<PAGE>
Annual Report
JAPAN
FUND
----------------
OCTOBER 31, 1998
----------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------------------------------------------------
Japan Fund
. Japanese stocks fell sharply once again during the six months ended October
31.
. The fund's returns for the past six and 12 months were -4.27% and -15.68%,
respectively, better than the Lipper average of similar funds for the shorter
period but not for the longer.
. The fund benefited from our focus on stable growth sectors, such as
pharmaceuticals and selected retailers, and from our avoidance of financial
stocks.
. Although Japan has a new government, vested interests still prevail. The
banking crisis is festering, and the economy is in recession.
. The Japanese market appears overvalued and still vulnerable. However, the
forces of change are gathering as never before, and the end of the long bear
market may be drawing closer.
<PAGE>
FELLOW SHAREHOLDERS
Turmoil in emerging markets around the globe, problems in the domestic financial
industry, and fading growth prospects for the overall economy resulted in
further declines in Japanese stocks during the six months ended October 31.
Hopes that the Japanese economy would begin to recover were dashed as the
outlook for not only 1998 but also 1999 turned negative. The sharp October rally
in the yen--to levels not seen since June 1997--helped narrow the fund's losses.
Reflecting the difficult environment, your fund suffered a decline over the past
six months, falling a bit more than the TSE First Section Index (which
represents large stocks) but less than the TSE Second Section Index (which
tracks medium- and smaller-sized companies). The fund outperformed the Lipper
average of similar funds for the six-month period, as many competitors had
greater exposure to the major exporters and lower weightings in more defensive,
domestic-oriented companies. Our overweighted positions in the more stable
growth sectors, such as pharmaceuticals and selected retailers, provided a
cushion against the bigger losses precipitated by a worsening of the outlook for
other industry sectors. Our decision to reduce our overweighting in
export-oriented stocks proved timely, as the yen's dramatic rebound, combined
with the perception that earnings growth for the export sector had peaked,
caused the stocks to underperform significantly. Limited holdings in the
financial sector, where the bad debts came in far higher than market
expectations, also prevented further losses. For our fiscal year ended October
31, the fund fell 15.68%, less than the indices but modestly behind the Lipper
average.
- --------------------------
PERFORMANCE COMPARISON
- --------------------------
Periods Ended 10/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Japan Fund - 4.27% - 15.68%
................................................................................
TSE First Section Index - 3.98 - 16.31
................................................................................
TSE Second Section Index - 7.94 - 21.67
................................................................................
Lipper Japan Funds Average - 6.40 - 13.24
................................................................................
1
<PAGE>
- --------------------------------------------------------------------------------
PREPARING FOR THE YEAR 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We plan to complete all
reprogramming efforts for the major application systems, including business
applications required to service our customers and processing infrastructure
necessary to ensure the integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. Our goal is to
identify any noncompliant files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we are taking steps to modify them where necessary for the
Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
2
<PAGE>
MARKET REVIEW
THE JAPANESE ECONOMY FELL INTO RECESSION FOR THE FIRST TIME SINCE THE EARLY
1990s, AS SECOND QUARTER GDP CONTRACTED 0.8% . . .
The Japanese economy fell into recession for the first time since the early
1990s, as second quarter GDP contracted 0.8% compared with the first quarter.
The 16.6 trillion yen stimulus package announced in April failed to provide the
much anticipated boost to economic activity. Fears of ballooning bad debts in
the banking system were confirmed by regular increases in estimates of those bad
debts, from 25 trillion yen in late 1997 to the current consensus of about 100
trillion yen. Opinion remained divided on whether the government and senior
banking executives were doing enough to resolve the situation. On the one hand,
several banks announced their withdrawal, in part or in whole, from unprofitable
overseas operations, as well as aggressive staff reduction plans--at least by
Japanese standards--of over 10% of total employees. On the other hand, financial
companies within recognized keiretsu groups announced mergers with one another
but failed to make any suggestion of meaningful streamlining, cost reductions,
or elimination of staff redundancies. This appeared to be a continuation of the
old convoy system in which larger, more financially secure institutions absorb
weaker competitors or affiliates rather than allowing them to go bankrupt.
The overall unemployment rate rose to 4.3%, with the rate for men climbing to
4.5%--astonishingly, higher than that of the United States. Almost all segments
of the economy were weak, with domestic auto sales falling by 17.1% in October.
Industrial production fell 8.4% in September from year-ago levels. Although
inventories appeared to have peaked, they remained high, and shipments continued
to slide. Housing starts fell 14% in September from a year earlier, making 21
consecutive monthly declines. Consumer sentiment was in the doldrums throughout
the past six months. Retail sales remained depressed with nationwide sales down
5.5% in September from a year ago. Household spending declined 1.5% in
September, following declines of 2.5% and 3.6% in the preceding two months.
Business sentiment was also worse than expected, as measured by September's
Tankan survey of business confidence, a key leading indicator for future growth
and capital expenditure. Sentiment among smaller companies was especially poor.
Earnings downgrades have been drastic and across most sectors. Oji Paper, Nissan
Motor,
3
<PAGE>
Nippon Steel, NEC, Toshiba, and Hitachi have all dramatically lowered forecasts
in recent months.
The poor performance of the ruling Liberal Democratic Party in July's election
was a reflection of the increasing dissatisfaction of a disgruntled nation. The
voter turnout of over 55% was a record, and the number of different parties
being represented clearly indicates the diversity of opinion and the level of
discontent with the government. The LDP was unable to maintain a majority in the
Upper House, and support for the fractious opposition parties was evenly spread,
making it difficult to identify a clear coalition partnership.
Then-Prime Minister and LDP President Ryutaro Hashimoto resigned from his posts
to "take responsibility" for the poor election result. Briefly, there was much
euphoria and hope that a new political leader would emerge who would have the
resolve to bring about necessary changes. In the end, however, the most
conservative and old-guard of the three leading candidates, Keizo Obuchi, became
the new party leader and prime minister. It seemed that the old Japan had
resurfaced, and the stock market registered its disappointment by falling to a
new low. The yen also weakened.
[PIE CHART APPEARS HERE]
Capital Equipment 39%
Services 24%
Consumer Goods 21%
Financial 6%
Materials 5%
Other and Reserves 5%
The ruling party's Total Plan, which superseded the various other fiscal
stimulus packages, sorely lacked details and has not convinced the market that
enough is being done to stimulate the economy or restore confidence in the
financial industry. Banks estimated their bad debts at 77 trillion yen and then
revised the total to 100 trillion yen. Of the official bad debts, up to 33
trillion yen is placed in Asia, for which it is alleged that there are reserves
of only 1% to 2% of the outstanding loans. The ambiguous wording of the latest
banking industry legislation and the newly established Financial Supervisory
Agency's (FSA) lack of resources, expertise, and self-confidence to forcefully
demand real change remained causes for concern. However, the exposure of a more
credible bad debt total and the
4
<PAGE>
nationalization of Long Term Credit Bank in October were clear steps in the
right direction and gave the FSA a measure of credibility.
The tax reform debate continues, and tax cuts of at least 7 trillion yen seem
likely. Tax cuts under consideration include lowering the highest marginal
individual rate to 50% from 65% and reducing the corporate tax rate by three
percentage points to 6%. Less popular changes, such as lowering the minimum
taxable income level and raising the tax on interest income and pension
contributions to implement revenue-neutral tax reform, are likely to be shelved
for the time being. As widely forecast, individual Japanese are saving their tax
rebates rather than spending them.
OVERALL, MOST OF THE WORK REMAINS AHEAD FOR THE GOVERNMENT.
Overall, most of the work remains ahead for the government. One thing is clear:
the longer the indecision, the weaker the economy is likely to become. The
banking sector's problems continue to worsen. The authorities have persistently
failed to confront and deal decisively with the bad debt exposure. Despite the
recently announced 60 trillion yen package, the risk of a credit crunch remains.
Added to this is the failure of Japanese banks to start dealing with their
mounting bad debt exposure to the rest of Asia.
On a historical basis, the Japanese market appears quite expensive. Based on
estimates for fiscal 1998, most fundamental valuation measures are significantly
less favorable than last year. Fiscal year pretax profits for the Japanese
market (excluding financial companies) are expected to decline more than 25%.
Consensus estimates for economic growth have been gradually revised downward,
suggesting a marked decline in 1998 and a further decline next year. One of the
few criteria under which the market appears reasonably valued is this year's
price/book value estimate of 1.5 for nonfinancials, which is lower than in any
of the previous 10 years. Another is enterprise value to cash flow, where the
ratios have recovered from the lows of 1993-94, due primarily to the strength of
the manufacturing sector and, more specifically, to the large operating cash
flows generated by the major technology and export companies.
5
<PAGE>
PORTFOLIO STRATEGY
Our strategy remained focused on solid growth companies. We continued to
overweight the technology and export sectors, although we trimmed some holdings.
We increased our weighting in cash-generating domestic stocks, maintained zero
exposure to bank stocks, and remained underweighted in the financial sector
overall.
In early summer, we purchased electronics stocks such as Rohm and Fujitsu on
weakness, as well as a domestic consumer company, Asahi Breweries. New purchases
were funded by the sale of economically sensitive companies such as Sumitomo
Electric and Sekisui House.
We increased our holdings of domestic-oriented companies with strong cash flow
and steady demand and maintained our overweighting in the pharmaceutical sector
with the addition of Takeda Chemical and a corresponding reduction in other drug
stocks. Fujitsu Support and Service, a new listing and a beneficiary of the
trend toward outsourcing information-technology functions, was another new
purchase. We continued to build exposure to medium-sized electronics companies
with the purchases of Mitsumi Electric, a CD-ROM specialist, and Tokyo Seimitsu,
which is the leading manufacturer of semiconductor testing equipment. Our
selling was concentrated in large blue chip manufacturers that had performed
well, such as Canon and Sharp, housing-related stocks, and defensive utilities
TEPCO and Osaka Gas, which had sharply outperformed.
We remained overweighted in export-oriented and technology stocks and added to
our position in Matsushita Communication Industrial. However, we reduced
exposure to semiconductor-related manufacturers, such as NEC, Matsushita
Electric Industrial, and Kyocera, because of concerns about continued global
oversupply. Concern about a possible slowdown in the U.S. economy prompted us to
reduce our overall exposure to the automotive industry with the sale of Denso, a
Toyota-affiliated compressor and car air conditioner manufacturer.
We continued to avoid city banks, and remained underweight in financials
generally, since recapitalization of the banking sector is likely to cause
significant earnings-per-share dilution. Banking reform remains a key
precondition to economic recovery, and the new financial legislation provides
the necessary tool for this reform. However, there was still widespread
skepticism that the government and the Ministry of Finance could muster the
political will to embrace such painful restructuring.
6
<PAGE>
The banks themselves, while clearly wanting new capital, seemed reluctant to
accept money with unpalatable conditions attached. The recent alliance between
Asahi and Tokai Banks, and the Dai-Ichi Kangyo Bank-Fuji Bank-Yasuda Trust &
Banking joint venture, suggested that the old mentality of minimal change still
prevailed.
OUTLOOK
The outlook for the Japanese equity market is unclear in the shorter term, and
much depends on the moves made by the new Obuchi government. It is difficult to
envision a Total Plan that will steer the nation toward sustained recovery
without sacrifices in the domestic economy.
IT IS OFTEN SAID THAT BEAR MARKETS REACH BOTTOM WHEN THEY HAVE FALLEN 80% FROM
THE BULL MARKET PEAK. THE NIKKEI DOW IS DOWN NEARLY 65% . . .
Several key factors will determine the medium-term direction of the Japanese
market. They are the impact of the Total Plan, the strength of domestic
consumption, and the competitiveness of Japanese corporations versus their Asian
counterparts in both overseas and domestic markets in an environment of currency
volatility and weak Asian demand. The downside risks are that 1) the Obuchi
government places the status quo and political survival above the needs of a
creaking economy; 2) the Total Plan is too bland and becomes yet another wave of
public spending to satisfy the needs of regional constituencies; 3) the old
convoy system is reactivated under the banner of strategic mergers and
acquisitions; and 4) incentives for individual domestic consumption are negated
by a battery of direct and indirect taxes and increases in health and pension
contributions. There is some concern that the level of economic pain may not yet
be high enough to force real reforms in the Japanese system. Vested political
and bureaucratic interests seem likely to outweigh reformist impulses for the
foreseeable future.
If market sentiment cannot be turned around, stocks could easily slide to new
lows, and the yen would weaken, thereby exacerbating the problems and placing
additional pressures on the already faltering Asian economies. In this
situation, consumption would remain weak and housing starts low, unemployment
would continue to hit record highs, and stocks would plummet. This would occur
despite the historically low weightings in Japanese equities currently
maintained by
7
<PAGE>
most foreign investors and the resultant potential for foreign cash inflows,
along with potential for buying by domestic pension funds and other local
sources. In this pessimistic scenario, export-oriented, internationally
competitive companies and technology leaders would outperform while the rest of
market would languish, as in the two-tiered market of 1996-97.
It is often said that bear markets reach bottom when they have fallen 80% from
the bull market peak. The Nikkei Dow is down nearly 65% from the peak of
December 1989. Arguably, Japanese equities were not allowed to fall as far as
they would have in the early 1990s because of government-directed support. If
the government is no longer mandating such support, as stated by Finance
Minister Kiichi Miyazawa, and the market is now finding its natural level, it is
difficult to argue that the present weakness is an overreaction.
The upside opportunities are that 1) real reforms are initiated by a
pro-reformist coalition government with a working majority; 2) the FSA acts as a
productive watchdog of the banking industry; 3) several more major financial
institutions and real estate and construction companies are forced to go
bankrupt and are dealt with within the new framework; and 4) tax incentives for
both individuals and corporations are fixed for a meaningfully long time, say
five years, to give domestic consumption a real chance to recover. In this
scenario, a strong market rally would ensue. However, valuations would likely
become stretched, and the market's loftier levels would not be sustainable for
long.
WE STRONGLY BELIEVE . . . THAT THE FORCES OF CHANGE ARE GATHERING.
We strongly believe, however, that the forces of change are gathering. The
increasing repricing of credit by lending institutions to reflect risk, and the
rerating of Japanese corporations by international credit rating agencies, will
lead to improved differentiation of corporate quality. Cross-shareholdings
between corporations have gradually declined over the past 10 years to an
estimated 45% in 1997, while the proportion of listed stocks held by investment
entities (pension funds, individuals, foreigners, and investment trusts)
increased 9% during the same period. As the proportion of shareholders who are
not motivated by returns diminishes and as the Big Bang financial reforms lift
legislative impediments, real merger and acquisition activity will increase. The
increasing incidence of share buybacks and the introduction of management
stock-option
8
<PAGE>
incentives are steps in the right direction. While these encouraging
developments do not mean Japan will transform itself overnight, the paralysis of
the "lost decade" is under pressure as never before, and this is gradually
forcing change for the better. The increasing focus on shareholder value, the
greater alignment of management's interests with company performance, 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.
In the current environment of persistent economic weakness and political
inertia, the most resilient Japanese companies will be those that benefit from
stronger overseas demand, particularly from Europe or the U.S., or that have
specific domestic niches with solid market share backed by globally competitive
proprietary products and processes. More than ever, we believe active stock
selection will be the key to superior fund performance.
Respectfully submitted,
/s/ Martin G. Wade
Martin G. Wade
President
November 23, 1998
9
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
- ----------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
10/31/98
- --------------------------------------------------------------------------------
Matsushita Communication Industrial 3.8%
..............................................................................
Sony 3.6
..............................................................................
Canon 2.8
..............................................................................
Nippon Telegraph & Telephone 2.8
..............................................................................
Ito-Yokado 2.8
- ------------------------------------------------------------------------------
Tokyo Electronics 2.7
..............................................................................
East Japan Railway 2.7
..............................................................................
Takeda Chemical Industries 2.4
..............................................................................
Murata Manufacturing 2.4
..............................................................................
Fujitsu 2.4
- ------------------------------------------------------------------------------
TDK 2.2
..............................................................................
Kao 2.1
..............................................................................
Mitsui Fudosan 2.0
..............................................................................
Mitsubishi Heavy Industries 2.0
..............................................................................
Shin-Etsu Chemical 2.0
- ------------------------------------------------------------------------------
Daiichi Pharmaceutical 2.0
..............................................................................
NTT Mobile Communication Network 1.9
..............................................................................
Nidec 1.9
..............................................................................
NEC 1.9
..............................................................................
NTT Data 1.8
- ------------------------------------------------------------------------------
Nomura Securities 1.8
..............................................................................
Marui 1.8
..............................................................................
Fujitsu Support and Services 1.8
..............................................................................
Tokyo Seimitsu 1.8
..............................................................................
Matsushita Electric Industrial 1.8
- ------------------------------------------------------------------------------
Total 57.2%
10
<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]
Date Index#1 Index#2 Fund-Line
12/30/91 10000 10000 10000
10/92 7558 7886 8580
10/93 10943 10974 11580
10/94 11899 12338 12652
10/95 10047 10533 11024
10/96 9924 10428 10589
10/97 7730 8512 9357
10/98 5538 7304 7889
- --------------------------------------
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 10/31/98 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Japan Fund -15.68% -10.55% -7.39% -3.41% 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.
11
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- -------------------------------------------------------------------------------------------------------------
Year
Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58
..................................................................................
Investment activities
Net investment income (0.03) (0.03) (0.05) (0.04) (0.06)*
Net realized and
unrealized gain (loss) (1.22) (1.02) (0.32) (1.40) 0.97
..................................................................................
Total from
investment activities (1.25) (1.05) (0.37) (1.44) 0.91
..................................................................................
Distributions
Net realized gain -- -- -- (0.81) (0.85)
..................................................................................
NET ASSET VALUE
End of period $ 6.72 $ 7.97 $ 9.02 $ 9.39 $ 11.64
----------------------------------------------------------------------------------
Ratios/Supplemental Data
Total return+ (15.68)% (11.64)% (3.94)% (12.87)% 9.25%*
.............................................................................................................
Ratio of expenses to
average net assets 1.32% 1.24% 1.32% 1.50% 1.50%*
.............................................................................................................
Ratio of net investment
income to average
net assets (0.37)% (0.39)% (0.48)% (0.48)% (0.68)%*
.............................................................................................................
Portfolio turnover rate 66.9% 32.3% 29.8% 62.4% 61.5%
.............................................................................................................
Net assets, end of period
(in thousands) $ 150,949 $ 170,830 $ 167,118 $ 181,383 $ 203,303
.............................................................................................................
</TABLE>
+ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
through 12/31/95.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
October 31, 1998
- --------------------------
PORTFOLIO OF INVESTMENTS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
JAPAN 94.7%
Common Stocks 94.7%
Capital Equipment 39.2%
Anritsu 176,000 $ 1,389
................................................................................
Apollo Electronics 17,000 107
................................................................................
Canon 226,000 4,275
................................................................................
Daiwa House 227,000 2,561
................................................................................
Disco 8,000 226
................................................................................
Fanuc 59,900 1,798
................................................................................
Fuji Machine 11,000 324
................................................................................
Fujitsu 338,000 3,595
................................................................................
Hirose Electric 5,900 342
................................................................................
Hitachi 508,000 2,584
................................................................................
Horiba 3,000 28
................................................................................
Hoya 6,000 257
................................................................................
KOA 6,000 46
................................................................................
Keyence 1,100 110
................................................................................
Komori 104,000 1,909
................................................................................
Kyocera 41,300 1,824
................................................................................
Lasertec 7,000 174
................................................................................
Mabuchi Motor 5,600 365
................................................................................
Matsushita Communication Industrial 125,000 5,779
................................................................................
Mitsubishi Heavy Industries 797,000 3,076
................................................................................
Mitsumi Electric 107,000 1,909
................................................................................
Murata Manufacturing 107,000 3,607
................................................................................
NEC 379,000 2,806
................................................................................
Nichicon 7,000 76
................................................................................
Nidec 31,400 2,858
................................................................................
Nippon Denwa Shisetsu 17,000 53
................................................................................
Obara 7,000 69
................................................................................
Rohm 28,000 2,474
................................................................................
Sanden 242,000 1,495
................................................................................
Shinkawa 2,300 22
................................................................................
Sumitomo Electric Industries 222,000 2,457
................................................................................
Sysmex 31,000 308
................................................................................
TDK 50,000 3,294
................................................................................
Tokyo Electronics 127,000 4,129
................................................................................
13
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Tokyo Seimitsu 85,800 $ 2,686
................................................................................
Union Tool 3,800 140
................................................................................
Total Capital Equipment 59,152
..............
Consumer Goods 21.1%
Asahi Breweries 154,000 2,199
................................................................................
Citizen Watch 183,000 1,011
................................................................................
Daiichi Pharmaceutical 180,000 3,003
................................................................................
FCC 25,000 214
................................................................................
Hokuto 5,720 103
................................................................................
Honda Motor 83,000 2,492
................................................................................
Kao 159,000 3,219
................................................................................
Kawasumi Laboratories 29,000 485
................................................................................
Kirin Beverage 1,000 19
................................................................................
Koha 13,000 242
................................................................................
Matsushita Electric Industrial 181,000 2,657
................................................................................
Mercian 53,000 240
................................................................................
People 4,300 125
................................................................................
Pioneer Electronic 101,000 1,663
................................................................................
Rohto Pharmaceutical 12,000 87
................................................................................
Sankyo 93,000 2,098
................................................................................
Santen Pharmaceutical 18,000 309
................................................................................
Shiseido 128,000 1,401
................................................................................
Sony 85,800 5,446
................................................................................
Takeda Chemical Industries 111,000 3,609
................................................................................
Yamaha Motor 188,000 1,305
................................................................................
Total Consumer Goods 31,927
................................................................................
Financial 5.7%
Aeon Credit Service 4,400 264
................................................................................
Mitsui Fudosan 465,000 3,087
................................................................................
Nichiei 4,000 323
................................................................................
Nomura Securities 361,000 2,725
................................................................................
Shohkoh Fund 1,100 335
................................................................................
TOC 25,000 234
................................................................................
Tachihi Enterprise 2,000 42
................................................................................
Tokio Marine & Fire Insurance 136,000 1,546
................................................................................
Total Financial 8,556
..............
14
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Materials 5.1%
Chofu Seisakusho 2,500 $ 22
................................................................................
Fujimi 5,500 184
................................................................................
Kuraray 233,000 2,484
................................................................................
Sekisui Chemical 361,000 1,966
................................................................................
Shin-Etsu Chemical 152,000 3,025
................................................................................
Total Materials 7,681
..............
Services 23.5%
Computer Engineering & Consulting 10,000 153
................................................................................
Data Communication System 1,500 24
................................................................................
East Japan Railway 679 4,025
................................................................................
Fuji Soft ABC 3,700 140
................................................................................
Fujitsu Support and Service 54,000 2,710
................................................................................
Ito-Yokado 72,000 4,200
................................................................................
Japan Airport Terminal 24,000 127
................................................................................
Marui 156,000 2,716
................................................................................
Marukyo 18,000 96
................................................................................
Matsumotokiyoshi 7,300 275
................................................................................
Megachips 4,000 113
................................................................................
Meitec 6,100 118
................................................................................
Mitsubishi 232,000 1,228
................................................................................
NTT Data 647 2,736
................................................................................
NTT Mobile Communication Network 80 2,889
................................................................................
Nippon Telegraph & Telephone 542 4,240
................................................................................
Paris Miki 16,600 279
................................................................................
Ryohin Keikaku 23,200 2,507
................................................................................
Sanix 5,200 103
................................................................................
Sumitomo 431,000 2,063
................................................................................
Toppan Printing 190,000 1,947
................................................................................
Toyo Information 9,000 139
................................................................................
Uny 151,000 2,461
................................................................................
Watami Food Service 11,000 284
................................................................................
Total Services 35,573
..............
Miscellaneous 0.1%
Roland 7,300 140
................................................................................
Total Miscellaneous 140
..............
Total Common Stocks (Cost $164,056) 143,029
..............
Total Japan (Cost $164,056) 143,029
..............
15
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
SHORT-TERM INVESTMENTS 5.3%
Money Market Funds 5.3%
Reserve Investment Fund, 5.41% # 7,976,072 $ 7,976
................................................................................
Total Short-Term Investments (Cost $7,976) 7,976
..............
Total Investments in Securities
100.0% of Net Assets (Cost $172,032) $ 151,005
Other Assets Less Liabilities (56)
..............
NET ASSETS $ 150,949
--------------
# Seven-day yield
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
October 31, 1998
- -------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (cost $172,032) $ 151,005
Securities lending collateral pool 40,980
Other assets 1,892
................
Total assets 193,877
................
Liabilities
Securities lending collateral 40,980
Other liabilities 1,948
................
Total liabilities 42,928
................
NET ASSETS $ 150,949
----------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ (47,947)
Net unrealized gain (loss) (20,979)
Paid-in-capital applicable to 22,474,424 shares of
$0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized 219,875
................
NET ASSETS $ 150,949
----------------
NET ASSET VALUE PER SHARE $ 6.72
----------------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
- -------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/98
Investment Income
Income
Dividend (net of foreign taxes of $167) $ 944
Interest 436
Securities lending 78
................
Total income 1,458
................
Expenses
Investment management 1,261
Shareholder servicing 470
Custody and accounting 164
Prospectus and shareholder reports 62
Registration 37
Legal and audit 17
Directors 6
Miscellaneous 4
................
Total expenses 2,021
................
Net investment income (563)
................
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (36,753)
Foreign currency transactions (540)
................
Net realized gain (loss) (37,293)
................
Change in net unrealized gain or loss
Securities 10,764
Other assets and liabilities
denominated in foreign currencies 58
................
Change in net unrealized gain or loss 10,822
................
Net realized and unrealized gain (loss) (26,471)
................
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (27,034)
----------------
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
- ------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
10/31/98 10/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (563) $ (691)
Net realized gain (loss) (37,293) (6,749)
Change in net unrealized gain or loss 10,822 (13,653)
.............................
Increase (decrease) in net assets from operations (27,034) (21,093)
.............................
Capital share transactions*
Shares sold 208,297 216,647
Shares redeemed (201,144) (191,842)
.............................
Increase (decrease) in net assets from capital
share transactions 7,153 24,805
.............................
Net Assets
Increase (decrease) during period (19,881) 3,712
Beginning of period 170,830 167,118
.............................
End of period $ 150,949 $ 170,830
- --------------------------------------------------------------------------------
*Share information
Shares sold 30,265 24,169
Shares redeemed (29,231) (21,257)
.............................
Increase (decrease) in shares outstanding 1,034 2,912
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
October 31, 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 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 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.
20
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
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
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 October 31, 1998, the value of loaned
securities was $38,924,000; aggregate collateral consisted of $40,980,000 in the
securities lending collateral pool.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $103,892,000 and $98,618,000, respectively, for the year
ended October 31, 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 $47,934,000, of which $2,717,000 expires in 2003,
$2,049,000 in 2004, and $43,168,000 thereafter through 2006. The fund intends to
retain gains realized in future periods that may be offset by available capital
loss carryforwards.
21
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
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, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
Undistributed net investment income $ 563,000
Undistributed net realized gain 527,000
Paid-in-capital (1,090,000)
At October 31, 1998, the cost of investments for federal income tax purposes was
substantially the same as for financial reporting and totaled $172,032,000. Net
unrealized loss aggregated $21,027,000 at period end, of which $8,537,000
related to appreciated investments and $29,564,000 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 $99,000 was payable at October
31, 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 October 31, 1998, 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.
(TRPS) is the fund's transfer and dividend disbursing agent and provides share-
22
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
holder 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 $432,000 for the year
ended October 31, 1998, of which $51,000 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 2.5% of the outstanding shares of the Japan Fund at October
31, 1998. For the year then ended, the fund was allocated $34,000 of Spectrum
expenses, $4,000 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 and
Government 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,
1998, totaled $439,000 and are reflected as interest income in the accompanying
Statement of Operations.
During the year ended October 31, 1998, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $13,388,000 with
certain affiliates of the manager and paid commissions of $29,000 related
thereto.
23
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
- -----------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of T. Rowe Price International Funds, Inc.
and Shareholders of Japan Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 Japan Fund (one of the portfolios
constituting T. Rowe Price International Funds, Inc., hereafter referred to as
the "Fund") at October 31, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 18, 1998
24
<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.
25
<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 10/31/98
