<PAGE>
Annual Report
Japan
Fund
----------------
October 31, 1997
----------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
Japan Fund
. Japan's markets once again struggled. Its large-company index and broad index
posted 12-month declines over 20% and 30%, respectively.
. Higher consumption taxes, combined with general economic weakness and
currency upheavals in Asia, dragged the markets down.
. The Japan Fund posted a -5.68% return for the six-month period and a -11.64%
return for the full year -- well ahead of the market indices, but behind the
average fund in its Lipper category.
. The fund concentrated on export-focused manufacturers and limited exposure to
weaker domestically centered businesses.
. With valuations at levels not seen since the early 1980s and positive changes
at the corporate level, we hope that a market recovery will not be far off.
<PAGE>
Fellow Shareholders
The Japanese market continued to weaken over the last six months, bringing a
miserable year to an end. Concerns about the economy, flagging consumer
confidence, and deflation elsewhere in Asia combined to undermine what had been
hopeful signals earlier in the year. For both the 6- and 12-month periods ended
October 31, the fund's returns were further depressed by the weakness of the yen
against the U.S dollar.
In this difficult market climate, your fund could not escape losses. However, it
did outperform both the TSE First Section Index (which focuses on larger
companies) and the TSE Second Section Index (which tracks medium- and smaller-
sized firms) by significant margins. A continued focus on export-oriented
manufacturing stocks, which account for about half of assets, protected the fund
from deeper losses. These well-managed companies are enjoying strong earnings
growth and are able to benefit from yen weakness. The fund also had limited
exposure to weak domestic sectors and avoided banking stocks, which continued to
grapple with high levels of bad loans. Nonetheless, your fund fell behind the
Lipper average of similar funds because many competitors concentrated even
higher percentages of assets on the few major export stocks.
<TABLE>
<CAPTION>
- ----------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 10/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan Fund - 5.68% - 11.64%
................................................................................
TSE First Section Index - 6.49 - 22.11
................................................................................
TSE Second Section Index - 11.37 - 34.87
................................................................................
Lipper Japan Funds Average - 3.76 - 10.54
................................................................................
</TABLE>
Market Review
Recent economic developments have been almost universally discouraging. Although
the economy showed rapid expansion in early 1997, an increase in the sales tax
from 3% to 5% on April 1 dashed hopes of a prolonged recovery. The GDP numbers
for the second quarter to the end of June showed that the economy was hardly
expanding. Government expenditure and investment in housing were particularly
1
<PAGE>
depressed, private consumption was damaged by the sales tax hike, and capital
investment was less robust than expected. The fall-off in growth from the first
quarter was the steepest recorded in Japan since the first oil crisis in 1974.
News since the end of June indicated no change of direction. Consumption, which
accounts for more than half of GDP, remained depressed. Retail sales in
September showed another year-on-year decline; our discussions with retailers
reveal continued weakness as we approach year-end. The strongly pessimistic mood
within Japan at present has led the population to save rather than spend.
Other indicators of the health of the domestic economy were hardly any better.
Investment in housing remains depressed, and growth in capital expenditure
appeared to slow, with machine tool manufacturers reporting increasingly
difficult trading conditions. The latest industrial production figures revealed
an inventory buildup in domestic industries. This will need to be rectified by
a cutback in output over the winter months.
. . . THE CURRENCY AND RELATED ECONOMIC PROBLEMS OF THE SMALLER ASIAN NATIONS
WILL AFFECT JAPANESE TRADE ACTIVITY.
The brightest part of the economic scene remained the export sector. Weakness of
the yen over the past 12 months has made Japanese products more price-
competitive overseas and helped to fatten the trade surplus. Exports rose in
local currency terms by more than 10% for the year. However, this positive trend
and the helping hand that it is extending to the beleaguered domestic economy
may be threatened. The Clinton administration remains deeply concerned by
Japan's growing trade surplus with the U.S., which rose at a rate of more than
50%. Pressure will be exerted on the Japanese government to prevent this rising
further.
In addition, although Japan's economy was not greatly harmed by the October
currency collapses elsewhere in Asia, the currency and related economic problems
of the smaller Asian nations will affect Japanese trade activity. Over 40% of
Japanese exports go to Asia, and demand is already falling fast from economies
such as Thailand and Indonesia.
The government's proposed solutions to these economic problems have been less
than impressive, although, in fairness, it does face a difficult policy bind.
The Ministry of Finance remains obsessed by the large amount of government debt
built up as successive administrations
2
<PAGE>
tried to spend the economy out of recession. They refuse to contemplate, at
present at least, any attempts by the Hashimoto government to do more of the
same through tax cuts or increased expenditure. With overnight interest rates
already at a rock bottom 0.5%, monetary policy offers few further opportunities
to jump-start the economy. The government hopes that further deregulation will
stimulate activity. But deregulation is unlikely to have an immediate effect and
could just as well cause job losses and heightened uncertainty among consumers.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ------------------------
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
<S> <C>
Capital Equipment 39%
Consumer Goods 20%
Services 17%
Materials 12%
Financial 7%
Other and Reserves 5%
</TABLE>
Based on net assets as of 10/31/97.
The weak trend in the stock market reflected this mounting economic gloom. Most
investors started the year relatively optimistic about the outlook into 1998.
Corporate profits for both domestic and international industries were forecast
to rise, with sales expanding and costs under good control. Domestic companies,
in fact, saw the opposite. Interim results for the six months to the end of
September showed sales under pressure and costs beginning to expand again.
Furthermore, our company visits show that deflationary trends are putting
pressure on prices in nearly all domestic industries. Only the export-related
manufacturing sectors are still showing profit growth as new products, careful
cost control, and the weak yen combine to support earnings.
PORTFOLIO STRATEGY
Your fund had a very different sector exposure from the broad index, being
concentrated in blue chip exporters, where growth prospects are good and
valuations reasonable. Major holdings on October 31 included familiar names such
as Sony, TDK, NEC, Kyocera, and Canon. The management of these companies remains
impressive. New product innovation continues to be rapid, and the exporters
(which compete with powerful foreign multinationals and are heavily owned by
3
<PAGE>
international investors) have been more successful than domestic companies in
lowering costs and focusing on shareholder interests. Despite the strong
outperformance recorded by these stocks over the last year, they remain
attractively priced. Although Sony's profits should grow by 30% this year, for
example, the stock's valuation is only 26 times earnings.
Your fund also maintained exposure to a number of leading domestically focused
blue chips that continued to grow despite the difficult economic environment.
Major positions here included real estate developer Mitsui Fudosan, retailers
Marui and Ito-Yokado, the Tokyo-based railroad East Japan Railway, the well-
managed chemical company Shin-Etsu Chemical, financial services leader Nomura
Securities, and telecom giant Nippon Telephone & Telecom. These companies are
strong enough to take advantage of opportunities created by deregulation. We
continue to find their combination of growth potential and good valuations
attractive.
Less successful was your fund's overweight position in housing-related
companies. Stocks such as Sekisui Chemical, Daiwa House, and National House
Industrial are well managed and cheaply priced, and had underperformed the
market sharply in 1996 despite strong profit growth. Since we did not expect the
decline in housing starts to be as sharp as it was, this part of your fund did
not perform well. We believe that we are now near bottom in terms of the outlook
for this sector and intend to maintain exposure here.
We continue to avoid domestic sectors where problems from the real-estate-bubble
years remain only partially solved. In particular, we consider the outlook for
Japanese banks unattractive. Despite large bad debt write-offs in recent years,
many bad loans remain on the books. The poor relative performance of the sector
has improved valuations, but they remain high by international standards:
Japan's largest bank, Bank of Tokyo-Mitsubishi, carried a price of more than 2.5
times book value. The forthcoming deregulation of the financial industry will
also damage the financial sector's profitability.
Outlook
The last year has been very disappointing for investors in the Japanese market.
The optimism that many of us felt about Japanese equities as we moved into 1997
has evaporated. The increasing focus of company
4
<PAGE>
managements on shareholder interests was outweighed by renewed concerns about
the economy and financial system. In the eighth year of the Japanese bear
market, it is tempting to think that the bad times will never end.
We strongly believe that this view is mistaken. Despite the obvious problems
that Japan faces at present, a great deal of the bad news is now reflected in
stock prices. There may be more unexpected difficulties to come, but so many of
the financial system's problems are now in the open and being dealt with. We see
a significant change in mentality in Japan. Recent bankruptcies among
construction companies and brokerage houses, a willingness by the banks to take
the medicine for their bad debts, and the collapse of share prices among
domestic companies to levels not seen since the early 1980s suggest that denial
regarding the extent of Japan's woes is being replaced with a more realistic
approach. This process may make gloomy reading, but it also makes restoring
Japan's economy much easier.
We see positive change particularly at the corporate level, where managements
are increasingly viewing their businesses more realistically and recognizing the
importance of strong profitability. The once extremely pricey Japanese market is
now trading at levels roughly in line with, if not cheap by, western standards.
If, as we believe, companies will pay more attention to returns going forward,
the beginning of the next Japanese bull market will not be so long in arriving.
Respectfully submitted,
/s/ Martin G. Wade
Martin G. Wade
President
November 19, 1997
5
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
10/31/97
- --------------------------------------------------------------------------------
<S> <C>
Sankyo 3.9%
................................................................................
Sony 3.9
................................................................................
TDK 3.5
................................................................................
NEC 3.4
................................................................................
Denso 3.2
- --------------------------------------------------------------------------------
Mitsubishi Heavy Industries 3.1
................................................................................
Mitsui Fudosan 3.1
................................................................................
Kyocera 2.9
................................................................................
Canon 2.9
................................................................................
Sumitomo Electric Industries 2.8
- --------------------------------------------------------------------------------
Murata Manufacturing 2.8
................................................................................
Matsushita Electric Industrial 2.6
................................................................................
Marui 2.6
................................................................................
East Japan Railway 2.6
................................................................................
Shin-Etsu Chemical 2.6
- --------------------------------------------------------------------------------
Toppan Printing 2.2
................................................................................
Nippon Telephone & Telecom 2.2
................................................................................
Ito-Yokado 2.0
................................................................................
Daiichi Pharmaceutical 2.0
................................................................................
Nomura Securities 1.9
- --------------------------------------------------------------------------------
Hitachi 1.9
................................................................................
Nippon Steel 1.8
................................................................................
Sekisui Chemical 1.8
................................................................................
Kao 1.7
................................................................................
Kuraray 1.6
- --------------------------------------------------------------------------------
Total 65.0%
</TABLE>
6
<PAGE>
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
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
TSE Lipper
First Section Japan Funds Japan
Index $7,730 Average $8,512 Fund $9,357
------------- -------------- -----------
<S> <C> <C> <C>
12/30/91 $10,000 $10,000 $10,000
10/92 7,552 7,886 8,580
10/93 10,943 10,974 11,580
10/94 11,809 12,338 12,652
10/95 10,047 10,533 11,024
10/96 9,924 10,428 10,589
10/97 7,730 8,512 9,357
</TABLE>
- -------------------------------------
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.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 10/31/97 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Japan Fund - 11.64% - 9.57% 1.75% - 1.13% 12/30/91
................................................................................
</TABLE>
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
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
- ---------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ten Months++ 12/30/91
Ended Ended to
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64 $ 10.00
................................................................................................
Investment activities
Net investment income (0.03) (0.05) (0.04) (0.06)* (0.05)* (0.01)*
Net realized and
unrealized gain (loss) (1.02) (0.32) (1.40) 0.97 2.99 (1.35)
................................................................................................
Total from
investment activities (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 $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64
------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Total return (11.64)% (3.94)% (12.87)% 9.25%* 33.72%* (13.40)%*
.................................................................................................................................
Ratio of expenses to
average net assets 1.24% 1.32% 1.50% 1.50%* 1.50%*+ 1.50%*
.................................................................................................................................
Ratio of net investment
income to average
net assets (0.39)% (0.48)% (0.48)% (0.68)%* (0.58)%*+ (0.22)%*
.................................................................................................................................
Portfolio turnover rate 32.3% 29.8% 62.4% 61.5% 61.4%+ 41.6%
.................................................................................................................................
Average commission
rate paid $ 0.0457 $ 0.0540 $ - $ - $ - $ -
.................................................................................................................................
Net assets, end of period
(in thousands) $ 170,830 $ 167,118 $ 181,383 $ 203,303 $ 87,163 $ 45,792
.................................................................................................................................
</TABLE>
* 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
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
October 31, 1997
<TABLE>
<CAPTION>
- ------------------------
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
JAPAN 95.8%
Common Stocks 95.8%
Capital Equipment 39.0%
Amada 180,000 $ 957
................................................................................
Apollo Electronics 17,000 167
................................................................................
Asatsu 1,900 39
................................................................................
Canon 201,000 4,877
................................................................................
Daifuku 62,000 465
................................................................................
DaiNippon Screen Manufacturing 160,000 1,298
................................................................................
Daiwa House 238,000 2,294
................................................................................
Denso 254,000 5,487
................................................................................
Disco 14,000 450
................................................................................
Fuji Machine 14,000 406
................................................................................
Hamada Printing Press 40,000 133
................................................................................
Hirose Electric 9,300 607
................................................................................
Hitachi 428,000 3,290
................................................................................
Hitachi Zosen 517,000 1,138
................................................................................
Horiba 16,000 181
................................................................................
KOA 27,000 330
................................................................................
KTK Telecommunications Engineering 33,000 174
................................................................................
Keyence 5,000 748
................................................................................
Komatsu 212,000 1,133
................................................................................
Komori 113,000 2,066
................................................................................
Kumagai Gumi 228,000 223
................................................................................
Kyocera 87,000 4,981
................................................................................
Lasertec 7,000 218
................................................................................
Mabuchi Motor 6,500 362
................................................................................
Mitsubishi Heavy Industries 1,081,000 5,308
................................................................................
Murata Manufacturing 118,000 4,785
................................................................................
NEC 529,000 5,802
................................................................................
National House Industrial 62,000 675
................................................................................
Nichicon 29,000 359
................................................................................
Nidec 5,390 210
................................................................................
Nippon Denwa Shisetsu 39,000 225
................................................................................
Nippon Hodo 65,000 383
................................................................................
Nitta 11,000 128
................................................................................
Seiko 14,000 118
................................................................................
</TABLE>
9
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Sekisui House 259,000 $ 2,217
................................................................................
Shinkawa 12,600 220
................................................................................
Sodick 27,000 130
................................................................................
Sumitomo Electric Industries 365,000 4,822
................................................................................
TDK 73,000 6,053
................................................................................
Techno Ryowa 880 6
................................................................................
Toa Medical Electronics 31,000 373
................................................................................
Tokyo Electronics 50,100 2,498
................................................................................
Ushio 13,000 141
................................................................................
Zuiko 13,000 120
................................................................................
Total Capital Equipment (Cost $78,869) 66,597
Consumer Goods 20.4%
Citizen Watch 173,000 1,104
................................................................................
Daiichi Pharmaceutical 238,000 3,382
................................................................................
FCC 11,000 174
................................................................................
Homac 8,500 61
................................................................................
Honda Motor 29,000 976
................................................................................
Hoya 17,000 590
................................................................................
Kao 206,000 2,876
................................................................................
Kawasumi Laboratories 54,000 736
................................................................................
Kirin Beverage 15,000 249
................................................................................
Maruzen 12,000 44
................................................................................
Matsushita Electric Industrial 268,000 4,498
................................................................................
Pioneer Electronic 145,000 2,385
................................................................................
Rohto Pharmaceutical 40,000 329
................................................................................
Sankyo 203,000 6,696
................................................................................
Santen Pharmaceutical 27,000 485
................................................................................
Sega Enterprises 41,900 1,030
................................................................................
Sharp 345,000 2,680
................................................................................
Sony 79,700 6,616
................................................................................
Total Consumer Goods (Cost $37,249) 34,911
Financial 7.1%
Japan Living Service 28,000 108
................................................................................
Kansai Sekiwa Real Estate 11,000 55
................................................................................
Mitsui Fudosan 469,000 5,300
................................................................................
Nichiei 7,500 823
................................................................................
</TABLE>
10
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Nomura Securities 285,000 $ 3,315
................................................................................
Promise 6,490 380
................................................................................
Tachihi Enterprise 4,000 97
................................................................................
Toc 25,000 251
................................................................................
Tokio Marine & Fire Insurance 185,000 1,845
................................................................................
Total Financial (Cost $14,781) 12,174
Materials 12.4%
Chofu Seisakusho 17,600 241
................................................................................
Fujimi 1,700 93
................................................................................
Inax 197,000 858
................................................................................
Kuraray 306,000 2,746
................................................................................
Mitsui Petrochemical Industries 120,000 444
................................................................................
Nippon Steel 1,463,000 3,015
................................................................................
Noritsu Koki 10,000 332
................................................................................
Sekisui Chemical 383,000 3,014
................................................................................
Shin-Etsu Chemical 179,000 4,373
................................................................................
Shiseido 74,000 1,008
................................................................................
Sumitomo Forestry 177,000 1,280
................................................................................
Teijin 788,000 2,586
................................................................................
Tokyo Steel Manufacturing 135,900 960
................................................................................
Tokyo Tanabe 43,000 216
................................................................................
Total Materials (Cost $30,314) 21,166
Multi-Industry 0.0%
Juken Sangyo 8,000 34
................................................................................
Total Multi-Industry (Cost $90) 34
Services 16.9%
Circle K Japan 8,600 442
................................................................................
DDI 513 1,714
................................................................................
East Japan Railway 904 4,394
................................................................................
Ito-Yokado 69,000 3,428
................................................................................
Japan Airport Terminal 23,000 226
................................................................................
Juntendo 32,000 104
................................................................................
Kanamoto 25,000 118
................................................................................
Karakami Kankoh 7,000 90
................................................................................
Marui 265,000 4,470
................................................................................
</TABLE>
11
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Marukyo 18,000 $ 150
.............................................................................................
Matsumotokiyoshi 2,400 88
.............................................................................................
Meitec 6,000 177
.............................................................................................
Mitsubishi 307,000 2,627
.............................................................................................
Nippon Telephone & Telecom 435 3,687
.............................................................................................
Paris Miki 6,900 120
.............................................................................................
Sumitomo 345,000 2,465
.............................................................................................
Toppan Printing 296,000 3,714
.............................................................................................
Uny 45,000 729
.............................................................................................
Yellow Hat 10,600 119
.............................................................................................
Total Services (Cost $34,232) 28,862
.............
Total Common Stocks (Cost $195,535) 163,744
.............
Total Japan (Cost $195,535) 163,744
.............
SHORT-TERM INVESTMENTS 1.8%
Money Market Funds 1.8%
Reserve Investment Fund, Inc., 5.65% $ 2,993,820 2,994
.............................................................................................
Total Short-Term Investments (Cost $2,994) 2,994
.............
Total Investments in Securities
97.6% of Net Assets (Cost $198,529) $ 166,738
Other Assets Less Liabilities 4,092
.............
NET ASSETS $ 170,830
-------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ (11,181)
Net unrealized gain (loss) (31,801)
Paid-in-capital applicable to 21,440,139 shares of $0.01 par
value capital stock outstanding; 2,000,000,000 shares
of the corporation authorized 213,812
.............
NET ASSETS $ 170,830
-------------
NET ASSET VALUE PER SHARE $ 7.97
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
- -----------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
10/31/97
<S> <C>
Investment Income
Income
Dividend (net of foreign taxes of $185) $ 1,047
Interest 432
..........
Total income 1,479
..........
Expenses
Investment management 1,444
Shareholder servicing 460
Custody and accounting 171
Registration 35
Prospectus and shareholder reports 32
Legal and audit 15
Directors 7
Miscellaneous 6
..........
Total expenses 2,170
..........
Net investment income (691)
..........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (6,414)
Foreign currency transactions (335)
..........
Net realized gain (loss) (6,749)
..........
Change in net unrealized gain or loss
Securities (13,658)
Other assets and liabilities
denominated in foreign currencies 5
..........
Change in net unrealized gain or loss (13,653)
..........
Net realized and unrealized gain (loss) (20,402)
..........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $(21,093)
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
- ----------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year Year
Ended Ended
10/31/97 10/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ (691) $ (950)
Net realized gain (loss) (6,749) (2,174)
Change in net unrealized gain or loss (13,653) (4,592)
.......................
Increase (decrease) in net assets from
operations (21,093) (7,716)
.......................
Capital share transactions*
Shares sold 216,647 139,855
Shares redeemed (191,842) (146,404)
.......................
Increase (decrease) in net assets from capital
share transactions 24,805 (6,549)
.......................
Net Assets
Increase (decrease) during period 3,712 (14,265)
Beginning of period 167,118 181,383
.......................
End of period $ 170,830 $ 167,118
=======================
*Share information
Shares sold 24,169 14,194
Shares redeemed (21,257) (14,979)
.......................
Increase (decrease) in shares outstanding 2,912 (785)
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
October 31, 1997
- -----------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Funds, Inc. (the corporation) is registered under
the Investment Company Act of 1940. The 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.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
15
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
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 takes cash and U.S. Treasury securities as collateral to
secure the loans. Collateral is maintained at not less than 100% of the value of
loaned securities. At October 31, 1997, the value of securities on loan was
$15,940,000. Although the 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.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $77,658,000 and $54,105,000, respectively, for the year
ended October 31, 1997.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income. The fund has unused realized capital loss carryforwards for
federal income tax purposes of $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.
In order for the fund's capital accounts and distributions to shareholders to
reflect the tax character of certain transactions, the following
reclassifications were made during the year ended October 31, 1997. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
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T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Undistributed net investment income $ 691,000
Undistributed net realized gain 335,000
Paid-in-capital (1,026,000)
For federal income tax purposes, the fund intends to elect to pass through
foreign source income of $172,000 and foreign taxes paid of $172,000 for its tax
year ended October 31, 1997; the per share effect of these pass throughs is
$0.01 and $0.01, respectively, based on fund shares outstanding on October 31,
1997. These amounts may differ from amounts reported in the accompanying
financial statements due to differences in financial statement and federal
income tax reporting requirements.
At October 31, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $198,529,000, and net unrealized loss
aggregated $31,791,000, of which $8,778,000 related to appreciated investments
and $40,569,000 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 $129,000 was payable at
October 31, 1997. The fee is computed daily and paid monthly, and consists of an
individual fund fee equal to 0.50% 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 October 31, 1997, and for the year then ended, the effective annual
group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based
on the ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with Price Associates and two
wholly owned subsidiaries of Price Associates, pursuant to which the fund
receives certain other services. Price Associates computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services, Inc.
17
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
(TRPS) is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. The fund incurred expenses
pursuant to these related party agreements totaling approximately $424,000 for
the year ended October 31, 1997, of which $45,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds
(underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may
invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings to
it and in proportion to the average daily value of its shares owned by Spectrum,
pursuant to special servicing agreements between and among Spectrum, the
underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum International Fund
held approximately 2.9% of the outstanding shares of the Japan Fund at October
31, 1997. For the year then ended, the fund was allocated $23,000 of Spectrum
expenses, $2,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the year ended October 31, 1997, totaled $53,000
and are reflected as interest income in the accompanying Statement of
Operations.
During the year ended October 31, 1997, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $34,208,000 with
certain affiliates of the manager and paid commissions of $134,000 related
thereto.
18
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
- ---------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Japan Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price Japan Fund (one of the portfolios constituting T. Rowe Price
International Funds, Inc., hereafter referred to as the "Fund") at October 31,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1997 by
correspondence with custodians and, where appropriate, the application of
alternative auditing procedures for unsettled security transactions, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
November 19, 1997
19
<PAGE>
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 T. Rowe Price OnLine.
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 your T. Rowe Price accounts.
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.
20
<PAGE>
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
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
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 Government 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 the closed-end New Age Media Fund; converted to open-end
status on 7/28/97.
** Closed to new investors.
*** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
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.
21
<PAGE>
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
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F62-050 10/31/97
