T. Rowe Price
International Stock Portfolio
Semiannual Report
June 30, 1999
Dear Investor
The year thus far has witnessed a dramatic turnaround in the fortunes of
international stock markets, but overall returns remained modest. Last year's
safe haven-Europe-became a source of concern, while the basket cases of recent
years-the emerging markets and Japan-rallied so strongly that complacency is now
a major risk. This change in leadership is consistent with the different stages
of the economic cycles that these regions find themselves in. The large
economies of Europe were weak, though they began to improve late in the period.
In Asia, signs of economic recovery were even stronger than in Europe. The new
European single currency fell steadily against the U.S. dollar, and this
undercut returns for U.S. investors.
Performance Review
Performance Comparison
Periods Ended 6/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
International
Stock Portfolio 3.79% 5.72%
MSCI EAFE Index 4.11 7.92
Lipper Variable Annuity
Underlying International
Funds Average 8.10 5.43
In this shifting environment, your portfolio's 3.79% return in the first
half of 1999 was a bit lower than the 4.11% advance of the MSCI EAFE
(Europe, Australasia, and Far East) Index, which carries no expenses, but
significantly behind that of its Lipper category. For the past 12 months,
our 5.72% performance exceeded the Lipper category but was behind the
unmanaged EAFE benchmark, as shown in the table. Results were principally
influenced by the fact that more than two-thirds of the fund was invested
in Europe, where stock markets were weak in dollar terms. Compared with the
EAFE index, we were helped by our overweighting in Latin America and
underweighting in Japan. The portfolio's edge over its peer group average
over the 12 months was largely due to our preference for steady growers,
which helped during a period when there was uncertainty about world
economic growth. Recently this uncertainty has receded, and with cyclical
stocks taking the lead in many markets, fund results slipped against our
peers.
The broad themes favoring international markets were strengthening
economies, improving sentiment, recovering capital flows, and falling
interest rates outside the U.S. Europe benefited from the additional
stimulus of heavy corporate activity, with transactions in the first half
of 1999 totaling $690 billion compared with $870 billion for the whole of
1998. The financial sector was active with the announcement of a number of
major deals that point toward consolidation in Europe's banking industry.
As in the U.S., leading telecommunication companies were also making moves
to strengthen their strategic positions in this attractive sector. Perhaps
the surprise for Europe was the strength in the U.S. economy and the
attendant rise of the dollar against the euro. A slowdown in the euro zone
economies allowed short-term interest rates to decline, and NATO's war in
the Balkans, resolved in June, also cast a shadow over the new currency.
Since January, securities listed on the 11 EMU stock markets have been
denominated in euros, and a fall of about 13% against the dollar was
embarrassing for the authorities and substantially undercut returns for
U.S. investors, as illustrated by the table on page 2.
In the Pacific, a massive rebound, especially in the smaller markets, was
sparked by signs that economies in a number of countries were recovering
and some necessary reforms are starting to be made. Even in Japan (18% of
net assets), there was better news on the economy, and investors were
encouraged by progress in recapitalizing the banking sector and moves
toward U.S.-style corporate restructuring involving job and capacity
cuts-something previously not culturally acceptable in Japan. The Tokyo
market rallied strongly. Japan also saw an increase in corporate activity,
including a hostile takeover by a foreign company, with the U.K.'s Cable &
Wireless gaining control of telecom provider IDC. Earlier in the period,
Goodyear acquired Sumitomo Rubber and Renault bought about 35% of fellow
automaker Nissan. For a country that has been cautious about foreign
control of its corporations, these were landmark deals.
Market Performance
Six Months Local Local Currency U.S.
Ended 6/30/99 Currency vs. U.S. Dollars Dollars
- --------------------------------------------------------------------------------
France 15.35% -12.18% 1.30%
Germany 9.30 -12.18 -4.01
Hong Kong 31.65 -0.15 31.46
Italy -0.74 -12.18 -12.83
Japan 29.64 -6.81 20.82
Mexico 45.44 5.71 53.74
Netherlands 6.57 -12.18 -6.41
Singapore 65.49 -3.08 60.38
Sweden 25.63 -4.66 19.77
Switzerland -1.29 -11.65 -12.79
United Kingdom 8.32 -5.26 2.62
- --------------------------------------------------------------------------------
Source: FAME Information Services, Inc., using MSCI indices
Latin America (4% of net assets) showed its usual volatility. The Brazilian
market plunged 28% in January as the authorities let the real (the
Brazilian currency) find its own level rather than risking fast-diminishing
reserves to protect it further. A recalcitrant congress balking at fiscal
reforms precipitated the crisis, but President Cardoso and plunging markets
were finally able to persuade the legislators to deliver. This, along with
the appointment of a new and credible central bank governor and a revised
IMF package, restored investor confidence, and Latin stocks surged.
INVESTMENT REVIEW
Europe
There has been a significant divergence within the economies of Europe, by
far our largest commitment at about 67% of assets, with the major ones
making little progress and some of the small ones growing quite strongly.
Italy was one of the weakest markets, primarily due to its poor finances,
which necessitated a special dispensation to exceed the EMU fiscal deficit
target. The country's fiscal situation was another source of concern for
those worried about the viability of the euro. However, Italy was the
setting for a high-profile takeover battle that served as a clarion call
for the radical change taking place in the European corporate sector:
Olivetti's successful hostile bid for portfolio holding Telecom Italia.
Significantly, upstart Olivetti bested Deutsche Telekom's bid for its
neighboring state monopoly.
Germany has usually been the locomotive of Europe, but its manufacturing
sector was weakened by the slump in Asian demand, and only in June did some
better economic data begin to emerge. Combined with an improved political
climate from business' point of view, these strong economic reports sparked
a modest rebound in German shares. Our underweighting in Germany was
helpful, though Mannesman, once an industrial powerhouse, today an
important European telecommunications concern, outperformed strongly on its
acquisition of telecom assets from Olivetti (as part of Olivetti's planned
acquisition of Telecom Italia) and other additions to its portfolio of
pan-European mobile and fixed telecom holdings. SAP, the business
management software company, rebounded from a slump and finished the period
strongly thanks to the success of its new Internet-related products and
better-than-expected results. Gehe, the pharmaceutical wholesaler and
retailer, fell prey to concerns about regulatory changes affecting prices
despite continued sound growth in revenue and profits.
In France, the stock market did somewhat better, helped by signs of
economic recovery and continued restructuring in the corporate sector.
Banque National de Paris amazed the financial sector with its audacious bid
for both Paribas and Societe Generale just as they were contemplating a
friendly merger. Vivendi, the utilities-based conglomerate and a key
holding, demonstrated its international ambitions with an $8 billion
acquisition of U.S. Filter, and retailer Pinault Printemps Redoute, another
core holding, intervened in the hostile bid by LVMH for Gucci by buying a
40% stake in the latter. STMicroelectronics outperformed due to strong
demand for its high-margin semiconductors used in mobile phones and other
digital communications products.
Geographic Diversification
Europe 67
Japan 18
Pacific Rim 7
Latin America 4
Other and Reserves 4
Based on net assets as of 6/30/99.
The U.K. market, which was the largest single country position in the
portfolio at 18.5% of assets, posted a solid gain in local currency terms,
as stocks established new highs in late April. Investors were satisfied
with several interest rate cuts and a steady improvement in economic data.
Stock market performance was only modest in dollar terms, though sterling
held up better against the U.S. dollar than did the euro. Shell Transport &
Trading, the U.K-traded issue of the Royal Dutch/Shell Group, was greatly
helped by a strong rise in oil prices and by its progress in improving
returns through restructuring. National Westminster Bank did well, helped
by the lower rates and also its progress in focusing on higher margin
businesses. Pharmaceutical giant SmithKline Beecham was weak along with
most of the drug sector around the world, but gained U.S. FDA approval late
in the period for its new diabetes drug Avandia, a potential blockbuster.
The best major market in Europe was Sweden. Household appliance
manufacturer Electrolux performed well on the back of an improvement in
operating margins and a buoyant U.S. market. Hennes & Mauritz, an
efficiently managed fashion retailer targeting teenage girls and young
women, outperformed on the strength of better-than-expected earnings and
ongoing organic growth as well as plans to open stores in the U.S. and
Spain. Pharmaceutical holding Astra finalized its merger with Zeneca of the
U.K., but the shares were weak along with the rest of the sector.
Nonetheless the combined group now has the scale to compete with the
largest companies in terms of research and international marketing.
The Netherlands was weak in dollar terms as multinational growth stocks
fell out of favor. Our position in Wolters Kluwer, an international
publisher with a steady growth record, lagged. But interest returned to
more cyclical stocks such as Royal Dutch Petroleum, a beneficiary of the
rising oil price. Semiconductor stocks such as chip equipment maker ASM
Lithography outperformed on the back of global recovery and demand for
technology products. In Switzerland, Nestle (confectionery and consumers
goods) suffered early in the period because its important emerging markets
business had been dampened by earlier economic crises. Performance picked
up, however, as emerging market demand began to revive in the second
quarter. Global employment agency Adecco was strong due to the growth of
temporary employment around the world.
Far East
In Japan, the market's strong rise in the first half was powered by heavy
foreign investment as global portfolio managers (who have long been wary of
Japan) reallocated assets in anticipation of recovery there. More
encouraging economic data, an unprecedented amount of corporate activity
and restructuring announcements, and further steps toward recapitalizing
the financial sector contributed to enthusiasm. After a sharp contraction
in GDP in the fourth quarter, the June announcement of better-than-expected
first quarter growth was a major boost for the market. In addition, two
consecutive tankan surveys by the Bank of Japan (the latest released in
early July) gave better-albeit still very low-readings on business
confidence. The government has also become more assertive in providing the
right background for the economic recovery. In March, the prime minister
turned to supply-side measures as he urged businesses to reduce
overcapacity.
Numerous companies announced restructuring plans to include job cuts and
plant closings. There was a new willingness to tolerate foreign investment
in Japanese business. Notably, U.K. giant Cable & Wireless, as mentioned,
acquired IDC. Other foreign inroads in Japanese telecom during the period
included BT and AT&T taking a 30% stake in Japan Telecom, MCI WorldCom and
Global Crossing entering a joint venture with Marubeni, and NTT agreeing to
a venture with AT&T in international data communications. In other sectors,
restructuring through collaboration in once-strategic product areas such as
semiconductors demonstrated that some businesses are taking steps to
improve returns at the expense of sheer size-their traditional emphasis.
Notably, electronics giants NEC and Hitachi announced a joint venture to
make memory chips. Sony and other major companies announced extensive
rationalization of their manufacturing capacity, which will inevitably
involve layoffs both in Japan and overseas.
Against this mostly positive backdrop, there were also lingering areas of
concern. Financial authorities continued to find significant bad-debt
exposure, most recently in regional banks and life insurers, which
increases the likelihood that those institutions will also require a
bailout. Because of such persisting problems, and the fact that the market
has already discounted much positive news, we need to see more
implementation of restructuring before increasing our position in Japan.
Recovery in the rest of Asia is also important for the Japanese economy-and
Japan's signs of recovery are also vital for Asia. The more distinct upturn
in the smaller economies of the Pacific region and recovery in Europe are
helpful for Japan, particularly with the prospect of a slowdown in exports
to the U.S.
Elsewhere in the Pacific, the smaller stock markets of the region also
sustained significant rallies. Investors sensed that the worst might be
over for a number of these economies, and falling interest rates, improving
economic data, and progress on structural reforms helped too. As is typical
when markets recover, stocks that performed worst during the downturn led
the rally-in this case, financial and cyclical stocks. We increased
exposure to Southeast Asia during the period.
Sector Diversification
Percent of Percent of
Net Assets Net Assets
12/31/98 6/30/99
---------------------------------------------------------------------------
Services 28.3% 30.2%
Finance 20.6 20.2
Consumer Goods 21.6 19.4
Capital Equipment 11.3 14.4
Energy 8.2 8.2
Materials 3.2 3.0
Multi-industry 1.8 1.2
Gold Mines -- --
Miscellaneous 0.1 --
Reserves 4.9 3.4
---------------------------------------------------------------------------
Total 100.0% 100.0%
Our portfolio structure in the Pacific outside of Japan (about 7% of net
assets) is fairly conservative and focuses on the more stable economies of
the region such as Hong Kong and Australia. Hong Kong (2.4% of net assets)
avoided the traumas of overinvestment and currency collapse that plagued
the rest of the region but still suffered a sharp contraction in its
economy. To protect the link between the Hong Kong and the U.S. dollar, the
authorities maintained a high interest rate policy for most of 1998, but
the price for this was a weak real estate market and deflation. However,
Hong Kong remains a key financial center for the Pacific, and its stock
market rallied strongly as interest rates fell and investors refocused on
the region. One new purchase was property company New World Development,
which is restructuring its balance sheet to boost returns and will benefit
from a strong market position in the improving economic environment.
Elsewhere, we added United Overseas Bank of Singapore, where the financial
sector is being deregulated, and Korea Telecom, Korea's dominant local
operator, which also has a significant Internet position.
Australia (2.8% of net assets) seems to have come through the regional
crises almost unscathed. The economy is growing steadily and there has been
a virtuous mix of low inflation and a strong currency. Unemployment
declined moderately and consumer sentiment remained healthy. In common with
a number of Pacific economies, the recent improvement in commodity prices
should help prospects. Thus we added natural resources leader BHP, which
outperformed because of its sector's strength and because of its progress
in restructuring. However, the bulk of the portfolio remained in service
sectors such as banks and telecommunications/media stocks, such as News
Corporation.
Latin America
Latin America had a strong first half, albeit one that ended on a note of
caution. While Brazil was the main newsmaker, Mexico was the standout
performer. In Brazil, political opposition to budget cuts mounted, with
states and institutions filing lawsuits to avoid paying social security
contributions and new taxes. These negative developments, combined with a
tightening of U.S. monetary policy, pushed Brazil lower after mid-May.
The Mexican stock market held up remarkably well during the Brazilian
crisis and then performed far better than other regional markets during the
recovery, due to its close associations with the U.S. economy. The
Argentine economy slowed sharply following the Brazilian devaluation, but
the banking system is now far stronger than when confidence was last tested
five years ago. The acquisition of energy company YPF by Spain's Repsol
gave Argentine shares a major boost. But the U.S. rate hike, upcoming
presidential elections, and opposition to continuing fiscal reforms raised
the risks for Argentina, and the market began to decline in May.
Our Latin investments were concentrated in Brazil and Mexico with the
balance mostly in Argentina. Key holdings include telecommunications giants
Telebras in Brazil and Telmex in Mexico. Telmex is forging an alliance with
U.S. local phone giant SBC Communications to develop data services for
Hispanics in the Americas, and also has a stake in Internet service Prodigy
and in fiber optic carrier Williams Communications Group, both of the U.S.
INVESTMENT POLICY AND OUTLOOK
Despite the euro's weak start, we remain comfortable with by far the
majority of portfolio assets in Europe, with the U.K. largest single
country weighting. (The U.K. is not currently a member of the EMU.) We are,
however, slightly underweight in both compared with the MSCI EAFE Index.
Japan is second largest country position, and we are again underweight. We
steadily added to our positions in the balance of the Pacific, and are
slightly overweight versus the index. Our modest exposure to Latin America
is a significant factor in the portfolio since it is not represented in the
benchmark. During the past six months there were no major regional shifts.
Going forward, we will continue to monitor the progress of recovery in
Japan and Asia, having experienced the volatility of these markets and
being of the opinion that a lot of optimism is already priced in. We
believe that the extent to which positive plans and reforms are implemented
will underpin the extent to which these markets continue to rise, or plunge
as sharply as they have recently leapt. In the first half, we did make
changes in individual holdings. We sold where individual valuations looked
extended or where we felt growth prospects had been fully realized, but
added to positions or bought new ones that fit our criteria of strong
competitive position, steady growth, and reasonable valuation.
We look for European markets to improve gradually, helped by moderate
appreciation of the euro late in the year. Despite our anticipation that
U.S. growth will ease, we believe that the recovery in other regions can
help support growth in Europe. In the quest to enhance shareholder value,
we foresee abundant corporate activity, bearing in mind that there will be
caution about computer system integration ahead of the year 2000. While we
do see Japan as on the road to recovery, we also see some possible detours
along the way. Necessary corporate restructuring will only increase
unemployment in the short term, and the financial sector remains deeply
troubled. In addition, Japan now has a record level of outstanding debt
following unprecedented issuance last year.
While the immediate prospects for the rest of Asia may be encouraging, we
are less enthusiastic over the medium term because the recent recovery in
asset prices takes pressure off regional leaders to implement much-needed
reforms, and off companies to restructure. In Latin America, much depends
on the political environment. Mexico appears to boast the best fundamentals
currently.
The progress in international markets so far this year should continue,
though regional performance may rotate away from Asia and Latin America and
back to Europe. Inflation is likely to stay muted. The recovery of
international demand should compensate for less robust U.S. demand, and we
believe global markets will make reasonable progress in the second half.
Our country weightings and our preference for growth stocks with reasonable
valuations should help us achieve our goal of long-term capital growth.
Respectfully submitted,
Martin G. Wade
President
July 20, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/99
- --------------------------------------------------------------------------------
National Westminster Bank, United Kingdom 2.4%
SmithKline Beecham, United Kingdom 1.8
Shell Transport & Trading, United Kingdom 1.7
Wolters Kluwer, Netherlands 1.6
Nestle, Switzerland 1.6
Vivendi, France 1.4
ING Groep, Netherlands 1.4
Glaxo Wellcome, United Kingdom 1.4
Kingfisher, United Kingdom 1.4
Diageo, United Kingdom 1.3
Novartis, Switzerland 1.2
Telebras, Brazil 1.2
Mannesmann, Germany 1.1
Fortis, Belgium/Netherlands 1.0
Nokia, Finland 1.0
UBS, Switzerland 1.0
Sony, Japan 1.0
Canon, Japan 1.0
Telefonica de Espana, Spain 1.0
Hennes & Mauritz, Sweden 1.0
Pinault Printemps Redoute, France 0.9
Total, France 0.9
Unilever, United Kingdom/Netherlands 0.9
Nippon Telegraph & Telephone, Japan 0.9
Roche Holdings, Switzerland 0.9
- --------------------------------------------------------------------------------
Total 31.0%
- --------------------------------------------------------------------------------
Note: Table excludes reserves.
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. An index
return does not reflect expenses, which have been deducted from the fund's
return.
International Stock Portfolio
As of 6/30/99
Lipper Variable
Annuity
International MSCI Underlying
Stock EAFE International
Portfolio Index Funds Average
3/31/94 10,000 10,000 10,000
6/94 10,100 10,518 10,065
6/95 10,574 10,723 10,560
6/96 12,341 12,183 12,370
6/97 14,491 13,787 14,722
6/98 15,222 14,667 16,290
6/99 16,093 15,829 17,062
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 6/30/99
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
5.72% 9.25% 9.76% 9.49% 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 Through
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 14.52 $ 12.74 $ 12.64 $ 11.26 $ 10.18 $ 10.00
Investment activities
Net investment
income 0.12 0.17 0.12 0.09 0.07 0.06
Net realized and
unrealized
gain (loss) 0.43 1.84 0.27* 1.55 1.06 0.12
Total from
investment activities 0.55 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 $ 15.07 $ 14.52 $ 12.74 $ 12.64 $ 11.26 $ 10.18
---------------------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 3.79% 15.86% 3.09% 14.70% 11.18% 1.80%
Ratio of total
expenses to average
net assets 1.05%! 1.05% 1.05% 1.05% 1.05% 1.05%!
Ratio of net investment
income to average
net assets 1.67%! 1.25% 1.10% 1.22% 1.47% 1.50%!
Portfolio
turnover rate 15.2%! 18.1% 16.6% 9.7% 17.4% 4.6%!
Net assets,
end of period
(in thousands) $535,700 $497,946 $369,400 $210,746 $ 51,661 $ 9,095
(diamond) 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, 1999 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
In thousands
ARGENTINA 0.3%
Common Stocks 0.3%
Banco de Galicia Buenos
Aires (Class B) ADR (USD) 20,431 $ 414
Banco Frances del Rio
de la Plata ADR (USD) 16,357 311
Telefonica de Argentina
(Class B) ADR (USD) 32,370 1,015
Total Argentina (Cost $1,797) 1,740
AUSTRALIA 2.8%
Common Stocks 2.5%
Australian Gas Light 91,946 559
Brambles Industries 39,000 1,026
Broken Hill Proprietary 65,005 752
Colonial Limited 347,950 1,231
Commonwealth Bank of
Australia 103,118 1,639
Lend Lease 56,362 773
News Corporation 161,852 1,379
Publishing & Broadcasting 209,000 1,377
TABCORP Holdings 139,000 935
Telstra 368,744 2,110
Westpac Bank 243,354 1,577
13,358
Preferred Stocks 0.3%
News Corporation 145,932 1,111
Star City Holdings 440,800 428
1,539
Total Australia (Cost $11,523) 14,897
BELGIUM 1.6%
Common Stocks 1.6%
Dexia (EUR) 3,996 595
Fortis B (EUR) 72,122 2,264
KBC Bancassurance
Holding (EUR) 74,320 4,405
Societe Europeenne des Satellites
(Class A) (EUR) 3,328 482
UCB (EUR) 17,300 740
Total Belgium (Cost $6,408) 8,486
BRAZIL 2.0%
Common Stocks 1.3%
Pao de Acucar GDR (USD) 30,973 $ 579
Telebras ADR (USD) 68,445 6,173
Telecomunicacoes
de Sao Paulo 58,539 5
Unibanco GDR (USD) 18,802 452
7,209
Preferred Stocks 0.7%
Banco Bradesco 52,879,646 266
Banco Itau 734,070 377
Cia Cimento Portland Itau 469,150 45
Cia Energetica Minas Gerais 14,334,541 301
Cia Energetica Minas Gerais
ADR, Sponsored,
Nonvoting (USD) 29,606 622
Pao de Acucar GDR (USD) 1,555 29
Petrol Brasileiros 8,762,069 1,361
Telebras ADR (USD) 68,445 4
Telecomunicacoes de Minas
Gerais (Class B) 15,415 1
Telecomunicacoes
de Sao Paulo 4,486,666 532
Telecomunicacoes de Sao
Paulo Celular (Class B) 4,282,641 214
Telesp 44,414 5
Unibanco, Units (Each unit
consists of 1 preferred share
and 1 Unibanco Holdings
(Class B) share) 280 0
3,757
Total Brazil (Cost $13,358) 10,966
CANADA 0.2%
Common Stocks 0.2%
Alcan Aluminum 22,680 720
Royal Bank of Canada 11,860 524
Total Canada (Cost $1,152) 1,244
CHILE 0.1%
Common Stocks 0.1%
Chilectra ADR (144a) (USD) 12,826 269
Total Chile (Cost $298) 269
CHINA 0.5%
Common Stocks 0.5%
China Telecom (HKD) 574,000 $ 1,594
Huaneng Power International
ADR (USD) * 56,500 968
Total China (Cost $2,226) 2,562
DENMARK 0.3%
Common Stocks 0.3%
Den Danske Bank 6,460 702
Tele Danmark 13,980 686
Unidanmark (Class A) 4,750 316
Total Denmark (Cost $1,536) 1,704
FINLAND 1.0%
Common Stocks 1.0%
Nokia (EUR) 62,290 5,458
Total Finland (Cost $1,303) 5,458
FRANCE 10.2%
Common Stocks 10.2%
AXA (EUR) 32,429 3,955
Alcatel Alsthom (EUR) 17,058 2,400
Banque National de Paris (EUR) 15,300 1,274
Carrefour (EUR) 27,772 4,080
Cie de St. Gobain (EUR) 12,120 1,930
Credit Commercial de
France (EUR) 14,595 1,577
Danone (EUR) 6,610 1,704
Dexia France (EUR) 3,229 432
Dexia France, Bearer (EUR) 2,958 396
Elf Aquitaine (EUR) 15,340 2,250
L'Oreal (EUR) 1,764 1,192
Lafarge (EUR) 6,770 643
Legrand (EUR) 5,930 1,207
Pinault Printemps
Redoute (EUR) 29,255 5,018
Sanofi (EUR) 89,372 3,791
Schneider (EUR) 45,022 2,527
Societe Generale (EUR) 10,344 1,822
Sodexho Alliance (EUR) 20,018 3,446
Television Francaise (EUR) 9,960 2,320
Total (Class B) (EUR) 38,638 4,983
Vivendi (EUR) 95,334 $ 7,720
Total France (Cost $40,361) 54,667
GERMANY 6.5%
Common Stocks 6.1%
Allianz (EUR) 8,860 2,457
Bayer (EUR) 48,652 2,026
Bayerische Vereinsbank (EUR) 65,160 4,232
Deutsche Bank (EUR) 45,464 2,772
Deutsche Telekom (EUR) 56,761 2,370
Dresdner Bank (EUR) 52,886 2,066
Gehe (EUR) 65,961 3,032
Hoechst (EUR) 14,940 676
Mannesmann (EUR) 38,050 5,676
Rhoen Klinikum (EUR) 7,650 761
SAP (EUR) 6,470 2,188
Siemens (EUR) 15,123 1,166
Veba (EUR) 40,870 2,401
Volkswagen (EUR) 11,980 767
32,590
Preferred Stocks 0.4%
Fielmann (EUR) 6,182 229
Fresenius (EUR) 2,370 419
SAP (EUR) 3,760 1,502
2,150
Total Germany (Cost $31,138) 34,740
HONG KONG 2.4%
Common Stocks 2.4%
Cheung Kong Holdings 145,000 1,290
CLP Holdings 261,000 1,268
Dao Heng Bank Group 64,000 287
Henderson Land Development 229,000 1,316
Hong Kong
Telecommunications 318,800 826
HSBC Holdings 60,400 2,203
Hutchison Whampoa 388,000 3,513
New World Development
(USD) 285,000 854
Sun Hung Kai Properties 122,000 1,113
Total Hong Kong (Cost $10,460) 12,670
INDIA 0.2%
Common Stocks 0.2%
Mahanagar Telephone 129,000 $ 553
Mahanagar Telephone
GDR (USD) 35,000 355
State Bank of India
GDR (USD) 22,800 278
Total India (Cost $1,317) 1,186
IRELAND 0.1%
Common Stocks 0.1%
CBT Group ADR (USD) * 38,411 634
Total Ireland (Cost $1,167) 634
ITALY 5.0%
Common Stocks 5.0%
Assicurazioni Generali (EUR) 57,480 1,991
Banca di Roma (EUR) 306,000 440
Banca Popolare di Brescia
(EUR) 61,000 2,613
Credito Italiano (EUR) 523,601 2,299
ENI (EUR) 528,655 3,155
Gucci Group (USD) 23,401 1,638
Istituto Nazionale delle
Assicurazioni (EUR) 977,000 2,266
Italgas (EUR) 86,000 361
Mediolanum (EUR) 163,295 1,254
Sao Paolo IMI (EUR) 158,041 2,151
Tecnost (EUR) 289,800 714
Telecom Italia (EUR) 354,550 3,684
Telecom Italia Mobile (EUR) 726,784 4,338
Total Italy (Cost $22,198) 26,904
JAPAN 17.9%
Common Stocks 17.9%
Canon 185,000 5,322
Citizen Watch 53,000 460
Daiichi Pharmaceutical 94,000 1,459
Daiwa House 111,000 1,168
DDI 234 1,457
Denso 191,000 3,884
East Japan Railway 284 1,526
Fanuc 24,200 1,300
Fujitsu 91,000 $ 1,832
Hitachi 218,000 2,045
Honda Motor 11,000 466
Ito-Yokado 33,000 2,210
Kao 104,000 2,923
Kokuyo 55,000 887
Komori 49,000 883
Kuraray 145,000 1,745
Kyocera 46,000 2,700
Makita 72,000 815
Marui 145,000 2,397
Matsushita Electric Industrial 225,000 4,371
Mitsubishi 132,000 895
Mitsubishi Heavy Industries 614,000 2,492
Mitsui Fudosan 279,000 2,260
Murata Manufacturing 68,000 4,475
NEC 351,000 4,367
Nippon Telegraph & Telephone 423 4,930
Nomura Securities 227,000 2,659
NTT Mobile Communication
Network 48 651
NTT Mobile Communication
Network, New 192 2,571
Sankyo 154,000 3,883
Sekisui Chemical 176,000 1,021
Sekisui House 124,000 1,339
Seven-Eleven Japan 16,000 1,569
Shin-Etsu Chemical 76,000 2,544
Shiseido 65,000 975
Sony 49,400 5,329
Sumitomo 236,000 1,727
Sumitomo Electric Industries 299,000 3,401
TDK 45,000 4,118
Tokio Marine & Fire Insurance 58,000 631
Tokyo Electronics 20,000 1,357
Toppan Printing 104,000 1,161
Toshiba Corp 77,000 549
Uny 67,000 1,008
Total Japan (Cost $88,050) 95,762
MEXICO 1.8%
Common Stocks 1.8%
Cemex (Class B) 82,767 410
Cemex ADR (Represents 2
Participating Certificates)
(USD) 100,530 $ 999
Femsa UBD (Class L)
(Represents 1 Class B,
4 Series D shares) 216,290 865
Gruma (Class B) 82,112 137
Gruma ADR (USD) 18,052 122
Grupo Financiero Bancomer
(Class B) GDS (USD) 820 6
Grupo Financiero Bancomer
(Class L) 607 0
Grupo Industrial Maseca
(Class B) 237,010 141
Grupo Modelo (Class C) 252,056 719
Grupo Televisa GDR (USD) * 22,845 1,024
Kimberly-Clark de Mexico
(Class A) 208,512 858
Telefonos de Mexico
(Class L) ADR (USD) 51,246 4,141
TV Azteca ADR (USD) 26,200 136
Total Mexico (Cost $7,401) 9,558
NETHERLANDS 9.2%
Common Stocks 9.2%
ABN Amro (EUR) 107,082 2,318
Ahold (EUR) 87,991 3,030
Akzo Nobel (EUR) 9,664 406
ASM Lithography (EUR) 61,230 3,541
CSM (EUR) 38,121 1,904
Elsevier (EUR) 190,704 2,212
Equant (EUR) 9,150 843
Fortis Nl (EUR) 105,360 3,253
ING Groep (EUR) 139,575 7,554
KPN (EUR) 12,134 569
Koninklijke Philips
Electronics (EUR) 40,774 4,020
Numico (EUR) 31,390 1,111
Royal Dutch Petroleum (EUR) 66,360 3,886
STMicroelectronics (EUR) 27,660 1,842
TNT Post Groep (EUR) 12,134 290
Unilever (EUR) 36,242 2,441
VNU (EUR) 39,750 1,588
Wolters Kluwer (EUR) 216,240 8,604
Total Netherlands (Cost $41,997) 49,412
NEW ZEALAND 0.3%
Common Stocks 0.3%
Telecom Corporation of
New Zealand 312,000 $ 1,338
Total New Zealand (Cost $1,418) 1,338
NORWAY 0.8%
Common Stocks 0.8%
Bergesen (Class A) 6,500 96
Norsk Hydro 44,647 1,682
Orkla (Class A) 166,560 2,589
Total Norway (Cost $5,460) 4,367
PORTUGAL 0.5%
Common Stocks 0.5%
Jeronimo Martins (EUR) 85,060 2,809
Total Portugal (Cost $1,709) 2,809
RUSSIA 0.0%
Common Stocks 0.0%
Rao Gazprom ADS (USD) * 16,370 184
Total Russia (Cost $302) 184
SINGAPORE 0.5%
Common Stocks 0.5%
Singapore Press 46,876 799
United Overseas Bank 233,000 1,629
Total Singapore (Cost $2,173) 2,428
SOUTH KOREA 0.7%
Common Stocks and Rights 0.7%
Korea Telecom (USD) 33,000 1,320
Samsung Electronics 15,466 1,697
SK Telecom 404 546
SK Telecom, Rights 7/28/99 * 92 48
Total South Korea (Cost $3,046) 3,611
SPAIN 3.1%
Common Stocks 3.1%
Argentaria Banca de Espana
(EUR) 49,540 1,128
Banco Bilbao Vizcaya (EUR) 55,920 808
Banco Popular Espanol (EUR) 8,990 647
Banco Santander (EUR) 248,210 $ 2,584
Empresa Nacional
de Electricidad (EUR) 82,528 1,759
Gas Natural (EUR) 13,897 1,010
Iberdrola (EUR) 135,450 2,062
Repsol (EUR) 55,884 1,141
Telefonica de Espana (EUR) 110,031 5,298
Total Spain (Cost $11,870) 16,437
SWEDEN 3.7%
Common Stocks 3.7%
ABB AG (Class A) 13,614 1,275
AstraZeneca Group 117,050 4,564
Atlas Copco (Class B) 49,390 1,327
Electrolux (Class B) 153,490 3,218
Esselte (Class B) 9,700 101
Granges 7,430 126
Hennes & Mauritz (Class B) 211,390 5,229
Meto 9,700 48
Nordbanken Holding 415,244 2,431
Sandvik (Class B) 43,970 974
Securitas (Class B) 37,494 561
Total Sweden (Cost $14,287) 19,854
SWITZERLAND 6.3%
Common Stocks 6.3%
ABB AG 23,536 2,217
Adecco 6,447 3,453
Credit Suisse Group 12,530 2,168
Nestle 4,617 8,316
Novartis 4,358 6,362
Roche Holdings 456 4,686
Swisscom 2,087 785
UBS 18,253 5,446
Total Switzerland (Cost $28,071) 33,433
TAIWAN 0.1%
Common Stocks 0.1%
Taiwan Semiconductor
Manufacturing 172,200 658
Total Taiwan (Cost $596) 658
UNITED KINGDOM 18.5%
Common Stocks 18.5%
Abbey National 157,000 $ 2,949
Asda Group 503,000 1,724
BG 163,823 1,001
British Petroleum 145,000 2,601
Cable & Wireless 341,000 4,348
Cadbury Schweppes 597,720 3,790
Caradon 379,700 889
Centrica 137,700 323
Compass Group 378,000 3,750
David S. Smith 185,000 440
Diageo 688,280 7,231
Electrocomponents 117,000 864
GKN 40,000 686
Glaxo Wellcome 269,000 7,441
Hays 107,000 1,128
John Laing (Class A) 72,000 357
Kingfisher 620,000 7,235
Ladbroke Group 226,000 903
National Westminster Bank 604,000 12,805
Rank Group 119,000 471
Reed International 702,000 4,664
Rio Tinto 177,000 2,994
Rolls Royce 124,480 526
Safeway 350,500 1,406
Shell Transport & Trading 1,191,500 8,954
SmithKline Beecham 759,600 9,872
Tesco 898,000 2,314
Tomkins 664,592 2,881
Unilever 281,035 2,494
United News & Media 234,000 2,250
Total United Kingdom (Cost $82,874) 99,291
SHORT-TERM INVESTMENTS 5.3%
Money Market Funds 5.3%
Reserve Investment Fund
5.05% # 28,641,139 28,641
Total Short-Term Investments
(Cost $28,641) 28,641
Total Investments in Securities
101.9% of Net Assets (Cost $464,137) $ 545,910
Other Assets Less Liabilities (10,210)
NET ASSETS $ 535,700
----------
* Non-income producing
# Seven-day yield
ADR American Depository Receipt
ADS American Depository Share
GDR Global Depository Receipt
GDS Global Depository Share
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 0.05% of net assets.
EUR Euro
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
June 30, 1999 (Unaudited)
In thousands
Assets
Investments in securities,
at value (cost $464,137) $545,910
Securities lending collateral 42,234
Other assets 15,911
Total assets 604,055
Liabilities
Obligation to return
securities lending collateral 42,234
Other liabilities 26,121
Total liabilities 68,355
NET ASSETS $535,700
--------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 4,061
Accumulated net realized gain/loss -
net of distributions 1,481
Net unrealized gain (loss) 81,741
Paid-in-capital applicable to 35,536,010
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 448,417
NET ASSETS $535,700
--------
NET ASSET VALUE PER SHARE $ 15.07
--------
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
6/30/99
Investment Income
Income
Dividend (net of foreign taxes of $891) $ 6,211
Interest 682
Total income 6,893
Expenses
Investment management and administrative 2,662
Net investment income 4,231
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 9,474
Foreign currency transactions (191)
Net realized gain (loss) 9,283
Change in net unrealized gain or loss
Securities 6,389
Other assets and liabilities
denominated in foreign currencies (52)
Change in net unrealized gain or loss 6,337
Net realized and unrealized gain (loss) 15,620
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $19,851
-------
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
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 4,231 $ 5,600
Net realized gain (loss) 9,283 (2,665)
Change in net unrealized
gain or loss 6,337 58,856
Increase (decrease) in net
assets from operations 19,851 61,791
Distributions to shareholders
Net investment income -- (5,770)
Net realized gain -- (2,036)
Decrease in net assets
from distributions -- (7,806)
Capital share transactions*
Shares sold 121,688 234,509
Distributions reinvested -- 7,806
Shares redeemed (103,785) (167,754)
Increase (decrease) in
net assets from capital
share transactions 17,903 74,561
Net Assets
Increase (decrease)
during period 37,754 128,546
Beginning of period 497,946 369,400
End of period $ 535,700 $ 497,946
---------------------------------
*Share information
Shares sold 8,262 16,773
Distributions reinvested -- 561
Shares redeemed (7,027) (12,035)
Increase (decrease) in
shares outstanding 1,235 5,299
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price International Stock Portfolio Fund
June 30, 1999 (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.
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 Lending The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. government securities as
collateral against the loans. Cash collateral received is invested in a
money market pooled account by the fund's lending agent. Collateral is
maintained over the life of the loan in an amount not less than 100% of the
value of loaned securities. Although risk is mitigated by the collateral,
the fund could experience a delay in recovering its securities and a
possible loss of income or value if the borrower fails to return them. At
June 30, 1999, the value of loaned securities was $39,657,000; aggregate
collateral consisted of $42,234,000 in the securities lending collateral
pool and U.S. government securities valued at $1,693,000.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $63,752,000 and $35,887,000, respectively, for the
six months ended June 30, 1999.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. As of December 31, 1998, the fund had capital loss
carryforwards for federal income tax purposes of $5,671,000, all of which
expires in 2006. The fund intends to retain gains realized in future
periods that may be offset by available loss carryforwards.
At June 30, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$464,137,000. Net unrealized gain aggregated $81,773,000 at period-end, of
which $102,768,000 related to appreciated investments and $20,995,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc. (the
manager), which is owned by T. Rowe Price Associates, Inc., 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 $423,000 was
payable at June 30, 1999. 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, 1999, totaled $566,000 and are reflected as interest income in the
accompanying Statement of Operations.
During the six months ended June 30, 1999, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating
$7,620,000 with certain affiliates of the manager and paid commissions of
$15,000 related thereto.
Invest With Confidence(registered trademark)
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for dis-
tribution only to those who have
received a copy of the portfolio's
prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP653 (6/99)
K15-056 6/30/99
