T. Rowe Price
International Stock Portfolio
Annual Report
December 31, 1998
Dear Investor
Volatility was the trademark of 1998. The interrelated catalysts for market
turbulence included debt crises in emerging markets, currency instability,
sudden interest rate changes, and speculative capital flows. Sharp fourth
quarter rallies in nearly all markets ended the year on a strong note, as
investors responded positively to policymakers' actions. Europe was the
strongest market outside the U.S., as preparations for the advent of the euro on
January 1, 1999, went smoothly and were accompanied by interest rate cuts in the
Euro Zone. Most Asian markets recovered in the second half, while Latin America
was the worst-performing region.
PERFORMANCE REVIEW
Performance Comparison
---------------------------------------------------------------------------
Periods Ended 12/31/98 6 Months 12 Months
International Stock
Portfolio 1.86% 15.86%
MSCI EAFE * 3.66 20.33
Lipper Variable Annuity
Underlying International
Funds Average - 2.68 13.26
*Net of withholding taxes.
The International Stock Portfolio delivered solid results last year,
gaining 15.86% to outpace the Lipper Variable Annuity Underlying
International Funds Average return of 13.26%, as shown in the table.
Results fell short of the unmanaged Morgan Stanley Capital International
Europe Australasia Far East (MSCI EAFE) Index, however, due in part to our
modest position in Latin America, which is not represented in the index.
Our underweighting in Japan and the rest of Asia was beneficial for most of
the year, but hurt performance in the second half. Your portfolio's
concentration in quality growth stocks proved an advantage over the Lipper
average in the second half, as these stocks were more resistant during the
summer correction and rebounded strongly late in the year. This is
reflected in the portfolio's six-month return of 1.86%, versus -2.68% for
our average competitor. The single-digit gains for the second half in both
the EAFE index and your portfolio reflect the sharp third quarter plunge in
the wake of Russia's de facto default, which was followed by a rally in the
fourth quarter.
For most of the year, Europe provided the safest markets for the
international investor as its economies made steady progress and its
currencies strengthened against the U.S. dollar. Although these markets
went through an uncomfortable period in late summer, the advent of Economic
and Monetary Union (EMU) on New Year's Day was an important milestone in
the history of European integration and presents opportunities for both
corporations and investors. In contrast, Japan's economy continued to be
disappointing and a recession seems to have widened its grip. Concern
focused on the inability of the authorities to confront the country's
banking crisis, and a stream of disappointing corporate earnings also
damaged sentiment. Elsewhere in Asia, the erstwhile tiger economies may
have reached bottom following the financial collapse in 1997, and
authorities in Hong Kong were able to fight off speculators and maintain
the currency peg to the U.S. dollar. Pacific Rim markets outside Japan fell
2% in dollar terms, while Japanese stocks gained more than 5% on the
strength of a late rally in the yen, which rose more than 23% in the second
half, as shown in the table on page 3.
In Latin America, President Cardoso of Brazil was reelected during the
fourth quarter on a platform emphasizing the need for severe fiscal
cutbacks, and the International Monetary Fund followed through with a $42
billion aid package. In response, Latin American markets rose 7% in the
last three months of the year. However, Latin equities still lost 35% for
the full year, as investors feared-with some justification, as it turned
out-that Brazil would succumb to the spreading currency and economic
crisis. Brazil's devaluation of the real in January is the "other shoe"
that investors had been expecting to drop. The question now is how far the
repercussions will spread.
YEAR-END DISTRIBUTIONS
Your Board of Directors declared an income dividend of $0.17 per share and
a short-term capital gain of $0.06 per share. Both were paid on December 17
to shareholders of record on December 15. You should have already received
a statement reflecting these distributions.
Preparing for the Year 2000
The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millennium. The issue for investors is that many
computer programs throughout the world use two digits instead of four to
identify the year and may assume the next century starts with 1900. If
these programs are not modified, they will not be able to correctly handle
the century change when the year changes from "99" to "00" on January 1,
2000, and they will no longer be able to perform necessary functions. The
Year 2000 issue affects all companies and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
Our Plan of Action
We began to address these issues several years ago by requiring that all
new systems process and store four-digit years. All critical systems have
been reprogrammed (including business applications required to service our
customers and processing infrastructure necessary to ensure the integrity
of customer data and investments), and they are currently being tested.
Because we exchange data electronically with customers and vendors, we are
working with them to assess the adequacy of their own compliance efforts.
Our goal is to ensure the continuation of the same level of service to all
our mutual fund shareholders and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be
able to modify their interface files prior to December 31, 1999. In
addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and
calculations function properly as we move into the next century.
Smooth Transition Planned
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products
or services to our retail mutual fund shareholders, retirement plan
sponsors, and participants, and we have modified them where necessary for
the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test
of Year 2000 readiness. The test was considered successful in terms of
transactions completed and will serve as the basis for the SIA's
industry-wide approach. During October 1998, T. Rowe Price completed its
beta test of Year 2000 readiness with the SIA and is ready for the
industry-wide test that is scheduled for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(www.troweprice.com).
INVESTMENT REVIEW
Market Performance
Six Months Local Local Currency U.S.
Ended 12/31/98 Currency vs. U.S. Dollars Dollars
--------------------------------------------------------------------------
France - 5.54 8.23% 2.24%
Germany - 12.34 8.37 - 5.00
Hong Kong 31.44 0.02 31.46
Italy 6.48 7.80 14.78
Japan - 12.24 23.04 7.97
Mexico - 6.33 - 9.44 - 15.17
Netherlands - 7.15 8.39 0.64
Singapore 23.28 2.39 26.24
Sweden - 10.02 - 1.61 - 11.47
Switzerland - 6.95 10.43 2.76
United Kingdom 2.11 - 0.28 1.82
Source: FAME Information Services, Inc., using MSCI indices.
Europe
European stocks were hit hard over the summer by the Russian default, but
rallied strongly in the fourth quarter to finish the year with gains for
U.S. investors on a par with Wall Street, helped in part by a weaker
dollar. European stocks, as measured by the MSCI Europe Index, rose nearly
29% in dollar terms, better than 1997's 24% gain. The prospect of a smooth
launch for EMU was greeted warmly by investors. The advent of a single
currency means greater transparency to the single market and real cost
savings for business. For some time now there has been much merger and
acquisition activity as corporations positioned themselves for this change.
This was one factor fueling strong markets in Europe, but pension fund
reform and the prospect of converting savers into investors have also
helped sentiment. The arrival of the euro will not by itself have any
impact on the portfolio, but the longer-term benefits of EMU remain
compelling and support a strategy where more than 60% of the portfolio's
assets are in European Union (EU) member states (more than 70% in Europe
overall) and about 40% are in countries going for full monetary union.
The U.K. has the largest economy of the four EU member states not joining
EMU in the first round. With the U.K. not joining the rest of Europe, Prime
Minister Tony Blair and his government are happy to continue with this
wait-and-see policy. Hampered by strong sterling and relatively high
interest rates, the U.K. manufacturing sector has been under pressure for
some time, and signs of a slowdown recently appeared in the service sector,
too. Not surprisingly, the Bank of England loosened monetary policy with
several interest rate cuts, but because most of Britain's trade is with
Continental Europe, the authorities will want to ensure that sterling
closely shadows the euro. The U.K. stock market, where we committed nearly
20% of portfolio assets, behaved reasonably well during recent turbulence,
with pharmaceutical giants such as Glaxo Wellcome and SmithKline Beecham
exhibiting their defensive qualities. As on the Continent, companies have
been positioning themselves for an ever-more-integrated Europe. A good
example is Kingfisher, which revealed plans to swap its home improvement
business for a stake in Castorama, the number one do-it-yourself retailer
in France. British Petroleum surprised the market with its merger with
Amoco in the U.S., and in the second half we added to Unilever, the
multinational consumer goods company that continues to increase profits by
restructuring, cutting costs, and improving asset utilization. We remain
cautious about the U.K. and therefore underweight relative to the index.
Our stronger outlook for the Continent led to a somewhat overweight
position and an emphasis on countries where we find sustainable growth
businesses with management focused on returns, such as the Netherlands and
France. We are underweight in Germany. The most important news in the
second half was Germany's election of Gerhard Schroeder as the new
Chancellor, marking a political shift to the center-left. The core Euro
Zone economies of Germany, France, and Italy are each showing similar
characteristics of sluggish growth and stubbornly high unemployment. Their
left-of-center governments are putting pressure on the European Central
Bank (ECB) to adopt more stimulatory policies, but with considerable
independence built into its constitution, the ECB's priority will be
controlling inflation.
All Continental markets fell sharply in August and early September, but
declines were softened for U.S. investors by the strength of local
currencies against the dollar. However, in the fourth quarter, every
central bank reduced interest rates at least once, and all countries
joining EMU did so simultaneously, setting 3% as the EMU convergence rate.
Merger and acquisition activity, which temporarily slowed in the third
quarter, made up for lost time in the fourth. Interest rate reductions and
merger activity helped counterbalance increasingly weak economic data. Our
core positions such as publishers Wolters Kluwer (the Netherlands) and Reed
International (U.K.) continued to show steady profit growth, and their
stocks performed well. In France the drug company Sanofi and retailer
Pinault Printemps Redoute announced better-than-expected results, as did
the pharmaceutical wholesaler and retailer Gehe, one of our largest
positions in Germany. However, we selectively reduced holdings in Europe
late in the year that had performed strongly and may be vulnerable to
weaker demand, such as Pinault Printemps Redoute. We also reduced Deutsche
Telekom, and bought new issue Swisscom and added to Spain's Telefonica de
Espana, which offer better growth prospects. The European savings market is
expanding rapidly, so we added to French and Italian insurers AXA and
Istituto Nazionale delle Assicurazioni.
Far East
With the implementation of long-awaited measures to address Japan's banking
system and economy, the Japanese market rallied 27% in the fourth quarter,
in dollar terms, resulting in a modest 5% gain for the year. The gains were
mostly attributable to the strengthening yen. The yen's sharp recovery
against the dollar, beginning in October, was a major surprise for the
currency markets. Japan moved into recession in the second half, and the
weakness accelerated as GDP for the quarter ended December 31 contracted
3.6%. Exports had been the only factor helping the economy, but with the
yen stronger and European and U.S. demand moderating, the export decline
accelerated.
Geographic Diversification
Europe Japan Pacific Latin Other and
Rim America Reserves
71 16 4 4 5
Based on net assets as of 12/31/98.
There has been widespread dissatisfaction in Japan with the government's
performance, and the disastrous showing of the ruling Liberal Democratic
Party (LDP) in July's election was no surprise. Following this setback
Prime Minister Hashimoto resigned, but it looked like business as usual
when Keizo Obuchi, the most conservative of the three leading candidates,
became LDP leader and Prime Minister. It remains to be seen whether he will
implement the radical policies Japan needs. We remain underweight in Japan
because of our cautious outlook for the economy.
We biased our holdings toward international companies operating in the
technology, consumer electronics, and business equipment fields such as
Sony, Canon, Matsushita Electric Industrial, and TDK. These stocks
performed relatively well when the yen was weak, but most suffered during
the yen's rally, with the exception of TDK. We reduced positions in Canon
and TDK (though it remains a core holding) and invested the proceeds in
more cyclical growth companies with strong cash flow.
Our positions in the rest of Asia were very small and were dominated by the
stock markets of Australia and Hong Kong. As a result, we missed much of
the powerful fourth quarter rally in the Far East, which was driven by
stronger currencies and falling interest rates. For the year, however, our
underweighting in the Far East was beneficial to performance. It will take
more time for these economies to recover from their financial collapse.
Indeed, fourth quarter economic data was grim. We are not yet tempted to
return, but continue to monitor the situation carefully.
Sector Diversification
Percent of Percent of
Net Assets Net Assets
6/30/98 12/31/98
- --------------------------------------------------------------------------------
Services 27.5% 28.3%
Consumer Goods 19.0 21.6
Finance 20.9 20.6
Capital Equipment 11.9 11.3
Energy 10.5 8.2
Materials 3.9 3.2
Multi-industry 2.3 1.8
Miscellaneous 0.1 0.1
Reserves 3.9 4.9
- --------------------------------------------------------------------------------
Total 100.0% 100.0%
- --------------------------------------------------------------------------------
In Hong Kong, sentiment was dominated by a fierce battle to maintain the
exchange rate peg between the Hong Kong and U.S. dollars in the face of
intense speculation to break it. As the pressure on the Hong Kong currency
mounted, the first tactic was a dramatic increase in interest rates. Later,
Hong Kong took the controversial step of using foreign exchange reserves to
support the stock market. Happily the strategy worked, but the price paid
was significant damage to the economy itself, particularly the real estate
market. Although we expect the broad economic picture in Hong Kong to
remain difficult, its stock market houses some of the region's strongest
and best-managed companies. Trading, transport, and real estate
conglomerate Hutchison Whampoa remained a core holding and performed well.
We also had positions in infrastructure plays such as China's Huaneng Power
International. We reduced our position in Hong Kong Telecommunications due
to pending deregulation and increased competition, and instead purchased
Hong Kong-based China Telecom, a cellular provider with significant
expansion potential.
The Australian economy continued to grow, a considerable achievement that
was supported by its ability to redirect exports to Europe and the U.S.,
where the weak Australian dollar was an advantage. Our positions in
Australia included media conglomerate News Corporation, banking stocks such
as Westpac Bank and National Australia Bank, and several utilities. Given
the continued deflation in world commodity prices, we have avoided the
natural resource sector.
Latin America
The stock markets of Latin America were weak for most of the year and
continued to show extreme volatility. High interest rates and weak demand
pushed Brazil and most of the region into recession in the fourth quarter,
and a contraction of 2% to 4% is expected this year. Brazil suffered huge
outflows of foreign exchange reserves in both August and September, and the
exchange rate of the real against the U.S. dollar was maintained only by a
massive increase in interest rates. News of the IMF aid package helped
stabilize the capital markets in December, but when the Brazilian Congress
rejected a key social security reform measure later that month, markets and
currency reserves fell again. In January (after the end of the fund's
fiscal year), Brazil capitulated and devalued the real, sending shock waves
through financial markets around the globe. The question now is whether
Brazil can limit the devaluation and get through its recession in a
reasonable time.
In contrast with Brazil, Argentina demonstrated its commitment to fiscal
discipline by cutting spending by more than $1.3 billion to achieve the
fiscal deficit target of 1% of GDP agreed to with the IMF. Argentina was
one of the region's better-performing stock markets, and increasing
evidence of its economic self-discipline was a contributing factor. In
Mexico, the economy held up remarkably well despite rising interest rates
and a weak peso.
At year-end, just under 4% of the portfolio was in Latin America, down from
about 7% a year ago, due largely to market declines. Roughly half the
position is in Brazil and a third in Mexico.
Key holdings include telecommunications giants Telebras in Brazil and
Telefonos de Mexico in Mexico. Both companies have great potential as
rising prosperity increases fixed line telephone penetration in these
highly populated countries and powers the growth of cellular technology.
INVESTMENT POLICY AND OUTLOOK
We expect lower economic growth in 1999, with improvement in the second
half of the year. Disinflation and deflation pose challenges for
policymakers and businesses in the year ahead, as excess capacity,
advancing technology, mergers, consolidation, and EMU are all likely to
continue eroding pricing power. Selecting businesses with strong franchises
as well as an ability to quickly cut costs and improve efficiency is
paramount.
In Europe, attractive growth opportunities will continue to be created. The
move to a single currency brings benefits including currency stability,
lower foreign exchange and capital costs, and more competition-driving more
consolidation. Restructuring will be particularly important in preserving
international competitiveness if the currency strengthens further. Although
we expect the euro to provide a positive environment for European economies
in the long term, the near-term cost is lower growth than would otherwise
have been the case. In addition, the possibility of tension still exists if
external shocks affect countries differently, or if the underlying
economies grow at varying speeds. Our outlook for currencies favors the new
euro currency over the dollar and the yen, although we do not anticipate
major moves in the year ahead. For all these reasons, it makes sense that
Europe should dominate our portfolio.
Despite continuing problems in Japan, its stock market is too large to
ignore entirely and is showing signs of stabilizing after a long decline.
Tokyo remains the home of world-class corporations. These holdings have
served us well, but we think it is time to consider some more domestically
oriented blue chips. However, there is still too much uncertainty for us to
make a major push back into this market.
Turning to emerging markets, the economic turmoil that overwhelmed the
smaller Asian economies has yet to work itself out. However, we believe the
Pacific Rim economy will begin to stabilize from here. China has escaped
neither the global slowdown nor Asian deflation, and its recovery is
crucial for the region. Deval-uation in China, still a possibility
especially in the wake of Brazil's devaluation, would be a blow to the
fragile region. We shall only increase our weightings when we see better
value and more signs of real corporate restructuring. Latin America's
prospects depend on Brazil. The most likely scenario, in our view, is that
the decline in the real will remain modest and not devastate the economy.
If the proper measures are not taken soon, however, Brazil's crisis could
bring contagion full circle, threatening a new round of currency
devaluations-with China under renewed pressure. However, governments of key
Latin American countries are committed to reform and have shown admirable
economic discipline. We believe they are well positioned for the future and
deserve a place in every international portfolio.
All in all, the foundation is in place for reasonable performance from
international equity markets in 1999. The fund's geographic allocation
seems appropriate, and our commitment to growth companies priced at
reasonable valuations will be helpful, in our view, in the period of slower
economic growth we expect. We believe this strategy makes sense for the
current environment and will prove rewarding in the future.
Respectfully submitted,
Martin G. Wade
President
January 28, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/98
- --------------------------------------------------------------------------------
National Westminster Bank, United Kingdom 2.9%
Wolters Kluwer, Netherlands 2.2
SmithKline Beecham, United Kingdom 2.2
Nestle, Switzerland 1.9
Kingfisher, United Kingdom 1.7
Glaxo Wellcome, United Kingdom 1.7
Vivendi, France 1.6
Novartis, Switzerland 1.6
ING Groep, Netherlands 1.6
Shell Transport & Trading, United Kingdom 1.4
Diageo, United Kingdom 1.4
Telecom Italia, Italy 1.2
UBS, Switzerland 1.1
Roche Holdings, Switzerland 1.1
KBC Bancassurance Holding, Belgium 1.0
Unilever, Netherlands 1.0
Pinault Printemps Redoute, France 1.0
Reed International, United Kingdom 0.9
Telebras, Brazil 0.9
Gehe, Germany 0.9
Bayerische Vereinsbank, Germany 0.9
Cadbury Schweppes, United Kingdom 0.9
Royal Dutch Petroleum, Netherlands 0.9
SAP, Germany 0.9
Astra, Sweden 0.9
- --------------------------------------------------------------------------------
Total 33.8%
- --------------------------------------------------------------------------------
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 12/31/98
Lipper Variable
International Annuity Underlying
Stock MSCI International
Portfolio EAFE Funds Average
3/31/94 10,000 10,000 10,000
12/94 10,180 10,435 10,011
12/95 11,318 11,640 11,054
12/96 12,982 12,380 12,581
12/97 13,383 12,635 13,451
12/98 15,505 15,204 15,312
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 12/31/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
15.86% 11.06% 9.66% 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
For a share outstanding throughout each period
--------------------------------------------------------
Year 3/31/94
Ended Through
12/31/98 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 0.17 0.12 0.09 0.07 0.06
Net realized and
unrealized gain (loss) 1.84 0.27* 1.55 1.06 0.12
Total from
investment activities 2.01 0.39 1.64 1.13 0.18
Distributions
Net investment income (0.17) (0.12) (0.17) (0.05) --
Net realized gain (0.06) (0.06) (0.09) -- --
In excess of
net realized gain -- (0.11) -- -- --
Total distributions (0.23) (0.29) (0.26) (0.05) --
NET ASSET VALUE
End of period $ 14.52 $ 12.74 $ 12.64 $ 11.26 $ 10.18
----------------------------------------------------
Ratios/Supplemental Data
Total return# 15.86% 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 1.25% 1.10% 1.22% 1.47% 1.50%!
Portfolio turnover rate 18.1% 16.6% 9.7% 17.4% 4.6%!
Net assets,
end of period
(in thousands) $497,946 $369,400 $210,746 $ 51,661 $ 9,095
# 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
December 31, 1998
Shares Value
- --------------------------------------------------------------------------------
In thousands
ARGENTINA 0.6%
Common Stocks 0.6%
Banco de Galicia Buenos
Aires (Class B) ADR (USD) 14,331 $ 253
Banco Frances del Rio
de la Plata ADR (USD) 16,357 339
Telefonica de Argentina
(Class B) ADR (USD) 27,020 755
YPF Sociedad Anonima
(Class D) ADR (USD) 58,296 1,629
Total Argentina (Cost $3,224) 2,976
AUSTRALIA 2.2%
Common Stocks 2.0%
Australian Gas Light 91,946 662
Brambles Industries 34,000 828
Colonial Limited 280,286 962
Commonwealth Bank of
Australia 86,391 1,226
Goodman Fielder 446,000 451
John Fairfax Holdings 47,000 96
Lend Lease 43,362 585
National Australia Bank 864 13
News Corporation 139,681 923
Publishing & Broadcasting 152,000 664
TABCORP Holdings 111,000 680
Telstra 317,744 1,486
Westpac Bank 189,017 1,265
9,841
Preferred Stocks 0.2%
News Corporation 122,533 745
Star City Holdings 440,800 390
1,135
Total Australia (Cost $9,353) 10,976
BELGIUM 2.0%
Common Stocks 2.0%
Dexia 3,996 668
Fortis 7,168 2,596
KBC Bancassurance Holding 63,790 5,047
Societe Europeenne
des Satellites (Class A) * 2,500 409
UCB 173 1,067
Total Belgium (Cost $5,242) 9,787
BRAZIL 1.7%
Common Stocks 0.2%
Telecomunicacoes
de Sao Paulo * 58,539 $ 5
Unibanco GDR (USD) 18,802 271
276
Preferred Stocks and Rights 1.5%
Banco Bradesco 52,879,646 293
Banco Bradesco
Rights, 2/8/99* 2,191,815 1
Banco Itau 734,070 359
Cia Cimento Portland Itau 469,150 53
Cia Energetica
Minas Gerais 14,334,541 273
Cia Energetica Minas Gerais
ADR, Sponsored
Nonvoting (USD) 21,606 400
Pao de Acucar GDR (USD) 1,555 24
Pao de Acucar ADR (USD) 16,460 255
Petrol Brasileiros 7,996,069 907
Telebras ADR (USD) * 63,363 4,606
Telecomunicacoes
de Sao Paulo 4,486,666 612
Telecomunicacoes de Sao Paulo Celular
(Class B) * 4,282,641 188
Unibanco, Units (Each unit
consists of 1 preferred
share and 1 Unibanco
Holdings (Class B) share) 280 0
7,971
Total Brazil (Cost $12,412) 8,247
CANADA 0.2%
Common Stocks 0.2%
Alcan Aluminum 22,680 616
Royal Bank of Canada 7,660 383
Total Canada (Cost $970) 999
CHILE 0.1%
Common Stocks 0.1%
Chilectra ADR (144a) (USD) 12,826 277
Compania Cervecerias Unidas
ADR (USD) 5,189 100
Total Chile (Cost $427) 377
CHINA 0.2%
Common Stocks 0.2%
China Telecom (HKD) 232,000 $ 401
Huaneng Power International
ADR (USD) * 56,500 819
Total China (Cost $1,615) 1,220
CZECH REPUBLIC 0.1%
Common Stocks 0.1%
SPT Telecom 16,120 246
Total Czech Republic (Cost $202) 246
DENMARK 0.3%
Common Stocks 0.3%
Den Danske Bank 6,460 868
Tele Danmark 2,920 394
Unidanmark (Class A) 4,750 429
Total Denmark (Cost $1,058) 1,691
FINLAND 0.7%
Common Stocks 0.7%
Nokia (Class A) 29,130 3,564
Total Finland (Cost $958) 3,564
FRANCE 10.1%
Common Stocks 10.1%
AXA 28,109 4,072
Alcatel Alsthom 15,748 1,927
Carrefour 3,542 2,673
Cie de St. Gobain 12,120 1,710
Credit Commercial de France 16,795 1,559
Danone 6,610 1,892
Dexia France 409 63
Dexia France, Bearer 2,958 455
Dexia France, Registered 1999 + 2,820 434
Elf Aquitaine 13,620 1,574
GTM Entrepose 3,520 365
L'Oreal 1,464 1,058
Lafarge 6,770 643
Lapeyre 6,870 490
Legrand 3,690 977
Pathe 1,977 552
Pinault Printemps Redoute 25,275 4,828
Sanofi 20,003 $ 3,292
Schneider 45,022 2,730
Societe Generale 9,014 1,459
Sodexho Alliance 17,598 3,935
Television Francaise 9,960 1,773
Total (Class B) 38,638 3,912
Vivendi 31,210 8,095
Total France (Cost $35,335) 50,468
GERMANY 7.2%
Common Stocks and Warrants 6.7%
Allianz 7,490 2,745
Bayer 38,382 1,601
Bayerische Vereinsbank 56,220 4,401
Buderus 626 228
Deutsche Bank 37,831 2,225
Deutsche Telekom 65,236 2,145
Dresdner Bank 52,886 2,221
Dresdner Bank
Warrants, 4/30/02 * 22,091 378
Gehe 65,961 4,551
Hoechst 14,940 619
Hornbach Baumarkt 690 25
Mannesmann 35,470 4,064
Rhoen Klinikum 7,650 760
SAP 6,470 2,795
Siemens 15,123 975
Veba 45,500 2,721
Volkswagen 9,140 729
33,183
Preferred Stocks 0.5%
Fielmann 1,562 75
Fresenius 2,370 499
Hornbach Holdings 5,480 325
SAP 3,280 1,565
2,464
Total Germany (Cost $29,893) 35,647
HONG KONG 1.4%
Common Stocks 1.4%
CLP Holdings 145,000 722
Cheung Kong Holdings 45,000 324
Hang Seng Bank 51,000 456
Henderson Land Development 177,000 923
Hong Kong
Telecommunications 367,600 $ 643
HSBC Holdings 29,600 737
Hutchison Whampoa 396,000 2,802
Sun Hung Kai Properties 44,000 321
Total Hong Kong (Cost $6,600) 6,928
INDIA 0.1%
Common Stocks 0.1%
Mahanagar Telephone
GDR (USD) 35,000 433
State Bank of India
GDR (USD) 22,800 191
Total India (Cost $741) 624
IRELAND 0.1%
Common Stocks 0.1%
CBT Group ADR (USD) * 38,411 571
Total Ireland (Cost $1,168) 571
ITALY 5.7%
Common Stocks 5.7%
Assicurazioni Generali 52,480 2,194
Banca Commerciale Italiana 96,000 663
Banca di Roma 918,000 1,557
Credito Italiano 523,601 3,108
ENI 436,655 2,858
Gucci Group (USD) 12,409 603
Industrie Natuzzi ADR
(USD) 14,060 350
Istituto Nazionale delle
Assicurazioni 651,000 1,722
Italgas 86,000 466
Mediolanum 231,295 1,717
Rinascente 28,000 288
Sao Paolo Imi Spa 147,041 2,602
Telecom Italia 701,550 5,994
Telecom Italia Mobile Spa 570,784 4,220
Total Italy (Cost $18,410) 28,342
JAPAN 16.0%
Common Stocks 16.0%
Advantest 7,700 488
Alps Electric 41,000 753
Amada 85,000 $ 411
Canon 180,000 3,845
Citizen Watch 53,000 319
DDI 234 869
Daiichi Pharmaceutical 81,000 1,368
DaiNippon Screen
Manufacturing 54,000 135
Daiwa House 111,000 1,181
Denso 193,000 3,568
East Japan Railway 252 1,407
Fanuc 24,200 828
Fujitsu 40,000 532
Hitachi 218,000 1,350
Honda Motor 11,000 361
Ito-Yokado 38,000 2,655
Kao 93,000 2,098
Kokuyo 55,000 740
Komatsu 115,000 603
Komori 49,000 1,032
Kuraray 126,000 1,390
Kyocera 46,000 2,429
Makita 72,000 802
Marui 134,000 2,578
Matsushita Electric Industrial 225,000 3,979
Mitsubishi 132,000 759
Mitsubishi Heavy Industries 573,000 2,230
Mitsui Fudosan 279,000 2,110
Murata Manufacturing 68,000 2,821
NEC 308,000 2,833
NTT Mobile Communication
Network 34 1,398
Nippon Telegraph & Telephone 238 1,836
Nomura Securities 207,000 1,804
Pioneer Electronic 35,000 587
Sangetsu 10,000 149
Sankyo 154,000 3,365
Sekisui Chemical 176,000 1,183
Sekisui House 108,000 1,142
Seven-Eleven Japan 16,000 1,288
Shin-Etsu Chemical 105,000 2,526
Shiseido 65,000 835
Sony 49,400 3,596
Sumitomo 211,000 1,026
Sumitomo Electric Industries 327,000 3,676
Sumitomo Forestry 70,000 502
TDK 45,000 $ 4,112
Tokio Marine & Fire Insurance 58,000 693
Tokyo Electronics 24,000 911
Tokyo Steel Manufacturing 39,700 199
Toppan Printing 104,000 1,269
Uny 57,000 1,041
Total Japan (Cost $87,944) 79,612
MEXICO 1.3%
Common Stocks 1.3%
Cemex (Class B) 82,767 208
Cemex ADR (USD) (Represents 2
Participating Certificates) 100,530 427
Cemex ADR (144a) (USD)
(Represents 2
Participating Certificates) 11,494 49
Cemex, Participating Certificates 2,483 5
Femsa UBD (Represents 1
Class B and 4 Series D) 160,290 434
Gruma (Class B) * 80,766 204
Gruma ADR (USD) * 17,757 177
Grupo Financiero Bancomer
(Class B) GDS (USD) 820 4
Grupo Financiero Bancomer
(Class L) 607 0
Grupo Industrial Maseca
(Class B) 237,010 191
Grupo Modelo (Class C) 252,056 533
Grupo Televisa GDR (USD) * 22,845 564
Kimberly-Clark de Mexico
(Class A) 163,512 520
Panamerican Beverages
(Class A) (USD) 29,980 654
Telefonos de Mexico
(Class L) ADR (USD) 51,246 2,495
TV Azteca ADR (USD) 26,200 175
Total Mexico (Cost $7,992) 6,640
NETHERLANDS 10.3%
Common Stocks 10.3%
ABN Amro 100,152 2,106
Ahold 95,011 3,511
Akzo Nobel 9,664 440
ASM Lithography 49,970 1,527
CSM 38,121 2,200
Elsevier 237,954 3,332
Fortis Amev 48,240 $ 3,996
ING Groep 127,775 7,789
Koninklijke 12,134 607
Numico 39,620 1,888
Philips Electronics 34,610 2,322
Royal Dutch Petroleum 87,940 4,378
STMicroelectronics (FRF) * 13,830 1,089
TNT Post Groep 12,134 391
Unilever 57,730 4,933
Wolters Kluwer 51,450 11,007
Total Netherlands (Cost $39,368) 51,516
NEW ZEALAND 0.2%
Common Stocks 0.2%
Telecom Corporation of
New Zealand 173,000 751
Telecom Corporation of
New Zealand
Installment Receipts
3/31/99 102,000 223
Total New Zealand (Cost $1,030) 974
NORWAY 1.1%
Common Stocks 1.1%
Bergesen (Class A) 6,500 78
Norsk Hydro 69,457 2,336
Orkla (Class A) 189,270 2,827
Saga Petroleum 10,280 94
Total Norway (Cost $6,947) 5,335
PERU 0.0%
Common Stocks 0.0%
Telefonica del Peru (Class B) 7,030 9
Total Peru (Cost $13) 9
PORTUGAL 0.5%
Common Stocks 0.5%
Jeronimo Martins 47,375 2,590
Total Portugal (Cost $832) 2,590
RUSSIA 0.0%
Common Stocks 0.0%
Lukoil ADR (USD) 2,260 37
Rao Gazprom ADS (USD) 16,370 139
Total Russia (Cost $458) 176
SINGAPORE 0.1%
Common Stocks 0.1%
Singapore Press 46,876 $ 511
Total Singapore (Cost $705) 511
SOUTH KOREA 0.1%
Common Stocks 0.1%
Samsung Electronics 8,296 557
Total South Korea (Cost $650) 557
SPAIN 3.0%
Common Stocks and Rights 3.0%
Argentaria Banca de Espana 49,540 1,284
Banco Bilbao Vizcaya 55,920 887
Banco Santander * 116,090 2,309
Empresa Nacional
de Electricidad 82,528 2,188
Gas Natural 13,897 1,509
Iberdrola 78,840 1,476
Repsol 18,628 994
Telefonica de Espana 89,465 3,981
Telefonica de Espana
Rights, 1/30/99* 89,465 80
Total Spain (Cost $9,425) 14,708
SWEDEN 3.3%
Common Stocks 3.3%
ABB (Class A) 85,130 906
Astra (Class B) 214,293 4,352
Atlas Copco (Class B) 49,390 1,070
Electrolux (Class B) 130,000 2,232
Esselte (Class B) 9,700 159
Granges 7,430 107
Hennes and Mauritz (Class B) 49,430 4,027
Nordbanken Holding * 415,244 2,658
Sandvik (Class A) 6,010 104
Sandvik (Class B) 43,970 758
Scribona (Class B) 1,295 5
Total Sweden (Cost $12,738) 16,378
SWITZERLAND 7.2%
Common Stocks 7.2%
ABB 1,452 1,702
Adecco 6,447 2,943
Credit Suisse Group 12,530 $ 1,961
Nestle 4,287 9,331
Novartis 4,088 8,035
Roche Holdings
Participating Certificates 436 5,319
Swisscom * 2,087 874
UBS * 18,253 5,607
Total Switzerland (Cost $26,623) 35,772
UNITED KINGDOM 19.3%
Common Stocks 19.3%
Abbey National 132,000 2,822
Asda Group 503,000 1,350
BG 163,823 1,053
British Petroleum 135,000 2,014
Cable & Wireless 315,000 3,852
Cadbury Schweppes 256,860 4,395
Caradon 379,700 650
Centrica * 153,000 314
Compass Group 208,000 2,374
David S. Smith 185,000 326
Diageo 631,280 7,001
Electrocomponents 117,000 772
GKN 40,000 532
Glaxo Wellcome 247,000 8,515
Heywood Williams Group 33,000 120
Hillsdown Holdings 36,000 45
John Laing (Class A) 72,000 299
Kingfisher 787,000 8,525
Ladbroke Group 226,000 909
National Westminster Bank 738,000 14,284
Rank Group 119,000 455
Reed International 587,000 4,662
Rio Tinto 158,000 1,838
Rolls Royce 124,480 517
Safeway 292,500 1,426
Shell Transport & Trading 1,168,500 7,183
SmithKline Beecham 782,600 10,846
Tesco 898,000 2,611
Tomkins 693,500 3,295
Unilever 96,000 1,080
United News & Media 234,000 2,033
Total United Kingdom (Cost $75,822) 96,098
SHORT-TERM INVESTMENTS 4.8%
Money Market Funds 4.8%
Reserve Investment Fund
5.42% # 23,884,145 $ 23,884
Total Short-Term Investments
(Cost $23,884) 23,884
Total Investments in Securities
99.9% of Net Assets (Cost $422,039) $ 497,423
Other Assets Less Liabilities 523
NET ASSETS $ 497,946
----------
* Non-income producing
# Seven-day yield
+ Securities contain some restrictions as to public resale-total of such
securities at period-end amounts to 0.09% of net assets.
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
.07% of net assets.
ADR American depository receipt
ADS American depository share
FRF French franc
GDR Global depository receipt
GDS Global depository share
HKD Hong Kong dollar
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
December 31, 1998
In thousands
Assets
Investments in securities,
at value (cost $422,039) $ 497,423
Securities lending collateral 31,970
Other assets 1,746
Total assets 531,139
Liabilities
Obligation to return
securities lending collateral 31,970
Other liabilities 1,223
Total liabilities 33,193
NET ASSETS $ 497,946
------------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (170)
Accumulated net realized gain/loss
- net of distributions (7,802)
Net unrealized gain (loss) 75,404
Paid-in-capital applicable to
34,301,080 shares of $0.0001 par value
capital stock outstanding; 1,000,000,000
shares of the Corporation authorized 430,514
NET ASSETS $ 497,946
------------
NET ASSET VALUE PER SHARE $ 14.52
------------
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price International Stock Portfolio
In thousands
Year
Ended
12/31/98
Investment Income
Income
Dividend (net of foreign taxes of $1,238) $ 8,980
Interest 1,329
Total income 10,309
Expenses
Investment management and administrative 4,709
Net investment income 5,600
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (2,446)
Foreign currency transactions (219)
Net realized gain (loss) (2,665)
Change in net unrealized gain or loss
Securities 58,822
Other assets and liabilities
denominated in foreign currencies 34
Change in net unrealized gain or loss 58,856
Net realized and unrealized gain (loss) 56,191
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 61,791
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price International Stock Portfolio
In thousands
Year
Ended
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 5,600 $ 3,342
Net realized gain (loss) (2,665) 1,706
Change in net unrealized gain or loss 58,856 (778)
Increase (decrease) in
net assets from operations 61,791 4,270
Distributions to shareholders
Net investment income (5,770) (3,394)
Net realized gain (2,036) (1,814)
In excess of net realized gain -- (2,994)
Decrease in net assets
from distributions (7,806) (8,202)
Capital share transactions*
Shares sold 234,509 188,544
Distributions reinvested 7,806 8,202
Shares redeemed (167,754) (34,160)
Increase (decrease) in
net assets from capital
share transactions 74,561 162,586
Net Assets
Increase (decrease) during period 128,546 158,654
Beginning of period 369,400 210,746
End of period $ 497,946 $ 369,400
---------------------------------
*Share information
Shares sold 16,773 14,258
Distributions reinvested 561 646
Shares redeemed (12,035) (2,579)
Increase (decrease)
in shares outstanding 5,299 12,325
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price International Stock Portfolio
December 31, 1998
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.
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 accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lendingo 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
December 31, 1998, the value of loaned securities was $30,745,000;
aggregate collateral consisted of $31,970,000 in the securities lending
collateral pool.
Othero Purchases and sales of portfolio securities, other than short-term
securities, aggregated $141,073,000 and $77,583,000, respectively, for the
year ended December 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. As of December 31, 1998, the fund had capital loss
carryforwards for federal income tax purposes of $5,671,000, all which
expires in 2006. The fund intends to retain gains realized in future
periods that may be offset by available capital loss carryforwards.
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$422,039,000. Net unrealized gain aggregated $75,384,000 at period-end, of
which $106,902,000 related to appreciated investments and $31,518,000 to
depreciated investments.
T. Rowe Price International Stock Portfolio
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., 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 $482,000 was
payable at December 31, 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 year ended
December 31, 1998, totaled $1,152,000 and are reflected as interest income
in the accompanying Statement of Operations.
During the year ended December 31, 1998, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating
$9,492,000 with certain affiliates of the manager and paid commissions of
$18,000 related thereto.
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue
Service. The amounts shown may differ from those reported in a fund's
financial statements because of differences between IRS and financial
statement reporting requirements.
The fund distributions to shareholders included $2,036,000 from short-term
capital gains.
The fund will pass through foreign source income of $6,514,000 and foreign
taxes paid of $1,171,000.
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors of T. Rowe Price International Series, Inc.
and Shareholders of International Stock Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
International Stock Portfolio (comprising T. Rowe Price International
Series, Inc., hereafter referred to as the "Fund") at Decembero 31, 1998,
and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
InvestWith 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 (12/98)
K15-051 12/31/98
