, the major currencies which gained against the dollar are
shown below.
CURRENCY PERFORMANCE
Currency % Appreciation vs. U.S. $
-------------------------
Japanese Yen 12.8%
Belgian Franc 10.1
German Mark 8.9
- ---------------------------------------
The Canadian dollar was the only major currency to register a decline against
its U.S. counterpart.
PERFORMANCE REVIEW
The International Bond Fund had a disappointing first half in both absolute
terms and relative to the J.P. Morgan Index. Compared to a combination of
dollar and nondollar asset performance, the portfolio performed reasonably
well. Most of the negative results occurred in the first quarter because the
Fund's relatively longer duration caused a greater principal decline when
rates began to rise.
PERFORMANCE COMPARISON
Periods Ended
6/30/94
3 Months 6 Months
-----------------
International Bond Fund 0.30% -2.29%
J.P. Morgan Non-U.S. Dollar
Government Bond Index 1.31 2.50
- ---------------------------------------------
We continued to emphasise the bond markets of Europe where short-term rates
still have room to decline in response to lower inflation and weak growth.
However, as mentioned earlier, these markets provided no respite in the global
bond market sell-off between February and May.
The major positive contributions to performance came from the high currency
weighting in the yen throughout the first half and the significantly increased
exposure to the mark during the second quarter. We sold Japanese bonds toward
the end of the second quarter, but purchased forward currency exchange
contracts to help maintain a large yen weighting. We also purchased hybrid
instruments (which are listed in the portfolio following this letter) in order
to enhance the return while limiting the potential for principal loss. These
investments, which are included in the derivative category featured
prominently in the financial press, are not used in a speculative manner and
currently represent less than 5% of total assets. We also reduced the
portfolio's duration over the quarter, ending the period only slightly longer
than the relevant index.
SECURITY DIVERSIFICATION CHART: a pie chart showing the percentage breakdown
of assets---Government bonds 76%, corporate bonds 9.1%, short-term investments
7.3%, hybrid notes 4.9%, other 2.7%.
<PAGE>
OUTLOOK
The unwinding of the speculative, leveraged bond positions which were
established in late 1993 have left bond markets at attractive real and nominal
interest rate levels.
The steep rise in bond yields partially discounts future inflationary
concerns as expectations for the course of short rates, as reflected by
futures markets, appear unduly pessimistic. Central banks have not had to
react to inflationary pressures through official interest rate increases as
such pressures have yet to occur in any major economy. The spare capacity in
global economies has not resulted in tightening labour markets and resultant
upward pressure on wages, although increased demand as economies began to
recover has produced a modest rebound in commodity prices.
It is difficult to envisage significant tightening of monetary policy, which
could restrain economic recovery at a time when capital markets will be
demanding more prudent fiscal policies from governments. Governments generally
cannot choose at this point to use fiscal stimulus as a way to escape from
their economic problems. Japan is the major exception. The Bank of Japan has
also assisted the recovery process by reducing cash, or the very shortest-term
interest rates such as those charged on overnight loans. This has provided
liquidity to the Japanese economy at a time when banks were unwilling or
unable to lend.
The U.S. may be reestablishing its credibility by taking action to contain
future inflation, and this proactive stance may have a positive effect on
intermediate and long maturity securities.
The recent strength of the German mark provides room for further easing of
rates by the Bundesbank, particularly as money growth and inflation edge
downward. European government bond markets with high real (inflation-adjusted)
yields should continue to attract domestic investors.
The worst may be behind bond markets for 1994, but the spectacular returns
of 1993 are also unlikely. A more stable environment is expected, and markets
with the greatest liquidity are likely to provide the best returns.
Most of the dollar's weakness may have occurred already but fundamentals
such as the trade deficit are hardly supportive of a stronger dollar.
Therefore, capital flows are likely to remain skewed to nondollar markets.
In summary, with better bond market prospects in Europe, attractive real
yields in a number of markets, and a more stable currency environment, the
outlook for global bond investors should be more favourable in the second half
of 1994.
Respectfully submitted,
SIGNATURE
Peter Askew
Executive Vice President
July 25, 1994
<PAGE>
STATISTICAL HIGHLIGHTS
T. ROWE PRICE INTERNATIONAL BOND FUND / JUNE 30, 1994
KEY STATISTICS*
Periods
Dividend Yield Ended 6/30/94
- ---------------------------------------------------
7 Days 6.21%
3 Months 6.39
6 Months 6.52
Dividend Per Share
- -------------------------------------
3 Months $0.15
6 Months 0.31
Change in Price Per Share
- -------------------------------------
From March 31, 1994, to June 30, 1994 -1.21%
(From $9.91 to $9.79)
From Dec. 31, 1993, to June 30, 1994 -5.32
(From $10.34 to $9.79)
- ---------------------------------------------------
NET ASSETS $760.6 mil.
- ---------------------------------------------------
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
MATURITY DIVERSIFICATION
Percent of Net
Assets
Range 3/31/94 6/30/94
- -----------------------------------------
Short-Term (0 to 1 year) 13% 15%
Short Intermediate-Term
(1+ to 5 years) 27 34
Long Intermediate-Term
(5+ to 10 years) 27 40
Long-Term
(over 10 years) 33 11
- -----------------------------------------
WEIGHTED AVERAGE
MATURITY 9.7 YRS. 7.4 YRS.
- -----------------------------------------
QUALITY DIVERSIFICATION
Percent of Net
Assets
RPFI Quality Rating* 3/31/94 6/30/94
- ----------------------- -------- --------
1 32% 57%
2 51 33
3 4 6
4 & below 13 4
- -----------------------------------------
WEIGHTED AVERAGE
QUALITY 1.6 1.4
- -----------------------------------------
*On a scale of 1 to 10, with Grade 1 representing highest quality.
GEOGRAPHICAL DIVERSIFICATION
June 30, 1994
Portfolio
Holdings-
Local Net
Market Currency
Country/Currency Terms Exposure
- -------------------------------------
Germany 11.6% 25.5%
Japan 17.8 24.2
France 10.4 10.4
Italy 9.9 8.0
United Kingdom 8.5 7.7
Canada 3.5 4.9
Denmark 4.4 4.4
Netherlands 3.8 3.8
Australia 4.3 3.4
Belgium 3.5 2.4
United States 5.7 1.6
Austria 1.6 1.6
Greece 1.5 1.5
Turkey 1.2 1.2
Mexico 0.6 0.5
Portugal 1.0 0.2
Spain 3.5 0.1
Ireland 1.9 (0.1)
Sweden 2.9 (2.5)
Total 97.6 98.8
Other Assets
Less Liabilities 2.4 1.2
- -------------------------------------
Net Assets 100.0% 100.0%
- -------------------------------------
Holdings expressed in local market terms have been adjusted to reflect
currency holdings and the use of currency hedges (forward currency exchange
contracts) to produce the net currency exposure of the portfolio.
<PAGE>
PORTFOLIO OF INVESTMENTS[DAGGER] (VALUE IN THOUSANDS)
T. ROWE PRICE INTERNATIONAL BOND FUND / JUNE 30, 1994 (UNAUDITED)
AUSTRALIA -- 4.3%
Value
--------
GOVERNMENT BONDS
AUD 15,000,000 Commonwealth of Australia, 6.25%, 3/15/99........ $9,811
35,000,000 Commonwealth of Australia, 7.00%, 4/15/00........ 23,019
TOTAL AUSTRALIA 32,830
AUSTRIA -- 1.6%
GOVERNMENT BONDS
ATS 60,000,000 Republic of Austria, 5.75%, 3/22/99.............. 5,168
50,000,000 Republic of Austria, 8.50%, 2/21/01.............. 4,718
25,000,000 Republic of Austria, 6.75%, 5/17/01.............. 2,203
TOTAL AUSTRIA 12,089
BELGIUM -- 3.5%
GOVERNMENT BONDS
BEL 150,000,000 Obligation Lineaire, 10.00%, 8/2/00.............. 5,163
150,000,000 Obligation Lineaire, 9.00%, 3/28/03.............. 4,895
400,000,000 Obligation Lineaire, 7.25%, 4/29/04.............. 11,704
21,762
SHORT-TERM INVESTMENT
155,339,009 Chase Manhattan Bank, Fixed Deposit, 4.75%,
7/1/94......................................... 4,762
TOTAL BELGIUM 26,524
CANADA -- 3.5%
GOVERNMENT BONDS
CAD 20,000,000 Government of Canada, 4.75%, 3/15/96............. 13,663
10,000,000 Government of Canada, 5.75%, 3/1/99.............. 6,397
10,000,000 Province of British Columbia, 8.75%, 8/19/22..... 6,592
TOTAL CANADA 26,652
DENMARK -- 4.4%
GOVERNMENT BONDS
DKK 20,000,000 Kingdom of Denmark, 9.00%, 11/15/98.............. 3,326
DKK 70,000,000 Mortgage Bank of Denmark, 6.625%, 9/16/98 $10,675
14,001
CORPORATE BONDS
50,000,000 Great Belt, Zero Coupon, 4/2/03.................. 3,880
29,370,000 Nykredit Mortgage Bonds, 6.00%, 10/1/26.......... 3,572
7,452
SHORT-TERM INVESTMENT
76,286,293 Chase Manhattan Bank, Fixed Deposit, 5.375%,
7/5/94......................................... 12,233
TOTAL DENMARK 33,686
FRANCE -- 10.4%
GOVERNMENT BONDS
FRF 50,000,000 Bons du Tresor Annuel, 8.00%, 5/12/98............ 9,550
50,000,000 Bons du Tresor Annuel, 5.75%, 11/12/98........... 8,817
200,000,000 Obligation Assimilable du Tresor, 6.75%, 10/25/03 34,914
75,000,000 Obligation Assimilable du Tresor, 8.50%, 4/25/23. 14,392
67,673
OPTION WRITTEN
112,000,000 Obligation Assimilable du Tresor Put, 8.50%,
4/25/23, exp. 9/19/94.......................... (294)
SHORT-TERM INVESTMENT
62,256,138 Chase Manhattan Bank, Fixed Deposit, 5.25%,
7/5/94......................................... 11,451
TOTAL FRANCE 78,830
GERMANY -- 11.6%
GOVERNMENT BONDS
DEM 10,000,000 Bundesobligation, 6.00%, 6/20/16................. 5,236
46,000,000 Bundesobligation, 6.25%, 1/4/24.................. 24,486
20,000,000 Treuhandanstalt, 6.125%, 3/26/98................. 12,497
10,000,000 Treuhandanstalt, 6.125%, 6/25/98................. 6,244
60,000,000 Treuhandanstalt, 7.75%, 10/1/02.................. 39,086
87,549
OPTION PURCHASED
DEM 32,500,000 *Treuhandanstalt Call, 6.875%, 6/11/03, exp.
7/18/94 $252
TOTAL GERMANY 87,801
GREECE -- 1.5%
CORPORATE BONDS
GRD 1,125,000,000 Abbey National, 15.75%, 5/16/97.................. 4,118
1,852,500,000 Bankers' Trust, 17.375%, 3/7/97.................. 7,051
TOTAL GREECE 11,169
IRELAND -- 1.9%
GOVERNMENT BOND
IEP 9,315,000 Republic of Ireland, 8.75%, 7/27/97.............. 14,453
ITALY -- 9.9%
GOVERNMENT BONDS
ITL 17,500,000,000 Buoni del Tesoro Poliennali, 12.00%, 9/1/97...... 11,417
15,000,000,000 Buoni del Tesoro Poliennali, 12.00%, 1/1/98...... 9,777
37,000,000,000 Buoni del Tesoro Poliennali, 10.00%, 8/1/98...... 23,069
37,000,000,000 Buoni del Tesoro Poliennali, 8.50%, 1/1/99....... 21,825
11,250,000,000 Buoni del Tesoro Poliennali, 9.00%, 10/1/03...... 6,546
72,634
SHORT-TERM INVESTMENT
4,440,666,499 Chase Manhattan Bank, Fixed Deposit, 7.875%,
7/1/94......................................... 2,812
TOTAL ITALY 75,446
JAPAN -- 17.8%
GOVERNMENT BONDS
JPY 2,000,000,000 Buoni del Tesoro Poliennali, 3.50%, 6/20/01...... 18,987
2,000,000,000 Government of Japan, 5.50%, 3/20/02.............. 21,851
2,700,000,000 International Bank for Reconstruction &
Development, 5.25%, 3/20/02.................... 28,881
1,950,000,000 Republic of Austria, 5.00%, 1/22/01 $20,595
1,000,000,000 Republic of Austria, 6.25%, 10/16/03............. 11,363
101,677
CORPORATE BONDS
1,000,000,000 Japan Development Bank, 5.00%, 10/1/99........... 10,605
2,000,000,000 Japan Development Bank, 6.50%, 9/20/01........... 22,801
33,406
TOTAL JAPAN 135,083
MEXICO -- 0.6%
SHORT-TERM INVESTMENT
MXN 16,120,000 Banco Nacional de Mexico, 14.397%, 8/1/94........ 4,691
NETHERLANDS -- 3.8%
GOVERNMENT BONDS
NLG 20,000,000 Government of Netherlands, 6.25%, 7/15/98........ 11,172
20,000,000 Government of Netherlands, 7.00%, 8/15/99........ 11,381
10,000,000 Government of Netherlands, 8.25%, 9/15/07........ 6,056
TOTAL NETHERLANDS 28,609
PORTUGAL -- 1.0%
GOVERNMENT BONDS
PTE 300,000,000 Eurofima, 13.875%, 6/20/96....................... 1,862
100,000,000 European Coal & Steel Community, 11.128%, 4/22/97 592
150,000,000 European Investment Bank, 13.00%, 7/24/96........ 915
100,000,000 European Investment Bank, 12.50%, 2/24/98........ 610
100,000,000 European Investment Bank, 8.875%, 12/15/98....... 541
200,000,000 European Investment Bank, 10.40%, 5/26/99........ 1,144
100,000,000 International Bank for Reconstruction &
Development, 11.50%, 2/28/97................... 592
250,000,000 International Finance Corporation, 12.00%,
10/17/96....................................... 1,502
TOTAL PORTUGAL 7,758
SPAIN -- 3.5%
GOVERNMENT BONDS
ESP 3,000,000,000 Bonos del Estado, 10.25%, 11/30/98 $22,762
500,000,000 Bonos del Estado, 8.00%, 5/30/04................. 3,218
100,000,000 European Investment Bank, 11.85%, 8/21/94........ 763
TOTAL SPAIN 26,743
SWEDEN -- 2.9%
CORPORATE BONDS
SEK 100,000,000 Stadshypotekassan, 9.00%, 6/17/98................ 12,605
35,000,000 Swedish Telecom, 14.50%, 1/17/95................. 4,690
17,295
HYBRID INSTRUMENT
50,000,000 Abbey National, 7.50%, 11/3/94 - principal
repayment value inversely indexed to yield to
maturity of a medium-term Swedish bond......... 4,908
TOTAL SWEDEN 22,203
TURKEY -- 1.2%
SHORT-TERM INVESTMENT
TRL 345,534,414,001 Bankers' Trust, 25.00%, 8/26/94.................. 9,331
UNITED KINGDOM -- 8.5%
GOVERNMENT BONDS
GBP 1,500,000 Municipality Finance, 9.50%, 6/12/97............. 2,399
4,000,000 United Kingdom Treasury, 7.00%, 8/6/97........... 6,110
10,000,000 United Kingdom Treasury, 7.00%, 11/6/01.......... 14,096
10,000,000 United Kingdom Treasury, 8.00%, 6/10/03.......... 14,754
5,780,000 United Kingdom Treasury, 9.50%, 4/18/05.......... 9,389
10,000,000 United Kingdom Treasury, 7.75%, 9/8/06........... 14,377
2,500,000 United Kingdom Treasury, 8.50%, 7/16/07.......... 3,812
TOTAL UNITED KINGDOM 64,937
UNITED STATES -- 5.7%
HYBRID INSTRUMENTS
USD 2,500,000 Abbey National, 4.56%, 3/24/95 - principal
repayment value inversely indexed to 3 month
USD LIBOR; minimum principal repayment equals
97% of par; maximum principal repayment equals
103% of par.................................... $2,462
7,500,000 General Electric Capital Corporation, 16.89%,
3/10/97 - floating interest rate indexed to
Mexican Cetes rate; principal repayment value
inversely indexed to Mexican Tesobono exchange
rate........................................... 7,048
5,000,000 Helaba Finance, 4.76%, 4/5/95 - principal
repayment value inversely indexed to yield to
maturity of a medium-term French bond; minimum
repayment value equals 80%of par............... 4,427
12,000,000 Helaba Finance, 4.76%, 4/5/95 - principal
repayment value inversely indexed to average
swap rate of Irish punt........................ 10,216
2,500,000 Legal & General, 3.9375%, 12/21/94 - principal
repayment value inversely indexed to 3 month
PIBOR; minimum repayment value equals 90% of
par............................................ 2,300
2,500,000 National Australia Bank, 7.0625%, 2/24/95 -
principal repayment value indexed to Japanese
yen exchange rate; minimum principal repayment
equals 90% of par.............................. 2,330
4,000,000 Swedish Export Credit, 4.33%, 3/15/95 - principal
repayment value inversely indexed to 3 month
DEM LIBOR; minimum principal repayment equals
90% of par; maximum principal repayment equals
148.7% of par.................................. 3,824
32,607
OPTION PURCHASED
USD 20,000,000 *U.S. Dollar Call / German Deutschemark Put, exp.
8/4/94......................................... $36
SHORT-TERM INVESTMENTS
602,000 Harvard University, 4.30%, 7/1/94................ 602
10,000,000 UBS Finance (Delaware), 4.35%, 7/1/94............ 10,000
10,602
TOTAL UNITED STATES 43,245
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES --
97.6% OF NET ASSETS (COST-$748,944) $742,080
- ------------------------------------------------------------------------------
[dagger] - Listed by currency denomination
* - Non-income producing
(ATS) - Austrian schilling denominated
(AUD) - Australian dollar denominated
(BEL) - Belgian franc denominated
(CAD) - Canadian dollar denominated
(CHF) - Swiss franc denominated
(DEM) - German deutschemark denominated
(DKK) - Danish krone denominated
(ESP) - Spanish peseta denominated
(FRF) - French franc denominated
(GBP) - British sterling denominated
(GRD) - Greek drachma denominated
(IEP) - Irish punt denominated
(ITL) - Italian lira denominated
(JPY) - Japanese yen denominated
(MXN) - Mexican peso denominated
(NLG) - Dutch guilder denominated
(PTE) - Portuguese escudo denominated
(SEK) - Swedish krona denominated
(TRL) - Turkish lira denominated
(USD) - U.S. dollar denominated
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
T. ROWE PRICE INTERNATIONAL BOND FUND / JUNE 30, 1994 (UNAUDITED)
Amounts in
Thousands
------------------
ASSETS
Investments in securities at value (Cost -- $748,944).... $742,080
Receivable for investment securities sold................ 39,380
Interest receivable...................................... 24,297
Other assets............................................. 26,896
---------
Total assets ............................................ $832,653
LIABILITIES
Payable for investment securities purchased.............. 53,521
Other liabilities........................................ 18,517
---------
Total liabilities ....................................... 72,038
--------
NET ASSETS CONSISTING OF:
Accumulated net investment income -- net of distributions 5,071
Accumulated realized gains/losses -- net of distributions (27,268)
Net unrealized depreciation of investments............... (5,238)
Paid-in-capital applicable to 77,706,633 shares of $0.01
par value capital stock outstanding; 2,000,000,000
shares of the Corporation authorized .................. 788,050
---------
NET ASSETS ................................................ $760,615
--------
--------
NET ASSET VALUE PER SHARE ................................. $9.79
--------
--------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
T. ROWE PRICE INTERNATIONAL BOND FUND / SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
Amounts in
Thousands
-------------------
INVESTMENT INCOME
Interest income........................................... $27,288
Expenses
Investment management fees.............................. $2,549
Shareholder servicing fees & expenses................... 661
Custodian and accounting fees & expenses................ 316
Prospectus & shareholder reports........................ 48
Registration fees & expenses............................ 33
Legal & auditing fees................................... 16
Directors' fees & expenses.............................. 10
Proxy & annual meeting expenses......................... 7
Miscellaneous expenses.................................. 10
---------
Total expenses.......................................... 3,650
---------
Net investment income..................................... 23,638
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss
Securities.............................................. (14,020)
Options................................................. (3,814)
Foreign currency transactions........................... (11,193)
---------
Net realized loss......................................... (29,027)
Change in net unrealized appreciation or depreciation
Securities.............................................. (13,091)
Options................................................. (1,127)
Other assets and liabilities denominated in foreign
currencies............................................ 2,400
---------
Change in net unrealized appreciation or depreciation..... (11,818)
---------
Net loss on investments................................... (40,845)
---------
DECREASE IN NET ASSETS FROM OPERATIONS.................... $(17,207)
---------
---------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
T. ROWE PRICE INTERNATIONAL BOND FUND (UNAUDITED)
Six Months Ended Year Ended
June 30, 1994 Dec. 31, 1993
---------------- -------------
Amounts in Thousands
------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income........................ $23,638 $41,110
Net realized gain (loss) on investments...... (29,027) 43,843
Change in net unrealized appreciation or
depreciation of investments................ (11,818) 22,707
---------------- -------------
Increase (decrease) in net assets from
operations................................. (17,207) 107,660
---------------- -------------
Distributions to shareholders
Net investment income........................ (23,626) (41,110)
Net realized gain on investments............. - (31,252)
---------------- -------------
Decrease in net assets from distributions to
shareholders............................... (23,626) (72,362)
---------------- -------------
Capital share transactions
Sold 21,584 and 35,266 shares................ 216,001 366,342
Distributions reinvested of 1,973 and 5,832
shares..................................... 19,592 60,424
Redeemed 17,959 and 22,458 shares............ (179,389) (230,747)
---------------- -------------
Increase in net assets from capital share
transactions............................... 56,204 196,019
---------------- -------------
Total increase................................. 15,371 231,317
NET ASSETS
Beginning of period.......................... 745,244 513,927
---------------- -------------
End of period................................ $760,615 $745,244
---------------- -------------
---------------- -------------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
T. ROWE PRICE INTERNATIONAL BOND FUND / JUNE 30, 1994 (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Funds, Inc. (the Corporation) is registered under
the Investment Company Act of 1940. The International Bond Fund (the Fund), a
non-diversified, open-end management investment company, is one of the
portfolios established by the Corporation.
A) Valuation - 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. Purchased and written options are valued at the latest bid and asked
prices, respectively.
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.
B) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at the
rate of exchange at the end of the respective period, purchases and sales of
securities and income and expenses at the rate of exchange prevailing on the
dates of such transactions. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a component
of such gains or losses.
C) Discounts and Premiums - Discounts and premiums on debt securities are
amortized for both financial and tax reporting purposes.
D) 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 an identified cost basis. 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
which may differ from generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
As a part of its investment program, the Fund engages in the following
activities, the nature and risk of which are set forth more fully in the
Fund's Prospectus and Statement of Additional Information.
A) Emerging Markets - The Fund has investments in securities denominated in
the currencies of emerging market countries, as well as in securities issued
by governments of emerging market countries. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
B) Forward Currency Exchange Contracts - At June 30, 1994, the Fund was a
party to various forward currency exchange contracts under which it is
obligated to exchange currencies at specified future dates. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movements in currency values. Outstanding contracts at June 30, 1994,
are as follows:
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Unrealized
Contract to Apprec.
Value ------------------------------ (Deprec,)
Date Receive Deliver in USD Counterparty
- ----- -------------- --------------- ---------- -------------------------
Amounts in Thousands
------------------------------
7/94 DEM 24,320 IEP 10,000 100 Merrill Lynch
7/94 BEL 14,523 USD 441 4 Chase Manhattan Bank
7/94 USD 14,523 BEL 500,000 (800) Union Bank of Switzerland
7/94 DEM 91,489 GBP 36,374 1,435 Union Bank of Switzerland
7/94 JPY 523,600 SEK 40,000 98 Citibank
7/94 GBP 22,960 SEK 275,000 (365) Citibank
7/94 GBP 9,452 ITL 23,000,000 95 Chase Manhattan Bank
7/94 DEM 41,961 ESP 3,500,000 (131) Merrill Lynch
7/94 DEM 10,000 PTE 1,048,200 (69) Merrill Lynch
7/94 CHF 13,724 USD 10,000 296 J.P. Morgan
7/94 CAD 14,541 CHF 14,179 (126) Union Bank of Switzerland
7/94 JPY 3,528,000 USD 35,000 810 J.P. Morgan
7/94 BEL 228,384 AUD 9,320 199 Citibank
Net unrealized appreciation of $1,546,000 on these contracts at June 30, 1994,
is included in the accompanying financial statements, of which $3,037,000
relates to appreciated contracts and $1,491,000 to depreciated contracts.
C) Written Options - Call and put options give the holder the right to
purchase or sell, respectively, a security or currency at a specified price on
a certain date. Transactions in call and put options written and related
premiums received during the six months ended June 30, 1994, were as follows:
Face Amount
Subject
to Options Premiums
------------- -----------
Options Outstanding at Beginning of Period $ - $ -
Options Written 114,388,000 1,163,614
Options Exercised (52,765,000) (401,618)
Options Expired (41,022,000) (416,031)
------------- -----------
Options Outstanding at End of Period $ 20,601,000 $ 345,965
-------------
-------------
D) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. Government securities, aggregated $1,240,652,000 and $1,230,339,000,
respectively, for the six months ended June 30, 1994.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1994, the aggregate cost of investments for federal income tax
and financial reporting purposes was $748,944,000 and net unrealized
depreciation aggregated $6,864,000, of which $14,594,000 related to
appreciated investments and $21,458,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Fund is managed by Rowe Price-Fleming International, Inc. (Price-Fleming)
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 Price-Fleming (the
Manager) provides for an annual investment management fee, computed daily and
paid monthly, consisting of an Individual Fund Fee equal to 0.35% 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 0.31% for assets in excess of $34 billion. The effective annual
Group Fee rate at June 30, 1994, and for the six months then ended was 0.34%.
The Fund pays a pro rata portion of the Group Fee based on the ratio of the
Fund's net assets to those of the Group.
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T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc. (RPS)
are wholly owned subsidiaries of Price Associates. TRPS provides transfer and
dividend disbursing agent functions and shareholder services for all accounts.
RPS provides subaccounting and recordkeeping services for certain retirement
accounts invested in the Fund. Price Associates, under a separate agreement,
calculates the daily share price and maintains the financial records of the
Fund. The Fund is one of several T. Rowe Price mutual funds (the Underlying
Funds) in which the T. Rowe Price Spectrum Income Fund (Spectrum) invests. In
accordance with an Agreement between Spectrum, the Underlying Funds, Price
Associates and TRPS, expenses from the operation of Spectrum are borne by the
Underlying Funds based on each Underlying Fund's proportionate share of assets
owned by Spectrum. For the six months ended June 30, 1994, the Fund incurred
fees totalling approximately $617,000 for these services provided by related
parties. At June 30, 1994, these investment management and service fees
payable were $551,000.
FINANCIAL HIGHLIGHTS
T. Rowe Price International Bond Fund (Unaudited)
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<CAPTION>
For a share outstanding throughout each period
----------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------------
1994 1993 1992 1991 1990 1989
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $10.34 $ 9.61 $10.35 $ 9.53 $ 9.15 $10.25
---------- -------- -------- -------- ------- -------
Investment Activities
Net investment income....................... 0.31 0.69 0.87 0.77 0.83 0.75
Net realized and unrealized gain (loss)..... (0.55) 1.18 (0.63) 0.82 0.55 (1.10)
---------- -------- -------- -------- ------- -------
Total from Investment Activities.............. (0.24) 1.87 0.24 1.59 1.38 (0.35)
---------- -------- -------- -------- ------- -------
Distributions
Net investment income....................... (0.31) (0.69) (0.83) (0.77) (0.83) (0.75)
Net realized gain........................... - (0.45) (0.15) - (0.17) -
---------- -------- -------- -------- ------- -------
Total Distributions........................... (0.31) (1.14) (0.98) (0.77) (1.00) (0.75)
---------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.79 $10.34 $ 9.61 $10.35 $ 9.53 $ 9.15
---------- -------- -------- -------- ------- -------
---------- -------- -------- -------- ------- -------
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return.................................. (2.29)% 20.00% 2.39% 17.75% 16.05% (3.19)%
Ratio of Expenses to Average Net Assets....... 0.99% 0.99% 1.08% 1.24% 1.15% 1.23%
[dagger]
Ratio of Net Investment Income to Average Net 6.38% 6.58% 8.66% 8.11% 9.04% 8.11%
Assets...................................... [dagger]
Portfolio Turnover Rate....................... 359.6% 395.7% 357.7% 295.6% 211.4% 293.1%
[dagger]
Net Assets, End of Period (in thousands)...... $760,615 $745,244 $513,927 $413,985 $430,386 $303,897
- ---------------------------------------------------------------------------------------------------------
[dagger] Annualized.
<PAGE>
SHAREHOLDER SERVICES
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services --- at no extra cost.
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone --- Shareholder Service Representatives are available from 8:00 a.m.
to 10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 p.m E.T.
Call 1-800-225-5132 to speak directly with a representative who will be able
to assist you with your accounts.
IN PERSON --- Visit one of our four investor center locations to meet with a
representative who will be able to assist you with your accounts. While there,
you can drop off applications or obtain prospectuses and other literature.
AUTOMATED 24-HOUR SERVICES
Tele*Access[registered trademark] provides information such as account
balance, date and amount of your last transaction, latest dividend payment,
and fund prices and yields. Additionally, you have the ability to request
prospectuses, statements, account and tax forms, reorder checks, and initiate
purchase, redemption, and exchange orders for identically registered accounts.
PC*Access[registered trademark] provides the same information as
Tele*Access, but on a personal computer via dial-up modem.
ACCOUNT SERVICES
Checking --- Write checks for $500 or more on any money market and most bond
fund accounts.
Automatic Investing --- Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A low, $50
minimum makes it easy to get started.
Automatic Withdrawal --- If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options --- Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
Combined Statement --- A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type --- stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports --- Portfolio managers review the performance
of the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report --- A quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights --- A library of information that includes reports on mutual fund
tax issues, investment strategies, and financial markets.
Detailed Investment Guides --- Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities at
a substantial savings over regular commission rates. Call a Shareholder
Service Representative for more information.
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