<PAGE>
Semiannual Report
JAPAN
FUND
--------------
APRIL 30, 1998
--------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. ROWE PRICE
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------------------------------------------------
Japan Fund
. Japan's equity markets tumbled once again following turmoil in Asia's
currency markets in late 1997.
. A serious banking crisis and a weak Japanese yen combined to depress
corporate earnings and undermine domestic consumer confidence.
. The Japan Fund suffered a significant loss for the period. It outperformed
Japan's major large- and mid-cap market indexes, but fell behind the Lipper
Japan Funds Average.
. The fund concentrated on export-focused manufacturers while limiting
investment in domestically centered businesses and the banking sector.
. We see signs that Japanese officials are addressing structural problems that
impede economic and market recoveries.
<PAGE>
FELLOW SHAREHOLDERS
In the aftermath of last autumn's Asian currency crisis, the Japanese indices
slipped significantly in the six months ended April 30, 1998. A difficult
economic outlook and a loss of confidence in the financial sector combined to
undermine hopeful signs in the market. The fund's returns for both the 6- and
12-month periods were further depressed by the weakness of the yen against the
U.S. dollar.
While declining sharply on an absolute basis, your fund held up somewhat
better than the overall market indices for large stocks, as represented by
the TSE First Section Index, and their smaller counterparts in the TSE
Second Section Index. A focus on export-oriented manufacturing companies
(sometimes called the nifty stocks), which used a weaker yen to keep
earnings growth strong, provided some cushion against the worst of the
losses. Limited exposure to the domestic-oriented companies that suffered
from weak consumer spending and capital expenditure also prevented steeper
losses. We avoided bank stocks, which were again plagued with scandals and
concern over ballooning bad debts. However, your fund fell behind the
Lipper average of similar funds because many competitors had higher
percentages of assets in the major export stocks and lower percentages in
domestic-oriented companies.
- ----------------------
PERFORMANCE COMPARISON
- ----------------------
Periods Ended 4/30/98 6 Months 12 Months
- -----------------------------------------------------
Japan Fund -11.92% -16.92%
.....................................................
TSE First Section Index -12.83 -18.49
.....................................................
TSE Second Section Index -14.91 -24.59
.....................................................
Lipper Japan Funds Average -7.32 -10.98
.....................................................
MARKET REVIEW
The weak stock market reflected disappointment in corporate earnings growth
and a worse-than-expected economic outlook. The currency crisis that
enveloped Asia in the second half of 1997 cast a pall over Japan's attempts
at recovery, dimming economic forecasts and weakening export markets across
the region. Overseas investors reacted by selling major export-oriented
stocks, which they had been aggressively
1
<PAGE>
buying the previous year. This led to a broader sell-off. Financial stocks
were hit particularly hard since their capital bases are linked to the
fortunes of the equity market.
The Japanese financial sector was thrown into a crisis in November with a
series of unprecedented bankruptcies. Medium-sized Sanyo Securities broke
the dam by seeking bankruptcy protection on November 3, 1997, after
authorities gave up trying to find a "godfather" to merge it into. Hokkaido
Takushoku, the tenth largest Japanese bank, closed on November 16 due to
bad loans. On November 23, Yamaichi Securities, the fourth of the "Big
Four" brokers, became Japan's largest corporate failure. Two days later,
Tokuyo City Bank collapsed due to bad loans.
On November 26, the Ministry of Finance and the Bank of Japan appealed to
creditors and depositors of Japanese financial institutions to remain calm.
Lengthy lines formed outside Japanese banks, as domestic depositors sought
to retrieve their savings. Queues also formed outside Citibank's offices,
with the same depositors seeking to open yen-denominated savings accounts
with the only foreign-owned licensed deposit taker.
THE NIKKEI 225 INDEX ENDED 1997 NOT FAR FROM ITS POST-BUBBLE LOW OF 14,500.
The last weeks of 1997 saw further weak economic data. In addition, the
Korean won fell 43% against the yen. This has significant implications for
Japanese industry, which competes against Korean companies in many export
markets and, increasingly, in Japan itself. In a marked change of fiscal
policy, the government announced income tax rebates and cuts in corporate
taxes. Although the plan was extensive, it did not have an immediate
effect. The Nikkei 225 Index ended 1997 not far from its post-bubble low of
14,500.
In April 1998, the government announced another package worth a record 16.6
trillion yen, but the markets have been slow to react. With overnight
interest rates at 0.4% and 10-year bonds at 1.6%, both lower than the rates
in the U.S. at the depths of the Great Depression, monetary policy offers
limited opportunities to jump-start the economy.
Wage growth was hit hard by deteriorating corporate earnings, and consumer
sentiment was clearly affected. Although the tax rebate implied that the
average household would gain nearly 70,000 yen in disposable income,
consumers have shown little appetite for spending. Household spending fell
4.5% in February compared with the prior
2
<PAGE>
year, while March housing starts dropped 11.9% from the prior year.
Unemployment, still low by U.S. or European standards, hit a record high of
3.9% in March. The job-offer-to-applicants ratio hit 58 to 100, the lowest
since July 1983.
We expect that the economy will continue to slide until the late summer, at
which point the large stimulus package announced in April should have a
positive impact. The government is now aware of the extent of the
difficulties faced by the Japanese economy and is prepared to spend heavily
to prevent a deep recession. We are reasonably optimistic that this
commitment, combined with better news from the rest of Asia later this
year, will restore some confidence to the consumer and corporate sectors.
PORTFOLIO STRATEGY
[PIE CHART OF INDUSTRY DIVERSIFICATION APPEARS HERE]
Other and
Reserves 5%
Materials 7%
Financial 8%
Services 20%
Capital
Equipment 37%
Consumer
Goods 23%
Based on net assets as of 4/30/98.
Unlike earlier in 1997, there was no clear winners' circle among Japanese
equities during the past six months. A variety of stocks in disparate
industries generated positive performances in this generally weak period.
We therefore made only small adjustments to the fund's sector exposure and
continued to focus on stocks we had previously identified as good
investments.
As we have for some time, we held an overweight position in blue chip
exporters with solid growth prospects and reasonable valuations. Major
holdings on April 30 included companies that should be familiar to fund
shareholders, such as Sony, NEC, TDK, and Canon. These firms, among the
best-managed and fastest-growing in the country, have traded below market
valuations for most of the last decade. Although a recent increase in
institutional interest has led to rising stock prices, strong earnings have
kept price multiples modest.
We continued to invest in domestic-focused blue chips that performed well
despite the economic outlook. Major positions include retailers
3
<PAGE>
Marui and Ito-Yokado, Tokyo-based East Japan Railway, financial services
leader Nomura Securities, and telecom giant Nippon Telephone & Telecom.
These companies are among the strongest in their respective industries and
have the ability to take advantage of the deregulatory environment.
Conversely, the bottom rung of the performance ladder was crowded with
second tier domestic-oriented companies. Among our poor performers were
firms in the housing industry, which continued to lag despite what we
believe to be strong potential. Daiwa House and Sekisui Chemical suffered
from the longer-than-anticipated downturn in new housing starts and growing
pricing pressures. Our position in materials stocks fell from 12% of assets
to 7% due to a combination of underperformance and selective selling.
Mitsubishi Heavy Industries, in which your fund has a substantial position,
fell sharply on concern that the company's earnings would be negatively
affected by the economic problems in Asia.
OUTLOOK
In the ninth year of the Japanese bear market, it would be easy to conclude
that nothing will improve. The Japanese economy may now be facing its most
serious crisis since World War II, and its very structure is in urgent need
of reform to tackle rigidities in the labor market, overregulation of the
economy, inefficiency in the tax system, and the lack of adequate
disclosure of government and corporate accounts. The government, for the
time being, is hesitating to implement such measures. While economic
stimulus packages and public expenditure programs may provide short-term
boosts, they will not be a panacea for the structural distortions inherent
in the economy. Unless these distortions are addressed, it will be very
difficult for the economy to support sustained growth.
WE STRONGLY BELIEVE . . . THAT THE FORCES OF CHANGE ARE GATHERING.
We strongly believe, however, that the forces of change are gathering.
Lending institutions are increasingly repricing credit to reflect risk, and
international credit rating agencies have been rerating Japanese
corporations to make it easier to discern quality Japanese companies.
Cross-shareholding between corporations for business relationship purposes
has gradually declined over the past 10 years to an estimated 45% in 1997,
while the proportion of listed stocks held by investment entities (pension
4
<PAGE>
funds, individuals, foreigners, and investment trusts) has increased by 9%
during the same period. The increasing incidence of share buybacks and the
introduction of management stock option incentive schemes are steps in the
right direction. While these developments do not mean that Japan will
transform itself overnight, the paralysis in thinking, which has deemed
this a "lost decade," is under pressure like never before. The increasing
focus on shareholder value, the greater alignment of management's interests
with those of their companies, and a renewed focus on meeting financial
targets are the most encouraging signs that the long period of
underperformance of the Japanese market may be drawing to a close.
Respectfully submitted,
/s/ Martin G. Wade
Martin G. Wade
President
May 20, 1998
5
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
4/30/98
---------------------------------------------------------------------------
Sony 4.4%
...........................................................................
NEC 4.2
...........................................................................
TDK 4.0
...........................................................................
Canon 3.7
...........................................................................
Mitsui Fudosan 3.3
---------------------------------------------------------------------------
Marui 3.3
...........................................................................
NTT Data 3.3
...........................................................................
Sankyo 3.2
...........................................................................
Matsushita Electric Industrial 3.0
...........................................................................
Denso 2.9
---------------------------------------------------------------------------
Ito-Yokado 2.9
...........................................................................
Nomura Securities 2.7
...........................................................................
Shin-Etsu Chemical 2.7
...........................................................................
Kyocera 2.7
...........................................................................
Murata Manufacturing 2.6
---------------------------------------------------------------------------
Nippon Telephone & Telecom 2.6
...........................................................................
Daiichi Pharmaceutical 2.1
...........................................................................
Sumitomo Electric Industries 2.1
...........................................................................
East Japan Railway 2.1
...........................................................................
Hitachi 2.0
---------------------------------------------------------------------------
Toppan Printing 2.0
...........................................................................
Kao 2.0
...........................................................................
Mitsubishi Heavy Industries 1.8
...........................................................................
Sekisui Chemical 1.6
...........................................................................
Kuraray 1.6
---------------------------------------------------------------------------
Total 68.8%
6
<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
- --------------------------------------------------------------------------------
Date TSE First Section Index Lipper Japan Funds Average Japan Fund
---- ----------------------- -------------------------- ----------
12/30/91 10000 10000 10000
Apr-92 7199 7995 8860
Apr-93 10609 10777 11160
Apr-94 11500 11930 12434
Apr-95 11539 11358 11576
Apr-96 11900 12296 12421
Apr-97 8266 9136 9920
Apr-98 6738 7626 8241
[GRAPH APPEARS HERE]
- ------------------------------------
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 4/30/98 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Japan Fund -16.92% -10.71% -5.88% -3.01% 12/30/91
................................................................................
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
7
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited
- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year Ten Months++ 12/30/91
Ended Ended Ended to
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 12/31/92
NET ASSET VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of period $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64 $ 10.00
...................................................................................................
Investment activities
Net investment income (0.01) (0.03) (0.05) (0.04) (0.06)* (0.05)* (0.01)*
Net realized and
unrealized gain (loss) (0.94) (1.02) (0.32) (1.40) 0.97 2.99 (1.35)
...................................................................................................
Total from
investment activities (0.95) (1.05) (0.37) (1.44) 0.91 2.94 (1.36)
...................................................................................................
Distributions
Net realized gain -- -- -- (0.81) (0.85) -- --
...................................................................................................
NET ASSET VALUE
End of period $ 7.02 $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58 $ 8.64
---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Total return (11.92)% (11.64)% (3.94)% (12.87)% 9.25%* 33.72%* (13.40)%*
....................................................................................................................................
Ratio of expenses to
average net assets 1.27%+ 1.24% 1.32% 1.50% 1.50%* 1.50%*+ 1.50%*
....................................................................................................................................
Ratio of net investment
income to average
net assets (0.22)%+ (0.39) (0.48)% (0.48)% (0.68)%* (0.58)%*+ (0.22)%*
....................................................................................................................................
Portfolio turnover rate 36.4% 32.3% 29.8% 62.4% 61.5% 61.4%+ 41.6%
....................................................................................................................................
Average commission
rate paid $ 0.0262 $ 0.0457 $ 0.0540 $ -- $ -- $ -- $ --
....................................................................................................................................
Net assets, end of period
(in thousands) $152,353 $170,830 $167,118 $181,383 $203,303 $ 87,163 $ 45,792
....................................................................................................................................
</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
- --------------------------------------------------------------------------------
Unaudited April 30, 1998
- ------------------------
PORTFOLIO OF INVESTMENTS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
JAPAN 95.0%
Common Stocks 95.0%
Capital Equipment 37.2%
Apollo Electronics 17,000 $ 128
..........................................................................
Canon 240,000 5,676
..........................................................................
Daiwa House 214,000 1,730
..........................................................................
Denso 253,000 4,349
..........................................................................
Disco 8,000 230
..........................................................................
Fanuc 18,500 682
..........................................................................
Fuji Machine 14,000 400
..........................................................................
Fujitsu 182,000 2,125
..........................................................................
Hirose Electric 9,300 470
..........................................................................
Hitachi 433,000 3,105
..........................................................................
Horiba 3,000 34
..........................................................................
KOA 6,000 59
..........................................................................
Keyence 1,100 148
..........................................................................
Komori 127,000 2,159
..........................................................................
Kyocera 78,000 4,090
..........................................................................
Lasertec 7,000 159
..........................................................................
Mabuchi Motor 6,500 376
..........................................................................
Matsushita Communication Industrial 67,000 1,980
..........................................................................
Mitsubishi Heavy Industries 753,000 2,788
..........................................................................
Murata Manufacturing 137,000 4,017
..........................................................................
NEC 568,000 6,395
..........................................................................
National House Industrial 62,000 504
..........................................................................
Nichicon 7,000 76
..........................................................................
Nidec 6,800 365
..........................................................................
Nippon Denwa Shisetsu 39,000 164
..........................................................................
Rohm 20,000 2,258
..........................................................................
Seiko 12,000 49
..........................................................................
Shinkawa 12,600 219
..........................................................................
Sumitomo Electric Industries 272,000 3,241
..........................................................................
TDK 78,000 6,165
..........................................................................
Toa Medical Electronics 31,000 271
..........................................................................
Tokyo Electronics 57,000 2,240
..........................................................................
Zuiko 13,000 97
..........................................................................
Total Capital Equipment (Cost $66,340) 56,749
..............
9
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Consumer Goods 23.0%
Asahi Breweries 145,000 $ 1,899
...........................................................................
Citizen Watch 173,000 1,163
...........................................................................
Daiichi Pharmaceutical 227,000 3,257
...........................................................................
FCC 25,000 234
...........................................................................
Hokuto 4,400 120
...........................................................................
Honda Motor 31,000 1,124
...........................................................................
Hoya 12,000 397
...........................................................................
Kao 207,000 3,042
...........................................................................
Kawasumi Laboratories 36,000 562
...........................................................................
Kirin Beverage 15,000 294
...........................................................................
Matsushita Electric Industrial 286,000 4,582
...........................................................................
Pioneer Electronic 140,000 2,296
...........................................................................
Rohto Pharmaceutical 40,000 325
...........................................................................
Sankyo 194,000 4,808
...........................................................................
Santen Pharmaceutical 7,000 70
...........................................................................
Sharp 133,000 1,045
...........................................................................
Shiseido 121,000 1,596
...........................................................................
Sony 80,800 6,722
...........................................................................
Takeda Chemical Industries 50,000 1,428
...........................................................................
Total Consumer Goods (Cost $36,283) 34,964
..............
Financial 7.8%
Mitsui Fudosan 557,000 5,084
...........................................................................
Nichiei 4,950 385
...........................................................................
Nomura Securities 341,000 4,161
...........................................................................
Promise 6,400 325
...........................................................................
Shohkoh Fund 600 191
...........................................................................
Tachihi Enterprise 4,000 95
...........................................................................
Toc 25,750 239
...........................................................................
Tokio Marine & Fire Insurance 128,000 1,393
...........................................................................
Total Financial (Cost $14,823) 11,873
..............
Materials 6.6%
Chofu Seisakusho 2,500 37
...........................................................................
Fujimi 5,500 221
...........................................................................
Kuraray 286,000 2,416
...........................................................................
Noritsu Koki 10,000 298
...........................................................................
Sekisui Chemical 451,000 2,478
...........................................................................
Shin-Etsu Chemical 212,000 4,133
...........................................................................
Teijin 168,000 480
...........................................................................
Total Materials (Cost $12,897) 10,063
..............
10
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Services 20.4%
Circle K Japan 5,660 $ 233
...........................................................................
Computer Engineering & Consulting 6,000 80
...........................................................................
East Japan Railway 639 3,187
...........................................................................
Fuji Soft ABC 2,100 75
...........................................................................
Ito-Yokado 84,000 4,348
...........................................................................
Japan Airport Terminal 3,000 19
...........................................................................
Marui 315,000 4,975
...........................................................................
Marukyo 18,000 103
...........................................................................
Matsumotokiyoshi 7,300 252
...........................................................................
Meitec 7,600 250
...........................................................................
Mitsubishi 219,000 1,655
...........................................................................
NTT Data 115 4,971
...........................................................................
Nippon Telephone & Telecom 447 3,918
...........................................................................
Otsuka Kagu 1,900 87
...........................................................................
Paris Miki 16,600 267
...........................................................................
Ryohin Keikaku 2,100 179
...........................................................................
Sumitomo 407,000 2,337
...........................................................................
Toppan Forms 29,000 348
...........................................................................
Toppan Printing 256,000 3,043
...........................................................................
Uny 45,000 724
...........................................................................
Watami Food Service 4,000 83
...........................................................................
Total Services (Cost $33,995) 31,134
..............
Total Common Stocks (Cost $ 164,338) 144,783
..............
Total Japan (Cost $164,338) 144,783
..............
SHORT-TERM INVESTMENTS 5.5%
Money Market Funds 5.5%
Reserve Investment Fund, 5.65% 8,308,718 8,309
...........................................................................
Total Short-Term Investments (Cost $8,309) 8,309
..............
Total Investments in Securities
100.5% of Net Assets (Cost $172,647) $ 153,091
Other Assets Less Liabilities (738)
..............
NET ASSETS $ 152,353
--------------
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited April 30, 1998
- -----------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (cost $172,647) $ 153,091
Securities lending collateral pool 9,819
Other assets 9,148
..............
Total assets 172,058
..............
Liabilities
Securities lending collateral 9,819
Other liabilities 9,886
..............
Total liabilities 19,705
..............
NET ASSETS $ 152,353
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (174)
Accumulated net realized gain/loss - net of distributions (44,169)
Net unrealized gain (loss) (19,586)
Paid-in-capital applicable to 21,713,521 shares of
$0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized 216,282
..............
NET ASSETS $ 152,353
--------------
NET ASSET VALUE PER SHARE $ 7.02
--------------
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
4/30/98
Investment Income
Income
Dividend (net of foreign taxes of $ 107) $ 605
Interest 247
..............
Total income 852
..............
Expenses
Investment management 664
Shareholder servicing 224
Custody and accounting 84
Prospectus and shareholder reports 21
Registration 18
Legal and audit 9
Directors 3
Miscellaneous 3
..............
Total expenses 1,026
..............
Net investment income (174)
..............
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (32,649)
Foreign currency transactions (339)
..............
Net realized gain (loss) (32,988)
..............
Change in net unrealized gain or loss
Securities 12,236
Other assets and liabilities
denominated in foreign currencies (21)
..............
Change in net unrealized gain or loss 12,215
..............
Net realized and unrealized gain (loss) (20,773)
..............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (20,947)
--------------
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
4/30/98 10/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (174) $ (691)
Net realized gain (loss) (32,988) (6,749)
Change in net unrealized gain or loss 12,215 (13,653)
...........................
Increase (decrease) in net assets from operations (20,947) (21,093)
...........................
Capital share transactions*
Shares sold 117,302 216,647
Shares redeemed (114,832) (191,842)
...........................
Increase (decrease) in net assets from capital
share transactions 2,470 24,805
...........................
Net Assets
Increase (decrease) during period (18,477) 3,712
Beginning of period 170,830 167,118
...........................
End of period $ 152,353 $ 170,830
---------------------------
*Share information
Shares sold 16,255 24,169
Shares redeemed (15,981) (21,257)
...........................
Increase (decrease) in shares outstanding 274 2,912
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited April 30, 1998
- -----------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Japan Fund (the fund), a
diversified, open-end management investment company, is one of the
portfolios established by the corporation and commenced operations on
December 30, 1991.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities are valued at the last quoted sales price at
the time the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Investments in open-end mutual funds are valued at the closing net asset
value per share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are
15
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. Treasury securities as
collateral against the loans. Cash collateral received is invested in a
money market pooled account by the fund's lending agent. Collateral is
maintained over the life of the loan in an amount not less than 100% of the
value of loaned securities. Although risk is mitigated by the collateral,
the fund could experience a delay in recovering its securities and a
possible loss of income or value if the borrower fails to return them. At
April 30, 1998, the value of loaned securities was $9,500,000; aggregate
collateral consisted of $9,819,000 in the securities lending collateral
pool and U.S. Treasury securities valued at $263,000.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $58,396,000 and $56,944,000, respectively, for the
six months ended April 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. The fund has unused realized capital loss carryforwards
for federal income tax purposes of $11,181,000, of which $2,717,000 expires
in 2003, $2,049,000 in 2004, and $6,415,000 in 2005. The fund intends to
retain gains realized in future periods that may be offset by available
capital loss carryforwards.
16
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
At April 30, 1998, the aggregate cost of investments for federal income tax
and financial reporting purposes was $172,647,000, and net unrealized loss
aggregated $19,556,000, of which 3,421,000 related to appreciated
investments and $22,977,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc. (the
manager), which is owned by T. Rowe Price Associates, Inc. (Price
Associates), Robert Fleming Holdings Limited, and Jardine Fleming Holdings
Limited under a joint venture agreement.
The investment management agreement between the fund and the manager
provides for an annual investment management fee, of which $103,000 was
payable at April 30, 1998. The fee is computed daily and paid monthly, and
consists of an individual fund fee equal to 0.50% of average daily net
assets and a group fee. The group fee is based on the combined assets of
certain mutual funds sponsored by the manager or Price Associates (the
group). The group fee rate ranges from 0.48% for the first $1 billion of
assets to 0.30% for assets in excess of $80 billion. At April 30, 1998, and
for the six months then ended, the effective annual group fee rate was
0.32%. The fund pays a pro-rata share of the group fee based on the ratio
of its net assets to those of the group.
In addition, the fund has entered into agreements with Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the
fund receives certain other services. Price Associates computes the daily
share price and maintains the financial records of the fund. T. Rowe Price
Services, Inc., is the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc., provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $203,000 for the six months ended April 30, 1998, of which
$38,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds
(Spectrum) may invest. Spectrum does not invest in the underlying funds for
the purpose of exercising management or control. Expenses associated with
the operation of Spectrum are borne by each underlying fund to the extent
of estimated savings to it and in proportion to the average daily value of
its shares owned by
17
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Spectrum, pursuant to special servicing agreements between and among
Spectrum, the underlying funds, T. Rowe Price, and, in the case of T. Rowe
Price Spectrum International, Rowe Price-Fleming International. Spectrum
International Fund held approximately 3.6 % of the outstanding shares of
the Japan Fund at April 30, 1998. For the six months then ended, the fund
was allocated $18,000 of Spectrum expenses, $3,000 of which was payable at
period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the six months ended
April 30, 1998, totaled $229,000 and are reflected as interest income in
the accompanying Statement of Operations.
During the six months ended April 30, 1998, the fund, in the ordinary
course of business, placed security purchase and sale orders aggregating
$5,373,000 with certain affiliates of the manager and paid commissions of
$13,000 related thereto.
18
<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 the T. Rowe
Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning
Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
19
<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 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
................................................................................
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond+
International Bond
MONEY MARKET FUNDS++
................................................................................
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
................................................................................
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
................................................................................
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
*Formerly named Equity Index.
**Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
***Closed to new investors.
+Formerly named Global Government Bond.
++Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
20
<PAGE>
T. ROWE PRICE DISCOUNT BROKERAGE
- --------------------------------------------------------------------------------
DISCOUNT BROKERAGE
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate
all your investments with one company. Through T. Rowe Price Discount
Brokerage, you can buy and sell individual securities--stocks, bonds,
options, and others--as well as mutual funds at considerable
commission savings over full-service brokers.* We also provide a wide
range of services, including:
Automated Telephone and Internet Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a
week. Any trades executed through these programs provide additional
savings on commissions.**
Investor Information A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and select
stock reports, can help you better evaluate economic trends and
investment opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
*Based on an April 1998 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary by size of
order.
**Discount applies to our current commission schedule. All trades
subject to a $35 minimum commission except equity trades placed
through Internet-Trader, which are subject to a $29.95 minimum
commission.
21
<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
[T. ROWE PRICE LOGO APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor.
