PRICE T ROWE INTERNATIONAL SERIES INC, 497, 1995-05-19

PRICE T ROWE INTERNATIONAL SERIES INC
497, 1995-05-19

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PAGE 1

Prospectus for the T. Rowe Price International Series, Inc.,
dated May 1, 1995, should be inserted here.

Prospectus

T. Rowe Price
International Stock Portfolio

Facts at a Glance

Investment Goal
To provide capital appreciation through investment primarily in established
companies based outside the United States.

Strategy
Invests worldwide primarily in well-established, non-U.S. companies.

Risk/Reward
High potential risk and reward. The fund's share price will fluctuate with
changes in market, economic, and foreign currency exchange conditions.

Investor Profile
Those seeking enhanced appreciation potential over time and greater
diversification for their equity investments who can accept the volatility
of stock prices and the special risks that accompany international
investing.

Investment Manager
Rowe Price-Fleming International, Inc., ("Price-Fleming") was founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. ("T. Rowe
Price") and Robert Fleming Holdings Ltd. As of December 31, 1994,
Price-Fleming managed over $18 billion in foreign stocks and bonds through
its offices in Baltimore, London, Tokyo, and Hong Kong.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

T. Rowe Price
International Series, Inc.
May 1, 1995

Prospectus

Contents

1 About the Fund
Financial Highlights 2
Fund, Market, and Risk Characteristics 2

2 About Your Account
Pricing Shares;
Receiving Sale Proceeds 6
Dividends and Distributions 7

3 More About the Fund
Organization and Management 8
Understanding Fund Performance 10
Investment Policies and Practices 11

This prospectus contains information that a prospective Contract Holder or
Participant should know about the fund before investing. Please keep it for
future reference. A Statement of Additional Information about the fund,
dated May 1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this prospectus. To obtain a
free copy, contact your insurance company.

1 About the Fund

Financial Highlights
The following table provides information about the fund's financial
history. It is based on a single share outstanding for the period March 31,
1994 (commencement of operations) to December 31, 1994. The table is part
of the fund's financial statements which are included in the fund's annual
report and incorporated by reference into the Statement of Additional
Information. This document is available to shareholders upon request. The
financial statements in the annual report have been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report covers
the period shown.

<TABLE>
<CAPTION>
Investment Activities Distributions End of Period
Net
Real-
ized
and Total Ratio
Net Unreal- Return of Net
Asset ized Total Net (in- Ratio Invest-
Value, Net Gain from Asset cludes of Ex- ment Port-
Period Begin- Invest- (Loss) Invest- Net Net Total Value Rein- penses Income- folio
Ended, ning ment on ment Invest- Real- Dis- End vested to Aver- to Aver- Turn-
Dec. of Income Invest- Activi- ment ized tribu- of Divi- Net age Net age Net over
31 Period (Loss) ments ties Income Gain tions Period dends) Assets Assets Assets Rate

<FN>

<F1> 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.

<F2> Annualized.

</FN>
</TABLE>
Table 1

Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether the fund is appropriate for you, this section
takes a closer look at its investment objective and approach.[/R]

The fund should not be relied upon as a complete investment program, nor be
used for short-term trading purposes.

What is the fund's objective?
The fund's objective is long-term growth of capital through investments
primarily in common stocks of established, non-U.S. companies.

What is the fund's overall investment program?

The fund expects to invest substantially all of its assets outside the U.S.
and to diversify broadly among countries throughout the world, both
developed, newly industrialized, and emerging.

The fund expects to invest substantially all of its assets in common
stocks. However, the fund may also invest in a variety of other
equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as corporate and governmental debt
securities, when considered consistent with the funds investment objectives
and program. The fund may also engage in a variety of investment management
practices, such as buying and selling futures and options. Under normal
market conditions, the fund's investments in securities other than common
stocks is limited to no more than 35% of total assets. However, for
temporary defensive purposes, the fund may invest all or a significant
portion of its assets in U.S. Government and corporate debt obligations.
The fund will not purchase any debt security which at the time of purchase
is rated below investment grade. This would not prevent the fund from
retaining a security downgraded to below investment grade after purchase.

Why invest internationally?
There are three main reasons:

- - Expanded investment opportunities. More than half of the world's total
stock market capitalization and nearly two-thirds of global GNP consists of
non-U.S. stocks and companies.

- - The potential for higher long-term returns. For example, foreign
stocks represented by the Morgan Stanley EAFE Index (Europe, Australia, Far
East) outperformed U.S. stocks measured by the S&P 500 Stock Index in all
but one rolling 10-year period from 1981 through 1994. Of course, during
this time there were shorter periods when U.S. stocks outperformed.

- - Lower overall volatility in your investment portfolio through
increased diversification. Since foreign stock markets tend to move
independently of the U.S. market and each other, spreading investments
across a number of markets can help smooth out fluctuations in the returns
of your total equity holdings.

What are some of the opportunities represented by major overseas markets?

- - Europe: Market deregulation, privatization, and lower trade barriers
have expanded the range of investment opportunities. The emergence of
capitalist economies in Eastern Europe could, over the long term, open
previously inaccessible markets and also provide a lower-cost, skilled
labor pool, which may further stimulate European economies.

- - Asia: No longer solely dependent on the Japanese "engine" for growth,
the newly industrialized countries of the Pacific Rim are powered by
worldwide exports and, increasingly, by strong inter-regional demand. In
addition, China's move toward a more capitalistic economy has positive
implications for the entire region's future.

- - Japan: Although its growth rate has slowed, the longer-term outlook
for Japan's economy is positive. In addition to its productive labor force,
technological expertise, and commitment to capital investment, Japan's
shift to a more domestic-oriented economy should promote future growth and
create new investment opportunities.

- - Latin America: After years of stagnation, some countries here are
experiencing rising growth rates that reflect lower trade barriers,
privatization of industry, progress on reducing inflation and restructuring
of national debt burdens.

- - Emerging markets: A number of countries in Latin America, Eastern
Europe, and Africa are emerging from economic periods of stagnation and
offer the potential for growth exceeding that of the United States and
other developed countries. The emerging market countries initiating
market-based economic reforms are expected to benefit from significant
amounts of capital in-flows.

The fund's share price will fluctuate. When you sell your shares, you may
lose money.

What can I expect in terms of price volatility?
Like U.S. stock investments, common stocks of foreign companies offer
investors a way to build capital over time. Nevertheless, the long-term
rise of foreign stock prices as a group has been punctuated by periodic
declines. As in the U.S., share prices of even the best managed, most
profitable corporations are subject to market risk, which means they can
fluctuate widely.

In less well developed stock markets, such as those in some Asian, and most
Latin American, Eastern European and African countries, volatility may be
heightened by actions of a few major investors. For example, substantial
increases or decreases in cash flows of mutual funds investing in these
markets could significantly affect local stock prices and, therefore, fund
share prices.

What are the major risks associated with international investing and this
fund?
Foreign stock prices are subject to many of the same influences as U.S.
stocks, such as general economic conditions, company and industry earnings
prospects, and investor psychology. International investing also involves
additional risks which can increase the potential for the losses in the
fund. These risks can be significantly magnified for investments in
emerging markets.

Exchange rate movements can be large and can last for extended periods.

- - Currency fluctuations. Transactions in foreign securities are
conducted in local currencies, so dollars must often be exchanged for
another currency when a stock is bought or sold or a dividend is paid.
Likewise, share-price quotations and total return information reflect
conversion into dollars. Fluctuations in foreign exchange rates can
significantly increase or decrease the dollar value of a foreign
investment, boosting or offsetting its local market return. For example, if
a French stock rose 10% in price during a year, but the U.S. dollar gained
5% against the French franc during that time, the U.S. investor's return
would be reduced to 5%. This is because the franc would "buy" fewer dollars
at the end of the year than at the beginning, or, conversely, a dollar
would buy more francs.

- - Costs. It is more expensive for U.S. investors to trade in foreign
markets than in the U.S. Mutual funds offer a very efficient way for
individuals to invest abroad, but the overall expense ratios of
international funds are usually somewhat higher than those of typical
domestic stock funds.

While certain countries have made progress in economic growth,
liberalization, fiscal discipline, and political and social stability,
there is no assurance these trends will continue.

- - Political and economic factors. The economies, markets, and political
structures of a number of the countries in which each fund can invest do
not compare favorably with the U.S. and other mature economies in terms of
wealth and stability. Therefore, investments in these countries will be
riskier and subject to more erratic and abrupt price movements. This is
especially true for emerging markets such as those found in Latin America,
China, and certain Asian countries, Eastern Europe and Africa.

Some economies are less well developed (for example, Latin America, Eastern
Europe, Africa and certain Asian countries), overly reliant on particular
industries and more vulnerable to the ebb and flow of international trade,
trade barriers, and other protectionist or retaliatory measures (for
example, Japan, Southeast Asia, Latin America, Eastern Europe and Africa).
This makes investment in such markets significantly riskier than in other
countries. Some countries, particularly in Latin America and Africa, are
grappling with severe inflation and high levels of national debt.
Investments in countries that have recently begun moving away from central
planning and state-owned industries toward free markets, such as Eastern
Europe, China and Africa, should be regarded as speculative.

Certain countries have histories of instability and upheaval (for example,
Latin America and Africa) with respect to their internal politics that
could cause their governments to act in a detrimental or hostile manner
toward private enterprise or foreign investment. Such actions, for example,
nationalizing a company or industry, expropriating assets, or imposing
punitive taxes, could have a severe effect on security prices and impair
the fund's ability to repatriate capital or income. Significant external-
risks, including war, currently affect some countries. Governments in many
emerging market countries participate to some degree in their economies and
securities markets.

For more details on potential risks of foreign investments, see "Investment
Policies and Practices."

- - Legal, regulatory, and operational. Certain countries lack uniform
accounting, auditing, and financial reporting standards, have less
governmental supervision of financial markets than in the U.S., do not
honor legal rights enjoyed in the U.S., and have settlement practices, such
as delays, which could subject the fund to risks of loss not customary in
the U.S. In addition, securities markets in these countries have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S.

- - Pricing. Portfolio securities may be listed on foreign exchanges that
are open on days (such as Saturdays) when the fund does not compute their
prices. As a result, the fund's net asset value may be significantly
affected by trading on days when shareholders cannot make transactions.

How do fund managers try to reduce risk?
The principal tools are intensive research and diversification; currency
hedging techniques are used from time to time.

- - In addition to conducting on-site research in countries and companies,
Price-Fleming has close ties with investment analysts based throughout the
world.

- - Diversification significantly reduces but does not eliminate risk. The
impact on the fund's share price from a drop in the price of a particular
stock is reduced substantially by investing in a portfolio with dozens of
different companies. Likewise, the impact of unfavorable developments in a
particular country is reduced because investments are spread among many
countries.

Portfolio managers keep close watch on individual investments as well as on
political and economic trends in each country and region. Holdings are
adjusted according to the manager's analysis and outlook.

- - While currency translation does affect the shorter-run returns
provided by foreign stocks, its influence on longer-term results generally
has been outweighed by price trends on local stock exchanges. As a result,
under normal conditions, the fund does not engage in extensive hedging
programs. However, when foreign exchange rates are expected to be
unfavorable for U.S. investors, fund managers can hedge the risk through
use of currency forwards and options. In a general sense, these tools allow
a manager to exchange currencies in the future at a rate specified in the
present. (For more details, please see "Foreign Currency Transactions"
under "Investment Policies and Practices.") If the manager's forecast is
wrong, the hedge may cause a loss. Also, it may be difficult or not
practical to hedge currency risk in many emerging countries.

What are derivatives and can the fund invest in them?
The term derivative is used to describe financial instruments whose value
is derived from an underlying security (e.g., a stock or bond) or a market
benchmark (e.g., a stock index). Many types of investments representing a
wide range of potential risks and rewards fall under the "derivatives"
umbrella - from conventional instruments such as callable bonds, futures
and options, to more exotic investment such as stripped mortgage securities
and structured notes. While it was only recently that the term derivative
has become widely known among the investing public, derivatives have, in
fact, been employed by investment managers for many years.

The fund will invest in derivatives only if the expected risks and rewards
are consistent with its objective, policies, and overall risk profile as
described in this prospectus. The fund limits its use of derivatives to
situations in which they may: increase yield or total return; hedge against
a decline in principal value; or invest in eligible asset classes with
greater efficiency and lower cost than is possible through direct
investment.

How can I decide if the fund may be appropriate for me?
First, be sure that your investment objective is the same as the fund's:
capital appreciation over time. If you will need the money you plan to
invest in the near future, the fund is not suitable.

Second, your decision should take into account whether you have any other
foreign stock investments.

Third, consider your risk tolerance and the risk profile of the fund.

Where can I find more details about the fund's policies and practices?
Be sure to review "Investment Policies and Practices" in Section 3, which
discusses the following: Types of Portfolio Securities (common and
preferred stocks, convertible securities and warrants, fixed-income
securities, hybrid instruments, passive foreign investment companies, and
private placements); and Types of Management Practices (cash position,
borrowing money and transferring assets, foreign currency transactions,
futures and options, tax consequences of hedging, lending of portfolio
securities, and portfolio turnover).

2 About Your Account

Pricing Shares and Receiving Sale Proceeds

Here are some procedures you should know when investing in the fund. For
instructions on how to purchase and redeem shares of the fund, read the
separate account prospectus.

Shares of the fund will be offered to insurance company separate accounts
established for the purpose of funding variable annuity contracts. They may
also be offered to insurance company separate accounts established for the
purpose of funding variable life contracts. Variable annuity and variable
life Contract Holders or Participants are not the shareholders of the fund.
Rather, the separate account is the shareholder. The variable annuity (and
variable life contracts) are described in separate prospectuses issued by
the insurance companies. The fund assumes no responsibility for such
prospectuses or variable annuity or life contracts.

Shares of the fund are sold and redeemed without the imposition of any
sales commission or redemption charge. However, certain deferred sales
charges and other charges may apply to annuity or life contracts. Those
charges are disclosed in the separate account prospectus.

How and when shares are priced

The share price (also called "net asset value" or NAV per share) for the
fund is calculated at 4 p.m. ET each day the New York Stock Exchange is
open for business. To calculate the NAV, the fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding.

The calculation of the fund's net asset value normally will not take place
contemporaneously with the determination of the value of the fund's
portfolio securities. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the time the
fund's net asset value is calculated will not be reflected in the fund's
net asset value unless Price-Fleming, under the supervision of the fund's
Board of Directors, determines that the particular event should be taken
into account in computing the fund's net asset value.

How your purchase, sale, or exchange price is determined
Purchases. The insurance companies purchase shares of the fund for separate
accounts, using premiums allocated by the Contract Holders or Participants.
Shares are purchased at the NAV next determined after the insurance company
receives the premium payment in acceptable form. Initial and subsequent
payments allocated to the fund are subject to the limits stated in the
separate account prospectus issued by the insurance company.

Redemptions. The insurance companies redeem shares of the fund to make
benefit or surrender payments under the terms of its Contracts. Redemptions
are processed on any day on which the New York Stock Exchange is open and
are priced at the fund's NAV next determined after the insurance company
receives a surrender request in acceptable form.

Note: The time at which transactions are priced and until which orders are
accepted may be changed in case of an emergency or if the New York Stock
Exchange closes at a time other than 4 p.m. ET.

How you can receive the proceeds from a sale
Payment for redeemed shares will be made promptly, but in no event later
than seven days. However, the right of redemption may be suspended or the
date of payment postponed in accordance with the Investment Company Act of
1940. The amount received upon redemption of the shares of the fund may be
more or less than the amount paid for the shares, depending on the
fluctuations in the market value of the assets owned by the fund.

Dividends and Other Distributions
For a discussion of the tax status of your variable annuity or life
contracts, refer to the prospectus of your insurance company's separate
account.

Dividends and other distributions. The policy of the fund is to distribute
all of its net investment income and net capital gains each year to its
shareholders, which are the separate accounts established by the various
insurance companies in connection with their issuance of variable annuity
and life contracts. Dividends from net investment income are declared and
paid annually. All fund distributions made to a separate account will be
reinvested automatically in additional fund shares, unless a shareholder
(separate account) elects to receive distributions in cash. Under current
law, dividends and distributions made by the fund to separate accounts,
generally, are not taxable to the separate accounts, the insurance company
or the Contract Holder, provided that the separate account meets the
diversification requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended, and other tax related requirements are satisfied. The
fund intends to diversify its investments in the manner required under Code
Section 817(h).

Foreign Transactions. If the fund pays nonrefundable taxes to foreign
governments during the year, the taxes will reduce the fund's dividends.

3 More About the Fund

The Fund's Organization and Management

How is the fund organized?
The fund was incorporated in Maryland in 1994, and is a diversified,
open-end investment company or mutual fund. Mutual funds pool money
received from shareholders and invest it to try to achieve specific
objectives.

What is meant by "shares"?
As with all mutual funds, investors purchase "shares" when they invest in
the fund. These shares are part of the fund's authorized capital stock, but
share certificates are not issued.

Each share and fractional share entitles the shareholder to:

- - receive a proportional interest in the fund's income and capital gain
distributions;

- - cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or approval of
changes in the fund's management contract.

The shares of the fund have equal voting rights. The various insurance
companies own the outstanding shares of the fund in their separate
accounts. These separate accounts are registered under the 1940 Act or are
excluded from registration thereunder. Under current law the insurance
companies must vote the shares held in registered separate accounts in
accordance with voting instructions received from variable Contract Holders
or Participants having the right to give such instructions.

Does the fund have an annual shareholder meeting?
The fund is not required to hold annual meetings and does not intend to do
so except when certain matters, such as a change in the fund's fundamental
policies, are to be decided. In addition, shareholders representing at
least 10% of all eligible votes may call a special meeting if they wish for
the purpose of voting on the removal of any fund director(s).

All decisions regarding the purchase and sale of fund investments are made
by Price-Fleming-specifically by the fund's portfolio managers.

Who runs the funds?
General Oversight. The funds are governed by a Board of Directors that
meets regularly to review the fund's investments, performance, expenses,
and other business affairs. The Board elects the funds' officers. The
policy of the fund is that a majority of Board members will be independent
of Price-Fleming.

Investment Manager. Price-Fleming is responsible for selection and
management of each fund's portfolio investments. Price-Fleming's U.S.
office is located at 100 East Pratt Street, Baltimore, Maryland 21202.
Price-Fleming has offices in Baltimore, London, Tokyo, and Hong Kong.

Price-Fleming was incorporated in Maryland in 1979 as a joint venture
between T. Rowe Price and Robert Fleming Holdings Limited (Flemings).

Flemings is a diversified investment organization which participates in a
global network of regional investment offices in New York, London, Zurich,
Geneva, Tokyo, Hong Kong, Manila, Kuala Lumpur, Seoul, Taipei, Bombay,
Jakarta, Singapore, Bangkok and Johannesburg.

T. Rowe Price, Flemings, and Jardine Fleming are owners of Price-Fleming.
The common stock of Price-Fleming is 50% owned by a wholly-owned subsidiary
of T. Rowe Price, 25% by a subsidiary of Flemings and 25% by Jardine
Fleming Group Limited (Jardine Fleming). (Half of Jardine Fleming is owned
by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe Price
has the right to elect a majority of the board of directors of
Price-Fleming, and Flemings has the right to elect the remaining directors,
one of whom will be nominated by Jardine Fleming.

Research and Administration. Certain administrative support is provided by
T. Rowe Price which receives from Price-Fleming a fee of .15% of the market
value of all assets in equity accounts, .15% of the market value of all
assets in active fixed income accounts and .035% of the market value of all
assets in passive fixed income accounts under Price-Fleming's management.
Additional investment research and administrative support for equity
investments is provided to Price-Fleming by Fleming Investment Management
Limited (FIM) and Jardine Fleming Investment Holdings Limited (JFIH) for
which each receives from Price-Fleming a fee of .075% of the market value
of all assets in equal accounts under Price-Fleming's management. FIM and
JFIH are wholly-owned subsidiaries of Flemings and Jardine Fleming,
respectively. JFIH receives a fee of .075% of the market value of all
assets in active fixed income accounts and .0175% of such market value in
passive fixed income accounts under Price-Fleming's management.

Portfolio Management. The fund has an Investment Advisory Group that has
day-to-day responsibility for managing the portfolio and developing and
executing the fund's investment program. The members of the advisory group
are: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J.
Bruce, Mark J. T. Edwards, John R. Ford, Robert C. Howe, James B. M.
Seddon, Benedict R. F. Thomas, and David J. L. Warren.

Martin Wade joined Price-Fleming in 1979 and has 25 years of experience
with the Fleming Group in research, client service and investment
management. (Fleming Group includes Robert Fleming and/or Jardine Fleming.)
Christopher Alderson joined Price-Fleming in 1988, and has eight years of
experience with the Fleming Group in research and portfolio management.
Peter Askew joined Price-Fleming in 1988 and has 19 years of experience
managing multi-currency fixed-income portfolios. Richard Bruce joined
Price-Fleming in 1991 and has six years of experience in investment
management with the Fleming Group in Tokyo. Mark Edwards joined
Price-Fleming in 1986 and has 13 years of experience in financial analysis.
John Ford joined Price-Fleming in 1982 and has 14 years of experience with
the Fleming Group in research and portfolio management. Robert Howe joined
Price-Fleming in 1986 and has 13 years of experience in economic research,
company research and portfolio management. James Seddon joined
Price-Fleming in 1987 and has eight years of portfolio management
experience. Benedict Thomas joined Price-Fleming in 1988 and has five years
of portfolio management experience. David Warren joined Price-Fleming in
1984 and has 14 years of experience in equity research, fixed-income
research and portfolio management.

Portfolio Transactions. Decisions with respect to the purchase and sale of
the fund's portfolio securities on behalf of the fund are made by
Price-Fleming. The fund's Board of Directors has authorized Price-Fleming
to utilize affiliates of Flemings and Jardine Fleming in the capacity of
broker in connection with the execution of the fund's portfolio
transactions if Price-Fleming believes that doing so would result in an
economic advantage (in the form of lower execution costs or otherwise)
being obtained by the fund.

Marketing. T. Rowe Price Investment Services, Inc., a wholly-owned
subsidiary of T. Rowe Price, distributes (sells) shares of these and all
other T. Rowe Price funds.

Shareholder Services. T. Rowe Price Services, Inc., another wholly-owned
subsidiary, acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for certain
types of retirement plans are provided by T. Rowe Price Retirement Plan
Services, Inc., also a wholly-owned subsidiary. The address for each is 100
East Pratt St., Baltimore, MD 21202.

How are fund expenses determined?
Under the management agreement, all expenses of the fund will be paid by
Price-Fleming, except interest, taxes, brokerage commissions, directors'
fees and expenses (including counsel fees and expenses) and extraordinary
expenses. The Board of Directors of the fund reserves the right to impose
additional fees against shareholder accounts to defray expenses which would
otherwise be paid by Price-Fleming under the management agreement. The
Board does not anticipate levying such charges; such a fee, if charged, may
be retained by the fund or paid to Price-Fleming.

The Management Fee. The fund pays Price-Fleming an annual all-inclusive fee
of 1.05% based on its average daily net assets. The fund calculates and
accrues the fee daily. This fee pays for investment management services and
other operating costs.

Variable Annuity and Variable Life Charges. Variable annuity and variable
life fees and charges are in addition to those described above and are
described in the variable annuity and life prospectuses.

The fund may serve as an investment medium for both variable annuity
contracts and variable life insurance policies. Shares of the fund may be
offered to separate accounts established by any number of insurance
companies. The fund currently does not foresee any disadvantages to
variable annuity contract owners due to the fact that the fund may serve as
an investment medium for both variable life insurance policies and annuity
contracts; however, due to differences in tax treatment or other
considerations, it is theoretically possible that the interests of owners
of annuity contracts and insurance policies for which the fund serves as an
investment medium might at some time be in conflict. However, the fund's
Board of Directors is required to monitor events to identify any material
conflicts between variable annuity contract owners and variable life policy
owners, and will determine what action, if any, should be taken in the
event of such a conflict. If such a conflict were to occur, an insurance
company participating in the fund might be required to redeem the
investment of one or more of its separate accounts from the fund. This
might force the fund to sell securities at disadvantageous prices.

Understanding Performance Information
This section should help you understand the terms used to describe the
fund's performance. You will come across them in shareholder reports you
receive from us two times a year.

Total return is the most widely used performance measure. Detailed
performance information is included in the fund's shareholder reports.

Total Return
This tells you how much an investment in the fund has changed in value over
a given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Including reinvested
distributions means that total return numbers include the effect of
compounding, i.e., you receive income and capital gain distributions on a
rising number of shares.

Advertisements for the fund may include cumulative or compound average
annual total return figures, which may be compared with various indices,
other performance measures, or other mutual funds.

Cumulative Total Return
This is the actual rate of return on an investment for a specified period.
A cumulative return does not indicate how much the value of the investment
may have fluctuated between the beginning and the end of the period
specified.

Average Annual Total Return
This is always hypothetical. Working backward from the actual cumulative
return, it tells you what constant year-by-year return would have produced
the actual, cumulative return. By smoothing out all the variations in
annual performance, it gives you an idea of the investment's annual
contribution to your portfolio provided you held it for the entire period
in question.

Total returns quoted for the fund include the effect of deducting the
fund's expenses, but may not include charges and expenses attributable to
any particular insurance product. Since you can only purchase shares of the
fund through an insurance product, you should carefully review the
prospectus of the insurance product you have chosen for information on
relevant charges and expenses. Excluding these charges from quotations of
the fund's performance has the effect of increasing the performance quoted.

Investment Policies and Practices
This section takes a detailed look at some of the securities the fund may
hold in its portfolio and the various kinds of investment practices that
may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the
Statement of Additional Information. The fund adheres to applicable
investment restrictions at the time it makes an investment. A later charge
in circumstances will not require the sale of an investment if it was
proper at the time it was made.

Shareholder approval is required to substantively change the fund's
objective and certain investment restrictions noted in the following
section as "fundamental policies." The managers also follow certain
"operating policies" which can be changed without shareholder approval.
However, significant changes are discussed with shareholders in fund
reports.

The fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in the prospectus. For
instance, this fund is not permitted to invest more than 10% of total
assets in hybrid instruments. While these restrictions provide a useful
level of detail about the fund's investment program, investors should not
view them as an accurate gauge of the potential risk of such investments.
For example, in a given period, a 5% investment in hybrid instruments could
have significantly more than a 5% impact on the fund's share price. The net
effect of a particular investment depends on its volatility and the size of
its overall return in relation to the performance of all the fund's other
investments.

Changes in the fund's holdings, the fund's performance, and the
contribution of various investments are discussed in the shareholder
reports sent to you.

Fund managers have considerable leeway in choosing investment strategies
and selecting securities they believe will help the fund achieve its
objective.

Types of Portfolio Securities
In seeking to meet its investment objective, the fund may invest in any
type of security or instrument (including certain potentially high-risk
derivatives) whose investment characteristics are consistent with the
fund's investment program. These and some of the other investment
techniques the fund may use are described in the following pages.

Fundamental policy: The fund will not purchase a security if, as a result,
with respect to 75% of its total assets, more than 5% of its total assets
would be invested in securities of a single issuer or more than 10% of the
outstanding voting securities of the issuer would be held by one fund.

Common and Preferred Stocks. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks
after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims
are satisfied, common stockholders participate in company profits on a pro
rata basis; profits may be paid out in dividends or reinvested in the
company to help it grow. Increases and decreases in earnings are usually
reflected in a company's stock price, so common stocks generally have the
greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the funds may
purchase preferred stock where the issuer has omitted, or is in danger of
omitting, payment of its dividend. Such investments would be made primarily
for their capital appreciation potential.

Convertible Securities and Warrants. The fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree. In recent years, convertibles have been developed which combine
higher or lower current income with options and other features. Warrants
are options to buy a stated number of shares of common stock at a specified
price any time during the life of the warrants (generally, two or more
years).

Fixed-Income Securities. The fund may invest in any type of
investment-grade security. Such securities would be purchased in companies
which meet the investment criteria for the fund. The price of a bond
fluctuates with changes in interest rates, rising when interest rates fall
and falling when interest rates rise.

Hybrids can have volatile prices and limited liquidity and their use by the
fund may not be successful.

Hybrid Instruments. These instruments (a potentially high-risk type of
derivative) can combine the characteristics of securities, futures and
options. For example, the principal amount or interest rate of a hybrid
could be tied (positively or negatively) to the price of some commodity,
currency or securities index or another interest rate (each a "benchmark").
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and
increased total return. Hybrids may not bear interest or pay dividends. The
value of a hybrid or its interest rate may be a multiple of a benchmark
and, as a result, may be leveraged and move (up or down) more steeply and
rapidly than the benchmark. These benchmarks may be sensitive to economic
and political events, such as commodity shortages and currency
devaluations, which cannot be readily foreseen by the purchaser of a
hybrid. Under certain conditions, the redemption value of a hybrid could be
zero, thus, an investment in a hybrid may entail significant market risks
that are not associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed
rate or floating rate of interest. The purchase of hybrids also exposes the
fund to the credit risk of the issuer of the hybrid.

Operating policy: The fund may invest up to 10% of its total assets in
hybrid instruments.

Passive Foreign Investment Companies. The fund may purchase the securities
of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to
invest in certain countries. In addition to bearing their proportionate
share of the trust's expenses (management fees and operating expenses)
shareholders will also indirectly bear similar expenses of such trusts.
Capital gains on the sale of such holdings are considered ordinary income
regardless of how long the fund held its investment. In addition, the fund
may be subject to corporate income tax and an interest charge on certain
dividends and capital gains earned from these investments, regardless of
whether such income and gains are distributed to shareholders.

In accordance with tax regulations, the fund intends to treat these
securities as sold on the last day of its fiscal year and recognize any
gains for tax purposes at that time; losses will not be recognized. Such
gains will be considered ordinary income, which the fund will be required
to distribute even though it has not sold the security.

Private Placements. These securities are sold directly to a small number of
investors, usually institutions. Unlike public offerings, such securities
are not registered with the SEC. Although certain of these securities may
be readily sold, for example, under Rule 144A, the sale of others may
involve substantial delays and additional costs.

Operating policy: The fund will not invest more than 15% of its net assets
in illiquid securities, and no more than 5% in certain restricted
securities.

Types of Management Practices

Cash reserves provide flexibility and serve as a short-term defense during
periods of unusual market volatility.

Cash Position. The fund will hold a certain portion of its assets in U.S.
and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in
one year or less. For temporary, defensive purposes, the fund may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments, and serves as a short-term defense during periods of unusual
market volatility.

Borrowing Money and Transferring Assets. The fund can borrow money from
banks as a temporary measure for emergency purposes, to facilitate
redemption requests, or for other purposes consistent with the fund's
investment objective and program. Such borrowings may be collateralized
with fund assets, subject to restrictions.

Fundamental policy: Borrowings may not exceed 33 1/3% of the fund's total
fund assets.

Operating policies: The fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of the fund's
total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.

In accordance with California law, the fund may not borrow more than 10% of
its net asset value when borrowing for any general purposes; and the fund
may not borrow more than 25% of net asset value when borrowing as a
temporary measure to facilitate redemptions. Net asset value of a portfolio
is the market value of all investments or assets owned less outstanding
liabilities of the portfolio at the time that any new or additional
borrowing is undertaken.

Foreign Currency Transactions. The fund will normally conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. The
fund will generally not enter into a forward contract with a term of
greater than one year.

The fund will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when the fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when Price-Fleming believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the former
foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the fund's portfolio
securities denominated in such foreign currency. Under certain
circumstances, the fund may commit a substantial portion or the entire
value of its portfolio to the consummation of these contracts.
Price-Fleming will consider the effect such a commitment of its portfolio
to forward contracts would have on the investment program of the fund and
the flexibility of the fund to purchase additional securities. Although
forward contracts will be used primarily to protect the fund from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted and the fund's total return
could be adversely affected as a result.

There are certain markets where it is not possible to engage in effective
foreign currency hedging. This may be true, for example, for the currencies
of various Latin American countries and other emerging markets where the
foreign exchange markets are not sufficiently developed to permit hedging
activity to take place.

Futures are used to manage risk; options give the investor the option to
buy or sell an asset at a predetermined price in the future.

Futures and Options. Futures (a type of potentially high-risk derivative)
are often used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed upon price. Options (another type
of potentially high-risk derivative) give the investor the right, but not
the obligation, to buy or sell an asset at a predetermined price in the
future. The fund may buy and sell futures and options contracts for any
number of reasons including: to manage its exposure to changes in sec-
urities prices and foreign currencies; as an efficient means of adjusting
overall exposure to certain markets; to enhance income; and to protect the
value of portfolio securities. The fund may purchase, sell, or write call
and put options on securities, financial indices, and foreign currencies.

Futures contracts and options may not always be successful hedges; their
prices can be highly volatile; using them could lower the fund's total
return; and the potential loss from the use of futures can exceed the
fund's initial investment in such contracts.

Operating policies: Futures: Initial margin deposits and premiums on
options used for non-hedging purposes will not equal more than 5% of the
fund's net asset value. Options on securities: The total market value of
securities against which the fund has written call or put options may not
exceed 25% of its total assets. The fund will not commit more than 5% of
its total assets to premiums when purchasing call or put options.

Tax Consequences of Hedging. Under applicable tax law, the fund may be
required to limit its gains from hedging in foreign currency forwards,
futures and options. Although the fund is expected to comply with such
limits, the extent to which these limits apply is subject to tax
regulations as yet unissued. Hedging may also result in the application of
the mark-to-market and straddle provisions of the Internal Revenue Code.
These provisions could result in an increase (or decrease) in the amount of
dividends paid by the fund and could affect whether dividends paid by the
fund are classified as capital gains or ordinary income.

Lending of Portfolio Securities. Like other mutual funds, the fund may lend
securities to broker-dealers, other institutions, or other persons to earn
additional income. The principal risk is the potential insolvency of the
broker-dealer or other borrower. In this event, the fund could experience
delays in recovering securities and possibly capital losses.

Fundamental policy: The value of loaned securities may not exceed 33 1/3%
of the fund's total assets.

Portfolio Turnover. Although the fund will not generally trade for
short-term profits, circumstances may warrant a sale without regard to the
length of time a security was held. The fund's annualized portfolio
turnover rate for the period ending December 31, 1994 was 4.6%.

PAGE 2
STATEMENT OF ADDITIONAL INFORMATION

T. Rowe Price International Series, Inc. (the "Corporation")

T. Rowe Price International Stock Portfolio

(the "Fund")

Shares of the Fund are currently being offered to insurance
company separate accounts established for the purpose of funding
variable annuity contracts. They may also be offered to
insurance company separate accounts established for the purpose
of funding variable life contracts. Variable annuity and
variable life Contract Holders or Participants are not the
shareholders of the Fund. Rather, the separate account is the
shareholder. The variable annuity and variable life contracts
are described in separate prospectuses issued by the insurance
companies. The Fund assumes no responsibility for such
prospectuses, or variable annuity or life contracts.

In the future, it is possible that the Fund may offer its
shares to separate accounts funding variable annuities, variable
life insurance or other insurance products of other insurance
companies.

This Statement of Additional Information is not a prospectus
but should be read in conjunction with the Fund's prospectus
dated May 1, 1995, which may be obtained by contacting your
insurance company.

The date of this Statement of Additional Information is May
1, 1995.

PAGE
TABLE OF CONTENTS

Page Page

Call and Put Options . . 9 Investment Objective and
Capital Stock . . . . . . 44 Policies . . . . . . . . 2
Code of Ethics . . . . . 37 Investment Performance . 27
Custodian . . . . . . . . 37 Investment Program . . . . 2
Dealer Options . . . . . 14 Investment Restrictions 23
Distributor for Fund . . 36 Legal Counsel . . . . . 45
Dividends . . . . . . . . 42 Lending of Portfolio
Federal and State Registration Securities . . . . . . . 8
of Shares . . . . . . . 45 Management of Fund . . . 32
Foreign Currency Net Asset Value Per
Transactions . . . . . . 21 Share . . . . . . . . . 42
Foreign Futures and Portfolio Management
Options . . . . . . . . 20 Practices . . . . . . . . 8
Futures Contracts . . . . 15 Portfolio Transactions . 37
Hybrid Instruments . . . 7 Pricing of Securities . 41
Illiquid or Restricted Principal Holders of
Securities . . . . . . . 7 Securities . . . . . . 34
Independent Accountants . 45 Repurchase Agreements . . 9
Investment Management Risk Factors of Foreign
Services . . . . . . . . 34 Investing . . . . . . . . 3
Tax Status . . . . . . . 42
Warrants . . . . . . . . . 8

INVESTMENT OBJECTIVE AND POLICIES

The following information supplements the discussion of the
Fund's investment objective and policies discussed in the Fund's
prospectus. Unless otherwise specified, the investment program
and restrictions of the Fund are not fundamental policies. The
operating policies of the Fund are subject to change by its Board
of Directors without shareholder approval. However, shareholders
will be notified of a material change in an operating policy.
The fundamental policies of the Fund may not be changed without
the approval of at least a majority of the outstanding shares of
the Fund or, if it is less, 67% of the shares represented at a
meeting of shareholders at which the holders of 50% or more of
the shares are represented.

INVESTMENT PROGRAM

It is the present intention of Price-Fleming to invest in
companies based in (or governments of or within) the Far East
(for example, Japan, Hong Kong, Singapore, and Malaysia), Western
Europe (for example, United Kingdom, Germany, Hungary, Poland,

PAGE
Netherlands, France, Spain, and Switzerland), South Africa,
Australia, Canada, and such other areas and countries as
Price-Fleming may determine from time to time.

In determining the appropriate distribution of investments
among various countries and geographic regions, Price-Fleming
ordinarily considers the following factors: prospects for
relative economic growth between foreign countries; expected
levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to international
investors.

In analyzing companies for investment, Price-Fleming
ordinarily looks for one or more of the following
characteristics: an above-average earnings growth per share;
high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product
development and marketing; efficient service; pricing
flexibility; strength of management; and general operating
characteristics which will enable the companies to compete
successfully in their market place. While current dividend
income is not a prerequisite in the selection of portfolio
companies, the companies in which the Fund invests normally will
have a record of paying dividends, and will generally be expected
to increase the amounts of such dividends in future years as
earnings increase.

It is expected that the Fund's investments will ordinarily
be traded on exchanges located at least in the respective
countries in which the various issuers of such securities are
principally based.

Risk Factors of Foreign Investing

There are special risks in investing in a Fund. Certain of
these risks are inherent in any international mutual fund while
others relate more to the countries in which the Fund will
invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries
of Southeast Asia, Latin America, Eastern Europe and the Middle
East. Although there is no universally accepted definition, a
developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a
per capita gross national product of less than $8,000.

General. Investors should understand that all investments
have a risk factor. There can be no guarantee against loss
resulting from an investment in the Fund, and there can be no

PAGE
assurance that the Fund's investment policies will be successful,
or that its investment objectives will be attained. The Fund is
designed for individual and institutional investors seeking to
diversify beyond the United States in actively researched and
managed portfolios, and are intended for long-term investors who
can accept the risks entailed in investment in foreign
securities.

Political and Economic Factors. Individual foreign
economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as
growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are
not as stable as in the United States. For example, in 1991, the
existing government in Thailand was overthrown in a military
coup. In 1992, there were two military coup attempts in
Venezuela and in 1992 the President of Brazil was impeached. In
addition, significant external political risks currently affect
some foreign countries. Both Taiwan and China still claim
sovereignty of one another and there is a demilitarized border
between North and South Korea.

Governments in certain foreign countries continue to
participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of
securities and payment of dividends. The economies of many
foreign countries are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and
economic conditions of their trading partners. The enactment by
these trading partners of protectionist trade legislation could
have a significant adverse effect upon the securities markets of
such countries.

Currency Fluctuations. The Fund will invest in securities
denominated in various currencies. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Such changes will also
affect the Fund's income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the dollar
value of the Fund's securities denominated in that currency will
rise. When a given currency depreciates against the dollar (the
dollar strengthens) the dollar value of the Fund's securities
denominated in that currency would be expected to decline.

Investment and Repatriation of Restrictions. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled in varying degrees. These

PAGE
restrictions may limit at times and preclude investment in
certain of such countries and may increase the cost and expenses
of the Fund. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These
restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners,
and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Fund invests.
In addition, the repatriation of both investment income and
capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the
need for certain government consents. For example, capital
invested in Chile normally cannot be repatriated for one year.

Market Characteristics. It is contemplated that most
foreign securities, other than Latin American securities, will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. However, some investments may
be made through ADRs traded in the United States. Foreign stock
and bond markets are generally not as developed or efficient as,
and may be more volatile than, those in the United States. While
growing in volume, they usually have substantially less volume
than U.S. markets and the Fund's portfolio securities may be less
liquid and subject to more rapid and erratic price movements than
securities of comparable U.S. companies. Equity securities may
trade at price/earnings multiples higher than comparable United
States securities and such levels may not be sustainable. Fixed
commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the
Fund will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government
supervision and regulation of foreign stock and bond exchanges,
brokers and listed companies than in the United States.
Moreover, settlement practices for transactions in foreign
markets may differ from those in United States markets. Such
differences may include delays beyond periods customary in the
United States and practices, such as delivery of securities prior
to receipt of payment, which increase the likelihood of a "failed
settlement." Failed settlements can result in losses to the
Fund.

Investment Funds. The Fund may invest in investment funds
which have been authorized by the governments of certain
countries specifically to permit foreign investment in securities
of companies listed and traded on the stock exchanges in these
respective countries. The Fund's investment in these funds is
subject to the provisions of the 1940 Act discussed on page __.

PAGE
If the Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the
expenses of the Fund (including operating expenses and the fees
of the investment manager), but also will bear indirectly similar
expenses of the underlying investment funds. In addition, the
securities of these investment funds may trade at a premium over
their net asset value.

Information and Supervision. There is generally less
publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject
to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those
applicable to United States companies. It also may be more
difficult to keep currently informed of corporate actions which
affect the prices of portfolio securities.

Taxes. The dividends and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a
credit or deduction for U.S. federal income tax purposes for his
or her proportionate share of such foreign taxes paid by the
Fund. (See "Tax Status," page __.)

Costs. Investors should understand that the expense ratios
of the Fund can be expected to be higher than investment
companies investing in domestic securities since the cost of
maintaining the custody of foreign securities and the rate of
advisory fees paid by the Fund are higher.

Small Companies. Small companies may have less experienced
management and fewer management resources than larger firms. A
smaller company may have greater difficulty obtaining access to
capital markets, and may pay more for the capital it obtains. In
addition, smaller companies are more likely to be involved in
fewer market segments, making them more vulnerable to any
downturn in a given segment. Some of these factors may also
apply, to a lesser extent, to medium size companies. Some of the
smaller companies in which the Fund will invest may be in major
foreign markets; others may be leading companies in emerging
countries outside the major foreign markets. Securities analysts
generally do not follow such securities, which are seldom held
outside of their respective countries and which may have
prospects for long-term investment returns superior to the
securities of well-established and well-known companies. Direct

PAGE
investment in such securities may be difficult for United States
investors because, among other things, information relating to
such securities is often not readily available. Of course, there
are also risks associated with such investments, and there is no
assurance that such prospects will be realized.

Other. With respect to certain foreign countries,
especially developing and emerging ones, there is the possibility
of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social
instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.

Eastern Europe and Russia. Changes occurring in Eastern
Europe and Russia today could have long-term potential
consequences. As restrictions fall, this could result in rising
standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment
in the countries of Eastern Europe and Russia is highly
speculative at this time. Political and economic reforms are too
recent to establish a definite trend away from centrally-planned
economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have
government exchange controls, currencies with no recognizable
market value relative to the established currencies of western
market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal
tradition which does not recognize rights in private property.
In addition, these countries may have national policies which
restrict investments in companies deemed sensitive to the
country's national interest. Further, the governments in such
countries may require governmental or quasi-governmental
authorities to act as custodian of the Fund's assets invested in
such countries and these authorities may not qualify as a foreign
custodian under the Investment Company Act of 1940 and exemptive
relief from such Act may be required. All of these
considerations are among the factors which could cause
significant risks and uncertainties to investment in Eastern
Europe and Russia. The Fund will only invest in a company
located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk. To the extent
any securities issued by companies in Eastern Europe and Russia
are considered illiquid, the Fund will be required to include
such securities within its 15% restriction on investing in
illiquid securities.

PAGE
Latin America

To the extent the fund invests in Latin America, such
investments will be subject to the factors discussed below.

Inflation. Most Latin American countries have experienced,
at one time or another, severe and persistent levels of
inflation, including, in some cases, hyperinflation. This has,
in turn, led to high interest rates, extreme measures by
governments to keep inflation in check and a generally
debilitating effect on economic growth. Although inflation in
many countries has lessened, there is no guarantee it will remain
at lower levels.

Political Instability. The political history of certain
Latin American countries has been characterized by political
uncertainty, intervention by the military in civilian and
economic spheres, and political corruption. Such developments,
if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization and removal of trade
barriers and result in significant disruption in securities
markets.

Foreign Currency. Certain Latin American countries may
have managed currencies which are maintained at artificial levels
to the U.S. dollar rather than at levels determined by the
market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive
and negative effect on foreign investors. For example, in late
1994 the value of the Mexican peso lost more than one-third of
its value relative to the dollar. Certain Latin American
countries also may restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no
significant foreign exchange market for certain currencies and it
would, as a result, be difficult for the Fund to engage in
foreign currency transactions designed to protect the value of
the Fund's interests in securities denominated in such
currencies.

Sovereign Debt. A number of Latin American countries are
among the largest debtors of developing countries. There have
been moratoria on, and reschedulings of, repayment with respect
to these debts. Such events can restrict the flexibility of
these debtor nations in the international markets and result in
the imposition of onerous conditions on their economies.

In addition to the investments described in the Fund's
prospectus, the Fund may invest in the following:

PAGE
Types of Securities

Hybrid Instruments

Hybrid Instruments (a type of potentially high-risk
derivative) have recently been developed and combine the elements
of futures contracts or options with those of debt, preferred
equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these Hybrid Instruments are indexed to the
price of a commodity, particular currency, or a domestic or
foreign debt or equity securities index. Hybrid Instruments may
take a variety of forms, including, but not limited to, debt
instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or
commodity or securities index at a future point in time,
preferred stock with dividend rates determined by reference to
the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.

The risks of investing in Hybrid Instruments reflect a
combination of the risks from investing in securities, options,
futures and currencies, including volatility and lack of
liquidity. Reference is made to the discussion of futures,
options, and forward contracts herein for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the
related commodity or currency may not move in the same direction
or at the same time. Hybrid Instruments may bear interest or pay
preferred dividends at below market (or even relatively nominal)
rates. Alternatively, Hybrid Instruments may bear interest at
above market rates but bear an increased risk of principal loss
(or gain). In addition, because the purchase and sale of Hybrid
Instruments could take place in an over-the-counter market or in
a private transaction between the Fund and the seller of the
Hybrid Instrument, the creditworthiness of the contra party to
the transaction would be a risk factor which the Fund would have
to consider. Hybrid Instruments also may not be subject to
regulation of the Commodities Futures Trading Commission
("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and
sale of securities by and to U.S. persons, or any other
governmental regulatory authority.

Illiquid or Restricted Securities

Restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933 (the "1933 Act"). Where registration is required,
the Fund may be obligated to pay all or part of the registration

PAGE
expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair
value as determined in accordance with procedures prescribed by
the Fund's Board of Directors. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the
Fund should be in a position where more than 15% of the value of
its net assets are invested in illiquid assets, including
restricted securities, the Fund will take appropriate steps to
protect liquidity.

Notwithstanding the above, the Fund may purchase securities
which, while privately placed, are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not
registered under the 1933 Act. Price-Fleming under the
supervision of the Fund's Board of Directors, will consider
whether securities purchased under Rule 144A are illiquid and
thus subject to the Fund's restriction of investing no more than
15% of its net assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, Price-Fleming will consider
the trading markets for the specific security taking into account
the unregistered nature of a Rule 144A security. In addition,
Price-Fleming could consider the (1) frequency of trades and
quotes, (2) number of dealers and potential purchases, (3) dealer
undertakings to make a market, and (4) the nature of the security
and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics
of transfer). The liquidity of Rule 144A securities would be
monitored, and if as a result of changed conditions it is
determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Fund does not invest more than 15% of its net assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in
illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.

Warrants

The Fund may invest in warrants. Warrants are pure
speculation in that they have no voting rights, pay no dividends
and have no rights with respect to the assets of the corporation

PAGE
issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may
be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.

There are, of course, other types of securities that are,
or may become available, which are similar to the foregoing and
the Fund may invest in these securities.

PORTFOLIO MANAGEMENT PRACTICES

Lending of Portfolio Securities

Securities loans are made to broker-dealers or
institutional investors or other persons, pursuant to agreements
requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent
marked to market on a daily basis. The collateral received will
consist of cash, U.S. government securities, letters of credit or
such other collateral as may be permitted under its investment
program. While the securities are being lent, the Fund will
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on
five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases
and sales of such securities in such foreign markets. The Fund
will not have the right to vote securities while they are being
lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms
deemed by Price-Fleming to be of good standing and will not be
made unless, in the judgment of Price-Fleming, the consideration
to be earned from such loans would justify the risk.

Other Lending/Borrowing

Subject to approval by the Securities and Exchange
Commission and certain state regulatory agencies, the Fund may

PAGE
make loans to, or borrow funds from, other mutual funds sponsored
or advised by T. Rowe Price or Price-Fleming (collectively,
"Price Funds"). The Fund has no current intention of engaging in
these practices at this time.

Repurchase Agreements

The Fund may enter into a repurchase agreement through
which an investor (such as the Fund) purchases a security (known
as the "underlying security") from a well-established securities
dealer or a bank that is a member of the Federal Reserve System.
Any such dealer or bank will be on T. Rowe Price's approved list
and have a credit rating with respect to its short-term debt of
at least A1 by Standard & Poor's Ratings Group, P1 by Moody's
Investors Service, or the equivalent rating by T. Rowe Price. At
that time, the bank or securities dealer agrees to repurchase the
underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time,
often less than a week. Repurchase agreements which do not
provide for payment within seven days will be treated as illiquid
securities. The Fund will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding
maturity limitations) which the Fund's investment guidelines
would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at all
times equal to or exceed the value of the repurchase agreement,
and (iii) payment for the underlying security is made only upon
physical delivery or evidence of book-entry transfer to the
account of the custodian or a bank acting as agent. In the event
of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating
the underlying security and losses, including: (a) possible
decline in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.

Options

Options are a type of potentially high risk derivative.

Writing Covered Call Options

The Fund may write (sell) American or European style
"covered" call options and purchase options to close out options
previously written by a Fund. In writing covered call options,
the Fund expects to generate additional premium income which
should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved

PAGE
in the option. Covered call options will generally be written on
securities or currencies which, in Price-Fleming's opinion, are
not expected to have any major price increases or moves in the
near future but which, over the long term, are deemed to be
attractive investments for the Fund.

A call option gives the holder (buyer) the "right to
purchase" a security or currency at a specified price (the
exercise price) at expiration of the option (European style) or
at any time until a certain date (the expiration date) (American
style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the
writer effects a closing purchase transaction by repurchasing an
option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the
case of a call option, a writer is required to deposit in escrow
the underlying security or currency or other assets in accordance
with the rules of a clearing corporation.

The Fund will write only covered call options. This means
that the Fund will own the security or currency subject to the
option or an option to purchase the same underlying security or
currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to the
fluctuating market value of the optioned securities or
currencies.

Portfolio securities or currencies on which call options
may be written will be purchased solely on the basis of
investment considerations consistent with the Fund's investment
objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk
(in contrast to the writing of naked or uncovered options, which
the Fund will not do), but capable of enhancing the Fund's total
return. When writing a covered call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price
increase in the underlying security or currency above the
exercise price, but conversely retains the risk of loss should
the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Fund
has no control over when it may be required to sell the
underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its

PAGE
obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the
market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security
or currency. The Fund does not consider a security or currency
covered by a call to be "pledged" as that term is used in the
Fund's policy which limits the pledging or mortgaging of its
assets.

The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security or currency, the relationship of the exercise
price to such market price, the historical price volatility of
the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made,
Price-Fleming, in determining whether a particular call option
should be written on a particular security or currency, will
consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This
liability will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which
the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale,
the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.

Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of
the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Fund to write another call
option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund
desires to sell a particular security or currency from its
portfolio on which it has written a call option, or purchased a
put option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security or currency.
There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the
Fund cannot enter into such a transaction, it may be required to
hold a security or currency that it might otherwise have sold.
When the Fund writes a covered call option, it runs the risk of
not being able to participate in the appreciation of the

PAGE
underlying securities or currencies above the exercise price, as
well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in
higher transaction costs. The Fund will pay transaction costs in
connection with the writing of options to close out previously
written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.

Call options written by the Fund will normally have
expiration dates of less than nine months from the date written.
The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities or
currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security or
currency from its portfolio. In such cases, additional costs may
be incurred.

The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by
appreciation of the underlying security or currency owned by the
Fund.

In order to comply with the requirements of several states,
the Fund will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market
value of the Fund's net assets. Should these state laws change
or should the Fund obtain a waiver of its application, the Fund
reserves the right to increase this percentage. In calculating
the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and
puts on identical securities or currencies with identical
maturity dates.

Writing Covered Put Options

The Fund may write American or European style covered put
options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the
obligation to buy, the underlying security or currency at the
exercise price during the option period (American style) or at
the expiration of the option (European style). So long as the

PAGE
obligation of the writer continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was
sold, requiring him to make payment of the exercise price against
delivery of the underlying security or currency. The operation
of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options.

The Fund would write put options only on a covered basis,
which means that the Fund would maintain in a segregated account
cash, U.S. government securities or other liquid high-grade debt
obligations in an amount not less than the exercise price or the
Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all
times while the put option is outstanding. (The rules of a
clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in
circumstances where Price-Fleming wishes to purchase the
underlying security or currency for the Fund's portfolio at a
price lower than the current market price of the security or
currency. In such event the Fund would write a put option at an
exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the
Fund would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods
of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security or currency
would decline below the exercise price less the premiums
received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it
does not own the specific securities or currencies which it may
be required to purchase in exercise of the put, cannot benefit
from appreciation, if any, with respect to such specific
securities or currencies. In order to comply with the
requirements of several states, the Fund will not write a covered
put option if, as a result, the aggregate market value of all
portfolio securities or currencies covering put or call options
exceeds 25% of the market value of the Fund's net assets. Should
these state laws change or should the Fund obtain a waiver of its
application, the Fund reserves the right to increase this
percentage. In calculating the 25% limit, the Fund will offset,
against the value of assets covering written puts and calls, the
value of purchased puts and calls on identical securities or
currencies with identical maturity dates.

PAGE
Purchasing Put Options

The Fund may purchase American or European style put
options. As the holder of a put option, the Fund has the right
to sell the underlying security or currency at the exercise price
at any time during the option period (American style) or at the
expiration of the option (European style). The Fund may enter
into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase
put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies.
An example of such use of put options is provided below.

The Fund may purchase a put option on an underlying
security or currency (a "protective put") owned by the Fund as a
defensive technique in order to protect against an anticipated
decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option
when the Fund, as the holder of the put option, is able to sell
the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market
price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a
security or currency where Price-Fleming deems it desirable to
continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any
transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is
eventually sold.

The Fund may also purchase put options at a time when the
Fund does not own the underlying security or currency. By
purchasing put options on a security or currency it does not own,
the Fund seeks to benefit from a decline in the market price of
the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than
the exercise price during the life of the put option, the Fund
will lose its entire investment in the put option. In order for
the purchase of a put option to be profitable, the market price
of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale
transaction.

To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing put and call options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to

PAGE
premiums when purchasing call and put options. The premium paid
by the Fund when purchasing a put option will be recorded as an
asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale
price at the time at which the net asset value per share of the
Fund is computed (close of New York Stock Exchange), or, in the
absence of such sale, the latest bid price. This asset will be
terminated upon expiration of the option, the selling (writing)
of an identical option in a closing transaction, or the delivery
of the underlying security or currency upon the exercise of the
option.

Purchasing Call Options

The Fund may purchase American or European style call
options. As the holder of a call option, the Fund has the right
to purchase the underlying security or currency at the exercise
price at any time during the option period (American style) or at
the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may
purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its
current return. The Fund may also purchase call options in order
to acquire the underlying securities or currencies. Examples of
such uses of call options are provided below.

Call options may be purchased by the Fund for the purpose
of acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call
options enables the Fund to acquire the securities or currencies
at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities
or currencies directly. This technique may also be useful to the
Fund in purchasing a large block of securities or currencies that
would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the
premium paid for the option.

To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing call and put options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to

PAGE
premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it
owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.

Dealer (Over-the-Counter) Options

The Fund may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While
the Fund would look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer
option, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by
the Fund as well as loss of the expected benefit of the
transaction.

Exchange-traded options generally have a continuous liquid
market while dealer options have none. Consequently, the Fund
will generally be able to realize the value of a dealer option it
has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the option.
While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a
closing purchase transaction, it will not be able to liquidate
securities (or other assets) or currencies used as cover until
the option expires or is exercised. In the event of insolvency
of the contra party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in
material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the
option. This requirement may impair a Fund's ability to sell
portfolio securities or currencies at a time when such sale might
be advantageous.

The Staff of the SEC has taken the position that purchased
dealer options and the assets used to secure the written dealer

PAGE
options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that
the Fund may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to
the extent the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Accordingly, the Fund will
treat dealer options as subject to the Fund's limitation on
unmarketable securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment
of such instrument accordingly.

Futures Contracts

Transactions in Futures

The Fund may enter into futures contracts (a type of
potentially high risk derivative), including stock index,
interest rate and currency futures ("futures or futures
contracts").

Stock index futures contracts may be used to provide a
hedge for a portion of the Fund's portfolio, as a cash management
tool, or as an efficient way for Price-Fleming to implement
either an increase or decrease in portfolio market exposure in
response to changing market conditions. The Fund may purchase or
sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Fund's portfolio successfully, the
Fund must sell futures contacts with respect to indices or
subindices whose movements will have a significant correlation
with movements in the prices of the Fund's portfolio securities.

Interest rate or currency futures contracts may be used as
a hedge against changes in prevailing levels of interest rates or
currency exchange rates in order to establish more definitely the
effective return on securities or currencies held or intended to
be acquired by the Fund. In this regard, the Fund could sell
interest rate or currency futures as an offset against the effect
of expected increases in interest rates or currency exchange
rates and purchase such futures as an offset against the effect
of expected declines in interest rates or currency exchange
rates.

The Fund will enter into futures contracts which are traded
on national or foreign futures exchanges, and are standardized as
to maturity date and underlying financial instrument. Futures
exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the CFTC. Futures are traded in
London at the London International Financial Futures Exchange in
Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.

PAGE
Although techniques other than the sale and purchase of futures
contracts could be used for the above-referenced purposes,
futures contracts offer an effective and relatively low cost
means of implementing the Fund's objectives in these areas.

Regulatory Limitations

The Fund will engage in futures contracts and options
thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.

The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
qualify as bona fide hedging under applicable CFTC rules, the sum
of the amounts of initial margin deposits and premiums paid on
those positions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded
on a commodities exchange will be considered "related options".
This policy may be modified by the Board of Directors without a
shareholder vote and does not limit the percentage of the Fund's
assets at risk to 5%.

In accordance with the rules of the State of California,
the Fund will apply the above 5% test without excluding the value
of initial margin and premiums paid for bona fide hedging
positions.

The Fund's use of futures contracts will not result in
leverage. Therefore, to the extent necessary, in instances
involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, U.S.
government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover (such
as owning an offsetting position) the position, or alternative
cover will be employed. Assets used as cover or held in an
identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced
with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could
impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.

PAGE
If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Fund
would comply with such new restrictions.

Trading in Futures Contracts

A futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a
specific financial instrument (e.g., units of a stock index) for
a specified price, date, time and place designated at the time
the contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred
to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.

Unlike when the Fund purchases or sells a security, no
price would be paid or received by the Fund upon the purchase or
sale of a futures contract. Upon entering into a futures
contract, and to maintain the Fund's open positions in futures
contracts, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures
broker an amount of cash, U.S. government securities, suitable
money market instruments, or liquid, high-grade debt securities,
known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by
the exchange during the term of the contract. Futures contracts
are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the contract being
traded.

If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.

These subsequent payments, called "variation margin," to
and from the futures broker, are made on a daily basis as the
price of the underlying assets fluctuate making the long and
short positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.

PAGE
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the futures
contract.

For example, one contract in the Financial Times Stock
Exchange 100 Index future is a contract to buy 25 pounds sterling
multiplied by the level of the UK Financial Times 100 Share Index
on a given future date. Settlement of a stock index futures
contract may or may not be in the underlying security. If not in
the underlying security, then settlement will be made in cash,
equivalent over time to the difference between the contract price
and the actual price of the underlying asset at the time the
stock index futures contract expires.

Special Risks of Transactions in Futures Contracts

Volatility and Leverage. The prices of futures contracts
are volatile and are influenced, among other things, by actual
and anticipated changes in the market and interest rates, which
in turn are affected by fiscal and monetary policies and national
and international political and economic events.

Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several

PAGE
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.

Because of the low margin deposits required, futures
trading involves an extremely high degree of leverage. As a
result, a relatively small price movement in a futures contract
may result in immediate and substantial loss, as well as gain, to
the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument
less the margin deposit.

Liquidity. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.

Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
to close a futures contract, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In

PAGE
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.

Hedging Risk. A decision of whether, when, and how to
hedge involves skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of unexpected
market behavior, market or interest rate trends. There are
several risks in connection with the use by the Fund of futures
contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the
futures contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. Price-Fleming
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the
Fund's underlying instruments sought to be hedged.

Successful use of futures contracts by the Fund for hedging
purposes is also subject to Price-Fleming's ability to correctly
predict movements in the direction of the market. It is possible
that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the
futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a
certain degree, Price-Fleming believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.

PAGE
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by
Price-Fleming might not result in a successful hedging
transaction over a very short time period.

Options on Futures Contracts

The Fund may purchase and sell options on the same types of
futures in which it may invest.

Options on futures are similar to options on underlying
instruments except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by the
delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds (in the case
of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. Purchasers of
options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.

As an alternative to writing or purchasing call and put
options on stock index futures, the Fund may write or purchase
call and put options on stock indices. Such options would be
used in a manner similar to the use of options on futures

PAGE
contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of
the Fund and other T. Rowe Price Funds. Such aggregated orders
would be allocated among the Funds and the other T. Rowe Price
Funds in a fair and non-discriminatory manner.

Special Risks of Transactions in Options on Futures Contracts

The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders.

Additional Futures and Options Contracts

Although the Fund has no current intention of engaging in
futures or options transactions other than those described above,
it reserves the right to do so. Such futures and options trading
might involve risks which differ from those involved in the
futures and options described above.

PAGE
Foreign Futures and Options

Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the
National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the
exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or
foreign options transaction occurs. For these reasons, customers
who trade foreign futures or foreign options contracts may not be
afforded certain of the protective measures provided by the
Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In
particular, funds received from customers for foreign futures or
foreign options transactions may not be provided the same
protection as funds received in respect of transactions on United
States futures exchanges. In addition, the price of any foreign
futures or foreign options contract and, therefore, the potential
profit and loss thereon may be affected by any variance in the
foreign exchange rate between the time your order is placed and
the time it is liquidated, offset or exercised.

Foreign Currency Transactions

A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are charged at any stage for trades.

The Fund may enter into forward contracts for a variety of
purposes in connection with the management of the foreign
securities portion of its portfolio. The Fund's use of such
contracts would include, but not be limited to, the following:

PAGE
First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency,
it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for
a fixed amount of dollars, of the amount of foreign currency
involved in the underlying security transactions, the Fund will
be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.

Second, when Price-Fleming believes that one currency may
experience a substantial movement against another currency,
including the U.S. dollar, it may enter into a forward contract
to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively,
where appropriate, the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly
uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, Price-Fleming believes that
it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of
the Fund will be served.

The Fund may enter into forward contacts for any other
purpose consistent with the Fund's investment objective and
program. However, the Fund will not enter into a forward
contract, or maintain exposure to any such contract(s), if the
amount of foreign currency required to be delivered thereunder
would exceed the Fund's holdings of liquid, high-grade debt
securities and currency available for cover of the forward

PAGE
contract(s). In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.

At the maturity of a forward contract, the Fund may sell
the portfolio security and make delivery of the foreign currency,
or it may retain the security and either extend the maturity of
the forward contract (by "rolling" that contract forward) or may
initiate a new forward contract.

If the Fund retains the portfolio security and engages in
an offsetting transaction, the Fund will incur a gain or a loss
(as described below) to the extent that there has been movement
in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.

The Fund's dealing in forward foreign currency exchange
contracts will generally be limited to the transactions described
above. However, the Fund reserves the right to enter into
forward foreign currency contracts for different purposes and
under different circumstances. Of course, the Fund is not
required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless
deemed appropriate by Price-Fleming. It also should be realized
that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange at a
future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any
potential gain which might result from an increase in the value
of that currency.

Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may

PAGE
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts

The Fund may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures
on currencies, which will be treated as Section 1256 contracts or
straddles.

Transactions which are considered Section 1256 contracts
will be considered to have been closed at the end of the Fund's
fiscal year and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses from the normal
closing or settlement of such transactions will be characterized
as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument.
The Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed
the transaction and received cash to pay such distributions.

Options, futures and forward foreign exchange contracts,
including options and futures on currencies, which offset a
foreign dollar denominated bond or currency position may be
considered straddles for tax purposes, in which case a loss on
any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding
period of the securities or currencies comprising the straddle
will be deemed not to begin until the straddle is terminated.
For securities offsetting a purchased put, this adjustment of the
holding period may increase the gain from sales of securities
held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an
equity security will not include the period of time the option is
outstanding.

Losses on written covered calls and purchased puts on
securities, excluding certain "qualified covered call" options on
equity securities, may be long-term capital loss, if the security
covering the option was held for more than twelve months prior to
the writing of the option.

In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
currencies. Pending tax regulations could limit the extent that

PAGE
net gain realized from option, futures or foreign forward
exchange contracts on currencies is qualifying income for
purposes of the 90% requirement. In addition, gains realized on
the sale or other disposition of securities, including option,
futures or foreign forward exchange contracts on securities or
securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Fund's
annual gross income. In order to avoid realizing excessive gains
on securities or currencies held less than three months, the Fund
may be required to defer the closing out of option, futures or
foreign forward exchange contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that
unrealized gains on Section 1256 option, futures and foreign
forward exchange contracts, which have been open for less than
three months as of the end of the Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes
of the 30% test.

INVESTMENT RESTRICTIONS

Fundamental policies of the Fund may not be changed without
the approval of the lesser of (1) 67% of a Fund's shares present
at a meeting of shareholders if the holders of more than 50% of
the outstanding shares are present in person or by proxy or (2)
more than 50% of a Fund's outstanding shares. Other
restrictions, in the form of operating policies, are subject to
change by the Fund's Board of Directors without shareholder
approval. Any investment restriction which involves a maximum
percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition of securities or assets
of, or borrowings by, the Fund.

Fundamental Policies

As a matter of fundamental policy, the Fund may not:

(1) Borrowing. Borrow money except that the Fund may (i)
borrow for non-leveraging, temporary or emergency
purposes and (ii) engage in reverse repurchase
agreements and make other investments or engage in
other transactions, which may involve a borrowing, in
a manner consistent with the Fund's investment
objective and program, provided that the combination
of (i) and (ii) shall not exceed 33 1/3% of the value
of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or

PAGE
such other percentage permitted by law. Any
borrowings which come to exceed this amount will be
reduced in accordance with applicable law. The Fund
may borrow from banks, other Price Funds or other
persons to the extent permitted by applicable law;

(2) Commodities. Purchase or sell physical commodities;
except that it may enter into futures contracts and
options thereon;

(3) Industry Concentration. Purchase the securities of
any issuer if, as a result, more than 25% of the value
of the Fund's total assets would be invested in the
securities of issuers having their principal business
activities in the same industry;

(4) Loans. Make loans, although the Fund may (i) lend
portfolio securities and participate in an interfund
lending program with other Price Funds provided that
no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the
value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed or
privately-placed debt securities and purchase debt;

(5) Percent Limit on Assets Invested in Any One Issuer.
Purchase a security if, as a result, with respect to
75% of the value of a Fund's total assets, more than
5% of the value of its total assets would be invested
in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);

(6) Percent Limit on Share Ownership of Any One Issuer.
Purchase a security if, as a result, with respect to
75% of the value of a Fund's total assets, more than
10% of the outstanding voting securities of any issuer
would be held by the Fund (other than obligations
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities);

(7) Real Estate. Purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund
from investing in securities or other instruments
backed by real estate or securities of companies
engaged in the real estate business);

PAGE
(8) Senior Securities. Issue senior securities except in
compliance with the Investment Company Act of 1940; or

(9) Underwriting. Underwrite securities issued by other
persons, except to the extent that the Fund may be
deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase
and sale of its portfolio securities in the ordinary
course of pursuing its investment program.

NOTES

The following notes should be read in connection with
the above-described fundamental policies. The notes
are not fundamental policies.

With respect to investment restrictions (1) and (4),
the Fund will not borrow from or lend to any other
Price Fund (defined as any other mutual fund managed
or for which T. Rowe Price acts as adviser) unless
each Fund applies for and receives an exemptive order
from the SEC or the SEC issues rules permitting such
transactions. The Fund has no current intention of
engaging in any such activity and there is no
assurance the SEC would grant any order requested by
the Fund or promulgate any rules allowing the
transactions.

With respect to investment restriction (2), the Fund
does not consider currency contracts or hybrid
investments to be commodities.

For purposes of investment restriction (3), U.S.,
state or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industries are determined by reference to the
classifications of industries set forth in the Fund's
semi-annual and annual reports.

For purposes of investment restriction (4), the Fund
will consider the acquisition of a debt security to
include the execution of a note or other evidence of
an extension of credit with a term of more than nine
months.

PAGE
Operating Policies

As a matter of operating policy, the Fund may not:

(1) Borrowing. (a) The Fund will not purchase additional
securities when money borrowed exceeds 5% of its total
assets;

(b) The Fund will limit borrowing for any variable
annuity separate account to (1) 10% of net asset value
when borrowing for any general purpose, and (2) 25% of
net asset value when borrowing as a temporary measure
to facilitate redemptions.

Net asset value of a portfolio is the market value of
all investments or assets owned less outstanding
liabilities of the portfolio at the time that any new
or additional borrowing is undertaken.

(2) Control of Portfolio Companies. Invest in companies
for the purpose of exercising management or control;

(3) Futures Contracts. Purchase a futures contract or an
option thereon if, with respect to positions in
futures or options on futures which do not represent
bona fide hedging, the aggregate initial margin and
premiums on such positions would exceed 5% of the
Fund's net asset value;

(4) Illiquid Securities. Purchase illiquid securities and
securities of unseasoned issuers if, as a result, more
than 15% of its net assets would be invested in such
securities, provided that the Fund will not invest
more than 5% of its total assets in restricted
securities and not more than 5% in securities of
unseasoned issuers. Securities eligible for resale
under Rule 144A of the Securities Act of 1933 are not
included in the 5% limitation but are subject to the
15% limitation;

(4) Investment Companies. Purchase securities of open-end
or closed-end investment companies except in
compliance with the Investment Company Act of 1940 and
applicable state law. Duplicate fees could result
from any such purchases;

(5) Margin. Purchase securities on margin, except (i) for
use of short-term credit necessary for clearance of
purchases of portfolio securities and (ii) it may make

PAGE
margin deposits in connection with futures contracts
or other permissible investments;

(6) Mortgaging. Mortgage, pledge, hypothecate or, in any
manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary
in connection with permissible borrowings or
investments and then such mortgaging, pledging or
hypothecating may not exceed 33 1/3% of the Fund's
total assets at the time of borrowing or investment;

(7) Oil and Gas Programs. Purchase participations or
other direct interests or enter into leases with
respect to, oil, gas, or other mineral exploration or
development programs;

(8) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of
Additional Information;

(9) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain the securities of any
issuer if those officers and directors of the Fund,
and of its investment manager, who each own
beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially
more than 5% of such securities;

(10) Short Sales. Effect short sales of securities;

(11) Unseasoned Issuers. Purchase a security (other than
obligations issued or guaranteed by the U.S., any
state or local government, or any foreign government,
their agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's total assets
would be invested in the securities of issuers which
at the time of purchase had been in operation for less
than three years (for this purpose, the period of
operation of any issuer shall include the period of
operation of any predecessor or unconditional
guarantor of such issuer). This restriction does not
apply to securities of pooled investment vehicles or
mortgage or asset-backed securities; or

(12) Warrants. Invest in warrants if, as a result thereof,
more than 2% of the value of the net assets of the
Fund would be invested in warrants which are not
listed on the New York Stock Exchange, the American
Stock Exchange, or a recognized foreign exchange, or

PAGE
more than 5% of the value of the net assets of the
Fund would be invested in warrants whether or not so
listed. For purposes of these percentage limitations,
the warrants will be valued at the lower of cost or
market and warrants acquired by the Funds in units or
attached to securities may be deemed to be without
value.

In addition to the restrictions described above, some
foreign countries limit, or prohibit, all direct foreign
investment in the securities of their companies. However, the
governments of some countries have authorized the organization of
investment funds to permit indirect foreign investment in such
securities. For tax purposes these funds may be known as Passive
Foreign Investment Companies. The Fund is subject to certain
percentage limitations under the 1940 Act and certain states
relating to the purchase of securities of investment companies,
and may be subject to the limitation that no more than 10% of the
value of the Fund's total assets may be invested in such
securities.

Notwithstanding anything in the above fundamental and
operating restrictions to the contrary, the Fund may invest all
of its assets in a single investment company or a series thereof
in connection with a "master-feeder" arrangement. Such an
investment would be made where the Fund (a "Feeder"), and one or
more other Funds with the same investment objective and program
as the Fund, sought to accomplish its investment objective and
program by investing all of its assets in the shares of another
investment company (the "Master"). The Master would, in turn,
have the same investment objective and program as the Fund. The
Fund would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make
investments in portfolio companies on behalf of a number of
Feeder funds.

INVESTMENT PERFORMANCE

Total Return Performance

The Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in the Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in the Fund and the ending value of that
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital

PAGE
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of the Fund.
Each average annual compound rate of return is derived from the
cumulative performance of the Fund over the time period
specified. The annual compound rate of return for the Fund over
any other period of time will vary from the average.

Cumulative Performance Percentage Change

1 Year Since Inception
Ended 3/31/94 to
12/31/94 12/31/94

International Stock Portfolio N/A 1.80%

S & P 500 5.34%

Dow Jones Industrial Average 7.69%

Lipper International Funds Average 0.10%

EAFE Index 4.35%

CPI 1.97%

Price-Fleming believes that foreign economies have
performed well, and emerging economies are significantly better
than the world average, as shown in the chart on the next page.

GDP Growth Rates
________________

Average
1976-85 1986 1987 1988 1989 1990 1991 1992 1993
_______ ____ ____ ____ ____ ____ ____ ____ ____

World 3.4 3.6 4.0 4.7 3.4 2.2 0.9 1.7 2.3
Industrialized 2.8 2.9 3.2 4.4 3.3 2.4 0.8 1.5 1.3
Developing (Asia)6.4 6.7 8.0 9.2 5.7 5.8 6.2 8.2 8.5

Source: World Economic Outlook, IMF, October 1994

From time to time, in reports and promotional literature:
(1) the Fund's total return performance or P/E ratio may be
compared to any one or combination of the following: (i) the
Standard & Poor's 500 Stock Index and Dow Jones Industrial
Average so that you may compare the Fund's results with those of
a group of unmanaged securities widely regarded by investors as
representative of the U.S. stock market in general; (ii) other
groups of mutual funds, including T. Rowe Price Funds, tracked

PAGE
by: (A) Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds by overall performance,
investment objectives, and assets which includes the Lipper
Pacific Region Average which tracks the average performance of
funds which concentrate investments in equity securities whose
primary trading markets or operations are in the Western Pacific
Basin region, or a single country within this region; (B)
Morningstar, Inc., another widely used independent research firm
which ranks mutual funds; or (C) other financial or business
publications, such as Business Week, Money Magazine, Forbes and
Barron's, which provide similar information; (iii) The Financial
Times (a London based international financial
newspaper)-Actuaries World Indices, including Europe and sub
indices comprising this Index (a wide range of comprehensive
measures of stock price performance for the major stock markets
as well as for regional areas, broad economic sectors and
industry groups); (iv) Morgan Stanley Capital International
Indices, including the EAFE Index, Pacific Basin Index, Japan
Index, U.K. Index and Pacific Ex Japan Index which is a
widely-recognized series of indices in international market
performance; (v) Hoarve Govette Small Cap Index and Datastream,
as sources for United Kingdom Small Cap Stocks; (vi) the
International Finance Corporation (an affiliate of the World Bank
established to encourage economic development in less developed
countries), World Bank, OECD (Organization for Economic
Co-Operation and Development) and IMF (International Monetary
Fund) as a source of economic statistics; (vii) the Nikkei
Average, a generally accepted benchmark for performance of the
Japanese stock market; (viii) indices of stocks comparable to
those in which the Fund invests including the Topix Index, which
reflects the performance of the First Section of the Tokyo Stock
Exchange Section 2; (ix) the Wilshire Small Growth Index, as a
source for U.S. small company average annual returns; (x) IFCI
Composite 100, IFCI Latin America 100, IFCI Asia 100, and the
IFCI Europe/Mideast 100 may each be used as a source to represent
total return on an investment of $100 in each index at various
points in time; and (xi) the performance of U.S. government and
corporate bonds, notes and bills. (The purpose of these
comparisons would be to illustrate historical trends in different
market sectors so as to allow potential investors to compare
different investment strategies.); (2) the Consumer Price Index
(measure for inflation) may be used to assess the real rate of
return from an investment in the Fund; (3) other U.S. or foreign
government statistics such as GNP, and net import and export
figures derived from governmental publications, e.g. The Survey
of Current Business, may be used to illustrate investment
attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates;
(4) the effect of tax-deferred compounding on the Fund's

PAGE
investment returns, or on returns in general, may be illustrated
by graphs, charts, etc. where such graphs or charts would
compare, at various points in time, the return from an investment
in the Fund (or returns in general) on a tax-deferred basis
(assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable
basis; and (5) the sectors or industries in which the Fund
invests may be compared to relevant indices or surveys (e.g. S&P
Industry Surveys) in order to evaluate the Fund's historical
performance or current or potential value with respect to the
particular industry or sector.

Other Features and Benefits

The Fund is a member of the T. Rowe Price Family of Funds
and may help investors achieve various long-term investment
goals, such as investing money for retirement, saving for a down
payment on a home, or paying college costs. To explain how the
Fund could be used to assist investors in planning for these
goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc.
and/or T. Rowe Price Investment Services, Inc. may be made
available. These currently include: the Asset Mix Worksheet
which is designed to show shareholders how to reduce their
investment risk by developing a diversified investment plan: the
College Planning Guide which discusses various aspects of
financial planning to meet college expenses and assists parents
in projecting the costs of a college education for their
children; the Retirement Planning Kit (also available in a PC
version) which includes a detailed workbook to determine how much
money you may need for retirement and suggests how you might
invest to reach your goal; and the Retirees Financial Guide which
includes a detailed workbook to determine how much money you can
afford to spend and still preserve your purchasing power and
suggest how you might invest to reach your goal. From time to
time, other worksheets and guides may be made available as well.
Of course, an investment in the Fund cannot guarantee that such
goals will be met. Personal Strategy Planner simplifies
investment decision making by helping investors define personal
financial goals, establish length of time the investor intends to
invest, determine risk "comfort zone" and select diversified
investment mix.

To assist investors in understanding the different returns
and risk characteristics of various investments, the
aforementioned guides will include presentation of historical
returns of various investments using published indices. An
example of this is shown below.

PAGE
Historical Returns for Different Investments

Annualized returns for periods ended 12/31/94

50 years 20 years 10 years 5 years

Small-Company Stocks 14.4% 20.3% 11.1% 11.8%

Large-Company Stocks 11.9 14.6 14.4 8.7

Foreign Stocks N/A 16.3 17.9 1.8

Long-Term Corporate Bonds 5.3 10.0 11.6 8.4

Intermediate-Term U.S.
Gov't. Bonds 5.6 9.3 9.4 7.5

Treasury Bills 4.7 7.3 5.8 4.7

U.S. Inflation 4.5 5.5 3.6 3.5

Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.

Also included will be various portfolios demonstrating how
these historical indices would have performed in various
combinations over a specified time period in terms of return. An
example of this is shown below.

PAGE
Performance of Retirement Portfolios*

Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/94 $10,000
Investment
After Period
________________ __________________ ____________

Nominal Real Best Worst
Portfolio GrowthIncomeSafety ReturnReturn**Year Year

I. Low
Risk 40% 40% 20% 12.4% 6.9% 24.9% 0.1% $ 92,515

II. Moderate
Risk 60% 30% 10% 13.5% 8.1% 29.1% -1.8% $118,217

III. High
Risk 80% 20% 0% 14.5% 9.1% 33.4% -5.2% $149,200

Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates, and Ibbotson Associates.

* Based on actual performance for the 20 years ended 1994 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far
East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond
Index from 1976-94 and Lehman Brothers Government/Corporate
Bond Index from 1975), and 30-day Treasury bills from
January 1975 through December 1994. Past performance does
not guarantee future results. Figures include changes in
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.5% for the 20-year period ended
12/31/94.

Redemptions in Kind

In the unlikely event a shareholder of the Fund were to
receive an in kind redemption of portfolio securities of the
Fund, brokerage fees could be incurred by the shareholder in
subsequent sale of such securities.

Issuance of Fund Shares for Securities

Transactions involving issuance of Fund shares for securities
or assets other than cash will be limited to (1) bona fide

PAGE
reorganizations; (2) statutory mergers; or (3) other acquisitions
of portfolio securities that: (a) meet the investment objective
and policies of the Fund; (b) are acquired for investment and not
for resale except in accordance with applicable law; (c) have a
value that is readily ascertainable via listing on or trading in
a recognized United States or international exchange or market;
and (d) are not illiquid.

MANAGEMENT OF FUND

The officers and directors of the Fund are listed below.
Unless otherwise noted, the address of each is 100 East Pratt
Street, Baltimore, Maryland 21202. Except as indicated, each has
been an employee of T. Rowe Price for more than five years. In
the list below, the Fund's directors who are considered
"interested persons" of T. Rowe Price or the Fund as defined
under Section 2(a)(19) of the Investment Company Act of 1940 are
noted with an asterisk (*). These directors are referred to as
inside directors by virtue of their officership, directorship,
and/or employment with T. Rowe Price.

LEO C. BAILEY, Director--Retired; Address: 3396 South Placita
Fabula, Green Valley, Arizona 85614
ANTHONY W. DEERING, Director--Director, President and Chief
Executive Officer, The Rouse Company, real estate developers,
Columbia, Maryland; Advisory Director, Kleinwort, Benson (North
America) Corporation, a registered broker-dealer; Address: 10275
Little Patuxent Parkway, Columbia, Maryland 21044
DONALD W. DICK, JR., Director--Principal, Overseas Partners,
Inc., a financial investment firm; formerly (6/65-3/89) Director
and Vice President-Consumer Products Division, McCormick &
Company, Inc., international food processors; Director, Waverly,
Inc., Baltimore, Maryland; Address: 111 Pavonia Avenue, Suite
334, Jersey City, New Jersey 07310
ADDISON LANIER, Director--Financial management; Manager, Thomas
Emery's Sons, LLC, Alternative Asset Holdings, LLC, President,
Emery Group, Inc.; Director, Scinet Development and Holdings,
Inc.; Address: 441 Vine Street, #2300, Cincinnati, Ohio 45202-
2913
*M. DAVID TESTA, Chairman of the Board--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
*MARTIN G. WADE, President and Director--President, Price-
Fleming; Director, Robert Fleming Holdings Limited; Address: 25
Copthall Avenue, London, EC2R 7DR, England
CHRISTOPHER D. ALDERSON, Vice President--Vice President, Price-
Fleming

PAGE
PETER B. ASKEW, Vice President--Executive Vice President, Price-
Fleming
RICHARD J. BRUCE, Vice President--Vice President of Price-
Fleming; formerly (1985-1990) Investment Manager, Jardine Fleming
Investment Advisers, Tokyo
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Price-Fleming; formerly (4/80-5/90) Vice President and
Director, Private Finance, New York Life Insurance Company, New
York, New York
MARK J. T. EDWARDS, Vice President--Vice President, Price-Fleming
JOHN R. FORD, Vice President--Vice President, Price-Fleming
HENRY H. HOPKINS, Vice President--Vice President, Price-Fleming
and T. Rowe Price Retirement Plan Services, Inc.; Managing
Director, T. Rowe Price; Vice President and Director, T. Rowe
Price Investment Services, Inc., T. Rowe Price Services, Inc. and
T. Rowe Price Trust Company
ROBERT C. HOWE, Vice President--Vice President, Price-Fleming and
T. Rowe Price
STEPHEN ILOTT, Vice President--Vice President, Price-Fleming;
formerly (1988-1991) portfolio management, Fixed Income
Portfolios Group, Robert Fleming Holdings Limited, London
GEORGE A. MURNAGHAN, Vice President--Vice President, Price-
Fleming, T. Rowe Price, T. Rowe Price Trust Company, and T. Rowe
Price Investment Services, Inc.
JAMES S. RIEPE, Vice President--Managing Director, T. Rowe Price;
Chairman of the Board, T. Rowe Price Services, Inc., T. Rowe
Price Retirement Plan Services, Inc. and T. Rowe Price Trust
Company; President and Director, T. Rowe Price Investment
Services, Inc.; Director, Rhone-Poulenc Rorer, Inc.
CHRISTOPHER ROTHERY, Vice President--Employee, Price-Fleming;
formerly (1987-1989) employee of Robert Fleming Holdings Limited,
London
JAMES B. M. SEDDON, Vice President--Vice President, Price-Fleming
BENEDICT R. F. THOMAS, Vice President--Vice President, Price-
Fleming
DAVID J. L. WARREN, Vice President--Vice President, Price-Fleming
WILLIAM F. WENDLER, II, Vice President--Vice President, Price-
Fleming, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price,
Price-Fleming and T. Rowe Price Trust Company
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
PATRICIA S. BUTCHER, Assistant Secretary--Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company

PAGE
ANN B. CRANMER, Assistant Vice President--Assistant Vice
President, Price-Fleming
ROGER L. FIERY, III, Assistant Vice President--Vice President,
Price-Fleming and T. Rowe Price
LEAH P. HOLMES, Assistant Vice President--Vice President, Price-
Fleming and Assistant Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, Assistant Vice President--Vice President, T.
Rowe Price Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price

COMPENSATION TABLE

_________________________________________________________________
Pension or Total Compensation
Retirement from Fund and
Name of Aggregate Benefits Fund Group
Person, Compensation Accrued as Paid to
Position from Fund(a) Part of Fund(b) Directors(c)
_________________________________________________________________
Leo C. Bailey, $1,260 N/A $64,583
Director

Anthony W. Deering, 1,260 N/A 66,333
Director

Donald W. Dick, 1,260 N/A 64,833
Director

Addison Lanier, 1,260 N/A 64,583
Director

M. David Testa, -- N/A --
Chairman of the Board(d)

Martin G. Wade, -- N/A --
Director(d)

a Amounts in this Column are for the period January 1, 1994
through December 31, 1994.
b Not applicable. The Fund does not pay pension or retirement
benefits to officers or directors/trustees of the Fund.
c Amounts in this column are for calendar year 1994, included
67 funds at December 31, 1994.
d Any director/trustee of the Fund who is an officer or
employee of T. Rowe Price receives no remuneration from the
Fund.

The Fund's Executive Committee, comprised of Messrs. Testa
and Wade, have been authorized by the Board of Directors to

PAGE
exercise all of the powers of the Board to manage the Fund in the
intervals between meetings of the Board, except the powers
prohibited by statute from being delegated.

PRINCIPAL HOLDERS OF SECURITIES

As of the date of the prospectus, the officers and
directors of the Fund, as a group, owned less than 1% of the
outstanding shares of the Fund.

INVESTMENT MANAGEMENT SERVICES

Services

Under the Management Agreement, Price-Fleming provides the
Fund with discretionary investment services. Specifically,
Price-Fleming is responsible for supervising and directing the
investments of the Fund in accordance with the Fund's investment
objective, program, and restrictions as provided in its
prospectus and this Statement of Additional Information.
Price-Fleming is also responsible for effecting all security
transactions on behalf of the Fund, including the negotiation of
commissions and the allocation of principal business and
portfolio brokerage. In addition to these services,
Price-Fleming provides the Fund with certain corporate
administrative services, including: maintaining the Fund's
corporate existence, corporate records, and registering and
qualifying Fund shares under federal and state laws; monitoring
the financial, accounting, and administrative functions of the
Fund; maintaining liaison with the agents employed by the Fund
such as the Fund's custodian and transfer agent; assisting the
Fund in the coordination of such agents' activities; and
permitting Price-Fleming's employees to serve as officers,
directors, and committee members of the Fund without cost to the
Fund.

The Management Agreement also provides that Price-Fleming,
its directors, officers, employees, and certain other persons
performing specific functions for the Fund will only be liable to
the Fund for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.

Under the Management Agreement, Price-Fleming is permitted
to utilize the services or facilities of others to provide it or
the Fund with statistical and other factual information, advice
regarding economic factors and trends, advice as to occasional
transactions in specific securities, and such other information,
advice or assistance as Price-Fleming may deem necessary,

PAGE
appropriate, or convenient for the discharge of its obligations
under the Management Agreement or otherwise helpful to the Fund.

Certain administrative support is provided by T. Rowe Price
which receives from Price-Fleming a fee of .15% of the market
value of all assets in equity accounts, .15% of the market value
of all assets in active fixed income accounts and .035% of the
market value of all assets in passive fixed income accounts under
Price-Fleming's management.

Price-Fleming has entered into separate letters of
agreement with Fleming Investment Management Limited ("FIM") and
Jardine Fleming Investment Holdings Limited ("JFIH"), wherein FIM
and JFIH have agreed to render investment research and
administrative support to Price-Fleming. FIM is a wholly-owned
subsidiary of Robert Fleming Asset Management Limited which is a
wholly-owned subsidiary of Robert Fleming Holdings Limited
("Robert Fleming Holdings"). JFIH is an indirect wholly-owned
subsidiary of Jardine Fleming Group Limited. Under the letters
of agreement, these companies will provide Price-Fleming with
research material containing statistical and other factual
information, advice regarding economic factors and trends, advice
on the allocation of investments among countries and as between
debt and equity classes of securities, and research and
occasional advice with respect to specific companies. For these
services, FIM and JFIH each receives a fee .075% of the market
value of all assets in equity accounts under Price-Fleming's
management. JFIH receives a fee of .075% of the market value of
all assets in active fixed income accounts and .0175% of such
market value in passive fixed income accounts under
Price-Fleming's management.

Robert Fleming personnel have extensive research resources
throughout the world. A strong emphasis is placed on direct
contact with companies in the research universe. Robert Fleming
personnel, who frequently speak the local language, have access
to the full range of research products available in the market
place and are encouraged to produce independent work dedicated
solely to portfolio investment management, which adds value to
that generally available.

Management Fee

The Fund pays Price-Fleming an annual all-inclusive fee
(the "Fee") of 1.05%. The Fee is paid monthly to the Price-
Fleming on the first business day of the next succeeding calendar
month and is the sum of the daily Fee accruals for each month.
The daily Fee accrual for any particular day is calculated by
multiplying the fraction of one (1) over the number of calendar

PAGE
days in the year by the appropriate Fee rate and multiplying this
product by the net assets of the Fund for that day as determined
in accordance with the Fund's prospectus as of the close of
business from the previous business day on which the Fund was
open for business.

The Management Agreement between the Fund and Price-Fleming
provides that Price-Fleming will pay all expenses of the Fund's
operations, except interest, taxes, brokerage commissions and
other charges incident to the purchase, sale or lending of the
Fund's portfolio securities, directors' fee and expenses
(including counsel fees and expenses) and such nonrecurring or
extraordinary expenses that may arise, including the costs of
actions, suits, or proceedings to which the Fund is a party and
the expenses the Fund may incur as a result of its obligation to
provide indemnification to its officers, directors and agents.
However, the Board of Directors of the Fund reserves the right to
impose additional fees against shareholder accounts to defray
expenses which would otherwise be paid by Price-Fleming under the
Management Agreement. The Board does not anticipate levying such
charges; such a fee, if charged, may be retained by the Fund or
paid to Price-Fleming.

DISTRIBUTOR FOR FUND

T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a
wholly-owned subsidiary of T. Rowe Price, serves as the Fund's
distributor. Investment Services is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
The offering of the Fund's shares is continuous.

Investment Services is located at the same address as the
Fund and T. Rowe Price -- 100 East Pratt Street, Baltimore,
Maryland 21202.

Investment Services serves as distributor to the Fund
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that the Fund will pay all fees and expenses in
connection with: registering and qualifying its shares under the
various state "blue sky" laws; preparing, setting in type,
printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.

The Underwriting Agreement provides that Investment
Services will pay all fees and expenses in connection with:
printing and distributing prospectuses and reports for use in

PAGE
offering and selling Fund shares; preparing, setting in type,
printing, and mailing all sales literature and advertising;
Investment Services' federal and state registrations as a
broker-dealer; and offering and selling Fund shares, except for
those fees and expenses specifically assumed by the Fund.
Investment Services' expenses are paid by T. Rowe Price.

Investment Services acts as the agent of the Fund in
connection with the sale of its shares in all states in which the
shares are qualified and in which Investment Services is
qualified as a broker-dealer. Under the Underwriting Agreement,
Investment Services accepts orders for Fund shares at net asset
value. No sales charges are paid by investors or the Fund.

All Funds

CUSTODIAN

State Street Bank and Trust Company (the "Bank") is the
custodian for the Fund's U.S. securities and cash, but it does
not participate in the Fund's investment decisions. Portfolio
securities purchased in the U.S. are maintained in the custody of
the Bank and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust
Corporation. The Fund has entered into a Custodian Agreement
with The Chase Manhattan Bank, N.A., London, pursuant to which
portfolio securities which are purchased outside the United
States are maintained in the custody of various foreign branches
of The Chase Manhattan Bank and such other custodians, including
foreign banks and foreign securities depositories, in accordance
with regulations under the Investment Company Act of 1940. State
Street Bank's main office is at 225 Franklin Street, Boston,
Massachusetts 02110. The address for The Chase Manhattan Bank,
N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD,
England.

CODE OF ETHICS

The Funds' investment adviser (Price-Fleming) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in any personal securities
transactions. In addition, all employees must report their
personal securities transactions within ten days of their
execution. Employees will not be permitted to effect
transactions in a security: If there are pending client orders in
the security; the security has been purchased or sold by a client
within seven calendar days; the security is being considered for
purchase for a client; the security is subject to internal

PAGE
trading restrictions. In addition, employees are prohibited from
engaging in short-term trading (e.g., purchases and sales
involving the same security within 60 days. Any material
violation of the Code of Ethics is reported to the Board of the
Fund. The Board also reviews the administration of the Code of
Ethics on an annual basis.

PORTFOLIO TRANSACTIONS

Investment or Brokerage Discretion

Decisions with respect to the purchase and sale of
portfolio securities on behalf of the Funds are made by Price-
Fleming. Price-Fleming is also responsible for implementing
these decisions, including the allocation of portfolio brokerage
and principal business and the negotiation of commissions.

How Brokers and Dealers are Selected

Equity Securities

In purchasing and selling each Fund's portfolio securities,
it is Price-Fleming's policy to obtain quality execution at the
most favorable prices through responsible broker-dealers and, in
the case of agency transactions, at competitive commission rates
where such rates are negotiable. However, under certain
conditions, a Fund may pay higher brokerage commissions in return
for brokerage and research services. In selecting broker-dealers
to execute a Fund's portfolio transactions, consideration is
given to such factors as the price of the security, the rate of
the commission, the size and difficulty of the order, the
reliability, integrity, financial condition, general execution
and operational capabilities of competing brokers and dealers,
their expertise in particular markets and the brokerage and
research services they provide to Price-Fleming or the Funds. It
is not the policy of Price-Fleming to seek the lowest available
commission rate where it is believed that a broker or dealer
charging a higher commission rate would offer greater reliability
or provide better price or execution.

Transactions on stock exchanges involve the payment of
brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated. Traditionally,
commission rates have generally not been negotiated on stock
markets outside the United States. In recent years, however, an
increasing number of overseas stock markets have adopted a system
of negotiated rates, although a number of markets continue to be
subject to an established schedule of minimum commission rates.
It is expected that equity securities will ordinarily be

PAGE
purchased in the primary markets, whether over-the-counter or
listed, and that listed securities may be purchased in the
over-the-counter market if such market is deemed the primary
market. In the case of securities traded on the over-the-counter
markets, there is generally no stated commission, but the price
usually includes an undisclosed commission or markup. In
underwritten offerings, the price includes a disclosed, fixed
commission or discount.

Fixed Income Securities

For fixed income securities, it is expected that purchases
and sales will ordinarily be transacted with the issuer, the
issuer's underwriter, or with a primary market maker acting as
principal on a net basis, with no brokerage commission being paid
by the Fund. However, the price of the securities generally
includes compensation which is not disclosed separately.
Transactions placed though dealers who are serving as primary
market makers reflect the spread between the bid and asked
prices.

With respect to equity and fixed income securities, Price-
Fleming may effect principal transactions on behalf of the Funds
with a broker or dealer who furnishes brokerage and/or research
services, designate any such broker or dealer to receive selling
concessions, discounts or other allowances or otherwise deal with
any such broker or dealer in connection with the acquisition of
securities in underwritings. The prices the Fund pays to
underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter. Price-Fleming
may receive research services in connection with brokerage
transactions, including designations in fixed price offerings.

Price-Fleming may cause a Fund to pay a broker-dealer who
furnishes brokerage and/or research services a commission for
executing a transaction that is in excess of the commission
another broker-dealer would have received for executing the
transaction if it is determined that such commission is
reasonable in relation to the value of the brokerage and/or
research services which have been provided. In some cases,
research services are generated by third parties but are provided
to Price-Fleming by or through broker-dealers.

Descriptions of Research Services Received from Brokers and
Dealers

Price-Fleming receives a wide range of research services
from brokers and dealers covering investment opportunities
throughout the world, including information on the economies,
industries, groups of securities, individual companies,

PAGE
statistics, political developments, technical market action,
pricing and appraisal services, and performance analyses of all
the countries in which a Fund's portfolio is likely to be
invested. Price-Fleming cannot readily determine the extent to
which commissions charged by brokers reflect the value of their
research services, but brokers occasionally suggest a level of
business they would like to receive in return for the brokerage
and research services they provide. To the extent that research
services of value are provided by brokers, Price-Fleming may be
relieved of expenses which it might otherwise bear. In some
cases, research services are generated by third parties but are
provided to Price-Fleming by or through brokers.

Commissions to Brokers who Furnish Research Services

Certain broker-dealers which provide quality execution
services also furnish research services to Price-Fleming. Price-
Fleming has adopted a brokerage allocation policy embodying the
concepts of Section 28(e) of the Securities Exchange Act of 1934,
which permits an investment adviser to cause its clients to pay a
broker which furnishes brokerage or research services a higher
commission than that which might be charged by another broker
which does not furnish brokerage or research services, or which
furnishes brokerage or research services deemed to be of lesser
value, if such commission is deemed reasonable in relation to the
brokerage and research services provided by the broker, viewed in
terms of either that particular transaction or the overall
responsibilities of the adviser with respect to the accounts as
to which it exercises investment discretion. Accordingly, Price-
Fleming may assess the reasonableness of commissions in light of
the total brokerage and research services provided by each
particular broker.

Miscellaneous

Research services furnished by brokers through which Price-
Fleming effects securities transactions may be used in servicing
all accounts managed by Price-Fleming, Conversely, research
services received from brokers which execute transactions for a
particular Fund will not necessarily be used by Price-Fleming
exclusively in connection with the management of that Fund.

Some of Price-Fleming's other clients have investment
objectives and programs similar to those of the Funds. Price-
Fleming may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Funds. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
of those securities. It is Price-Fleming's policy not to favor

PAGE
one client over another in making recommendations or in placing
orders. Price-Fleming frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. Price-
Fleming has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if,
as a result of such purchases, 10% or more of the outstanding
common stock of such company would be held by its clients in the
aggregate.

The Fund does not allocate business to any broker-dealer on
the basis of its sales of the Fund's shares. However, this does
not mean that broker-dealers who purchase Fund shares for their
clients will not receive business from the Fund.

Transactions with Related Brokers and Dealers

As provided in the Investment Management Agreement between
each Fund and Price-Fleming, Price-Fleming is responsible not
only for making decisions with respect to the purchase and sale
of the Fund's portfolio securities, but also for implementing
these decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business. It is
expected that Price-Fleming will often place orders for a Fund's
portfolio transactions with broker-dealers through the trading
desks of certain affiliates of Robert Fleming Holdings Limited
("Robert Fleming"), an affiliate of Price-Fleming. Robert
Fleming, through Copthall Overseas Limited, a wholly-owned
subsidiary, owns 25% of the common stock of Price-Fleming. Fifty
percent of the common stock of Price-Fleming is owned by TRP
Finance, Inc., a wholly-owned subsidiary of T. Rowe Price, and
the remaining 25% is owned by Jardine Fleming Holdings Limited, a
subsidiary of Jardine Fleming Group Limited ("JFG"). JFG is 50%
owned by Robert Fleming and 50% owned by Jardine Matheson
Holdings Limited. The affiliates through whose trading desks
such orders may be placed include Fleming Investment Management
Limited ("FIM"), and Robert Fleming & Co. Limited ("RF&Co.").
FIM and RF&Co. are wholly-owned subsidiaries of Robert Fleming.
These trading desks will operate under strict instructions from
the Fund's portfolio manager with respect to the terms of such
transactions. Neither Robert Fleming, JFG, nor their affiliates
will receive any commission, fee, or other remuneration for the
use of their trading desks, although orders for a Fund's
portfolio transactions may be placed with affiliates of Robert
Fleming and JFG who may receive a commission.

PAGE

The Board of Directors of the Funds has authorized Price-
Fleming to utilize certain affiliates of Robert Fleming and JFG
in the capacity of broker in connection with the execution of
each Fund's portfolio transactions, provided that Price-Fleming
believes that doing so will result in an economic advantage (in
the form of lower execution costs or otherwise) being obtained
for each Fund. These affiliates include Jardine Fleming
Securities Limited ("JFS"), a wholly-owned subsidiary of JFG,
RF&Co., Jardine Fleming Australia Securities Limited, and Robert
Fleming, Inc. (a New York brokerage firm).

The above-referenced authorization was made in accordance
with Section 17(e) of the Investment Company Act of 1940 (the
"1940 Act") and Rule 17e-1 thereunder which require the Funds'
independent directors to approve the procedures under which
brokerage allocation to affiliates is to be made and to monitor
such allocations on a continuing basis. Except with respect to
tender offers, it is not expected that any portion of the
commissions, fees, brokerage, or similar payments received by the
affiliates of Robert Fleming in such transactions will be
recaptured by the Funds. The directors have reviewed and from
time to time may continue to review whether other recapture
opportunities are legally permissible and available and, if they
appear to be, determine whether it would be advisable for a Fund
to seek to take advantage of them.

During the year 1994, the International Stock Portfolio
paid Jardine Fleming (Securities) Limited ("JFS"), Robert Fleming
& Co. Limited ("RF&Co."), and Ord Minnett $479, $38, and $756
respectively, in total brokerage commissions (including discounts
received in connection with underwritings)in connection with the
Fund's portfolio transactions. The brokerage commissions paid to
JFS, RF&Co., and Ord Minnett represented 2.34%, 0.19%, and 3.70%
respectively, of the Fund's aggregate brokerage commissions paid
during 1994. The aggregate dollar amount of transactions
effected through JFS, RF&Co., and Ord Minnett involving the
payment of commissions (including discounts received in
connection with underwritings) represented 2.06%, 0.45,and 3.84%
respectively, of the aggregate dollar amount of all transactions
involving the payment of commissions during 1994. In accordance
with the written procedures adopted pursuant to Rule 17e-1, the
independent directors of each Fund reviewed the 1994 transactions
with affiliated brokers and determined that such transactions
resulted in an economic advantage to the Funds either in the form
of lower execution costs or otherwise.

PAGE
Other

For the year 1994, the total brokerage commissions paid by
International Stock Portfolio, including the discounts received
by securities dealers in connection with underwritings, were
$20,436. Of these commissions, approximately 94% were paid to
firms which provided research, statistical, or other services to
Price-Fleming in connection with the management of the Fund or,
in some cases, to the Fund.

The portfolio turnover rate of the International Stock
Portfolio for the fiscal year ending December 31, 1994 was
4.6%.

PRICING OF SECURITIES

Equity securities listed or regularly traded on a
securities exchange (including NASDAQ) 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. Other equity securities and
those listed securities that are not traded on a particular day
are valued at a price within the limits of the latest bid and
asked prices deemed by the Board of Directors or by persons
delegated by the Board, best to reflect fair value.

Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to
reflect fair value as quoted by dealers who make markets in these
securities or by an independent pricing service. Short-term debt
securities are valued at their cost in local currency which, when
combined with accrued interest, approximates fair value.

For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at 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.

Trading in the portfolio securities of the Fund may take
place in various foreign markets on certain days (such as
Saturday) when the Fund is not open for business and does not

PAGE
calculate its net asset value. In addition, trading in the
Fund's portfolio securities may not occur on days when the Fund
is open. The calculation of the Fund's net asset value normally
will not take place contemporaneously with the determination of
the value of the Fund's portfolio securities. Events affecting
the values of portfolio securities that occur between the time
their prices are determined and the time the Fund's net asset
value is calculated will not be reflected in the Fund's net asset
value unless Price-Fleming, under the supervision of the Fund's
Board of Directors, determines that the particular event should
be taken into account in computing the Fund's net asset value.

NET ASSET VALUE PER SHARE

The purchase and redemption price of the Fund's shares is
equal to the Fund's net asset value per share or share price.
The Fund determines its net asset value per share by subtracting
the Fund's liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
share of the Fund is calculated as of the close of trading on the
New York Stock Exchange ("NYSE") every day the NYSE is open for
trading. The NYSE is closed on the following days: New Year's
Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Determination of net asset value (and the offering, sale,
redemption and repurchase of shares) for the Fund may be
suspended at times (a) during which the NYSE is closed, other
than customary weekend and holiday closings, (b) during which
trading on the NYSE is restricted (c) during which an emergency
exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or (d) during which a governmental body having
jurisdiction over the Fund may by order permit such a suspension
for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) shall
govern as to whether the conditions prescribed in (b), (c) or (d)
exist.

PAGE
DIVIDENDS

Unless the separate account elects otherwise, dividends and
capital gain distributions will be reinvested on the reinvestment
date using the NAV per share of that date. The reinvestment date
normally precedes the payment date by about 10 days although the
exact timing is subject to change.

TAX STATUS

The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code") and also intends to diversify its assets in
accordance with regulations under Code Section 817(h).

In 1987, the Treasury Department indicated that it may
issue regulations addressing the circumstances in which a
policyholder's control of the investments of the insurance
company separate account would result in the policyholder being
treated as the owner of such assets. Although there is no
present indication that such regulations will be issued, their
adoption could alter the tax treatment of the policyholder,
separate account or insurance company.

For tax purposes, the Fund must declare dividends equal to
at least 98% of ordinary income (as of December 31) and capital
gains (as of October 31) in order to avoid a federal excise tax
and distribute within 12 months 100% of ordinary income and
capital gains as of December 31 each year to avoid a federal
income tax. In certain circumstances, the Fund may not be
required to comply with the excise tax distribution requirements.
It does not make any difference whether dividends and capital
gain distributions are paid in cash or in additional shares.

At the time a shareholder acquires Fund shares, the Fund's
net asset value may reflect undistributed income, capital gains
or net unrealized appreciation of securities held by the Fund
which may be subsequently distributed as either dividends or
capital gain distributions.

Income received by the Fund from sources within various
foreign countries may be subject to foreign income taxes withheld
at the source. Under the Code, if more than 50% of the value of
a Fund's total assets at the close of its taxable year comprise
securities issued by foreign corporations, the Fund may file an
election with the Internal Revenue Service to "pass through" to
the Fund's shareholders the amount of any foreign income taxes
paid by the Fund. Pursuant to this election, shareholders will
be required to: (i) include in gross income, even though not

PAGE
actually received, their respective pro rata share of foreign
taxes paid by the Fund; (ii) treat their pro rata share of
foreign taxes as paid by them; and (iii) either deduct their pro
rata share of foreign taxes in computing their taxable income, or
use it as a foreign tax credit against U.S. income taxes (but not
both).

If, in any taxable year, the Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income without deduction for dividends or other
distributions to shareholders; (ii) the Fund's distributions to
the extent made out of the Fund's current or accumulated earnings
and profits would be treated as ordinary dividends by
shareholders (regardless of whether they would otherwise have
been considered capital gain dividends); (iii) foreign tax
credits would not "pass through" to shareholders; and (iv) the
separate accounts investing in the Fund may fail to satisfy the
requirements of Code Section 817(h) which in turn could adversely
affect the tax status of life insurance and annuity contracts
with premiums invested in the affected separate accounts.

Passive Foreign Investment Companies

The Fund may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies. In addition to bearing their proportionate share of
the fund's expenses (management fees and operating expenses)
shareholders will also indirectly bear similar expenses of such
funds. Capital gains on the sale of such holdings will be deemed
to be ordinary income regardless of how long the Fund holds its
investment. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and
capital gains earned from these investments, regardless of
whether such income and gains are distributed to shareholders.

In accordance with tax regulations, the Fund intends to
treat these securities as sold on the last day of the Fund's
fiscal year and recognize any gains for tax purposes at that
time; losses will not be recognized. Such gains will be
considered ordinary income which the Fund will be required to
distribute even though it has not sold the security and received
cash to pay such distributions.

Foreign Currency Gains and Losses

Foreign currency gains and losses, including the portion of
gain or loss on the sale of debt securities attributable to
foreign exchange rate fluctuations are ordinary income for tax

PAGE
purposes. If the net effect of these transactions is a gain, the
ordinarily income dividend paid by the Fund will be increased.
If the result is a loss, the income dividend paid by the Fund
will be decreased, or to the extent such dividend has already
been paid, it may be classified as a return of capital.
Adjustments, to reflect these gains and losses will be made at
the end of the Fund's taxable year.

CAPITAL STOCK

The Fund's Charter authorizes its Board of Directors to
classify and reclassify any and all shares which are then
unissued, including unissued shares of capital stock into any
number of classes or series, each class or series consisting of
such number of shares and having such designations, such powers,
preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board subject to the
Investment Company Act and other applicable law. The shares of
any such additional classes or series might therefore differ from
the shares of the present class and series of capital stock and
from each other as to preferences, conversions or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the
capital stock or to other classes or series in various
characteristics. The Corporation's Board of Directors may
increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that the
Funds have authorized to issue without shareholder approval.

Except to the extent that the Corporation's Board of
Directors might provide by resolution that holders of shares of a
particular class are entitled to vote as a class on specified
matters presented for a vote of the holders of all shares
entitled to vote on such matters, there would be no right of
class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Charter contains no
provision entitling the holders of the present class of capital
stock to a vote as a class on any matter. Accordingly, the
preferences, rights, and other characteristics attaching to any
class of shares, including the present class of capital stock,
might be altered or eliminated, or the class might be combined
with another class or classes, by action approved by the vote of
the holders of a majority of all the shares of all classes
entitled to be voted on the proposal, without any additional
right to vote as a class by the holders of the capital stock or
of another affected class or classes.

PAGE

The various insurance companies own the outstanding shares
of the Fund in their separate accounts. These separate accounts
are registered as investment companies under the 1940 Act or are
excluded from registration. Each insurance company, as the
Shareholder, is entitled to one vote for each full share held
(and fractional votes for fractional shares held). Under the
current laws the insurance companies must vote the shares held in
registered separate accounts in accordance with voting
instructions received from variable Contract Holders or
Participants. Fund shares for which Contract Holders or
Participants are entitled to give voting instructions, but as to
which no voting instructions are received, and shares owned by
the insurance companies or affiliated companies in the separate
accounts, will be voted in proportion to the shares for which
voting instructions have been received.

There will normally be no meetings of shareholders for the
purpose of electing directors unless and until such time as less
than a majority of the directors holding office have been elected
by shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors.
Except as set forth above, the directors shall continue to hold
office and may appoint successor directors. Voting rights are
not cumulative, so that the holders of more than 50% of the
shares voting in the election of directors can, if they choose to
do so, elect all the directors of the Fund, in which event the
holders of the remaining shares will be unable to elect any
person as a director. As set forth in the By-Laws of the
Corporation, a special meeting of shareholders of the Corporation
shall be called by the Secretary of the Corporation on the
written request of shareholders entitled to cast at least 10% of
all the votes of the Corporation entitled to be cast at such
meeting. Shareholders requesting such a meeting must pay to the
Corporation the reasonably estimated costs of preparing and
mailing the notice of the meeting. The Corporation, however,
will otherwise assist the shareholders seeking to hold the
special meeting in communicating to the other shareholders of the
Corporation to the extent required by Section 16(c) of the
Investment Company Act of 1940.

FEDERAL AND STATE REGISTRATION OF SHARES

The Fund's shares are registered for sale under the
Securities Act of 1933, and the Fund or its shares are registered
under the laws of all states which require registration, as well
as the District of Columbia and Puerto Rico.

PAGE
LEGAL COUNSEL

Shereff, Friedman, Hoffman, & Goodman LLP, whose address is
919 Third Avenue, New York, New York 10022, is legal counsel to
the Fund.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP, 7 St. Paul Street, Suite 1700,
Baltimore, Maryland 21202, are independent accountants to the
Fund. The financial statements of the Fund for the period ended
December 31, 1994, and the report of independent accountants are
included in the Fund's Annual Report for the period ended
December 31, 1994. A copy of the Annual Report accompanies this
Statement of Additional Information. The following financial
statements and the report of independent accountants appearing in
the Annual Report for the period ended December 31, 1994, are
incorporated into this Statement of Additional Information by
reference:

INTERNATIONAL STOCK
PORTFOLIO
_________________

Report of Independent Accountants 11
Statement of Net Assets, December 31, 1994 4-7
Statement of Operations, from March 31, 1994
(Commencement of Operations) to December 31, 1994 8
Statement of Changes in Net Assets, from March 31, 1994
(Commencement of Operations) to December 31, 1994 8
Notes to Financial Statements, December 31, 1994 9
Financial Highlights 10