<PAGE>
Semiannual Report
Japan
Fund
April 30, 1999
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
Report Highlights
- --------------------------------------------------------------------------------
Japan Fund
. Japan's equity markets recovered strongly during the past six months, with
technology, financial, and smaller companies benefiting most.
. Your fund posted 6- and 12-month returns well ahead of its peer group
average, primarily by maintaining positions in technology and small
companies.
. We continue to focus on corporate restructurings, as well as on the
burgeoning technology and telecommunications fields.
. Although investor sentiment has been positive, we remain cautious in view
of the weakness of the Japanese economy.
<PAGE>
Fellow Shareholders
The Japanese stock markets enjoyed powerful gains during the six months ended
April 30, 1999. In the midst of a global Internet stock frenzy, several emerging
markets in Asia and elsewhere appeared to recover from their 1998 troubles, and
concerns regarding the Japanese financial industry abated. The rally was led by
telecommunication and financial stocks; however, the real stars were small and
mid-size companies that had been abandoned by investors during the second and
third quarters of 1998.
During the six-month period, which encompassed the bulk of the rally, your fund
rose 40.48%. This result significantly exceeded the TSE First Section Index
(which represents large Japanese stocks) but did not keep pace with the TSE
Second Section Index (which tracks medium- and smaller-sized companies). The
fund outperformed the Lipper average of similar funds, as many competitors
failed to recognize the growth potential of medium and smaller companies. Our
peer group also had modest exposure, on average, to a
merger-and-acquisition-driven rally among global telecommunications companies,
and generally benefited less than your fund from the frenzied demand for
Internet-related stocks. Our modest holdings in undervalued mid-size and smaller
growth stocks, which included a basket of Internet-related companies, provided
an added boost to returns. For the 12-month period ended April 30, the fund
performed better than both the TSE First Section Index and the Lipper average;
however, it lagged the stronger performance of the TSE Second Section.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 4/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Japan Fund 40.48% 34.47%
................................................................................
TSE First Section Index 26.05 21.03
................................................................................
TSE Second Section Index 61.79 48.94
................................................................................
Lipper Japan Funds Average 35.93 29.94
................................................................................
1
<PAGE>
Market Review
A string of positive news and governmental stimulus efforts last fall
contributed to a significant "feel good" factor in the Japanese market in early
1999 and helped spark a rally from October's lows. Japan's government initiated
a bailout program of problem financial institutions, and many of Japan's major
corporations, including Sony, followed suit by announcing restructuring plans.
The value of the yen also stabilized, improving the prospects for and sentiment
toward Japan's major exporters. Although the large-cap market was led by
financial companies, particularly major banks and brokers, and the
telecommunications sector, even larger gains occurred among medium and smaller
companies.
Investors had all but abandoned smaller-company stocks by the autumn of 1998. At
that time, even companies with positive earnings outlooks and reasonable or even
markedly cheap valuations were virtually ignored. However, a successful initial
public offering by NTT Mobile Communications (NTT DoCoMo) in early November drew
attention to the active Japanese IPO market. The introduction of a more
efficient pricing method for IPOs, combined with conservative valuation levels,
resulted in consecutive successes for investors in smaller IPO stocks. The
global mad scramble to invest in Internet-related stocks also helped set fire to
Japan's smaller companies, reflected in the near 62% return of the TSE Second
Section Index. During this frenzied rally, it was not uncommon to see stock
prices double in a few weeks. Of course, valuations became stretched, and we
expect that only companies whose earnings growth can meet inflated expectations
will be able to sustain those valuations.
We expect that only companies whose earnings growth can meet inflated
expectations will be able to sustain their valuations.
The environment for larger companies improved as well, as the Obuchi government
rallied a consensus around its plans to revive the Japanese economy and its
weakened financial industry. Financial sector reform progressed further than
many veteran Japan observers expected, as evidenced by the decisive action of
the recently established Financial Supervisory Agency (FSA) to bail out failing
Long Term Credit Bank and Nippon Credit Bank. However, details regarding
scandalous bad debt cover-ups by members of these institutions have only just
started to come to light. The first phase of the Japanese tax system reforms
(or, at least, the anticipation surrounding it) also encouraged investors.
Effective corporate tax rates were cut to 46.4% from 50% in the 1998 fiscal
year, and fiscal year 1999 will see a drop to 40.9%. Corporations
2
<PAGE>
and investors should benefit from these lower tax rates and a more rational tax
system.
A significant number of companies announced meaningful restructuring plans
during the period. Even companies such as MHI and Mitsubishi Electric, which in
the past have been obdurate supporters of the status quo, have chosen to
undertake restructurings. Although skepticism persists regarding how swiftly
real changes might be implemented, the initial news is at least encouraging.
Still, the underlying fundamentals of the Japanese economy remain weak. GDP
growth declined by 2.5% in 1998 and is expected to fall by a similar amount for
the fiscal year ended in March. Industrial production, automobile sales, and
retail sales have remained at depressed levels. Corporate restructuring fueled
growth in the unemployment level, which reached another all-time high of 4.8% in
March. Related data showed that unemployment and the fear of unemployment had a
strong effect on household spending: one key measure of consumer confidence
dropped to its lowest level since data began being published in 1963. In an
attempt to boost consumption, the government distributed limited validity cash
coupons. The plan failed, however, because consumers merely used the coupons in
place of cash, rather than in addition to cash.
Portfolio Strategy
Our strategy continued to focus on reasonably valued companies with solid
fundamental growth. In general, we reduced positions in consumption-related
issues during the period, and increased our overweight exposure to technology
and export stocks. We also increased holdings in smaller growth stocks,
particularly in the telecommunications and Internet-related areas.
Our focus on technology and some smaller companies worked well. We built up a
position in Softbank (a holding company for e-commerce assets). We own a
significant amount of Nippon Telegraph & Telephone and NTT DoCoMo (Japan's
dominant telecom service providers), and established a stake in Secom, Japan's
leading provider of electronic security systems. These positions contributed to
fund returns, as did new holdings in fast-growing smaller companies such as real
estate concern Goldcrest and telecommunication backbone provider Nissho
Electronics.
More recently we took profits in a number of particularly strong stocks such as
software concern NTT Data, which had risen more than 60%
3
<PAGE>
[PIE CHART APPEARS HERE]
INDUSTRY DIVERSIFICATION
- --------------------------------------------------------------------------------
Capital Equipment 37%
Services 24%
Consumer Goods 21%
Financial 7%
Other and Reserves 6%
Materials 3%
Energy 2%
Based on net assets as of 4/30/99
in three months. We reinvested the proceeds in utilities and insurance in an
effort to trim some volatility from fund performance.
We continue to seek out and rigorously analyze companies undergoing
restructuring efforts. Our goal is to take positions only in firms where we can
expect clear and material earnings improvement within two to three years. For
example, we added Seiyu, a supermarket chain store operator that successfully
overhauled its senior management and corporate strategy. Similarly, we
established a position in Nemic Lambda, a power supply equipment company that
experienced nothing short of a coup d'etat. The management change reinstated a
president who was friendly with the firm's parent company, and subsequently, the
company has seen dramatic growth.
Outlook
Although Japan may finally be on the way toward the structural changes needed
for a real recovery, this is likely to be a multiyear process with much pain
still to be felt. As a result, a dark cloud is likely to hang over consumer
sentiment and overall consumption for some time. There are quite a few
fundamentally attractive niche companies in the market and in your portfolio,
but at this time valuations are beginning to look stretched.
At the most recent bilateral meeting in early May between Prime Minister Obuchi
and President Clinton, the Japanese government pledged to reinvigorate and
deregulate Japan's faltering economy. Specific mention was made of the
telecommunications, housing, pharmaceutical, financial services, and energy
industries. Japan also promised to take steps to improve competition and make
regulations more transparent across the regulatory system. We will continue to
monitor the potential impact of government initiatives as they are implemented.
Unfortunately, the longer-term outlook remains clouded. For example, despite
criticism, the government continues to use public funds to forgive bad bank
debts. In this case, political motives seem to
4
<PAGE>
have gained the upper hand over commercial logic: construction companies, which
are important supporters of the current administration, have benefited
handsomely from debt forgiveness. Forcing banks to forgive bad debts and swap
debt for equity will make the banks even weaker, as they are saddled with equity
in companies that would be bankrupt in the West.
Restructuring in Japan will remain . . . evolutionary rather than revolutionary,
piecemeal rather than wholesale, and hesitant rather than aggressive.
Restructuring in Japan will remain, by Western standards, evolutionary rather
than revolutionary, piecemeal rather than wholesale, and hesitant rather than
aggressive. Nonetheless, there is a real and accelerating reform trend, leading
to genuine profit growth enhancement for the medium term. Investors will need to
be both selective and skeptical, but we expect restructuring to be a key factor
driving stock performance in the coming years. We also see technology as an
important area of investment for the fund, as increasing attention is paid to
Japan's successful e-commerce, telecommunications, and software companies.
While the market is increasingly bullish in its outlook, it is important to note
that we expect the real economy to stay in the doldrums for some time. In
particular, the construction, real estate, and financial leasing areas are
vulnerable, and we will remain significantly underweighted in these sectors. In
all areas, we will carefully monitor corporate earnings and assess corporate
restructurings to determine if they will allow profit expectations to be met.
Overall, given our caution, we continue to favor quality companies that do not
carry a large amount of financial leverage and that are prepared to weather--or
even benefit from--a prolonged period of economic adjustment. 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
May 21, 1999
5
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
4/30/99
- --------------------------------------------------------------------------------
Matsushita Communication Industrial 4.0%
................................................................................
Nippon Telegraph & Telephone 3.6
................................................................................
Softbank 3.5
................................................................................
Sony 3.2
................................................................................
NTT Mobile Communications 2.9
- --------------------------------------------------------------------------------
Takeda Chemical Industries 2.7
................................................................................
TDK 2.6
................................................................................
Fujitsu 2.6
................................................................................
Nidec 2.4
................................................................................
Rohm 2.4
- --------------------------------------------------------------------------------
Hitachi 2.3
................................................................................
Honda Motor 2.3
................................................................................
Sanden 2.1
................................................................................
Mazda Motor 2.1
................................................................................
Nomura Securities 2.0
- --------------------------------------------------------------------------------
Mitsui Fudosan 1.9
................................................................................
NEC 1.9
................................................................................
Kuraray 1.9
................................................................................
Sumitomo Electric Industries 1.9
................................................................................
Canon 1.9
- --------------------------------------------------------------------------------
Tokyo Electric Power 1.9
................................................................................
Kao 1.8
................................................................................
Matsushita Electric Industrial 1.6
................................................................................
Murata Manufacturing 1.5
................................................................................
Sankyo 1.5
- --------------------------------------------------------------------------------
Total 58.5%
6
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
Japan Fund
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Index#1 Index#2 Fund-Line Fund-Area
------- ------- --------- ---------
12/30/91 10,000 10,000 10,000 10,000
Apr-92 7,199 7,995 8,860 8,860
Apr-93 10,609 10,777 11,160 11,160
Apr-94 11,500 11,930 12,434 12,434
Apr-95 11,539 11,358 11,576 11,576
Apr-96 11,900 12,296 12,421 12,421
Apr-97 8,266 9,136 9,920 9,920
Apr-98 6,738 7,626 8,241 8,241
Apr-99 8,155 9,599 11,083 11,083
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 4/30/99 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Japan Fund 34.47% -3.73% -2.28% 1.41% 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.
7
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
4/30/99 10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 6.72 $ 7.97 $ 9.02 $ 9.39 $ 11.64 $ 11.58
............................................................................................
Investment activities
Net investment income (0.01) (0.03) (0.03) (0.05) (0.04) (0.06)*
Net realized and
unrealized gain (loss) 2.73 (1.22) (1.02) (0.32) (1.40) 0.97
............................................................................................
Total from
investment activities 2.72 (1.25) (1.05) (0.37) (1.44) 0.91
............................................................................................
Distributions
Net realized gain -- -- -- -- (0.81) (0.85)
............................................................................................
NET ASSET VALUE
End of period $ 9.44 $ 6.72 $ 7.97 $ 9.02 $ 9.39 $ 11.64
--------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
<S>
Total return(*) 40.48% (15.68)% (11.64)% (3.94)% (12.87)% 9.25%*
....................................................................................................................................
Ratio of total expenses to
average net assets 1.22%+ 1.32% 1.24% 1.32% 1.50% 1.50%*
....................................................................................................................................
Ratio of net investment
income to average
net assets (0.17)%+ (0.37)% (0.39)% (0.48)% (0.48)% (0.68)%*
....................................................................................................................................
Portfolio turnover rate 74.3%+ 66.9% 32.3% 29.8% 62.4% 61.5%
....................................................................................................................................
Net assets, end of period
(in thousands) $ 266,334 $ 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.
+ Annualized
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Portfolio of Investments Shares Value
- --------------------------------------------------------------------------------
In thousands
JAPAN 94.7%
Common Stocks 94.7%
Capital Equipment 37.0%
Anritsu 301,000 $ 2,692
................................................................................
Canon 205,000 5,013
................................................................................
Daiwa House 259,000 3,091
................................................................................
Fuji Machine 11,000 392
................................................................................
Fujitsu 407,000 6,970
................................................................................
Hitachi 848,000 6,192
................................................................................
Komori 115,000 2,128
................................................................................
Kyocera 34,500 2,048
................................................................................
Mabuchi Motor 5,600 435
................................................................................
Matsushita Communication Industrial 150,000 10,764
................................................................................
Mitsubishi Heavy Industries 413,000 1,809
................................................................................
Mitsumi Electric 120,000 2,291
................................................................................
Murata Manufacturing 72,000 4,118
................................................................................
NEC 432,000 5,159
................................................................................
Nemic-Lambda K.K. 59,300 3,903
................................................................................
New Japan Radio 18,000 124
................................................................................
Nidec 49,100 6,373
................................................................................
Nissho Electronics 111,000 2,603
................................................................................
Rohm 52,000 6,270
................................................................................
Sanden 708,000 5,703
................................................................................
Sumitomo Electric Industries 424,000 5,130
................................................................................
TDK 93,000 7,032
................................................................................
Terumo 175,000 3,810
................................................................................
Tokyo Electronics 40,000 2,278
................................................................................
Tokyo Seimitsu 35,600 1,970
................................................................................
Union Tool 3,800 280
................................................................................
Total Capital Equipment 98,578
...........
Consumer Goods 21.0%
Ajinomoto 192,000 2,220
................................................................................
Asahi Breweries 283,000 3,687
................................................................................
Daiichi Pharmaceutical 136,000 2,209
................................................................................
9
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Portfolio of Investments Shares Value
- --------------------------------------------------------------------------------
In thousands
Fancl 13,000 $ 1,851
................................................................................
FCC 65,000 669
................................................................................
Homac 12,500 245
................................................................................
Honda Motor 137,000 6,034
................................................................................
Kao 192,000 4,872
................................................................................
Koha 30,000 1,010
................................................................................
Matsushita Electric Industrial 218,000 4,144
................................................................................
Mazda Motor 1,295,000 5,520
................................................................................
People 840 34
................................................................................
Sankyo 189,000 3,965
................................................................................
Santen Pharmaceutical 49,000 890
................................................................................
Sony Chemicals 38,700 1,960
................................................................................
Sony 71,200 6,648
................................................................................
Takeda Chemical Industries 167,000 7,258
................................................................................
Yamaha Motor 333,000 2,680
................................................................................
Total Consumer Goods 55,896
...........
Energy 1.9%
Tokyo Electric Power 232,700 4,969
................................................................................
Total Energy 4,969
...........
Financial 7.4%
Aeon Credit Service 15,400 1,328
................................................................................
Aiful 11,400 933
................................................................................
Goldcrest 32,000 1,632
................................................................................
Mitsui Fudosan 561,000 5,167
................................................................................
Nomura Securities 492,000 5,306
................................................................................
Shohkoh Fund 2,400 1,407
................................................................................
Tokio Marine & Fire Insurance 331,000 3,856
................................................................................
Total Financial 19,629
...........
Materials 2.6%
Fujimi 3,500 182
................................................................................
Kuraray 451,000 5,136
................................................................................
Sekisui Chemical 248,000 1,657
................................................................................
Total Materials 6,975
...........
10
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Portfolio of Investments Shares Value
- --------------------------------------------------------------------------------
In thousands
Services 24.2%
Bellsystem24 2,300 $ 907
................................................................................
Fuji Soft ABC 12,120 737
................................................................................
Fujitsu Support and Service 23,000 2,812
................................................................................
Ito-Yokado 47,000 2,885
................................................................................
Japan Business 68,000 1,070
................................................................................
Marui 188,000 3,119
................................................................................
Megachips 17,000 1,008
................................................................................
Mitsubishi 357,000 2,362
................................................................................
Mitsukoshi 1,282,000 3,693
................................................................................
Nippon Telegraph & Telephone 893 9,721
................................................................................
NTT Mobile Communication Network 130 7,620
................................................................................
Otsuka Kagu 7,000 879
................................................................................
Round One 227 844
................................................................................
Secom 36,000 3,515
................................................................................
Seiyu 385,000 2,305
................................................................................
Softbank 70,600 9,394
................................................................................
Sumitomo 380,000 2,807
................................................................................
Toppan Printing 201,000 2,417
................................................................................
Toyo Information 56,000 1,618
................................................................................
Uny 188,000 2,991
................................................................................
Watami Food Service 27,000 972
................................................................................
Yamada Denki 22,000 820
................................................................................
Total Services 64,496
...........
Miscellaneous 0.6%
Combi 151,000 1,593
................................................................................
Total Miscellaneous 1,593
...........
Total Common Stocks 252,136
...........
Total Japan (Cost $214,877) 252,136
...........
SHORT-TERM INVESTMENTS 4.9%
Money Market Funds 4.9%
Reserve Investment Fund, 5.01% # 13,011,065 13,011
................................................................................
Total Short-Term Investments (Cost $13,011) 13,011
...........
11
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Portfolio of Investments Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
99.6% of Net Assets (Cost $227,888) $265,147
Other Assets Less Liabilities 1,187
...........
NET ASSETS $266,334
-----------
# Seven day yield
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in securities, at value (cost $227,888) $ 265,147
Securities lending collateral 33,975
Other assets 3,623
.........
Total assets 302,745
.........
Liabilities
Obligation to return securities lending collateral 33,975
Other liabilities 2,436
.........
Total liabilities 36,411
.........
NET ASSETS $ 266,334
---------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (166)
Accumulated net realized gain/loss - net of distributions (39,676)
Net unrealized gain (loss) 37,267
Paid-in-capital applicable to 28,219,237 shares of
$0.01 par value capital stock outstanding;
2,000,000,000 shares of the Corporation authorized 268,909
.........
NET ASSETS $ 266,334
---------
NET ASSET VALUE PER SHARE $ 9.44
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
4/30/99
Investment Income
Income
Dividend (net of foreign taxes of $109) $ 619
Interest 258
Securities lending 131
........
Total income 1,008
........
Expenses
Investment management 786
Shareholder servicing 226
Custody and accounting 88
Prospectus and shareholder reports 32
Registration 28
Legal and audit 9
Directors 3
Miscellaneous 2
........
Total expenses 1,174
........
Net investment income (166)
........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 8,720
Foreign currency transactions (449)
........
Net realized gain (loss) 8,271
........
Change in net unrealized gain or loss
Securities 58,286
Other assets and liabilities
denominated in foreign currencies (40)
........
Change in net unrealized gain or loss 58,246
........
Net realized and unrealized gain (loss) 66,517
........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 66,351
--------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
T. Rowe Price Japan Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
4/30/99 10/31/98
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ (166) $ (563)
Net realized gain (loss) 8,271 (37,293)
Change in net unrealized gain or loss 58,246 10,822
.............................
Increase (decrease) in net assets from operations 66,351 (27,034)
.............................
Capital share transactions*
Shares sold 144,898 208,297
Shares redeemed (95,864) (201,144)
.............................
Increase (decrease) in net assets from capital
share transactions 49,034 7,153
.............................
Net Assets
Increase (decrease) during period 115,385 (19,881)
Beginning of period 150,949 170,830
.............................
End of period $ 266,334 $ 150,949
-----------------------------
* Share information
Shares sold 17,681 30,265
Shares redeemed (11,936) (29,231)
.............................
Increase (decrease) in shares outstanding 5,745 1,034
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
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.
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.
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
16
<PAGE>
T. ROWE PRICE JAPAN FUND
- --------------------------------------------------------------------------------
accepted accounting principles. Credits earned on daily, uninvested cash
balances at the custodian are used to reduce the fund's custody charges.
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. government 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, 1999, the value of loaned securities
was $32,118,000; aggregate collateral consisted of $33,975,000 in the securities
lending collateral pool.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $110,904,000 and $68,803,000, respectively, for the six
months ended April 30, 1999.
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. As of October 31, 1998, the fund had 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.
At April 30, 1999, the cost of investments for federal income tax purposes was
substantially the same as for financial reporting and totaled $227,888,000. Net
unrealized gain aggregated $37,259,000 at period-end, of which $46,259,000
related to appreciated investments and $9,000,000 to depreciated investments.
17
<PAGE>
T. ROWE PRICE JAPAN FUND
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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 $172,000 was payable at April
30, 1999. 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, 1999, 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.
(TRPS) is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price Retirement
Plan Services, Inc. provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. The fund incurred expenses
pursuant to these related party agreements totaling approximately $221,000 for
the six months ended April 30, 1999, of which $47,000 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 1.8% of the outstanding shares of the fund at April 30, 1999.
For the six months then ended, the fund was allocated $14,000 of Spectrum
expenses, $6,000 of which was payable at period-end.
18
<PAGE>
T. ROWE PRICE JAPAN FUND
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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, 1999, totaled
$256,000 and are reflected as interest income in the accompanying Statement of
Operations.
During the six months ended April 30, 1999, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $4,278,000 with
certain affiliates of the manager and paid commissions of $7,000 related
thereto.
19
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
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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
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of
order.
20
<PAGE>
T. ROWE PRICE MUTUAL FUNDS
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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 Growth & Income
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 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 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
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
+ Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
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.
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 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 appropriate to the fund or funds
covered in this report.
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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center Plaza 5
Mezzanine Level
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
(opens mid-June)
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F62-051 4/30/99
