Annual Report
December 31, 1997
International Stock Portfolio
This report is authorized for distribution only to those who
have received a copy of the portfolio's prospectus.
T. Rowe Price Investment Services, Inc., Distributor
T. Rowe Price
International Stock Portfolio
Annual Report
December 31, 1997
Dear Investor
The year ended December 31, 1997, was one of two distinct halves
for the international investor. In the first half most markets
performed well, led by the U.S. where the S&P 500 kept advancing
to new highs. However, as the summer progressed, a realization
that several economies in Southeast Asia had become overextended
led to heavy selling in the region, which grew worse near
year-end and spilled over to international stock markets.
Performance Comparison
Periods Ended 12/31/97 6 Months 12 Months
International
Stock Portfolio - 7.65% 3.09%
MSCI EAFE - 8.36 2.06
Lipper Variable Annuity
Underlying International
Funds Average* - 5.94 5.17
* The portfolio was inadvertently excluded by Lipper in
calculating these average returns.
The year was disappointing for overseas stock markets as the
returns of the International Stock Portfolio were again behind
the U.S. market. Over the 6- and 12-month periods, the fund's
returns were ahead of the Morgan Stanley Capital International
Europe, Australasia, and Far East (MSCI EAFE) Index but behind
the Lipper average, as shown in the table.
For the year, fund performance against MSCI EAFE was
significantly helped by an underweighting in Japan where the
market performed poorly in U.S. dollars. Another positive
contribution came from our position in Latin America, which did
well over this period and is not part of the MSCI EAFE Index.
Fund returns were behind the Lipper peer group because of our
moderately higher position in the markets of Southeast Asia,
which did very poorly in recent months. Also, a number of our
favorite growth stocks fell behind after a long period of
outperformance. Our peers tend to focus more on recovery stocks
and cyclical situations, many of which have performed strongly
this year.
The U.S. market continued to be driven by strong corporate
earnings and, with inflation well under control, interest rates
remained stable. Overseas the economic picture was not quite as
positive, but the stock markets of Europe performed well at the
beginning of the year. There was a powerful bull run in the
markets of Latin America.
In the emerging markets of Southeast Asia, problems grew
increasingly worse during the past few months. The principal
culprit was Thailand where there has been imprudent bank lending
and excessive real estate development. A weak government, dogged
by constant changes in leadership, proved unable to handle the
mounting crisis, resulting in a collapsing stock market. At
first, the problem seemed confined to Thailand, but attention
soon shifted to a number of other economies in the region where
rapid growth looked unsustainable given the similar pattern of
indebtedness.
Thus, the last six months have seen a savage bear market take
hold in Asia, and the ripples spread to the more established
markets of Tokyo and Wall Street where investors questioned the
impact of these developments on Japanese and U.S. multinationals
operating in the area. Europe was also caught up in the
turbulence, but the most spectacular declines occurred in Latin
America which, somewhat belatedly, was dragged down by the
widening loss of confidence in emerging markets.
The dollar has been strong against most overseas currencies
since the beginning of the year, dampening returns to U.S.
investors, but has turned in a mixed performance in recent
months. European currencies picked up, with a particularly
strong performance from the British pound, but the minor Asian
currencies continued to slip. Even the yen weakened recently
against the dollar despite Japan's ever-widening current account
surplus.
DIVIDEND DISTRIBUTION
Your Board of Directors declared an income dividend of $0.12 per
share and a long-term capital gain distribution of $0.17 per
share. These distributions were paid on December 30, 1997, to
shareholders of record on December 26.
INVESTMENT REVIEW
Europe
In contrast to the turbulence of Asia, the economies of Europe
made steady progress over the last six months. The U.K.
continued to lead the way with strong consumer expenditure
driving the service sector and a surprisingly resilient
performance turned in by exporters. The new Labour government
granted the Bank of England independence to set interest rates
so that monetary policy should now be based on controlling
inflation over the longer term rather than on political
expediency. Seizing its new mandate with vigor, the Bank raised
base rates four times during the summer in an effort to rein in
an economy with the potential to overheat even though inflation
is still moderate. This, in turn, has supported sterling,
recently the strongest of the major currencies.
Market Performance
Local
Six Months Local Currency vs. U.S.
Ended 12/31/97 Currency U.S. Dollars Dollars
________________________________________________________
France 5.29% - 2.41% 2.75%
Germany 10.30 - 3.09 6.90
Hong Kong -30.10 - 0.02 -30.11
Italy 26.95 - 3.76 22.17
Japan -20.42 -11.99 -29.96
Mexico 19.83 - 1.72 17.77
Netherlands 7.00 - 3.35 3.41
Singapore -10.93 -15.15 -24.42
Sweden 1.35 - 2.55 - 1.23
Switzerland 10.11 - 0.05 10.05
United Kingdom 13.56 - 1.14 12.26
Source: FAME Information Services, Inc., using MSCI indices.
A strong currency and rising interest rates would usually have
been enough to unsettle the U.K. stock market, and the turmoil
in Asia certainly did not help. However, British stocks held up
well in dollar terms. As investor attention focused on the
possibility of slower economic growth, our bias toward growth
stocks and smaller companies was justified as cyclicals and
manufacturing stocks sold off sharply.
Elsewhere in Europe, there are signs that the major economies
have survived the stranglehold of tight fiscal policies as
governments struggled to keep their deficits in line with the
Maastricht convergence criteria. Helped by weak currencies and
loose monetary policies, exports in particular show tentative
signs of recovery. Germany is typical here. Earlier this year
German unemployment hit record levels, and it looked as though
even the Germans, always at the vanguard of European
integration, would fail to meet the stringent criteria required
to join the European Monetary Union (EMU). In fact, the former
West German budget is in surplus and the aggregate deficit is
entirely due to the problems of the old East Germany; therefore,
progress depends on structural improvement in the east, a
long-term process. The fiscal position would also improve if the
government could agree on tax reform, but the corporate sector
is at least seeing a recovery in profitability, and the stock
market has done well.
In France the picture is similar with high unemployment, but the
trade account is in surplus and inflation remains low. France
also intends to be a founding member of the EMU, and there is
little room for relaxation of economic policy. Even the new left
wing government under Monsieur Jospin realizes that EMU
ambitions must prevail, and the outlook is definitely a little
brighter than it was six months ago. Italy has come through
another of its political crises with Mr. Prodi facing down a
revolt of his Communist governing partners to pass a budget that
looked remarkably sound by Italian standards. There is rising
confidence that Italy can improve on its record of government
overspending, and it looks to be an increasingly likely
candidate to join EMU in the first round.
The stock markets of Continental Europe also performed
reasonably well over the last six months, and stock prices in
general held up better than in Asia during the turbulence of
October. As can be seen in the table opposite, all of them are
ahead in U.S. dollar terms over the last six months, with
double-digit returns from the U.K., Switzerland, and Italy, all
of which are well represented in your portfolio.
Another feature livening up market sentiment was a wave of
mergers and acquisitions as corporations sought to position
themselves better for an integrated Europe and to compete on a
wider global scale. In terms of size, one of the largest was a
$32 billion merger between the Anglo-Dutch publisher Reed
Elsevier and its German Dutch rival Wolters Kluwer. Reed
Elsevier is becoming the world's main provider of specialist
professional information - "must-have" data for lawyers,
accountants, and scientists. Wolters Kluwer is the biggest legal
publisher in Germany and the Benelux countries, and there should
be many synergies from this combination. Two British drinks and
food firms, Guinness and Grand Metropolitan, consummated their
marriage as the chairman of LVMH, the French luxury goods
company with a stake in Guinness, finally agreed to terms. Since
the two firms have a strong portfolio of brands that complement
each other, distribution and marketing costs should fall. The
combined company was renamed Diageo. Europe's financial services
industry is also consolidating, with a merger between the Swiss
insurance company Zurich Group and the British conglomerate BAT,
an important merger between Swedish bank Nordbanken and
Finland's Merita, and also a bid by Italian insurer
Assicurazioni Generali for Assurances Generales de France,
France's third-largest insurer.
Far East
In Japan, which accounted for only 18% of fund assets, the
economic picture has changed quite dramatically over the last
six months. At the beginning of the year, growth was robust as
the yen's weakness of 1996 fueled an export boom and a strong
service sector. In April, the government raised the sales tax
from 3% to 5%, which had the effect of causing an anticipatory
consumer boom in March followed by a sharp downturn in April.
With more than half of Japan's GDP accounted for by consumer
spending, the economy never recovered and the trend was not
helped by the depressed housing sector and by weak capital
investment. The only bright spot was the export sector, with
sales of electronic equipment and vehicles to the U.S. and
Europe particularly strong. Reflecting the dire state of the
domestic economy, imports have stagnated and the trade surplus
rose over 50% in yen terms in the six months through September.
Japan is now a significant overseas creditor and its current
account, supported by a net interest surplus, grew even more
sharply.
Geographic Diversification pie chart 12/31/97
Europe 64%
Japan 18%
Latin America 7%
Pacific Rim 6%
Other and Reserves 5%
Despite the positives of a strong trade position and minimal
inflation, the government faces a considerable policy dilemma as
it contemplates a very weak economy. Monetary policy is already
very loose and Japanese government bond yields recently dipped
below 2%. The economy has been awash with liquidity for some
time, and any further weakening of the yen will stimulate
exports. Moderate currency depreciation is probably a secret
hope of Japan's policymakers, but the trade surplus with the
U.S. is already at levels that historically have triggered loud
complaints from Washington. A more stimulatory fiscal policy is
a reasonable option, but conservatism holds sway in the Ministry
of Finance as evidenced by the sales tax increase last spring.
With this uncertainty, it is not surprising that the Japanese
stock market turned in a poor performance over the last six
months. Corporations exposed to the domestic economy were
particularly weak but, in sharp contrast, the multinationals
fared much better.
Our strategy in the Tokyo market continued to favor the export
and technology sectors. Stocks such as NEC (communications and
computers), Sony (consumer electronics and media), and Canon
(cameras and office equipment) remain among our largest
positions. In contrast, the portfolio has no exposure to bank
stocks - the largest sector in the index itself - where
valuations remain excessive given the problems of their loan
books. Banking failures are likely before the situation begins
to improve, and with a high weighting in the financial sector,
the market as a whole is unlikely to perform well until these
problems are resolved.
Elsewhere in the Pacific, as noted, the economic turmoil that
began in Thailand rapidly spread to the "junior tigers" of the
region. Economies such as Indonesia, Malaysia, and the
Philippines each share a common pattern of over-lending to
infrastructure and industrial development, which became
vulnerable as the export boom was not sustained. Even
traditional, commodity-based exports began to falter, and there
was a round of competitive devaluations either by choice or
imposed by speculative pressure. Turning to Northeast Asia,
South Korea, once admired as one of the original "tiger"
economies, hit trouble when its export of electronic chips
proved particularly vulnerable to the slowdown in U.S. and
European demand. Corporate leverage here has been excessive,
with a government joined hand-in-hand with the banks in
supporting a number of smaller conglomerates that should have
been allowed to fail long ago. Some of these corporations have
now filed for bankruptcy, but there is probably worse to come.
Portfolio exposure to these minor economies of the region is
limited, but the loss of confidence spread to the older tigers
such as Singapore and Hong Kong even though their fundamentals
are much more sound. Hong Kong's dollar is formally pegged to
the U.S. dollar and this link survived a ferocious speculative
attack in October. So far it has held, but the cost has been
huge increases in domestic interest rates that, in turn, have
hit the real estate stock market. In Singapore the currency is
also backed by substantial reserves, but stock prices have
fallen just as far as in Hong Kong.
Latin America
The Latin American stock markets performed extremely well at the
beginning of the year but, not surprisingly, they were caught up
in October's upheaval in the emerging markets. This is
frustrating for those watching their steady economic renaissance
because in many ways these developing economies are in better
shape than their counterparts in Asia. For example, the
government of Brazil has demonstrated a strong political will to
protect the currency even though this may push the economy into
recession. President Cardoso has orchestrated a strong campaign
to defend the real through aggressive intervention on the
foreign exchange markets and a substantial increase in overnight
interest rates. Consumer expenditure in Brazil was already weak
even ahead of the hike in interest rates, but at least the
slowing economy has pushed inflation down to under 5% - a
remarkable achievement for this country. For the foreign
investor, one of the most important developments in Brazil is
the continuing privatization program valued at $70 billion over
the next three years. Clearly this is ambitious, but the
government has indicated this program will go ahead despite the
pressure on its currency and a very unsettled stock market.
Sector Diversification
6/30/97 12/31/97
______________________________________________
Services 25.8% 26.0%
Consumer Goods 18.0 20.4
Finance 16.3 19.0
Capital Equipment 13.9 11.5
Energy 10.7 11.3
Materials 7.4 4.3
Multi-industry 3.6 2.9
Miscellaneous 0.2 0.1
Reserves 4.1 4.5
______________________________________________
Total 100.0% 100.0%
The prospects for the stock market depend on how quickly
confidence returns and interest rates fall. Much hinges on what
damage is done to the economy, but the banking system is in
better shape than it has been for many years. Brazil remains the
core of our Latin American strategy and our exposure is focused
on the large utilities such as Telecomunicacoes Brasileiras,
which are at the center of the reform and privatization program.
Mexico has already experienced a painful readjustment process
following the peso devaluation at the end of 1994. Since then,
the economy is much stronger with foreign participation in the
banking industry and wider integration with the U.S. and Canada
under NAFTA. The trade account is now in surplus, and even the
current account deficit is less than 2% of the GDP. With
inflation falling to under 15% in 1997 and consumers beginning
to regain confidence, the economy could well be entering a
period of sustainable growth.
Argentina, too, was buffeted by the sell-off in October but the
peg linking the Argentine peso to the U.S. dollar seems to have
held. There is strong domestic political support for this link,
which has helped reduce inflation to a low level. With the
Argentine economy now linked with that of Brazil, a recession to
the north would clearly have a negative impact. However, as the
country's banking system has been considerably strengthened, we
expect the peso link to the dollar to be maintained and the
economy to continue its steady improvement.
INVESTMENT POLICY AND OUTLOOK
It is important to try to look through this period of stock
market turbulence and see how world economies might develop from
here. In Europe, which accounts for 64% of the fund's portfolio,
we have seen an encouraging picture of improving economic
growth, rising exports, and currencies that have now stabilized
against the U.S. dollar. Valuations in Europe look reasonable,
and there is the added interest of corporate restructuring as
companies position themselves for EMU. With a pickup in economic
growth, corporate restructuring, and a benign interest rate
environment, Europe in many ways looks similar to the U.S.
economy several years ago. If this is the case, maintaining a
large exposure toward Europe seems sensible.
Turning to the Far East, clearly the prospects are less certain,
and it will take some time for the less developed economies of
Asia to put themselves back on a sounder footing. The important
point here is that stock markets usually tend to overdo things
and, taking a longer-term view, attractive valuations are
beginning to emerge. This is especially true in Hong Kong, now
closely integrated with the growth potential of mainland China.
Japan is still the largest economy in the Pacific, but its
economy is clearly struggling at the moment. However, unlike
many of the smaller economies of the region, it at least has a
strong current account surplus and substantial foreign exchange
reserves. The stock market there lists some of the best-managed
companies in the world, and we believe it is right to take
advantage of current weakness by adding to our favorites.
In Latin America the markets could remain volatile, but again
one cannot ignore the economic achievements of these countries.
Governments there seem committed to the right policies for the
future, and greater political stability provides a firm platform
for implementing them.
Summing up, the portfolio structure today gives the investor a
reasonable balance between the established economies overseas
where we can find quality companies at reasonable valuations,
and less developed markets where there is perhaps more potential
but at a higher risk. We continue to believe that this strategy
will serve us well in the future.
Respectfully submitted,
Martin G. Wade
President
January 23, 1998
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/97
____________________________________________________________
Royal Dutch Petroleum, Netherlands 2.4%
National Westminster Bank, United Kingdom 2.2
Novartis, Switzerland 2.0
SmithKline Beecham, United Kingdom 1.8
Wolters Kluwer, Netherlands 1.7
Diageo, United Kingdom 1.6
Telecomunicacoes Brasileiras, Brazil 1.5
Eaux Cie Generale, France 1.5
Roche Holdings, Switzerland 1.5
Glaxo Wellcome, United Kingdom 1.4
Nestle, Switzerland 1.3
Reed International, United Kingdom 1.3
Shell Transport & Trading, United Kingdom 1.3
ING Groep, Netherlands 1.3
Kingfisher, United Kingdom 1.2
Elsevier, Netherlands 1.1
Canon, Japan 1.1
Total, France 1.0
Orkla, Norway 1.0
Unilever, Netherlands 0.9
Sony, Japan 0.9
Telecom Italia Mobile, Italy 0.9
Pinault Printemps, France 0.9
Astra, Sweden 0.9
NEC, Japan 0.9
____________________________________________________________
Total 33.6%
____________________________________________________________
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment
in the fund over the past 10 fiscal year periods or since
inception (for funds lacking 10-year records). The result is
compared with a broad-based average or index. The index return
does not reflect expenses, which have been deducted from the
fund's return.
International Stock Portfolio
As of 12/31/97
Lipper Variable
International Annuity Underlying
Stock International
Portfolio MSCI EAFE Funds Average
3/31/94 $ 10,000 $10,000 $ 10,000
12/94 10,180 10,435 10,107
12/95 11,318 11,640 11,300
12/96 12,982 12,380 13,072
12/97 13,383 12,635 13,942
Average Annual Compound Total Return
This table shows how the fund would have performed each year if
its actual (or cumulative) returns for the periods shown had
been earned at a constant rate.
International Stock Portfolio
Periods Ended 12/31/97
Since Inception
1 Year 3 Years Inception Date
_________________________________________________________
3.09% 9.55% 8.07% 3/31/94
Investment return and principal value represent past performance
and will vary. Shares may be worth more or less at redemption
than at original purchase.
Total returns do not include charges imposed by your insurance
company's separate account. If these were included, performance
would have been lower.
Financial Highlights
T. Rowe Price International Stock Portfolio
For a share outstanding throughout each period
Year 3/31/94
Ended Through
12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of
period $ 12.64 $ 11.26 $ 10.18 $ 10.00
Investment activities
Net investment
income 0.12 0.09 0.07 0.06
Net realized and
unrealized
gain (loss) 0.27* 1.55 1.06 0.12
Total from
investment
activities 0.39 1.64 1.13 0.18
Distributions
Net investment
income (0.12) (0.17) (0.05) -
Net realized
gain (0.06) (0.09) - -
In excess of net
realized gain (0.11) - - -
Total distri-
butions (0.29) (0.26) (0.05) -
NET ASSET VALUE
End of period $ 12.74 $ 12.64 $ 11.26 $ 10.18
_______________________________________
Ratios/Supplemental Data
Total return 3.09% 14.70% 11.18% 1.80%
Ratio of expenses
to average net
assets 1.05% 1.05% 1.05% 1.05%!
Ratio of net
investment
income to
average
net assets 1.10% 1.22% 1.47% 1.50%!
Portfolio turnover
rate 16.6% 9.7% 17.4% 4.6%!
Average commission
rate paid $ 0.0011 $ 0.0014 $ - $ -
Net assets, end
of period
(in thousands) $ 369,400 $ 210,746 $ 51,661 $ 9,095
! Annualized.
* 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.
The accompanying notes are an integral part of these financial
statements.
Statement of Net Assets
T. Rowe Price International Stock Portfolio
December 31, 1997
Shares/Par Value
In thousands
ARGENTINA 1.0%
Common Stocks 1.0%
Banco de Galicia Buenos
Aires (Class B) ADR (USD) 11,190 $ 288
Banco Frances del Rio de
la Plata ADR (USD) 11,387 312
Perez Companc (Class B) 97,198 694
Sociedad Comercial del
Plata ADR (144a) (USD) 873 14
Telefonica de Argentina
(Class B) ADR (USD) 22,270 830
YPF Sociedad Anonima
(Class D) ADR (USD) 49,416 1,689
Total Argentina (Cost $3,248) 3,827
AUSTRALIA 2.1%
Common Stocks 2.0%
Australia & New Zealand
Bank Group 40,000 264
Australian Gas Light
Company 115,251 804
Brambles Industries 10,000 199
Broken Hill Proprietary 70,620 656
Commonwealth Bank of
Australia 59,544 683
Fairfax Trust * 83,000 14
Fosters Brewing Group 202,000 384
John Fairfax Holdings 138,000 288
Lend Lease 28,254 552
National Australia Bank 27,124 379
News Corporation 129,681 716
Publishing & Broadcasting 83,000 374
Tabcorp Holdings 89,000 418
Telstra, Installment Receipts,
11/17/98 * 236,000 498
Westpac Bank 69,000 441
WMC 62,500 218
Woodside Petroleum 74,000 522
7,410
Preferred Stocks 0.1%
News Corporation 36,784 182
Sydney Harbour Casino
Holdings 227,800 216
398
Total Australia (Cost $7,820) 7,808
BELGIUM 1.4%
Common Stocks 1.4%
Dexia 3,146 $ 423
Generale de Banque 2,533 1,102
Generale de Banque,
VVPR Strip * 113 0
Kredietbank 7,220 3,030
UCB 173 571
Total Belgium (Cost $4,083) 5,126
BRAZIL 3.4%
Common Stocks 0.4%
Brazil Fund (USD) 1,700 36
Eletrobras 12,942,200 644
Eletrobras ADR (USD) 33,900 84
Pao de Acucar GDS (USD) 11,460 222
Telecomunicacoes
de Sao Paulo * 58,539 13
Unibanco GDR (USD) * 13,802 444
Usiminas ADR (USD) 22,366 132
White Martins 54,268 79
1,654
Preferred Stocks and Rights 3.0%
Banco Bradesco 52,879,646 521
Banco Bradesco,
Rights, 2/26/98 * 2,260,869 8
Banco Itau 520,070 280
Brahma 562,640 378
Brasmotor 320,560 32
Cia Cimento Portland Itau 469,150 90
Cia Energetica de Sao
Paulo ADR (USD) * 440 8
Cia Energetica de Sao
Paulo ADR, Sponsored
(USD) * 830 15
Cia Energetica Minas
Gerais 11,713,428 509
Cia Energetica Minas
Gerais ADR, Sponsored,
Nonvoting (USD) 17,656 768
Cia Tecidos Norte de Minas 376,450 135
Encorpar * 376,450 0
Lojas Americanas 2,292,180 11
Pao de Acucar GDS (USD) 1,555 30
Petrol Brasileiros 4,242,069 $ 992
Telecomunicacoes Brasileiras
ADR (USD) 48,363 5,631
Telecomunicacoes de Minas
Gerais (Class B) 1,178,000 149
Telecomunicacoes de Minas
Gerais (Class B), Preference
Receipts * 14,611 2
Telecomunicacoes
de Sao Paulo 3,672,641 977
Telecomunicacoes
do Rio de Janeiro 1,242,719 129
Usiminas 41,052 243
Usiminas ADR (USD) 18,350 108
11,016
Total Brazil (Cost $11,154) 12,670
CANADA 0.3%
Common Stocks 0.3%
Alcan Aluminium 22,680 626
Royal Bank of Canada 7,660 405
Total Canada (Cost $970) 1,031
CHILE 0.4%
Common Stocks 0.4%
Chilectra ADR (144a) (USD) 8,280 225
Chilgener ADS (USD) 9,787 240
Compania Cervecerias
Unidas ADS (USD) 5,189 152
Empresa Nacional de
Electricidad Chile ADR (USD) 14,548 257
Enersis ADS (USD) 9,082 263
Genesis Chile Fund (USD) 2,120 83
Santa Isabel ADR (USD) 4,221 74
Total Chile (Cost $1,326) 1,294
CHINA 0.3%
Common Stocks 0.3%
Huaneng Power International
(Class N) ADR (USD) * 48,500 1,125
Total China (Cost $936) 1,125
CZECH REPUBLIC 0.0%
Common Stocks 0.0%
SPT Telecom 630 67
Total Czech Republic (Cost $71) 67
DENMARK 0.3%
Common Stocks 0.3%
Den Danske Bank 5,480 $ 730
Tele Danmark (Class B) 1,620 100
Unidanmark (Class A) 4,750 349
Total Denmark (Cost $802) 1,179
FINLAND 0.2%
Common Stocks 0.2%
Nokia (Class A) 12,110 860
Total Finland (Cost $678) 860
FRANCE 8.5%
Common Stocks 8.5%
AXA 14,109 1,092
Accor 2,385 443
Alcatel Alsthom 11,208 1,425
Assurances Generales
de France 7,765 411
Canal Plus 3,440 640
Carrefour 1,322 690
Cie de St. Gobain 7,340 1,043
Credit Commercial
de France 8,855 607
Danone 4,480 800
Dexia France, Bearer 1,878 217
Dexia France,
Registered 1998# 409 47
Dexia France,
Registered 1999# 2,820 327
Eaux Cie Generale 40,230 5,615
Elf Aquitaine 12,270 1,427
GTM Entrepose 3,520 237
Guilbert 3,858 550
Havas 3,040 219
L'Oreal 1,134 444
Lapeyre 6,870 378
Legrand 3,130 623
LVMH 1,499 249
Pathe 1,977 384
Pinault Printemps 6,343 3,384
Sanofi 18,433 2,052
Schneider 27,672 1,502
Societe Generale 6,374 868
Sodexho Alliance 2,201 1,179
Sodexho Alliance, New * 201 105
Television Francaise 6,720 $ 687
Total (Class B) 34,358 3,739
Total France (Cost $27,022) 31,384
GERMANY 5.8%
Common Stocks and Warrants 5.5%
Allianz 8,600 2,218
Bayer 34,102 1,263
Bayerische Hypotheken
und Wechsel Bank 27,012 1,318
Bayerische Vereinsbank 19,706 1,289
Bilfinger & Berger 8,390 260
Buderus 626 281
Commerzbank 11,490 452
Deutsche Bank 31,841 2,230
Deutsche Telekom 38,856 731
Dresdner Bank 9,890 456
Dresdner Bank, Warrants,
4/30/02 * 22,091 393
Gehe 34,801 1,741
Hoechst 10,800 378
Hornbach Baumarkt 690 20
Mannesmann 1,397 706
Rhoen Klinikum 5,920 579
SAP 5,520 1,677
Siemens 12,283 727
Veba 46,180 3,145
Volkswagen 626 351
20,215
Preferred Stocks 0.3%
Fielmann 1,562 35
Fresenius 1,740 320
Hornbach Holdings 3,200 222
SAP 1,388 454
1,031
Total Germany (Cost $19,242) 21,246
HONG KONG 2.3%
Common Stocks 2.3%
Cheung Kong Holdings 51,000 334
China Light & Power 79,000 438
Dao Heng Bank Group 185,000 462
First Pacific 77,876 38
HSBC Holdings 14,800 365
Hong Kong Land Holdings
(USD) 494,127 $ 949
Hutchison Whampoa 350,000 2,195
New World Development 458,311 1,585
Sun Hung Kai Properties 51,000 355
Swire Pacific (Class A) 185,000 1,015
Wharf Holdings 414,000 908
Total Hong Kong (Cost $11,605) 8,644
INDIA 0.3%
Common Stocks 0.3%
Mahanagar Telephone GDR
(USD) 35,000 560
State Bank of India GDR
(USD) 22,800 410
Total India (Cost $741) 970
ITALY 4.2%
Common Stocks 4.2%
Assicurazioni Generali 47,000 1,154
Banca Commerciale Italiana 62,000 216
Banca di Roma 851,000 859
Credito Italiano 590,601 1,821
ENI 392,655 2,226
Gucci Group (USD) 12,409 520
IMI 76,710 910
Industrie Natuzzi ADR
(USD) 14,060 290
Italgas 86,000 354
Mediolanum 49,259 927
Rinascente 28,000 209
Telecom Italia 416,550 2,661
Telecom Italia Mobile 682,784 3,150
Telecom Italia Mobile,
Savings Shares 96,846 274
Total Italy (Cost $12,081) 15,571
JAPAN 17.7%
Common Stocks 17.7%
Advantest 5,100 289
Alps Electric 50,000 471
Amada 85,000 316
Canon 168,000 3,911
Citizen Watch 53,000 355
DDI 163 431
Daifuku 17,000 $ 83
Daiichi Pharmaceutical 109,000 1,227
DaiNippon Screen
Manufacturing 75,000 345
Daiwa House 125,000 661
Denso 149,000 2,682
East Japan Railway 293 1,322
Fanuc 23,800 900
Hitachi 163,000 1,161
Hitachi Zosen 130,000 208
Honda Motor 11,000 404
Inax 39,000 113
Ishihara Sangyo Kaisha 23,000 26
Ito-Yokado 41,000 2,088
Kao 77,000 1,109
Kokuyo 45,000 775
Komatsu 107,000 537
Komori 39,000 579
Kumagai Gumi 40,000 22
Kuraray 104,000 860
Kyocera 53,000 2,403
Makita 72,000 689
Marui 107,000 1,664
Matsushita Electric
Industrial 166,000 2,428
Mitsubishi 107,000 844
Mitsubishi Heavy
Industries 515,000 2,146
Mitsubishi Paper Mills 54,000 76
Mitsui Fudosan 241,000 2,326
Mitsui Petrochemical
Industries 20,000 37
Murata Manufacturing 49,000 1,231
NEC 298,000 3,172
National House Industrial 22,000 151
Nippon Hodo 21,000 68
Nippon Steel 641,000 947
Nippon Telephone &
Telecom 128 1,098
Nomura Securities 158,000 2,105
Pioneer Electronic 56,000 862
Sangetsu 10,000 103
Sankyo 108,000 2,440
Sega Enterprises 12,900 233
Sekisui Chemical 145,000 736
Sekisui House 87,000 $ 559
Seven Eleven Japan 13,000 920
Sharp 147,000 1,011
Shin-Etsu Chemical 88,000 1,678
Shiseido 39,000 532
Sony 39,100 3,474
Sumitomo 180,000 1,006
Sumitomo Electric
Industries 231,000 3,149
Sumitomo Forestry 49,000 240
TDK 37,000 2,788
Teijin 207,000 433
Tokio Marine & Fire
Insurance 46,000 521
Tokyo Electronics 19,000 608
Tokyo Steel Manufacturing 39,700 134
Toppan Printing 86,000 1,120
Uny 44,000 603
Yurtec 10,000 61
Total Japan (Cost $84,081) 65,471
MALAYSIA 0.2%
Common Stocks 0.2%
Berjaya Sports Toto 186,000 476
Tanjong 235,000 389
Time Engineering 124,000 32
Total Malaysia (Cost $1,685) 897
MEXICO 2.1%
Common Stocks 2.1%
Cemex (Class B) * 82,767 441
Cemex ADS (USD) * 58,530 527
Cemex ADS (144a) (USD) * 11,494 103
Cifra (Class V) ADR (USD) * 4,372 107
Fomentos Economico
Mexicano (Class B) 80,149 644
Gruma (Class B) * 79,442 315
Gruma (Class B) ADS
(144a) (USD) * 17,466 276
Grupo Financiero Banamex
(Class B) * 114,455 343
Grupo Financiero Banamex
(Class L) * 1,486 4
Grupo Financiero Bancomer
(Class B) GDS (USD) * 820 11
Grupo Financiero Bancomer
(Class L) * 607 $ 0
Grupo Industrial Maseca
(Class B) 237,010 245
Grupo Modelo (Class C) 46,014 385
Grupo Televisa GDR (USD) * 11,145 431
Kimberly-Clark Mexico
(Class A) 134,512 643
Panamerican Beverages
(Class A) (USD) 25,980 848
Telefonos de Mexico ADR
(Class L) (USD) 34,246 1,920
TV Azteca ADR (USD) * 26,200 591
Total Mexico (Cost $6,296) 7,834
NETHERLANDS 10.2%
Common Stocks and Warrants 10.2%
ABN Amro Holdings 109,142 2,126
Ahold 23,981 626
Akzo Nobel 2,416 416
Baan Company * 21,854 716
Baan Company (USD) * 13,000 429
CSM 34,171 1,517
Elsevier 250,344 4,050
Fortis Amev 36,840 1,606
ING Groep 107,415 4,524
ING Groep, Warrants,
3/15/01 * 25,920 271
Koninklijke PTT Nederland 12,134 506
Nutricia 26,270 797
Otra 2,750 39
Polygram 31,201 1,493
Royal Dutch Petroleum 159,090 8,733
Unilever 56,470 3,481
Wolters Kluwer 49,580 6,404
Total Netherlands (Cost $32,981) 37,734
NEW ZEALAND 0.3%
Common Stocks 0.3%
Air New Zealand (Class B) 89,545 179
Fletcher Challenge Building 100,706 206
Fletcher Challenge Energy 77,464 271
Telecom Corporation of
New Zealand 108,000 524
Total New Zealand (Cost $1,387) 1,180
NORWAY 1.9%
Common Stocks 1.9%
Bergesen (Class A) 6,500 $ 153
Norsk Hydro 59,007 2,876
Orkla (Class A) 42,600 3,674
Saga Petroleum (Class B) 10,280 156
Total Norway (Cost $6,050) 6,859
PANAMA 0.0%
Common Stocks 0.0%
Banco Latinoamericano
de Exportaciones
(Class E) (USD) 1,998 83
Total Panama (Cost $98) 83
PERU 0.1%
Common Stocks 0.1%
Credicorp (USD) 6,860 124
Telefonica del Peru (Class B) 7,030 16
Telefonica del Peru ADR
(Class B) (USD) 7,714 179
Total Peru (Cost $313) 319
PORTUGAL 0.4%
Common Stocks 0.4%
Jeronimo Martins 16,838 534
Jeronimo Martins,
Baby Shares * 25,257 782
Total Portugal (Cost $588) 1,316
RUSSIA 0.1%
Common Stocks 0.1%
Lukoil ADR (USD) 2,260 208
Rao Gazprom ADS (USD) 2,760 67
Total Russia (Cost $199) 275
SINGAPORE 0.6%
Common Stocks 0.6%
City Developments 32,000 148
Overseas Chinese Bank 19,200 112
Overseas Union Bank 71,000 272
Singapore Land 146,000 320
Singapore Press 62,600 784
United Overseas Bank 87,480 485
Total Singapore (Cost $3,773) 2,121
SOUTH KOREA 0.0%
Common Stocks 0.0%
Samsung Electronic 6,985 $ 158
Total South Korea (Cost $618) 158
SPAIN 2.4%
Common Stocks 2.4%
Argentaria Banca de Espana 10,495 638
Banco Bilbao Vizcaya 18,640 603
Banco Popular Espanol 15,630 1,093
Banco Santander 45,467 1,519
Centros Comerciales Pryca 11,887 177
Empresa Nacional
de Electricidad 56,158 997
Gas Natural 11,777 611
Iberdrola 68,760 905
Repsol 15,908 679
Telefonica de Espana 50,218 1,434
Total Spain (Cost $7,170) 8,656
SWEDEN 3.4%
Common Stocks 3.4%
ABB (Class A) 70,250 832
Astra (Class B) 200,713 3,375
Atlas Copco (Class B) 39,460 1,175
Electrolux (Class B) 22,250 1,544
Esselte (Class B) 9,700 197
Granges * 7,430 116
Hennes and Mauritz 51,860 2,286
Nordbanken Holding 297,964 1,685
Sandvik (Class A) 6,010 171
Sandvik (Class B) 35,130 1,004
Scribona (Class B) 2,670 30
Total Sweden (Cost $10,224) 12,415
SWITZERLAND 6.7%
Common Stocks 6.7%
ABB 1,342 1,685
Adecco 5,237 1,518
Credit Suisse Group 5,840 903
Nestle 3,267 4,894
Novartis 4,508 7,312
Roche Holdings 556 5,519
Schweizerischer Bankverein 6,070 1,886
Union Bank of Switzerland 800 $ 1,157
Total Switzerland (Cost $20,186) 24,874
UNITED KINGDOM 18.8%
Common Stocks 18.8%
Abbey National 147,000 2,624
Argos 140,466 1,268
Asda Group 438,000 1,289
BG 138,823 625
British Petroleum 108,000 1,429
Cable & Wireless 279,000 2,452
Cadbury Schweppes 200,860 2,027
Caradon 313,700 912
Centrica * 79,000 116
Compass Group 94,000 1,156
David S. Smith 133,000 435
Diageo 645,000 5,901
Electrocomponents 90,000 670
GKN 20,000 410
Glaxo Wellcome 213,000 5,078
Heywood Williams Group 33,000 113
Hillsdown Holdings 72,000 175
John Laing (Class A) 72,000 378
Kingfisher 311,000 4,342
Ladbroke Group 186,000 806
National Westminster Bank 493,000 8,195
Rank Group 203,000 1,130
Reed International 512,000 4,878
Rio Tinto 138,000 1,701
Rolls Royce 86,480 334
Safeway 262,500 1,479
Shell Transport & Trading 692,500 4,857
SmithKline Beecham 654,600 6,747
T & N 166,000 695
Tesco 204,000 1,682
Tomkins 605,500 2,864
United News & Media 234,000 2,663
Total United Kingdom (Cost
$58,529) 69,431
VENEZUELA 0.1%
Common Stocks 0.1%
Compania Anonima Nacional
Telefonos de Venezuela
(Class D) ADR (USD) 10,690 445
Total Venezuela (Cost $351) 445
SHORT-TERM INVESTMENTS 4.5%
Money Market Funds 4.5%
Reserve Investment Fund,
5.84%# 16,510,454 $ 16,511
Total Short-Term Investments
(Cost $16,511) 16,511
Total Investments in Securities
100.0% of Net Assets (Cost
$352,819) $ 369,381
Other Assets Less Liabilities 19
NET ASSETS $ 369,400
_________
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ (3,101)
Net unrealized gain (loss) 16,548
Paid-in-capital applicable to
29,001,990 shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares authorized 355,953
NET ASSETS $ 369,400
_________
NET ASSET VALUE PER SHARE $ 12.74
_________
* Non-income producing
# Seven-day yield
+ Securities contain some restrictions as to public resale
- total of such securities at year-end amounts to 0.10% of
net assets.
144a Security was purchased pursuant to Rule 144a under the
Securities Act of 1933 and may not be resold subject to
that rule except to qualified institutional buyers - total
of such securities at year-end amounts to 0.17% of net
assets.
ADR American depository receipt
ADS American depository share
GDR Global depository receipt
GDS Global depository share
USD U.S. dollar
VVPR Entitles holders to a reduced rate of foreign withholding
tax.
The accompanying notes are an integral part of these financial
statements.
Statement of Operations
T. Rowe Price International Stock Portfolio
In thousands
Year
Ended
12/31/97
Investment Income
Income
Dividend (net of foreign
taxes of $ 734) $ 5,422
Interest 1,123
Total income 6,545
Expenses
Investment management and
administrative 3,203
Net investment income 3,342
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,349
Foreign currency transactions (643)
Net realized gain (loss) 1,706
Change in net unrealized gain or loss
Securities (764)
Other assets and liabilities
denominated in foreign currencies (14)
Change in net unrealized gain or loss (778)
Net realized and unrealized gain (loss) 928
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 4,270
_________
The accompanying notes are an integral part of these financial
statements.
Statement of Changes in Net Assets
T. Rowe Price International Stock Portfolio
In thousands
Year
Ended
12/31/97 12/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 3,342 $ 1,604
Net realized gain (loss) 1,706 1,089
Change in net unrealized
gain or loss (778) 15,122
Increase (decrease) in net
assets from operations 4,270 17,815
Distributions to shareholders
Net investment income (3,394) (1,993)
Net realized gain (1,814) (1,133)
In excess of net realized gain (2,994) -
Decrease in net assets from
distributions (8,202) (3,126)
Capital share transactions*
Shares sold 188,544 153,908
Distributions reinvested 8,202 3,126
Shares redeemed (34,160) (12,638)
Increase (decrease) in net
assets from capital
share transactions 162,586 144,396
Net Assets
Increase (decrease) during
period 158,654 159,085
Beginning of period 210,746 51,661
End of period $ 369,400 $ 210,746
______________________
*Share information
Shares sold 14,258 12,891
Distributions reinvested 646 255
Shares redeemed (2,579) (1,059)
Increase (decrease) in
shares outstanding 12,325 12,087
The accompanying notes are an integral part of these financial
statements.
Notes to Financial Statements
T. Rowe Price International Stock Portfolio
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price International Series, Inc. (the corporation) is
registered under the Investment Company Act of 1940. The
International Stock Portfolio (the fund), a diversified,
open-end management investment company, is the sole portfolio
established by the corporation and commenced operations on March
31, 1994. The shares of the fund are currently being offered
only to separate accounts of certain insurance companies as an
investment medium for both variable annuity contracts and
variable life insurance policies.
The accompanying financial statements are prepared in accordance
with generally accepted accounting principles for the investment
company industry; these principles may require the use of
estimates by fund management.
Valuation Equity securities are valued at the last quoted sales
price at the time the valuations are made. A security which is
listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market
for such security.
Investments in mutual funds are valued at the closing net asset
value per share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per
share, the U.S. dollar value of all assets and liabilities
initially expressed in foreign currencies is determined by using
the mean of the bid and offer prices of such currencies against
U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures
are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by or under the
supervision of the officers of the fund, as authorized by the
Board of Directors.
Currency Translation Assets and liabilities are translated into
U.S. dollars at the prevailing exchange rate at the end of the
reporting period. Purchases and sales of securities and income
and expenses are translated into U.S. dollars at the prevailing
exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such
gains and losses.
Other Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on
the trade date. Realized gains and losses are reported on the
identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date.
Income and capital gain distributions are determined in
accordance with federal income tax regulations and may differ
from those determined in accordance with generally accepted
accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in
the following practices to manage exposure to certain risks or
enhance performance. The investment objective, policies,
program, and risk factors of the fund are described more fully
in the fund's prospectus and Statement of Additional
Information.
Emerging Markets At December 31, 1997, the fund held
investments in securities of companies located in emerging
markets. Future economic or political developments could
adversely affect the liquidity or value, or both, of such
securities.
Securities Lending The fund lends its securities to approved
brokers to earn additional income and takes cash and U.S.
Treasury securities as collateral to secure the loans.
Collateral is maintained at not less than 100% of the value of
loaned securities. At December 31, 1997, the value of securities
on loan was $16,332,000. Although the risk is mitigated by the
collateral, the fund could experience a delay in recovering its
securities and a possible loss of income or value if the
borrower fails to return them.
Other Purchases and sales of portfolio securities, other than
short-term securities, aggregated $204,141,000 and $47,687,000,
respectively, for the year ended December 31, 1997.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund
intends to continue to qualify as a regulated investment company
and distribute all of its taxable income.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain
transactions, the following reclassifications were made during
the year ended December 31, 1997. The results of operations and
net assets were not affected by the increases/(decreases) to
these accounts.
Undistributed net investment income $ 52,000
Undistributed net realized gain (106,000)
Paid-in-capital 54,000
At December 31, 1997, the aggregate cost of investments for
federal income tax and financial reporting purposes was
$352,819,000, and net unrealized gain aggregated $16,562,000, of
which $48,837,000 related to appreciated investments and
$32,275,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by Rowe Price-Fleming International, Inc.
(the manager), which is owned by T. Rowe Price Associates, Inc.,
Robert Fleming Holdings Limited, and Jardine Fleming Holdings
Limited under a joint venture agreement.
The investment management and administrative agreement between
the fund and the manager provides for an all-inclusive annual
fee, of which $417,000 was payable at December 31, 1997. The
fee, computed daily and paid monthly, is equal to 1.05% of the
fund's average daily net assets. Pursuant to the agreement,
investment management, shareholder servicing, transfer agency,
accounting, and custody services are provided to the fund, and
interest, taxes, brokerage commissions, and extraordinary
expenses are paid directly by the fund.
The fund may invest in the Reserve Investment Fund and
Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by T.
Rowe Price Associates, Inc. The Reserve Funds are offered as
cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not
available to the public. The Reserve Funds pay no investment
management fees. Distributions from the Reserve Funds to the
fund for the year ended December 31, 1997, totaled $401,000 and
are reflected as interest income in the accompanying Statement
of Operations.
During the year ended December 31, 1997, the fund, in the
ordinary course of business, placed security purchase and sale
orders aggregating $9,292,000 with certain affiliates of the
manager and paid commissions of $26,000 related thereto.
Tax Information (Unaudited) for the Tax Year Ended 12/31/97
We are providing this information as required by the Internal
Revenue Code. The amounts shown may differ from those elsewhere
in this report because of differences between tax and financial
reporting requirements.
The fund's distributions to shareholders included:
o $4,808,000 from long-term capital gains; of which $3,656,000
was subject to the 20% rate gains category.
The fund will pass through foreign source income of $3,369,482
and foreign taxes paid of $677,357.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price International Series,
Inc. and Shareholders of International Stock Portfolio
In our opinion, the accompanying statement of net assets and the
related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material
respects, the financial position of International Stock
Portfolio (constituting T. Rowe Price International Series,
Inc., hereafter referred to as the "Fund") at December 31, 1997,
and the results of its operations, the changes in its net assets
and the financial highlights for each of the fiscal periods
presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December
31, 1997 by correspondence with custodians and, where
appropriate, the application of alternative auditing procedures
for unsettled security transactions, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 21, 1998
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to those who
have received a copy of the portfolio's prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP 653 (12/97)
K15-051 12/31/97
