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Previous: DEFINED ASSET FUNDS GOVERNMENT SECURITIES INC FD GNMA SER 18, 485BPOS, 1994-02-09 |
Next: DEFINED ASSET FUNDS GOVERNMENT SECURITIES INC FD GNMA SER 19, 485BPOS, 1994-02-09 |
<PAGE>
FELLOW SHAREHOLDERS
HIGHLIGHTS
Nineteen ninety-three proved to be an excellent year for financial assets
generally, and international bonds proved to be no exception. As widely
anticipated, interest rates have declined throughout the world against the
background of low inflation and high unemployment. All major bond markets
produced attractive rates of return in local currency terms. In the currency
markets, the trading range of the U.S. dollar/deutschemark was historically
narrow, but events within the Exchange Rate Mechanism (ERM) in Europe
continued to be traumatic. We are pleased to report that our hedging
activities protected the Fund from the dangers of devaluing ERM currencies.
The most significant event in the currency markets over the year was the
Japanese yen's appreciation from Yen124 to almost Yen100 at one stage. For
both the quarter and year, the Fund's performance advantage over the unmanaged
benchmark was maintained.
PERFORMANCE COMPARISON
Periods Ended 12/31/93
3 Months 12 Months
-------------------------
International Bond Fund 1.71% 20.00%
J.P. Morgan Non-U.S. Dollar
Government Bond Index 0.62 14.53
- ---------------------------------------------------------
MARKET ENVIRONMENT AND
PORTFOLIO STRATEGY
A combination of low economic growth (with the exception of the U.S. among the
major economies), declining inflationary pressures, and a rising wave of
concern over high levels of unemployment provided a perfect background for
official interest rate reductions. As confidence flowed through financial
markets and short-term interest rates dropped, investors lengthened
maturities, which caused yields to decline, in many countries by more than two
percentage points. Local market returns shown in the table below illustrate
the capital price appreciation of the various markets, together with the
impact of currency movements on U.S. dollar rates of return.
WORLD GOVERNMENT BOND
MARKET PERFORMANCE
3 Months Ended 12 Months Ended
12/31/93 12/31/93
---------------------------------------
In Local In U.S. In Local In U.S.
Currency Dollars Currency Dollars
---------------------------------------
Australia 2.39% 7.80% 18.00% 16.21%
Belgium 7.36 4.82 14.86 5.63
Canada 4.95 5.88 16.05 11.42
Denmark 4.09 0.77 21.42 12.14
France 4.01 0.24 21.09 13.10
Germany 3.87 -2.30 15.06 7.31
Italy 4.15 -3.31 31.89 14.04
Japan 4.97 -0.25 13.63 27.12
The Netherlands 4.18 -1.55 17.25 9.84
Spain 6.09 -2.17 31.36 5.55
Sweden 5.62 2.81 20.69 2.47
United Kingdom 7.15 5.86 22.00 19.45
United States -0.19 -0.19 10.06 10.06
- -----------------------------------------------------------
Source: J.P. Morgan
Reviewing the currency markets first, the yen was supported by Japan's
huge trade surplus, and the appreciation versus the dollar was encouraged in
early 1993 by the U.S. Administration in an effort to cause the Japanese
Government to open up its domestic markets to foreign competition and reduce
Japan's competitive advantage. As the currency threatened to break the Yen100
level, however, the U.S. authorities were satisfied and encouraged a more
stable currency. Subsequently, the currency moved back toward the Yen110
level.
<PAGE>
Although the deutschemark traded in a relatively stable range against the
dollar, chaos broke out within the ERM in late July as the pressures of
maintaining semi-fixed parities proved too costly to other European countries.
The need for sharp interest rate reductions in Europe was sensed by market
participants and, consequently, central bankers were forced to use foreign
exchange reserves in a vain attempt to prevent an appreciation of the
deutschemark. On August 2, 1993, 15% bands were adopted as an emergency
measure, allowing the Spanish peseta and Swedish krona in particular to
continue to float downward. By contrast, British sterling and the Italian lira
were relatively stable--having already devalued and left the ERM in September
1992.
The Canadian dollar weakened on concerns over fiscal deficits, and a
change in government also unnerved international investors. The Australian
dollar and Mexican peso, on the other hand, ended the year relatively
unchanged, although nervousness over the NAFTA agreement and GATT negotiations
caused periodic bouts of selling pressure for both currencies.
Turning to economic events, Japan continued to disappoint, lapsing into
recession. Confidence is very low--both in the corporate and personal
sectors--and the strength of the yen has reduced the profitability of Japanese
exporters. The new government, led by Morihiro Hosokawa, has been unable as
yet to push through meaningful reforms, and the fiscal and monetary actions
taken to date have done little to alleviate Japan's economic problems.
European economies suffered under the impact of high real (inflation
adjusted) interest rates which have curtailed investment. At the same time,
Europe is perhaps beginning to come to terms with the need for structural
adjustment in order to recover competitiveness which has been lost in recent
years. Although final numbers are not yet available, it would appear that only
the United Kingdom will record any meaningful economic growth within Europe in
1993 and that 1994 will barely be better for Continental Europe. Consequently,
interest rates have been, and will probably continue to be, steadily reduced.
Throughout the year we have been at-tracted by the prospects for the
European bond markets, and in this respect we have been rewarded. We
maintained an aggressive portfolio duration within Europe over the year,
moving from market to market to benefit from attractive spread relationships.
A core position in long maturity Japanese bonds has also benefited the Fund's
return. In order to maintain an attractive yield and capture attractive bond
market returns, we invested in high-yielding markets such as Spain, Mexico,
and Greece.
For the first 11 months of the year, we overweighted the portfolio's
exposure to the Japanese yen, carrying positions in excess of 27%. However, as
the economic outlook deteriorated and the yen appeared to bottom, we became
concerned that the currency might retrace some of its gains and subsequently
reduced the currency position to 12.5%. We continued underweighted in the
European currencies generally, but had short positions in the Belgian franc,
Spanish peseta and Swedish krona for most of the year.
OUTLOOK
Overall, we are comfortable that international bonds will continue to be
attractive investments over the course of 1994.
From a currency standpoint, interest rate differentials between the United
States and Europe should continue to narrow during 1994, and attention in the
foreign exchange markets will likely switch to growth prospects and political
developments. The U.S. dollar should benefit in this environment, and we
anticipate a modest rally over 1994 for the currency, particularly against the
yen where the protection of a huge trade surplus is likely to begin to erode.
German elections are likely to cause nervousness from time to time,
compounding the pressure emanating from the weak European growth picture.
<PAGE>
The U.S. economy looks likely to maintain its momentum in 1994, maybe at a
slightly reduced pace from late 1993 levels. Elsewhere the environment remains
weak. Fears of rising unemployment will dampen consumer sentiment in Japan and
the uncertain prospects for the coalition government will do nothing to
encourage investment plans. After outright recession in 1993, we anticipate
European economies will stagnate in 1994 as a combination of tight fiscal
stances, corporate restructurings, and high levels of unemployment dampens
activity. Consequently, with subdued inflation prospects worldwide, monetary
policies in Europe and Japan are likely to remain accommodative. This
environment, we feel, presents the probability that 1994 will be another good
year for international bond markets.
Respectfully submitted,
David P. Boardman
Executive Vice President
January 27, 1994
INTERNATIONAL BOND FUND PERFORMANCE COMPARISON
A line graph compares the 12/31/93 value of a hypothetical $10,000 investment
made in the International Bond Fund at its inception (9/10/86) and a similar
investment made concurrently in the J.P. Morgan Non-U.S. Government Bond
Index. At 12/31/93, the Fund investment would have been worth $21083, the J.P.
Morgan Index Investment would have been worth $21594.
TOTAL RETURN PERFORMANCE
Periods Ended December 31, 1993
1 Year 3 Years Since Inception
9/10/86*
- -------- -------- -----------------------
20.00% 13.10% 10.75%
- -----------------------------------------
*Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
<PAGE>
STATISTICAL HIGHLIGHTS
T. Rowe Price International Bond Fund / December 31, 1993
KEY STATISTICS*
Periods
Dividend Yield Ended 12/31/93
- -----------------------------------------------------
7 Days 6.44%
3 Months 6.39
12 Months 6.80
Dividend Per Share
- ------------------------------------
3 Months $0.17
12 Months 0.69
Change in Price Per Share
- ------------------------------------
From Sept. 30, 1993 to Dec. 31, 1993 -03.81%\SD\
(From $10.75 to $10.34)
From Dec. 31, 1992 to Dec. 31, 1993 7.60
(From $9.61 to $10.34)
- -----------------------------------------------------
NET ASSETS $745.2
- -----------------------------------------------------
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset halves per share for the same period.
\SD\Includes the reduction in the share price resulting from a $0.42 capital
gain distribution.
MATURITY DIVERSIFICATION
Percent of Net Assets
Range 12/31/93 9/30/93 12/31/92
- --------------------------------------------------------------
Short-Term (0 to 1 year) 12% 19% 19%
Short Intermediate-Term
(1+ to 5 years) 34 25 39
Long Intermediate-Term
(5+ to 10 years) 36 28 29
Long-Term
(over 10 years) 18 28 13
- --------------------------------------------------------------
WEIGHTED AVERAGE
MATURITY 8.2 YRS. 8.3 YRS. 5.2 YRS.
- --------------------------------------------------------------
QUALITY DIVERSIFICATION
Percent of Net Assets
RPFI Quality Rating* 12/31/93 9/30/93 12/31/92
- --------------------------------------------------------------
1 26% 38% 31%
2 60 45 65
3 5 11 4
4 & below 9 6 0
- --------------------------------------------------------------
WEIGHTED AVERAGE
QUALITY 2.0 1.8 2.0
- --------------------------------------------------------------
*On a scale of 1 to 10, with Grade 1 representing highest quality.
GEOGRAPHICAL DIVERSIFICATION
December 31, 1993
Portfolio
Holdings-- Net
Local Market Currency
Country/Currency Terms Exposure
- -----------------------------------------------------------
Italy 17.9% 18.6%
Germany 6.9 17.9
United States 1.3 16.2
Japan 15.0 14.8
Denmark 8.9 8.9
United Kingdom 8.8 8.0
Sweden 12.7 6.7
Mexico 5.5 5.5
Greece 4.2 4.2
Canada 6.3 3.8
Australia 5.3 3.4
Portugal 1.0 1.0
France 1.0 1.0
Austria .6 .6
Ireland 2.0 .1
Belgium 2.6 (3.0)
Spain 3.9 (4.3)
Total 103.9 103.4
Other Assets
Less Liabilities 3.9 3.4
- -----------------------------------------------------------
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>
INVESTMENT RECORD
T. Rowe Price International Bond Fund
The table below shows the investment record of one share of the T. Rowe Price
International Bond Fund, purchased at the initial offering price of $10.00,
for the period 9/10/86 through 12/31/93. Over this time, interest rates have
been volatile. The results shown should not be considered as a representation
of the dividend income or capital gain or loss which may be realized from an
investment made in the Fund today.
PER-SHARE DATA With Dividends
Net Capital and Capital
Year Asset Income Gain With Dividends Gains
Ended Value Dividends Distributions/2/ Reinvested Reinvested
- --------- --------- ----------- ---------------- ---------------- ------------
12/31/861 $10.01 -- -- $10.30 $10.30
1987 11.60 $1.01 $0.05 13.14 13.14
1988 10.25 0.91 0.26 12.67 12.97
1989 9.15 0.75 -- 12.26 12.56
1990 9.53 0.83 0.17 13.98 14.57
1991 10.35 0.77 -- 16.46 17.16
1992 9.61 0.83 0.15 16.60 17.57
1993 10.34 0.69 0.45 19.08 21.08
- -----------------------------------------------------------------------------
TOTAL $5.79 $1.08
- -----------------------------------------------------------------------------
1. From inception 9/10/86 to 12/31/86.
2. Includes capital gains of $0.05 in 1987, $0.26 in 1988, $0.17 in 1990,
$0.15 in 1992, and $0.03 & $0.42 in 1993.
<PAGE>
STATEMENT OF NET ASSETS\SD\ (VALUE IN THOUSANDS)
T. ROWE PRICE INTERNATIONAL BOND FUND / DECEMBER 31, 1993
AUSTRALIA--5.3%
Value
---------
GOVERNMENT BONDS
AUD 15,000,000 Commonwealth of Australia,
9.50%, 8/15/03 $12,184
13,500,000 Commonwealth of Australia,
7.50%, 7/15/05.................... 9,683
10,000,000 Commonwealth of Australia,
6.75%, 11/15/06................... 6,757
15,000,000 New South Wales Treasury
Corporation, 7.50%, 2/1/98........ 10,618
TOTAL AUSTRALIA 39,242
AUSTRIA--0.6%
GOVERNMENT BOND
ATS 50,000,000 Republic of Austria, 8.50%,
2/21/01........................... 4,674
BELGIUM--2.6%
GOVERNMENT BONDS
BEL 150,000,000 Obligation Lineaire, 7.00%,
4/29/99........................... 4,339
150,000,000 Obligation Lineaire, 10.00%,
8/2/00............................ 4,966
355,000,000 Obligation Lineaire, 7.25%,
4/29/04........................... 10,398
TOTAL BELGIUM 19,703
CANADA--6.3%
GOVERNMENT BONDS
CAD 10,000,000 Government of Canada, 6.50%,
8/1/96............................ 7,841
11,000,000 Government of Canada, 6.50%,
9/1/98............................ 8,570
5,000,000 Government of Canada, 7.25%,
6/1/03............................ 3,951
10,000,000 Province of British Columbia,
8.75%, 8/19/22.................... 8,434
10,000,000 Province of Ontario, 8.10%,
9/8/23............................ 7,664
10,000,000 Province of Quebec, 9.375%,
1/16/23........................... 8,570
45,030
CORPORATE BOND
2,500,000 Shell Canada, 11.00%, 5/25/94....... 1,935
TOTAL CANADA 46,965
DENMARK--8.9%
GOVERNMENT BONDS
DKK 82,000,000 Kingdom of Denmark, 9.00%,
11/15/98 $13,703
180,000,000 Kingdom of Denmark, 8.00%,
5/15/03........................... 29,967
43,670
CORPORATE BOND
170,000,000 Nykredit Mortgage Bonds,
6.00%, 10/1/26.................... 22,661
TOTAL DENMARK 66,331
FRANCE--1.0%
GOVERNMENT BOND
FRF 40,000,000 Bons du Tresor Annuel, 5.75%,
11/12/98.......................... 6,956
CALL OPTION PURCHASED
50,000,000 *Obligation Assimilable du
Tresor, 8.50%, 4/25/23,
exp. 1/19/94...................... 311
TOTAL FRANCE 7,267
GERMANY--6.9%
GOVERNMENT BONDS
DEM 49,000,000 Bundesobligation, 8.00%,
7/22/02........................... 32,524
30,000,000 Treuhandanstalt, 7.375%,
12/2/02........................... 19,150
TOTAL GERMANY 51,674
GREECE--4.2%
SHORT-TERM INVESTMENTS
GRD 3,000,000,000 Bankers Trust, Six Month
Note, 21.00%, 5/4/94.............. 11,942
4,764,469,433 Chase Manhattan Bank, Time
Deposit, 21.625 - 23.00%,
1/26/94 - 1/31/94................. 19,082
TOTAL GREECE 31,024
IRELAND--2.0%
GOVERNMENT BONDS
IEP 6,315,000 Republic of Ireland, 8.75%,
7/27/97........................... 9,689
3,000,000 Republic of Ireland, 8.75%,
9/30/12........................... 5,196
TOTAL IRELAND 14,885
<PAGE>
ITALY--17.9%
GOVERNMENT BONDS
ITL 17,500,000,000 Buoni del Tesoro Poliennali,
12.00%, 9/1/97 $11,259
15,000,000,000 Buoni del Tesoro Poliennali,
12.00%, 1/1/98.................... 9,727
20,000,000,000 Buoni del Tesoro Poliennali,
11.50%, 3/1/98.................... 12,839
37,000,000,000 Buoni del Tesoro Poliennali,
10.00%, 8/1/98.................... 22,872
37,000,000,000 Buoni del Tesoro Poliennali,
9.00%, 10/1/98.................... 22,223
60,000,000,000 Buoni del Tesoro Poliennali,
9.00%, 10/1/03.................... 36,130
115,050
HYBRID INSTRUMENT
22,000,000,000 \dd\Nordic Investment Bank,
Structured Note, 11.00%,
5/10/94........................... 18,309
TOTAL ITALY 133,359
JAPAN--15.0%
GOVERNMENT BONDS
JPY 1,000,000,000 European Investment Bank,
6.625%, 3/15/00................... 10,671
2,000,000,000 Government of Japan, 5.50%,
3/20/02........................... 20,833
2,700,000,000 International Bank for
Reconstruction &
Development, 5.25%,
3/20/02........................... 27,445
1,000,000,000 Republic of Austria, 5.00%,
1/22/01........................... 9,901
2,850,000,000 Republic of Austria, 6.25%,
10/16/03.......................... 31,104
99,954
CORPORATE BOND
1,000,000,000 Japan Development Bank,
6.50%, 9/20/01.................... 10,802
CALL OPTION PURCHASED
3,000,000,000 *Government of Japan, 6.80%,
9/20/11, exp. 3/1/94.............. 1,053
TOTAL JAPAN 111,809
MEXICO--5.5%
SHORT-TERM INVESTMENTS
MXN 16,120,000 Banco Nacional de Mexico
Medium-Term Note, 14.397%,
8/1/94............................ 4,874
114,682,950 Mexican Cetes Treasury Bills,
10.96 - 16.75%,
1/6/94 - 6/16/94.................. 36,420
TOTAL MEXICO 41,294
PORTUGAL--1.0%
GOVERNMENT BONDS
PTE 300,000,000 Eurofima, 13.875%, 6/20/96 $1,855
100,000,000 European Coal & Steel
Community, 11.125%,
4/22/97........................... 595
150,000,000 European Investment Bank,
13.00%, 7/24/96................... 896
100,000,000 European Investment Bank,
12.50%, 2/24/98................... 629
200,000,000 European Investment Bank,
10.40%, 5/26/99................... 1,167
100,000,000 International Bank for
Reconstruction &
Development, 11.50%,
2/28/97........................... 601
250,000,000 International Finance
Corporation, 12.00%,
10/17/96.......................... 1,504
TOTAL PORTUGAL 7,247
SPAIN--3.9%
GOVERNMENT BONDS
ESP 3,000,000,000 Bonos del Estado, 10.25%,
11/30/98.......................... 23,101
268,000,000 Council of Europe, 12.00%,
3/21/94........................... 1,889
200,000,000 Council of Europe, 12.625%,
5/5/94............................ 1,420
320,000,000 Eurofima, 12.375%, 6/14/94.......... 2,275
100,000,000 European Investment Bank,
11.85%, 8/21/94................... 713
TOTAL SPAIN 29,398
SWEDEN--12.7%
GOVERNMENT BONDS
SEK 200,000,000 Kingdom of Sweden, 10.75%,
1/23/97........................... 26,863
185,000,000 Statens Bostadsfinansier,
12.50%, 1/23/97................... 25,511
52,374
CORPORATE BONDS
245,000,000 Stadshypotekassan, 9.00%,
6/17/98........................... 31,315
35,000,000 Swedish Telecom, 14.50%,
1/17/95........................... 4,511
35,826
HYBRID INSTRUMENT
50,000,000 #Abbey National, Structured
Note, 7.50%, 5/3/94............... 6,531
TOTAL SWEDEN 94,731
<PAGE>
UNITED KINGDOM--8.8%
GOVERNMENT BONDS
GBP 1,500,000 Municipality Finance, 9.50%,
12/6/97 $2,446
5,000,000 United Kingdom Treasury,
8.00%, 6/10/03.................... 8,385
8,000,000 United Kingdom Treasury,
7.75%, 9/8/06..................... 13,305
10,000,000 United Kingdom Treasury,
8.50%, 7/16/07.................... 17,633
12,000,000 +United Kingdom Treasury,
Index-Linked, 3.6116%,
7/17/24........................... 22,894
64,663
CALL OPTION PURCHASED
10,000,000 *United Kingdom Treasury
Index-Linked, 3.6116%,
7/17/24, exp. 1/14/94............. 397
TOTAL UNITED KINGDOM 65,060
UNITED STATES--1.3%
SHORT-TERM INVESTMENTS
USD 9,074,000 BMW US Capital, 3.20%,
1/3/94............................ 9,072
296,000 Harvard University, 3.20%,
1/3/94............................ 296
200,000 Yale University, 3.20%, 1/6/94...... 200
TOTAL UNITED STATES 9,568
- ---------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES--103.9%
(COST--$766,878) 774,231
- ---------------------------------------------------------------------
Other Assets Less
Liabilities--(3.9)% $(28,987)
-----------
NET ASSETS CONSISTING OF:
Accumulated net investment income--
net of distributions.............. $5,059
Accumulated realized gains/losses--
net of distributions.............. 1,759
Unrealized appreciation of
investments....................... 6,580
Paid-in-capital applicable to
72,108,501 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of the
Corporation authorized............ 731,846
-----------
NET ASSETS--100.0% $745,244
-----------
-----------
NET ASSET VALUE PER SHARE $10.34
-----------
-----------
- ------------------------------------------------------------
\SD\Listed by currency denomination
* Non-income producing
\dd\A structured medium-term note with a fixed
coupon. The principal repayment value is
inversely linked to ten times the yield
movement of Buoni del Tesoro Poliennali,
11.50%, 3/1/96 (BTP). The note includes a put
option to limit the Fund's loss to par.
# A structured medium-term note with a fixed
coupon. The principal repayment value is
inversely linked to ten times the yield
movement of Swedish Government Bond, 10.75%,
1/23/97 (SGB). The note includes a put option
to limit the Fund's loss to par.
+ The principal repayment value and semi-annual
interest payments are linked to the U.K.
Retail Price index. The minimum coupon
interest rate is 2.50%. The minimum principal
amount payable at maturity is equal to par.
(ATS) Austrian schilling denominated
(AUD) Australian dollar denominated
(BEL) Belgian franc denominated
(CAD) Canadian dollar 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
(PTE) Portuguese escudo denominated
(SEK) Swedish krona denominated
(USD) U.S. dollar denominated
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
T. Rowe Price International Bond Fund / Year Ended December 31, 1993
Amounts in
Thousands
-------------------
INVESTMENT INCOME
Interest income............................ $47,299
Expenses
Investment management fees............... $4,363
Shareholder servicing fees & expenses.... 1,061
Custodian and accounting fees & expenses. 549
Registration fees & expenses............. 81
Prospectus & shareholder reports......... 60
Legal & auditing fees.................... 34
Directors' fees & expenses............... 17
Miscellaneous expenses................... 24
---------
Total expenses........................... 6,189
---------
Net investment income...................... 41,110
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain
Securities............................... 19,729
Currencies and forward currency exchange
contracts.............................. 16,274
Options.................................. 7,840
---------
Net realized gain.......................... 43,843
Change in unrealized appreciation or
depreciation............................. 22,707
---------
Net gain on investments.................... 66,550
---------
INCREASE IN NET ASSETS FROM
OPERATIONS............................... $107,660
---------
---------
- ---------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
T. Rowe Price International Bond Fund
Year Ended December 31,
-------------------------
1993 1992
------------ ------------
Amounts in Thousands
-------------------------
INCREASE IN NET ASSETS
Operations
Net investment income.................. $41,110 $43,821
Net realized gain on investments....... 43,843 12,121
Change in unrealized appreciation or
depreciation of investments.......... 22,707 (45,299)
------------ ------------
Increase in net assets from operations... 107,660 10,643
------------ ------------
Distributions to shareholders
Net investment income.................. (41,110) (41,716)
Net realized gain on investments....... (31,252) (7,938)
------------ ------------
Decrease in net assets from
distributions to shareholders.......... (72,362) (49,654)
------------ ------------
Capital share transactions
Sold 35,266 and 39,033 shares.......... 366,342 395,881
Distributions reinvested of 5,832 and
4,013 shares......................... 60,424 40,159
Redeemed 22,458 and 29,570 shares...... (230,747) (297,087)
------------ ------------
Increase in net assets from capital
share transactions................... 196,019 138,953
------------ ------------
Total increase........................... 231,317 99,942
NET ASSETS
Beginning of year...................... 513,927 413,985
------------ ------------
End of year............................ $745,244 $513,927
------------ ------------
------------ ------------
- -------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
T. Rowe Price International Bond Fund / December 31, 1993
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 options are valued at the last bid price.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at 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.
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.
E) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital
of permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect of this change as
of December 31, 1992 increased Accumulated net investment income - net of
distributions by $2,958,000, increased Accumulated realized gains/losses - net
of distributions by $34,518,000 and decreased Paid-in-capital by $37,476,000.
The results of operations, shareholder distributions and net assets were not
affected by this change.
NOTE 2 - FINANCIAL INSTRUMENTS
As a part of its investment program, the Fund utilizes forward currency
exchange contracts and writes call and put options. The nature and risk of
these financial instruments and the reasons for using them are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
At December 31, 1993, the Fund had entered into 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 December 31, 1993, are as follows:
<PAGE>
Contract to Unrealized
Settlement -------------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
- ----------- ---------------------- --------------------- ---------------------
Amounts in Thousands
------------------------------------------------------------------
1/10/94 GBP 11,908 ESP 2,500 USD 148
1/10/94 USD 18,816 CAD 25,000 USD (52)
1/18/94 DEM 75,273 SEK 372,715 USD (1,333)
1/19/94 JPY 1,576,700 GBP 10,000 USD (624)
1/20/94 DEM 27,265 ESP 2,208,456 USD 272
1/21/94 JPY 2,428,242 GBP 15,310 USD (824)
1/27/94 JPY 1,437,200 AUD 20,000 USD (686)
1/28/94 DEM 25,000 ESP 2,029,750 USD 227
1/31/94 DEM 25,000 ESP 2,015,125 USD 333
1/31/94 JPY 1,576,000 DEM 25,000 USD (200)
2/14/94 ITL 34,464,500 DEM 35,000 USD (44)
2/15/94 GBP 10,000 JPY 1,653,800 USD (102)
2/15/94 JPY 1,567,500 DEM 25,000 USD (257)
2/15/94 JPY 1,566,800 GBP 10,000 USD (680)
2/15/94 USD 35,000 JPY 3,803,100 USD 878
2/28/94 GBP 9,831 ITL 25,000,000 USD 30
3/7/94 USD 44,660 JPY 4,840,300 USD 1,203
3/8/94 DEM 50,471 BEL 1,064,814 USD 17
3/8/94 USD 12,349 BEL 448,500 USD 61
4/5/94 DEM 24,300 IEP 10,000 USD (88)
Net unrealized depreciation of $1,721,000 on these contracts at December 31,
1993, is included in the accompanying financial statements, of which
$3,170,000 relates to appreciated contracts and $4,891,000 to depreciated
contracts.
Call and put options written 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 year ended December 31, 1993, were as follows:
Face Amount
Subject
to Options Premiums
---------------- ----------------
Options Outstanding at Beginning of Year $28,356,000 $164,000
Options Written 19,704,000 61,000
Options Exercised (34,479,000) (111,000)
Options Expired (13,581,000) (114,000)
---------------- ----------------
Options Outstanding at End of Year $-- $--
---------------- ----------------
---------------- ----------------
Purchases and sales of portfolio securities, other than short-term and
U.S. Government securities, aggregated $2,502,444,000 and $2,327,940,000,
respectively, for the year ended December 31,1993.
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 December 31, 1993, the aggregate cost of investments for federal income
tax and financial reporting purposes was $766,878,000 and net unrealized
appreciation aggregated $7,353,000, of which $20,064,000 related to
appreciated investments and $12,711,000 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 December 31, 1993, and for the year ended then ended
was 0.35%. 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.
<PAGE>
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 year ended December
31, 1993, the Fund incurred fees totalling approximately $982,000 for these
services provided by related parties. At December 31, 1993, these investment
management and service fees payable were $583,000.
<PAGE>
FINANCIAL HIGHLIGHTS
T. Rowe Price International Bond Fund
<TABLE>
<CAPTION>
-----------------------------------------------------
December 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR........................ $9.61 $10.35 $9.53 $9.15 $10.25
--------- ---------- ---------- ---------- ----------
Investment Activities
Net investment income.................... 0.69 0.87 0.77 0.83 0.75
Net realized and unrealized gain (loss).. 1.18 (0.63) 0.82 0.55 (1.10)
--------- ---------- ---------- ---------- ----------
Total from Investment Activities........... 1.87 0.24 1.59 1.38 (0.35)
--------- ---------- ---------- ---------- ----------
Distributions
Net investment income.................... (0.69) (0.83) (0.77) (0.83) (0.75)
Net realized gain........................ (0.45) (0.15) -- (0.17) --
--------- ---------- ---------- ---------- ----------
Total Distributions........................ (1.14) (0.98) (0.77) (1.00) (0.75)
--------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR............... $10.34 $9.61 $10.35 $9.53 $9.15
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return............................... 20.00% 2.39% 17.75% 16.05% (3.19)%
Ratio of Expenses to Average Net Assets.... 0.99% 1.08% 1.24% 1.15% 1.23%
Ratio of Net Investment Income to Average
Net Assets................................. 6.58% 8.66% 8.11% 9.04% 8.11%
Portfolio Turnover Rate.................... 395.7% 357.7% 295.6% 211.4% 293.1%
Net Assets, End of Year (in thousands)..... $745,244 $513,927 $413,985 $430,386 $303,897
Number of Shareholder Accounts,
End of Year.............................. 31,000 30,000 24,000 32,000 26,000
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of T. Rowe Price International Bond Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of T. Rowe Price International Bond Fund (a series of T. Rowe Price
International Funds, Inc.) at December 31, 1993, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the selected per share data and information
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements and
selected per share data and information (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1993 by correspondence with
custodians and brokers and, where appropriate, the application of alternative
auditing procedures for unsettled security transactions, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 19, 1994
OFFICERS AND DIRECTORS
M. David Testa, Chairman
Martin G. Wade, President/Director
David P. Boardman, Executive Vice President
Leo C. Bailey, Director
Anthony W. Deering, Director
Donald W. Dick, Jr., Director
Addison Lanier, Director
Christopher D. Alderson, Vice President
Peter B. Askew, Vice President
Richard J. Bruce, Vice President
Robert P. Campbell, Vice President
Mark J. T. Edwards, Vice President
John R. Ford, Vice President
Henry H. Hopkins, Vice President
Robert C. Howe, Vice President
Stephen Ilott, Vice President
George A. Murnaghan, Vice President
James S. Riepe, Vice President
Christopher Rothery, Vice President
Charles H. Salisbury, Jr., Vice President
James B. M. Seddon, Vice President
Charles P. Smith, Vice President
Benedict R. F. Thomas, Vice President
Peter Van Dyke, Vice President
David J. L. Warren, Vice President
William F. Wendler II, Vice President
Edward A. Wiese, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
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