T. Rowe Price
International Stock Portfolio
Semiannual Report
June 30, 1998
Dear Investor
International markets turned in sharply divergent performances in the second
quarter following broad strength at the beginning of the year. Most European
markets continued their ascent, encouraged by improving economic fundamentals,
buoyant fund flows, and a healthy level of merger and acquisition activity.
Japan was lackluster while Latin America was mostly weak in U.S. dollar terms.
PERFORMANCE REVIEW
Performance Comparison
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
International
Stock Portfolio 13.74% 5.04%
MSCI EAFE 16.08 6.38
Lipper Variable Annuity
Underlying International
Funds Average 16.25 9.42
Results were good for the six-month period ended June 30, largely because of the
portfolio's exposure to the powerful European markets. Returns for the full year
were only modest largely because of the sell-off in foreign markets at the end
of 1997. Performance was slightly behind the unmanaged Morgan Stanley Capital
Inter-national Europe Australasia Far East (EAFE) Index and the Lipper Variable
Annuity Underlying International Funds Average, since some of our leading
competitors have pushed their weightings in Europe to extreme levels and are
virtually absent from the Pacific stock markets. While your fund was relatively
underweighted in Europe, we believe our strategy of broad regional
diversification will continue to benefit shareholders over time. We also
maintained our preference for quality growth stocks, which underperformed other
equity sectors.
An important theme in world markets was the focus on recovering cyclicals and
restructuring stories, and against this background a number of our growth
favorites were left behind. A typical example would be the financial sector.
This is not a natural home for the growth stock investor but, just as in the
U.S., the sector has led a number of European markets, driven by a steady stream
of merger and acquisition stories. The financial sector is one of the largest in
most European markets and our underweighting, although reduced significantly
during the six months, has been uncomfortable. Another factor in stock selection
was our use of medium- and smaller-capitalization companies, many of which are
minor components of the index. We find growth much more attractively valued in
such stocks but, again, our choices trailed local indices during a period when
most of the action has been in large companies.
As mentioned, European markets took the lead, driven by signs of economic
recovery on the Continent and continued merger and acquisition activity. Even
the Pacific markets rallied at the beginning of the year, but in recent months
they faded again as the economy in Japan failed to recover and the secondary
effects of the Southeast Asian crisis began to emerge. Latin American stock
markets were weak as some of the economic reforms stalled and the emerging
market label impaired sentiment.
INVESTMENT REVIEW
Europe
Stock markets in Europe performed strongly during the past six months. A number
of forces were at work. First, the goal of monetary union took a step closer to
reality
Market Performance
Six Months Local Local Currency U.S.
Ended 6/30/98 Currency vs. U.S. Dollars Dollars
- --------------------------------------------------------------------------------
France 39.64% -0.50% 38.94%
Germany 37.25 -0.39 36.72
Hong Kong -26.15 0.00 -26.15
Italy 34.19 -0.53 33.47
Japan 4.04 -6.31 -2.52
Mexico -13.75 -10.03 -22.41
Netherlands 23.57 -0.34 23.15
Singapore -30.80 -0.27 -30.98
Sweden 30.04 -0.51 29.38
Switzerland 25.53 -3.84 20.72
United Kingdom 14.09 1.41 15.70
Source: FAME Information Services, Inc., using MSCI indices
with 11 of the member states achieving Maastricht economic convergence criteria,
thereby agreeing to link their currencies as a precursor to the introduction of
the euro in 1999. Only Greece failed the Maastricht test, and the remaining
three states-U.K., Sweden, and Denmark-have opted out of the Economic and
Monetary Union (EMU) for the time being. (See page 3.) Perhaps more important
than the symbolism, preparation for monetary union has required key European
economies to adopt far stronger fiscal measures than would otherwise have been
the case. Equally important, these economies are at about the same point in
their economic cycles, which means that a common monetary policy stands a better
chance of success. Aside from the rising optimism about EMU, the combination of
moderate inflation, steadily improving economic activity, and the realization
that Europe is relatively immune from the Asian crisis all contributed to the
strengths of European bourses.
Turning to individual countries, the U.K. economy continues to be ahead of the
cycle in Continental Europe. In fact, it has remarkable similarities to the U.S.
in the sense that steady growth has not yet triggered inflation despite some
signs of overheating in the economy. This is partly due to the strength of
sterling, which in turn has suppressed the export sector, but consumer
expenditure has been remarkably buoyant. This put the Bank of England, which is
now independently responsible for monetary policy, in something of a dilemma. If
it raised interest rates to moderate the domestic economy, sterling could have
risen further, putting the export sector under even more pressure. Conversely,
any decline in interest rates might help manufacturers but run the risk of
further stimulating the buoyant consumer sector. Faced with this dilemma, the
Bank decided to notch up rates 25 basis points, to 7.5%, on June 4.
The U.K. stock market performed well with attention focused on the service
sector, whereas the export companies were held back by the strength of sterling.
The financial sector led the way and our position in National Westminster Bank,
currently the portfolio's largest holding, recovered lost ground against its
peers. Although not part of the merger and acquisition activity, a heavy
cost-cutting program at this bank caught the investor's eye. Two other large
U.K. holdings, Glaxo Wellcome and SmithKline Beecham, made headlines when they
announced a merger that would have created the largest pharmaceutical company
outside the U.S. Unfortunately, the merger aborted over the inability of
management to agree on key executive positions in the new combine, and it was
frustrating to see stock prices slide away.
In Germany the economy continued to recover, steadily led by the export sector.
Unemployment has started to edge down but is still high compared with historical
levels, and this has undermined consumer confidence. Interest rates remained
stable despite the weakness of the deutschemark. We added to stocks in the
German banking system, including shares in Dresdner Bank. Although the portfolio
is underweight in Germany, a number of our larger holdings such as customer
software manufacturer SAP aided results.
In the Netherlands, our overweighting has begun to help results. We added to our
position in electronics giant Philips. Publishing companies Wolters Kluwer and
Elsevier, two important holdings, had been lagging since they abandoned their
merger earlier this year. Both companies pursued a successful strategy of
acquiring smaller publishers; together they would have been a formidable force,
but separately they are likely to compete with each other as smaller publishers
are bought out by their larger rivals. At least ING Groep, the financial holding
company, participated in Europe's booming financial sector, and the musical
publisher Polygram powered ahead as parent Philips announced it was considering
a spinoff.
France is showing signs of recovery from its awkward mix of high unemployment,
low growth, and a steady trade surplus. With France becoming one of the largest
of the new EMU countries, monetary policy will now lie in the hands of the new
European Central Bank, and this will ensure that an external discipline pushes
domestic reform. Despite this dull economic background, the stock market was one
of the leaders in Europe and our overweighting here was helpful. Strong
performance was seen in financial conglomerate AXA, retailer Pinault Printemps,
and caterer Sodexho, which has recently announced a tie-up with Marriott to gain
access to the U.S. market and improve economies of scale. We added to our
position in Societe Generale.
In Switzerland, the trend was similar to other markets with pharmaceuticals such
as Novartis and Roche lagging the market. Employment services company Adecco is
a good example of a European niche service company doing well, and our holding
here contributed strongly.
Far East
In contrast to the brighter picture in Europe, the economies of the Pacific
Basin continue to be in poor shape. In Japan, a range of problems plagued the
economy-some external, some self-induced. A large proportion of Japanese exports
go to the Pacific region, and the collapse in demand here has been unhelpful.
However, the most important factor is probably poor consumer sentiment, with
rising unemployment becoming a real source of concern. Corporate bankruptcies at
unprecedented levels simply add to the gloom. Foreign governments, particularly
the U.S., have tried to persuade Japan to ease fiscal policy, but Prime Minster
Hashimoto, who was the author of the ill-fated rising consumption tax last year,
found it politically difficult to reverse his position, and it is unclear what
course of action his successor will take.
1999: The Year of the Euro
On the first business day of 1999, several major Euro-pean countries will
officially inaugurate the Economic and Monetary Union (EMU) and adopt the euro
as a single European currency backed by the European Central Bank. The event
could be one of the most significant financial developments of the century,
creating a vast economic and currency bloc equal to the U.S. in size and power.
The euro should facilitate business transactions across European borders and
eliminate exchange rate costs. Since the euro has far-reaching implications for
investors and funds with exposure to European securities, it is important for
you to understand what is taking place.
The currencies of the original participating countries will become fixed-rate
units of the euro, much the same as the nickel, dime, quarter, and half dollar
are denominations of the U.S. dollar. The starting countries, which were
selected in May 1998, are Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, and Spain. The exchange rates for
their currencies versus the euro were also set in May and will officially be
determined by the end of 1998.
Country Currency Euro Rate
- --------------------------------------------------------------------------------
Austria Schilling 13.91
Belgium Franc 40.78
Finland Mark 6.01
France Franc 6.63
Germany Mark 1.98
Ireland Punt 0.80
Italy Lira 1,958.00
Luxembourg Franc 40.78
Netherlands Guilder 2.23
Portugal Escudo 202.70
Spain Peseta 168.20
Source: The Wall Street Journal, May 4, 1998
Beginning in January 1999, some European holdings will be redenominated in
euros, particularly government securities. The face value of other investments,
such as stocks, might remain in the existing national currencies for a time, but
they will be priced, settled, and valued in euros by stock exchanges and other
reporting agencies. Thus, some of the European holdings in your funds will be
valued in euros.
This will not affect the investment value of your funds in U.S. dollar terms,
since the euro will be converted into the dollar in the same way deutschemarks,
francs, lire, and other European currencies are currently converted at the
prevailing exchange rates.
During the transition period, which lasts from January 1, 1999, until June 30,
2002, other countries that have adopted the economic terms of the Maastricht
Treaty of 1993 (or are moving to do so) will be able to participate in the EMU.
The primary criteria for joining are:
o a sustainable budget deficit less than 3% of GDP;
o public debt less than 60% of GDP;
o inflation no higher than 1.5 percentage points above the average of the
three member countries with the lowest rates;
o interest rates no more than 2.0 percentage points above the average of the
three members with the lowest rates; and
o no currency devaluations within two years of application.
So far, the transition seems to be progressing smoothly, but there has been
resistance to some of the more stringent terms. French Socialists, in
particular, would prefer to maintain heavy government subsidies for social
programs, which would make it difficult to meet EMU budget deficit limits.
Therefore, the jury is still out on whether complete economic and monetary
convergence will be attained as planned.
Assuming all goes well, the national currencies of participating countries will
cease to exist and all accounting will be in euros following the transition
period. However, regardless of whether or not full convergence is realized on
the date specified, we do not expect pricing in euros to have any special impact
on the value of your investment. Of course, problems could develop that might be
unfavorable for the fund, but we do not anticipate them at this time.
Geographic Diversification
Europe Japan Latin Pacific Other and
America Rim Reserves
72% 15% 5% 4% 4%
Based on net assets as of 6/30/98.
To see the real extent of Japan's problems, one need look no further than the
banking sector itself. Following the bubble years of the late 1980s, Japan's
banks became overextended and are now saddled with substantial bad loans
particularly in the real estate sector. For a long time the Japanese authorities
seemed to deny the problems facing Japanese banks, whereas resolute action
earlier might have avoided the trauma now engulfing the financial sector. Last
November there was a series of unprecedented bankruptcies of which Hokkaido
Takushoku (Japan's tenth-largest bank) and Yamaichi Securities (one of Japan's
"big four" brokers) were the most prominent. Japanese bond yields recently
reached an all-time low of 1.3% but, although the economy is awash with money,
there is a worsening credit crunch as Japanese banks rein in their lending. As
bank lending declined, the scarcity of long-term capital fed through to lower
capital equipment orders and corporate expenditure programs have been put on
hold.
The stock market started the year well with investors optimistic that the worst
of the banking crisis was over and that the economy should now improve. More
recently, however, prices slipped as the news on the economy remained
unremittingly poor. Our strategy has been to underweight the market in general,
and we recently reduced our positions in blue chip exporters Canon and Pioneer,
which had performed relatively well.
Turning to Southeast Asia, we know from the Mexican experience that the
secondary effects of a massive currency devaluation may be slow to emerge but
are very traumatic when they eventually arrive. IMF-led reforms are slow to have
an effect whereas rapidly rising inflation-which we are now seeing in the
worst-hit Asian economies-is socially and financially disruptive.
Asia's financial crisis was certainly damaging, but not all the economies were
affected equally by a mix of currency devaluation and financial collapse. There
has been a slowdown in China, but the Chinese renminbi and the Hong Kong dollar
have been stable as the authorities managed to avoid a competitive devaluation
with the rest of the region. In Hong Kong we sold some positions, including real
estate developer New World Development and conglomerate Swire Pacific. Singapore
saw its dollar drift a little against the U.S. dollar but continued to show the
economic and political stability that makes it such an important regional
financial center. Our investment strategy for the region has been to avoid
almost completely the worst-hit economies, but we still have small positions in
Hong Kong, Singapore, and Australia that we believe have good long-term
potential.
Latin America
The stock markets of Latin America have been in a more somber mood this year. To
some degree, because they still carry the emerging market label, they are
affected when such markets generally perform poorly. However, fiscal reform in
Brazil seemed to slow down earlier in the year although recent signs have been
more encouraging. Indeed, the abolition of lifetime employment for civil
servants was a significant achievement. The other key issue in Brazil was the
large privatization program where Telebras, the national telecommunications
company and a core holding for us, is playing a central role. We believe this
program will provide more evidence that telecommunications is a growth business
in Brazil and will confirm that Telebras looks inexpensive compared with similar
companies throughout the world.
Sector Diversification
12/31/97 6/30/98
- --------------------------------------------------------------------------------
Services 26.0% 27.5%
Finance 19.0 20.9
Consumer Goods 20.4 19.0
Capital Equipment 11.5 11.9
Energy 11.3 10.5
Materials 4.3 3.9
Multi-industry 2.9 2.3
Miscellaneous 0.1 0.1
Reserves 4.5 3.9
- --------------------------------------------------------------------------------
Total 100.0% 100.0%
In Mexico the market was unexciting, but the economy itself made steady progress
and inflation is in slow but steady decline. The immediate problem was a
deterioration in the trade balance, partly caused by a weak oil price, but a
lower peso should help matters here.
INVESTMENT POLICY AND OUTLOOK
European markets completed a spectacular first half as returns of 40% were not
uncommon. Looking forward, we would not be surprised if high stock valuations
and the negative backdrop provided by Asia restricted progress in the second
half. Longer term, however, we believe supportive economic fundamentals and a
sharpened focus by corporate management on shareholder value will enable these
markets to rise further.
The outlook for Japan remains uncertain. Plans to restructure the financial
system and support the economy sound encouraging, but as so often in the past,
the reality may be less impressive than the plan. Japan's prospects are not
enhanced by discouraging developments in the rest of Asia. Smaller economies in
the region appear unable to trade their way out of difficulty and seem to favor
the idea of inflating away their debt burdens. This is in distinct contrast to
Latin America, where the economic fundamentals are more supportive and corporate
attitudes much more shareholder friendly. With stock valuations in Latin America
now at compelling levels, we are hopeful that these markets can decouple
themselves from events in Asia and perform well over the balance of the year.
Respectfully submitted,
Martin G. Wade
President
July 24, 1998
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/98
- --------------------------------------------------------------------------------
National Westminster Bank, United Kingdom 2.4%
Royal Dutch Petroleum, Netherlands 2.2
SmithKline Beecham, United Kingdom 2.0
Nestle, Switzerland 1.9
ING Groep, Netherlands 1.8
Wolters Kluwer, Netherlands 1.8
Diageo, United Kingdom 1.5
Glaxo Wellcome, United Kingdom 1.5
KBC Bankverzekerin Holding, Belgium 1.5
Vivendi, France 1.3
Shell Transport & Trading, United Kingdom 1.3
Telebras, Brazil 1.3
UBS, Switzerland 1.2
Novartis, Switzerland 1.2
Pinault Printemps, France 1.2
Kingfisher, United Kingdom 1.1
Reed International, United Kingdom 1.1
Telecom Italia, Italy 1.0
Total, France 1.0
Unilever, Netherlands 1.0
Canon, Japan 0.9
Astra, Sweden 0.9
Orkla, Norway 0.9
Sony, Japan 0.8
Roche Holdings, Switzerland 0.8
- --------------------------------------------------------------------------------
Total 33.6%
- --------------------------------------------------------------------------------
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.
International Stock Portfolio
As of 6/30/98
Lipper
Variable
Annuity
Underlying
International International
Stock Portfolio MSCI EAFE Funds Average
3/31/94 10,000 10,000 10,000
6/30/94 10,100 10,518 10,064
6/30/95 10,574 10,723 10,547
6/30/96 12,341 12,181 12,349
6/30/97 14,491 13,787 14,697
6/30/98 15,222 14,667 16,214
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.
International Stock Portfolio
Periods Ended 6/30/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
5.04% 12.91% 10.39% 3/31/94
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Total returns do not include charges imposed by your insurance company's
separate account. If these were included, performance would have been lower.
Financial Highlights
T. Rowe Price International Stock Portfolio
(Unaudited)
For a share outstanding throughout each period
-----------------------------------------------------
6 Months Year 3/31/94
Ended Ended to
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 12.74 $ 12.64 $ 11.26 $ 10.18 $ 10.00
Investment activities
Net investment income 0.15 0.12 0.09 0.07 0.06
Net realized and
unrealized gain (loss) 1.60 0.27* 1.55 1.06 0.12
Total from
investment activities 1.75 0.39 1.64 1.13 0.18
Distributions
Net investment income -- (0.12) (0.17) (0.05) --
Net realized gain -- (0.06) (0.09) -- --
In excess of net
realized gain -- (0.11) -- -- --
Total distributions -- (0.29) (0.26) (0.05) --
NET ASSET VALUE
End of period $ 14.49 $ 12.74 $ 12.64 $ 11.26 $ 10.18
-----------------------------------------------------
Ratios/Supplemental Data
Total return(C) 13.74%! 3.09% 14.70% 11.18% 1.80%
Ratio of expenses
to average net assets 1.05%! 1.05% 1.05% 1.05% 1.05%!
Ratio of net
investment income to
average net assets 2.19%! 1.10% 1.22% 1.47% 1.50%!
Portfolio turnover rate 8.5% 16.6% 9.7% 17.4% 4.6%!
Net assets,
end of period
(in thousands) $472,362 $369,400 $210,746 $ 51,661 $ 9,095
(C) 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.
* The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchange Commission for a share outstanding throughout
the period. This amount is inconsistent with the fund's aggregate gains and
losses because of the timing of sales and redemptions of fund shares in
relation to fluctuating market values for the investment portfolio.
! Annualized.
The accompanying notes are an integral part of these financial statements.
Portfolio of Investments
T. Rowe Price International Stock Portfolio
June 30, 1998 (Unaudited)
Shares/Par Value
In thousands
- --------------------------------------------------------------------------------
ARGENTINA 0.8%
Common Stocks 0.8%
Banco de Galicia Buenos Aires
(Class B) ADR (USD) 13,148 $ 240
Banco Frances del Rio ADR (USD) 16,357 375
Perez Companc (Class B) 97,198 488
Telefonica de Argentina
(Class B) ADR (USD) 27,020 876
YPF Sociedad Anonima
(Class D) ADR (USD) 58,296 1,753
Total Argentina (Cost $3,795) 3,732
AUSTRALIA 2.3%
Common Stocks 2.1%
AMP Limited 45,000 528
Australian Gas Light Company 117,151 735
Brambles Industries 29,000 571
Broken Hill Proprietary 87,222 739
Colonial Limited * 134,000 406
Colonial Limited, New * 14,600 3
Commonwealth Bank of Australia 74,391 870
Fosters Brewing Group 104,000 245
GIO Australia Holding 67,000 172
Goodman Fielder 239,000 349
John Fairfax Holdings 224,000 390
Lend Lease 28,681 581
National Australia Bank 38,124 504
News Corporation 121,681 996
Publishing & Broadcasting 110,000 475
Tabcorp Holdings 111,000 568
Telstra, Installment Receipts, 11/17/98 234,744 603
Westpac Bank 139,000 850
Woodside Petroleum 84,000 420
10,005
Preferred Stocks 0.2%
News Corporation 101,072 718
Star City Holdings * 348,800 204
922
Total Australia (Cost $10,792) 10,927
BELGIUM 2.2%
Common Stocks 2.2%
Dexia 3,996 602
Fortis 7,168 $ 1,831
Fortis, CVR, 6/30/01 * 7,168 0
Fortis, VVPR Strip * 7,168 0
Generale de Banque, VVPR Strip * 113 0
KBC Bankverzekerin Holding 78,500 7,029
UCB 173 898
Total Belgium (Cost $4,894) 10,360
BRAZIL 2.8%
Common Stocks 0.3%
Brazil Fund (USD) 1,700 31
Centrais Geradoras do Sul
(Class B) ADR (USD) * 339 2
Eletrobras 16,721,200 492
Eletrobras ADR (USD) 3,390 50
Gerasul Centrais * 16,721,200 23
Pao de Acucar GDS (USD) 16,460 372
Telecomunicacoes de Sao Paulo * 58,539 9
Telecomunicacoes de
Sao Paulo Celular * 58,539 2
Unibanco GDR (USD) 18,802 555
1,536
Preferred Stocks & Rights 2.5%
Banco Bradesco 52,879,646 441
Banco Itau 734,070 419
Brahma 753,640 469
Brasmotor 320,560 29
Cia Cimento Portland Itau 469,150 83
Cia Energetica Minas Gerais 14,334,541 446
Cia Energetica Minas Gerais
ADR, Sponsored, Nonvoting (USD) 21,607 681
Cia Tecidos Norte de Minas 376,450 57
Pao de Acucar GDS (USD) 1,555 35
Petrol Brasileiros 7,149,069 1,329
Telebras ADR (USD) 54,363 5,936
Telecomunicacoes de Minas
Gerais (Class B) 2,041,611 142
Telecomunicacoes de Minas
Gerais Celular (Class C) * 2,041,611 62
Telecomunicacoes de Minas
Gerias, Rights, 7/22/98* 1,255 0
Telecomunicacoes de
Sao Paulo 4,282,641 1,007
Telecomunicacoes de
Sao Paulo Celular * 4,282,641 356
Telecomunicacoes de
Sao Paulo, Rights,
7/8/98 * 204,025 $ 3
Telecomunicacoes do
Rio de Janeiro 1,242,719 94
Telecomunicacoes do
Rio de Janeiro, Rights,
7/9/98 * 11,208 0
Telecomunicacoes do
Rio de Janeiro Celular * 1,242,719 74
Unibanco, Units (Each unit
consists of 1 preferred share
and 1 Unibanco Holdings
(Class B) share) 280 0
11,663
Total Brazil (Cost $12,336) 13,199
CANADA 0.2%
Common Stocks 0.2%
Alcan Aluminum 22,680 624
Royal Bank of Canada 7,660 461
Total Canada (Cost $970) 1,085
CHILE 0.1%
Common Stocks 0.1%
Chilectra ADR (144a) (USD) 12,826 277
Compania Cervecerias
Unidas ADS (USD) 5,189 110
Enersis ADS (USD) 9,082 222
Santa Isabel ADR (USD) 426 5
Total Chile (Cost $718) 614
CHINA 0.2%
Common Stocks 0.2%
Huaneng Power International
(Class N) ADR (USD) * 56,500 759
Total China (Cost $1,146) 759
CZECH REPUBLIC 0.0%
Common Stocks 0.0%
SPT Telecom * 16,120 223
Total Czech Republic (Cost $202) 223
DENMARK 0.3%
Common Stocks 0.3%
Den Danske Bank 6,460 $ 776
Tele Danmark (Class B) 1,620 156
Unidanmark (Class A) 4,750 427
Total Denmark (Cost $923) 1,359
FINLAND 0.4%
Common Stocks 0.4%
Nokia 27,260 2,007
Total Finland (Cost $795) 2,007
FRANCE 10.6%
Common Stocks 10.6%
Accor 2,975 833
Alcatel Alsthom 15,748 3,206
AXA 22,089 2,484
Canal Plus 4,300 804
Carrefour 2,122 1,343
Cie de St. Gobain 12,120 2,247
Credit Commercial de France 16,795 1,414
Danone 8,390 2,313
Dexia France, Bearer 2,958 398
Dexia France, Registered 1999 2,820 380
Dexia France, Registered 2000 409 55
Elf Aquitaine 13,620 1,915
GTM Entrepose 3,520 366
L'Oreal 1,464 814
Lafarge 6,770 700
Lapeyre 6,870 640
Legrand 3,690 977
Pathe 1,977 387
Pinault Printemps 6,543 5,476
STMicroelectronics * 5,100 362
Sanofi 20,003 2,352
Schneider 34,622 2,761
Societe Generale 9,014 1,874
Sodexho Alliance 15,148 2,864
Television Francaise 12,760 1,978
Total (Class B) 35,798 4,654
Vivendi 29,830 6,370
Total France (Cost $34,877) 49,967
GERMANY 7.7%
Common Stocks & Warrants 7.0%
Allianz 7,490 $ 2,498
Bayer 38,382 1,988
Bayerische Hypotheken und
Wechsel Bank 30,992 1,966
Bayerische Vereinsbank 23,896 2,027
Bilfinger & Berger 12,060 414
Buderus 626 312
Commerzbank 11,490 438
Deutsche Bank 35,351 2,991
Deutsche Telekom 63,296 1,734
Dresdner Bank 31,966 1,728
Dresdner Bank, Warrants,
4/30/02 * 22,091 576
Gehe 53,001 2,843
Hoechst 14,940 752
Hornbach Baumarkt 690 34
Mannesmann 33,360 3,431
Rhoen Klinikum 7,650 757
SAP 6,080 3,692
Siemens 15,123 924
Veba 45,500 3,062
Volkswagen 914 883
33,050
Preferred Stocks 0.7%
Fielmann 1,562 55
Fresenius 2,370 449
Hornbach Holdings 5,480 501
SAP 3,280 2,228
3,233
Total Germany (Cost $27,131) 36,283
HONG KONG 1.1%
Common Stocks 1.1%
CLP Holdings 212,000 966
Hang Seng Bank 72,000 407
Henderson Land Development 200,000 660
Hong Kong and China Gas 418,400 475
Hong Kong Telecommunications 371,200 697
Hutchison Whampoa 352,000 1,858
Total Hong Kong (Cost $6,512) 5,063
INDIA 0.1%
Common Stocks 0.1%
Mahanagar Telephone
GDR (USD) * 35,000 $ 367
State Bank of India
GDR (USD) 22,800 270
Total India (Cost $741) 637
ITALY 5.2%
Common Stocks 5.2%
Assicurazioni Generali 52,480 1,707
Banca Commerciale Italiana 96,000 574
Banca di Roma * 1,101,000 2,293
Credito Italiano 598,601 3,135
ENI 436,655 2,863
Gucci Group (USD) 12,409 658
IMI 87,710 1,382
Industrie Natuzzi ADR (USD) 14,060 366
Istituto Nazionale delle
Assicurazioni 318,000 904
Italgas 86,000 350
Mediolanum 46,259 1,468
Rinascente 28,000 279
Telecom Italia 655,550 4,828
Telecom Italia Mobile 608,784 3,725
Total Italy (Cost $16,294) 24,532
JAPAN 15.2%
Common Stocks 15.2%
Advantest 7,700 415
Alps Electric 68,000 811
Amada 85,000 415
Canon 189,000 4,306
Citizen Watch 53,000 439
Daifuku 17,000 64
Daiichi Pharmaceutical 81,000 1,072
DaiNippon Screen
Manufacturing 107,000 440
Daiwa House 111,000 983
DDI 234 817
Denso 179,000 2,977
East Japan Railway 302 1,424
Fanuc 24,200 840
Fujitsu 40,000 422
Hitachi 218,000 1,427
Hitachi Zosen 130,000 $ 211
Honda Motor 11,000 393
Inax 39,000 135
Ito-Yokado 50,000 2,361
Kao 93,000 1,439
Kokuyo 55,000 935
Komatsu 115,000 561
Komori 49,000 934
Kuraray 126,000 1,074
Kyocera 46,000 2,256
Makita 72,000 833
Marui 134,000 2,006
Matsushita Electric Industrial 192,000 3,097
Mitsubishi 132,000 821
Mitsubishi Heavy Industries 573,000 2,171
Mitsui Fudosan 279,000 2,211
Murata Manufacturing 56,000 1,822
National House Industrial 22,000 169
NEC 308,000 2,880
Nippon Telegraph & Telephone 150 1,248
Nomura Securities 192,000 2,243
Pioneer Electronic 35,000 671
Sangetsu 10,000 129
Sankyo 131,000 2,994
Sega Enterprises 18,600 322
Sekisui Chemical 176,000 904
Sekisui House 108,000 840
Seven-Eleven Japan 16,000 956
Sharp 35,000 284
Shin-Etsu Chemical 105,000 1,822
Shiseido 65,000 741
Sony 46,200 3,993
Sumitomo 211,000 1,018
Sumitomo Electric Industries 278,000 2,821
Sumitomo Forestry 70,000 394
TDK 46,000 3,410
Tokio Marine & Fire Insurance 58,000 598
Tokyo Electronics 24,000 738
Tokyo Steel Manufacturing 39,700 205
Toppan Printing 104,000 1,116
Uny 57,000 928
Yurtec 10,000 60
Total Japan (Cost $87,648) 71,596
MEXICO 1.6%
Common Stocks 1.6%
Cemex (Class B) 85,250 $ 375
Cemex ADS (USD) 73,530 542
Cemex ADS (144a) (USD) 11,494 85
Cifra (Class V) ADR (USD) 4,881 71
Femsa UBD (Represents 1 Class B,
2 Series D (Class B) &
2 Series D (Class L)
shares) * 16,029 502
Gruma (Class B) * 80,766 176
Gruma (Class B) ADS
(144a) (USD) * 17,757 157
Grupo Financiero Banamex
(Class B) * 114,455 223
Grupo Financiero Banamex
(Class L) * 1,486 2
Grupo Financiero Bancomer (Class B)
GDS (USD) * 820 6
Grupo Financiero Bancomer
(Class L) 607 0
Grupo Industrial Maseca
(Class B) 237,010 173
Grupo Modelo (Class C) 63,014 535
Grupo Televisa ADR (USD) * 17,845 671
Kimberly-Clark Mexico
(Class A) 163,512 578
Panamerican Beverages (Class A)
(USD) 29,980 943
Telefonos de Mexico (Class L)
ADR (USD) 42,246 2,030
TV Azteca ADR (USD) 26,200 283
Total Mexico (Cost $7,567) 7,352
NETHERLANDS 10.8%
Common Stocks & Warrants 10.8%
ABN Amro Holdings 100,152 2,345
Ahold 41,161 1,322
Akzo Nobel 2,416 538
ASM Lithography Holding * 49,970 1,480
Baan Company (USD) * 10,790 386
CSM 38,121 1,832
Elsevier 237,954 3,594
Fortis Amev 44,700 2,619
ING Groep 122,135 8,003
ING Groep, Warrants, 3/15/01 * 25,920 $ 478
Koninklijke PTT Nederland 12,134 467
Numico 26,270 823
Philips Electronics 25,160 2,117
Polygram 31,201 1,593
Royal Dutch Petroleum 185,040 10,268
TNT Post Groep 12,134 310
Unilever 58,440 4,640
Wolters Kluwer 60,400 8,296
Total Netherlands (Cost $41,276) 51,111
NEW ZEALAND 0.2%
Common Stocks 0.2%
Fletcher Challenge Building 84,706 106
Fletcher Challenge Energy 78,876 189
Telecom Corporation
of New Zealand 138,000 570
Telecom Corporation of
New Zealand, Installment
Receipts, 3/31/99 41,000 87
Total New Zealand (Cost $1,342) 952
NORWAY 1.6%
Common Stocks 1.6%
Bergesen (Class A) 6,500 124
Norsk Hydro 69,457 3,058
Orkla 177,520 4,146
Saga Petroleum (Class B) 10,280 146
Total Norway (Cost $6,671) 7,474
PANAMA 0.0%
Common Stocks 0.0%
Banco Latinoamericano de
Exportaciones (Class E) (USD) 1,998 61
Total Panama (Cost $98) 61
PERU 0.1%
Common Stocks 0.1%
Credicorp (USD) 7,546 111
Telefonica del Peru (Class B) 7,030 14
Telefonica del Peru (Class B) ADR
(USD) 7,714 158
Total Peru (Cost $313) 283
PORTUGAL 0.5%
Common Stocks 0.5%
Jeronimo Martins 47,375 $ 2,276
Total Portugal (Cost $832) 2,276
RUSSIA 0.0%
Common Stocks 0.0%
Lukoil ADR (USD) 2,260 74
Rao Gazprom ADS (USD) 16,370 181
Total Russia (Cost $458) 255
SINGAPORE 0.1%
Common Stocks 0.1%
Singapore Press 52,085 349
Singapore Telecommunications 192,000 274
Total Singapore (Cost $1,061) 623
SOUTH KOREA 0.0%
Common Stocks 0.0%
Samsung Electronic 7,568 234
Total South Korea (Cost $635) 234
SPAIN 2.9%
Common Stocks 2.9%
Argentaria Banca de Espana 49,540 1,111
Banco Bilbao Vizcaya 18,640 957
Banco Popular Espanol 12,308 1,050
Banco Santander 113,814 2,913
Empresa Nacional de
Electricidad 63,208 1,383
Gas Natural 13,897 1,004
Iberdrola 78,840 1,280
Repsol 18,628 1,024
Telefonica de Espana 57,828 2,674
Telefonica de Espana, New * 5,257 243
Total Spain (Cost $8,643) 13,639
SWEDEN 3.6%
Common Stocks 3.6%
ABB (Class A) 85,130 1,206
Astra (Class B) 214,293 4,272
Atlas Copco (Class B) 49,390 1,347
Electrolux (Class B) 130,000 2,233
Esselte (Class B) 9,700 225
Granges 7,430 136
Hennes and Mauritz 56,740 $ 3,621
Nordbanken Holding 372,024 2,729
Sandvik (Class A) 6,010 166
Sandvik (Class B) 43,970 1,207
Scribona (Class B) 2,670 32
Total Sweden (Cost $12,242) 17,174
SWITZERLAND 6.6%
Common Stocks 6.6%
ABB 1,452 2,148
Adecco 5,897 2,664
Credit Suisse Group 12,530 2,792
Nestle 4,097 8,782
Novartis 3,298 5,497
Roche Holdings 396 3,895
UBS 15,073 5,614
Total Switzerland (Cost $22,726) 31,392
THAILAND 0.1%
Common Stocks 0.1%
Thai Farmers Bank 317,000 280
Total Thailand (Cost $743) 280
UNITED KINGDOM 18.7%
Common Stocks 18.7%
Abbey National 156,000 2,777
Asda Group 503,000 1,728
BG 163,823 948
British Petroleum 135,000 1,975
Cable & Wireless 315,000 3,829
Cadbury Schweppes 211,860 3,283
Caradon 379,700 1,167
Centrica * 153,000 260
Compass Group * 208,000 2,393
David S. Smith 185,000 596
Diageo 603,280 7,172
Electrocomponents 117,000 918
GKN * 40,000 510
Glaxo Wellcome 236,000 7,093
Heywood Williams Group 33,000 144
Hillsdown Holdings 72,000 196
John Laing (Class A) 72,000 475
Kingfisher 329,000 5,312
Ladbroke Group 226,000 1,241
National Westminster Bank 628,000 $ 11,230
Rank Group 254,000 1,395
Reed International 561,000 5,077
Rio Tinto 158,000 1,781
Rolls Royce 124,480 514
Safeway 292,500 1,917
Shell Transport & Trading 846,500 5,965
SmithKline Beecham 763,600 9,307
Tesco 247,000 2,435
Tomkins 642,500 3,489
United News & Media 234,000 3,274
Total United Kingdom (Cost $68,120) 88,401
VENEZUELA 0.1%
Common Stocks 0.1%
Compania Anonima Nacional
Telefonos de Venezuela
(Class D) ADR (USD) 10,690 267
Total Venezuela (Cost $351) 267
UNITED STATES 3.4%
Money Market Funds 3.4%
Reserve Investment Fund,
5.69% # 16,055,951 16,056
Total United States (Cost $16,056) 16,056
Total Investments in Securities
99.5% of Net Assets (Cost $398,908) $ 470,173
Other Assets Less Liabilities 2,189
NET ASSETS $ 472,362
----------
* Non-income producing
# Seven-day yield
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers-total of such securities at period-end amounts to
0.1% of net assets.
ADR American depository receipt
ADS American depository share
CVR Contingent Value Right
GDR Global depository receipt
GDS Global depository share
VVPR Entitles holders to a reduced rate of foreign withholding tax
USD U.S. dollar
The accompanying notes are an integral part of these financial statements.
Statement of Assets and Liabilities
T. Rowe Price International Stock Portfolio
June 30, 1998 (Unaudited)
In thousands
Assets
Investments in securities, at value (cost $398,908) $470,173
Securities lending collateral pool 31,472
Other assets 3,397
Total assets 505,042
Liabilities
Securities lending collateral 31,472
Other liabilities 1,208
Total liabilities 32,680
NET ASSETS $ 472,362
--------
Net Assets Consist of:
Accumulated net investment income-
net of distributions $ 4,736
Accumulated net realized gain/loss-
net of distributions (9,847)
Net unrealized gain (loss) 71,258
Paid-in-capital applicable to 32,592,012
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 406,215
NET ASSETS $ 472,362
---------
NET ASSET VALUE PER SHARE $ 14.49
---------
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price International Stock Portfolio
(Unaudited)
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend (net of foreign taxes of $822) $ 6,332
Interest 677
Total income 7,009
Expenses
Investment management and administrative 2,272
Net investment income 4,737
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (6,608)
Foreign currency transactions (138)
Net realized gain (loss) (6,746)
Change in net unrealized gain or loss
Securities 54,703
Other assets and liabilities
denominated in foreign currencies 7
Change in net unrealized gain or loss 54,710
Net realized and unrealized gain (loss) 47,964
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 52,701
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price International Stock Portfolio
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 4,737 $ 3,342
Net realized gain (loss) (6,746) 1,706
Change in net unrealized
gain or loss 54,710 (778)
Increase (decrease) in
net assets from operations 52,701 4,270
Distributions to shareholders
Net investment income -- (3,394)
Net realized gain -- (1,814)
In excess of net realized gain -- (2,994)
Decrease in net assets
from distributions -- (8,202)
Capital share transactions*
Shares sold 112,637 188,544
Distributions reinvested -- 8,202
Shares redeemed (62,376) (34,160)
Increase (decrease) in
net assets from capital
share transactions 50,261 162,586
Net Assets
Increase (decrease) during period 102,962 158,654
Beginning of period 369,400 210,746
End of period $ 472,362 $ 369,400
---------------------------------
*Share information
Shares sold 7,996 14,258
Distributions reinvested -- 646
Shares redeemed (4,406) (2,579)
Increase (decrease)
in shares outstanding 3,590 12,325
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price International Stock Portfolio
June 30, 1998 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Series, Inc. (the corporation) is registered under
the Investment Company Act of 1940. The International Stock Portfolio (the
fund), a diversified, open-end management investment company, is the sole
portfolio established by the corporation and commenced operations on March 31,
1994. The shares of the fund are currently being offered only to separate
accounts of certain insurance companies as an investment medium for both
variable annuity contracts and variable life insurance policies.
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.
Equity securities are valued at the last quoted sales price at the time the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in these securities or by an
independent pricing service. Short-term debt securities are valued at amortized
cost which approximates fair value.
Investments in open-end mutual funds are valued at the closing net asset value
per share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
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.
Emerging Markets At June 30, 1998, the fund held investments in securities of
companies located in emerging markets. Future economic or political developments
could adversely affect the liquidity or value, or both, of such securities.
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. Col-lateral 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 June 30, 1998, the value of loaned securities
was $30,411,000; aggregate collateral consisted of $31,472,000 in the securities
lending collateral pool and U.S. Treasury securities valued at $243,000.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $88,558,000 and $35,381,000, respectively, for the six
months ended June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income. At June 30, 1998, the aggregate cost of investments for federal
income tax and financial reporting purposes was $398,908,000, and net unrealized
gain aggregated $71,265,000, of which $99,473,000 related to appreciated
investments and $28,208,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming Inter-national, Inc. (the manager),
which is owned by T. Rowe Price Associates, Inc., Robert Fleming Holdings
Limited, and Jardine Fleming Holdings Limited under a joint venture agreement.
The investment management and administrative agreement between the fund and the
manager provides for an all-inclusive annual fee, of which $373,000 was payable
at June 30, 1998. The fee, computed daily and paid monthly, is equal to 1.05% of
the fund's average daily net assets. Pursuant to the agreement, investment
management, shareholder servicing, transfer agency, accounting, and custody
services are provided to the fund, and interest, taxes, brokerage commissions,
and extraordinary expenses are paid directly by the fund. 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 June
30, 1998, totaled $599,000 and are reflected as interest income in the
accompanying Statement of Operations.
During the six months ended June 30, 1998, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $4,726,000 with
certain affiliates of the manager and paid commissions of $9,000 related
thereto.
Invest With Confidence(registered trademark)
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to those who have received a
copy of the portfolio's prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP653 (6/98) K15-056 6/30/98
