T. Rowe Price
Equity Income Portfolio
Semiannual Report
June 30, 1998
Dear Investor
The equity market performed very well in the first half of 1998 as low
inflation, a benign interest rate environment, and generally healthy corporate
earnings provided fuel for the advance. As the first half progressed and signs
of a deceleration in economic growth became visible, the environment grew
increasingly challenging for value-oriented funds such as yours.
Performance Comparison
Periods Ended 6/30/98 6 Months 12 Months
- -------------------------------------------------------------------------------
Equity Income Portfolio 6.33% 19.37%
S&P 500 17.71 30.16
Lipper Variable Annuity
Underlying Equity Income
Funds Average 10.64 22.82
During the first half, company size and the predictability of earnings growth
emerged as critical requirements for investment success. Characteristics such as
low stock valuations and above-average yield were viewed as something to avoid
rather than to seek. As shown in the table, your fund's results lagged the broad
market because of its focus on precisely the type of investment approach that
has recently been out of favor. Equity income funds in general struggled during
the period, and we struggled more than most for reasons we will explain.
Nevertheless, for the 12 months ended June 30, 1998, your fund provided an
attractive return, which was behind our peer group average. Given the
conservative nature of the fund, it is difficult to keep up with the broad
market in times of powerful market advances.
DIVIDEND DISTRIBUTION
Your Board of Trustees declared a second quarter income dividend of $0.10 per
share, bringing your 1998 total income distribution to $0.19 per share. This
distribution was paid on June 29 to shareholders of record on June 25. You
should have already received your check or statement reflecting this activity.
PORTFOLIO STRATEGY
In light of the fund's first half performance, it helps to review exactly how
the fund invests and why. We follow a value approach, meaning that we invest in
companies that our analysis suggests are undervalued on the basis of earnings,
dividends, cash flow, asset value, or some combination of these measures. There
is a contrarian element to this approach in that many companies that appear
undervalued by these measures are often out of favor for a variety of company-
or industry-related reasons. We invest in them in the belief that the market's
short-term sentiment is often too negative, and that investors will view our
companies more favorably in the future. Generally, this is a relatively
conservative style of equity investing with reasonable return potential and an
emphasis on risk control.
Security Diversification
6/30/98
Common Stocks 92%
Reserves 7%
Bonds 1%
Without doubt, we have been out of sync with the market even though we did
nothing differently in the last six months than we have been doing all along. We
made the investment decisions outlined in the Major Portfolio Changes table
following this letter for the same reasons as in the past. The largest purchases
represent companies that have attractively priced earnings and dividend streams
and whose share prices are depressed because of various reasons and investor
concerns. In our view, these stocks have the ability to advance from their
current low prices and provide good returns over time. Each company also offers
a reasonable level of dividend income in the current low rate environment.
Our largest sales, on the other hand, were of companies that we bought at
significantly lower prices when they were undervalued according to our in-house
analysis. They had performed well and no longer appeared as attractively valued
to us. We reinvested proceeds from these sales into companies with more upside
potential, in our view, that were generally trading at lower multiples of
earnings and had higher dividend yields.
However, despite the consistency of our investment approach, several factors
combined to hurt results so far in 1998. First, in terms of sector allocation,
the fund had little exposure to the strong technology sector and too much
exposure to the weaker energy and utility sectors. We deliberately avoided many
of the 50 or so S&P 500 stocks that have accounted for so much of the broad
market advance, since many had very high price/earnings ratios and low or
nonexistent dividend yields. Some individual holdings impaired the first half
return as well, including Union Pacific, with its well-publicized problems, and
more cyclical stocks such as Dow Chemical and Norfolk Southern, all of which
were among our top positions.
In short, some unfortunate short-term sector decisions, a handful of laggards
among our major stocks, and our avoidance of many large-capitalization growth
companies that do not meet our investment criteria restrained results during the
first six months. While we are unhappy about these short-term problems, the
fund's 12-month return is still attractive, and the average annual return of
22.46% since the fund's inception on March 31, 1994, is slightly ahead of the
peer group average. Since our focus has always been on the long term, we remain
confident that our investment approach will continue to provide attractive
returns for shareholders.
At the end of June, 92% of total assets were invested in stocks and 8% in bonds
and money market securities. This structure has not changed significantly since
year-end, and we do not envision major changes going forward.
SUMMARY AND OUTLOOK
In recent reports, we commented that the stock market cannot keep soaring to new
heights forever, yet it has been exceeding the expectations of even the most
optimistic bulls. However, at some point, stock market returns should begin to
moderate from their unsustainable levels. Investor expectations are currently
very high, signs of speculative activity are rising, and investors appear more
focused on return than on risk.
Nevertheless, despite lofty valuations and the volatile twists and turns that
are likely to occur along the way, we are confident that our investment approach
will continue to reward investors over time. Whatever type of environment we
face, we assure you that our efforts will be focused on making sound investment
decisions on your behalf in the months and years ahead.
As always, we appreciate your continued confidence and support.
Respectfully submitted,
Brian C. Rogers
President and Chairman of the
Investment Advisory Committee
July 24, 1998
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/98
- --------------------------------------------------------------
Mellon Bank 1.8%
Exxon 1.5
American Home Products 1.5
ALLTEL 1.4
Amoco 1.4
Atlantic Richfield 1.3
Dow Chemical 1.3
Philip Morris 1.2
Chevron 1.2
Pharmacia & Upjohn 1.2
St. Paul Companies 1.1
Norfolk Southern 1.1
SBC Communications 1.1
Texaco 1.1
General Mills 1.1
Starwood Hotels & Resorts 1.1
GE 1.1
GTE 1.0
Anheuser-Busch 1.0
J. P. Morgan 1.0
Mobil 1.0
United States Surgical 1.0
Union Pacific 1.0
AT&T 1.0
American General 0.9
- --------------------------------------------------------------
Total 29.4%
- --------------------------------------------------------------
Portfolio Highlights
Major Portfolio Changes
Six Months Ended 6/30/98
Listed in descending order of size
LARGEST PURCHASES (10)
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts*
Kimberly-Clark
Hercules*
Amoco
Browning-Ferris*
TRW*
3M
Exxon
Chevron
Norfolk Southern
LARGEST SALES (10)
- --------------------------------------------------------------------------------
Echlin**
AT&T
Enron**
Sprint**
McGraw-Hill**
American Express**
Repsol**
Unilever N.V.**
C.R. Bard**
Western Resources**
- --------------------------------------------------------------------------------
* Position added.
** Position eliminated.
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.
Equity Income Portfolio
As of 6/30/98
Lipper Variable
Annuity Underlying Equity
S&P 500 Equity Income Funds Income
Index Average Portfolio
3/31/94 10,000 10,000 10,000
6/94 10,042 10,132 10,170
6/95 12,660 12,067 12,409
6/96 15,952 14,834 15,536
6/97 21,487 19,274 19,815
6/98 27,968 23,431 23,653
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.
Equity Income Portfolio
Periods Ended 6/30/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
19.37% 23.99% 22.46% 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 Equity Income Portfolio
(Unaudited)
For a share outstanding throughout each period
-------------------------------------------------------
6 Months Year 3/31/94
Ended Ended Through
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 18.59 $ 15.26 $ 13.21 $ 10.42 $ 10.00
Investment activities
Net investment income 0.19 0.40 0.42 0.44 0.30
Net realized and
unrealized gain (loss) 0.99 3.94 2.13 3.05 0.41
Total from
investment activities 1.18 4.34 2.55 3.49 0.71
Distributions
Net investment income (0.19) (0.40) (0.42) (0.44) (0.29)
Net realized gain (0.05) (0.61) (0.08) (0.26) --
Total distributions (0.24) (1.01) (0.50) (0.70) (0.29)
NET ASSET VALUE
End of period $ 19.53 $ 18.59 $ 15.26 $ 13.21 $ 10.42
----------------------------------------------------
Ratios/Supplemental Data
Total return(C) 6.33% 28.85% 19.56% 34.76% 7.15%
Ratio of expenses to
average net assets 0.85%! 0.85% 0.85% 0.85% 0.85%!
Ratio of net investment
income to average
net assets 2.13%! 2.56% 2.94% 3.61% 3.88%!
Portfolio turnover rate 9.8% 20.5% 17.4% 10.1% 21.3%!
Net assets,
end of period
(in thousands) $464,766 $344,724 $103,751 $ 14,658 $ 2,191
(C) Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
! Annualized.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Equity Income Portfolio
June 30, 1998 (Unaudited)
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 92.6%
FINANCIAL 15.6%
Bank and Trust 9.0%
BANC ONE 71,327 $ 3,981
BankBoston 45,600 2,536
Bankers Trust New York 29,500 3,424
Chase Manhattan 51,008 3,851
First Union 56,410 3,286
Fleet Financial Group 39,900 3,332
J. P. Morgan 40,000 4,685
Mellon Bank 117,500 8,181
Mercantile Bankshares 39,950 1,390
National City 32,200 2,286
PNC Bank 31,000 1,668
Wells Fargo 8,666 3,198
41,818
Insurance 5.0%
American General 62,000 4,414
EXEL 40,800 3,175
Hilb, Rogal and Hamilton 4,000 62
Lincoln National 27,200 2,485
SAFECO 86,300 3,918
St. Paul Companies 126,976 5,341
Transamerica 22,000 2,533
Willis-Corroon ADR 111,500 1,401
23,329
Financial Services 1.6%
Fannie Mae 69,100 4,198
Travelers Group 53,399 3,237
7,435
Total Financial 72,582
UTILITIES 14.9%
Telephone Services 7.9%
ALLTEL 141,600 6,585
AT&T 77,700 4,439
BCE ADR 66,000 2,817
Bell Atlantic 78,000 3,559
BellSouth 45,100 3,027
Frontier 68,000 2,142
GTE 87,300 4,856
SBC Communications 127,942 5,118
Southern New England
Telecommunications 38,900 $ 2,548
U.S. West 41,050 1,929
37,020
Electric Utilities 7.0%
BGE 43,500 1,351
Central and South West 59,300 1,594
Dominion Resources 55,850 2,276
DQE 60,912 2,193
Duke Energy 64,700 3,833
Entergy 53,400 1,535
FirstEnergy 105,220 3,235
GPU 40,600 1,535
Houston Industries 90,100 2,782
PacifiCorp 80,400 1,819
PECO Energy 70,600 2,061
Southern Company 125,400 3,472
Teco Energy 54,400 1,459
Unicom 95,400 3,345
32,490
Total Utilities 69,510
CONSUMER NONDURABLES 17.4%
Cosmetics 0.9%
International Flavors &
Fragrances 94,600 4,109
4,109
Beverages 1.7%
Anheuser-Busch 102,100 4,818
Brown-Forman (Class B) 45,300 2,910
7,728
Food Processing 3.9%
General Mills 74,200 5,073
Heinz 52,000 2,919
Kellogg 47,000 1,766
McCormick 103,700 3,704
Quaker Oats 67,300 3,697
Sara Lee 16,400 917
18,076
Hospital Supplies/Hospital Management 2.7%
Abbott Laboratories 65,600 2,682
Bausch & Lomb 51,100 2,561
Baxter International 24,900 1,340
Smith & Nephew (GBP) * 512,000 $ 1,278
United States Surgical 101,800 4,645
12,506
Pharmaceuticals 3.2%
American Home Products 132,600 6,862
Amgen * 19,600 1,282
Johnson & Johnson 16,300 1,202
Pharmacia & Upjohn 120,992 5,581
14,927
Miscellaneous Consumer Products 5.0%
Armstrong World 33,500 2,257
Fortune Brands 87,100 3,348
Philip Morris 146,300 5,761
PPG Industries 48,400 3,367
RJR Nabisco 88,900 2,111
Tomkins (GBP) 549,200 2,983
Unifi 10,900 373
UST 122,200 3,299
23,499
Total Consumer Nondurables 80,845
CONSUMER SERVICES 5.2%
General Merchandisers 1.3%
J.C. Penney 50,500 3,652
May Department Stores 37,900 2,482
6,134
Specialty Merchandisers 0.3%
Tupperware 57,600 1,620
1,620
Entertainment and Leisure 0.8%
Hilton 54,000 1,539
Reader's Digest (Class A) 71,800 1,947
3,486
Media and Communications 2.8%
Dow Jones 51,600 2,877
Dun & Bradstreet * 74,000 2,673
Knight-Ridder 68,000 3,744
R.R. Donnelly 80,100 3,665
12,959
Total Consumer Services 24,199
CONSUMER CYCLICALS 6.8%
Automobiles and Related 2.1%
Genuine Parts 99,550 3,441
GM 53,400 $ 3,568
TRW 55,500 3,031
10,040
Building and Real Estate 3.0%
Crescent Real Estate
Equities, REIT 73,000 2,455
Rouse 27,400 861
SECURITY CAPITAL PACIFIC
TRUST, REIT 51,500 1,159
Simon DeBartolo
Group, REIT 113,136 3,677
Starwood Hotels &
Resorts, REIT 104,905 5,068
Weingarten Realty
Investors, REIT 17,700 740
13,960
Miscellaneous Consumer Durables 1.7%
Eastman Kodak 58,900 4,303
Whirlpool 49,800 3,424
7,727
Total Consumer Cyclicals 31,727
TECHNOLOGY 1.6%
Electronic Components 0.6%
AMP 83,700 2,877
2,877
Electronic Systems 0.4%
Hewlett-Packard 33,100 1,982
1,982
Aerospace & Defense 0.6%
AlliedSignal 56,400 2,503
2,503
Total Technology 7,362
CAPITAL EQUIPMENT 1.9%
Electrical Equipment 1.4%
GE 55,000 5,005
Hubbell (Class B) 43,400 1,806
6,811
Machinery 0.5%
Cooper Industries 41,467 2,278
2,278
Total Capital Equipment 9,089
BUSINESS SERVICES AND TRANSPORTATION 5.2%
Transportation Services 0.3%
Alexander & Baldwin 38,950 $ 1,132
1,132
Miscellaneous Business Services 2.3%
Browning-Ferris 89,000 3,093
GATX 35,600 1,562
H&R Block 64,400 2,713
Waste Management 98,900 3,461
10,829
Railroads 2.6%
Burlington Northern
Santa Fe 24,000 2,357
Norfolk Southern 175,000 5,217
Union Pacific 104,500 4,611
12,185
Total Business Services and Transportation 24,146
ENERGY 12.0%
Energy Services 0.6%
Witco 87,500 2,559
2,559
Integrated Petroleum - Domestic 4.5%
Amerada Hess 64,100 3,481
Atlantic Richfield 79,400 6,203
British Petroleum ADR 33,700 2,974
Occidental Petroleum 93,200 2,516
Phillips Petroleum 40,400 1,947
Unocal 45,700 1,634
USX-Marathon 62,500 2,145
20,900
Integrated Petroleum - International 6.9%
Amoco 151,400 6,302
Chevron 68,950 5,727
Exxon 99,000 7,060
Mobil 60,800 4,659
Royal Dutch Petroleum ADR 60,000 3,289
Texaco 85,400 5,097
32,134
Total Energy 55,593
PROCESS INDUSTRIES 9.9%
Diversified Chemicals 3.8%
Dow Chemical 62,800 6,072
DuPont 58,300 $ 4,351
Eastman Chemical 16,600 1,033
Hercules 85,200 3,504
Olin 65,600 2,735
17,695
Specialty Chemicals 3.1%
3M 46,200 3,797
Great Lakes Chemical 72,400 2,855
Imperial Chemical ADR 31,300 2,019
Lubrizol 41,200 1,247
Nalco Chemical 65,600 2,304
Pall 112,200 2,300
14,522
Paper and Paper Products 2.1%
Consolidated Papers 83,600 2,278
Kimberly-Clark 84,000 3,853
Union Camp 69,600 3,454
9,585
Forest Products 0.8%
Georgia-Pacific 22,400 1,320
International Paper 57,300 2,464
3,784
Building and Construction 0.1%
Georgia-Pacific Timber 17,600 406
406
Total Process Industries 45,992
BASIC MATERIALS 2.0%
Metals 1.4%
Inco 72,800 992
Phelps Dodge 33,000 1,887
Reynolds Metals 35,200 1,969
USX-U.S. Steel 52,800 1,743
6,591
Mining 0.6%
Lonrho (GBP) 99,175 465
Lonrho Africa (GBP) 66,175 81
Newmont Mining 85,449 2,019
2,565
Total Basic Materials 9,156
Miscellaneous Common Stocks 0.1% 360
Total Common Stocks (Cost $376,016) 430,561
U.S. Government Obligations/Agencies 0.7%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 500,000 $ 520
6.25%, 8/15/23 20,000 21
U.S. Treasury Notes
5.625%, 2/15/06 250,000 251
5.75%, 8/15/03 400,000 404
5.875%, 11/15/99 - 2/15/04 920,000 925
6.50%, 5/31/01 700,000 718
7.00%, 7/15/06 400,000 437
Total U.S. Government Obligations/
Agencies (Cost $3,110) 3,276
Short-Term Investments 6.8%
Money Market Funds 6.8%
Reserve Investment Fund, 5.69% # 31,489,036 31,489
Total Short-Term Investments
(Cost $31,489) 31,489
Total Investments in Securities
100.1% of Net Assets (Cost $410,615) $ 465,326
Other Assets Less Liabilities (560)
NET ASSETS $ 464,766
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 112
Accumulated net realized gain/loss -
net of distributions 9,580
Net unrealized gain (loss) 54,712
Paid-in-capital applicable to 23,798,911
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
corporation authorized 400,362
NET ASSETS $ 464,766
----------
NET ASSET VALUE PER SHARE $ 19.53
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
GBP British sterling
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Equity Income Portfolio
(Unaudited)
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend $ 5,122
Interest 994
Total income 6,116
Expenses
Investment management and administrative 1,745
Net investment income 4,371
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 9,658
Foreign currency transactions 5
Net realized gain (loss) 9,663
Change in net unrealized gain or loss
Securities 8,886
Other assets and liabilities
denominated in foreign currencies 1
Change in net unrealized gain or loss 8,887
Net realized and unrealized gain (loss) 18,550
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 22,921
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Equity Income Portfolio
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 4,371 $ 5,492
Net realized gain (loss) 9,663 10,082
Change in net unrealized
gain or loss 8,887 37,580
Increase (decrease) in net
assets from operations 22,921 53,154
Distributions to shareholders
Net investment income (4,259) (5,541)
Net realized gain (1,058) (9,992)
Decrease in net assets
from distributions (5,317) (15,533)
Capital share transactions*
Shares sold 116,951 206,293
Distributions reinvested 5,317 15,533
Shares redeemed (19,830) (18,474)
Increase (decrease) in
net assets from capital
share transactions 102,438 203,352
Net Assets
Increase (decrease) during period 120,042 240,973
Beginning of period 344,724 103,751
End of period $ 464,766 $ 344,724
---------------------------------
*Share information
Shares sold 6,002 11,952
Distributions reinvested 268 862
Shares redeemed (1,012) (1,074)
Increase (decrease)
in shares outstanding 5,258 11,740
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Equity Income Portfolio
June 30, 1998 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Equity Series, Inc. (the corporation) is registered under the
Investment Company Act of 1940. The Equity Income Portfolio (the fund), a
diversified, open-end management investment company, is one of the portfolios
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 listed or regularly traded on a securities exchange
are valued at the last quoted sales price on the day 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.
Listed securities not traded on a particular day and securities regularly traded
in the over-the-counter market are valued at the mean of the latest bid and
asked prices. Other equity securities 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.
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.
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $136,677,000 and $37,339,000, respectively, for the six months ended
June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At June 30, 1998, the aggregate cost of investments for federal income tax and
financial reporting purposes was $410,615,000, and net unrealized gain
aggregated $54,711,000, of which $64,992,000 related to appreciated investments
and $10,281,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management and administrative agreement between the fund and T.
Rowe Price Associates, Inc. (the manager) provides for an all-inclusive annual
fee, of which $296,000 was payable at June 30, 1998. The fee, computed daily and
paid monthly, is equal to 0.85% of the fund's average daily net assets. Pursuant
to the agreement, investment management, shareholder servicing, transfer agency,
accounting, and custody services are provided to the fund, and interest, taxes,
brokerage commissions, and extraordinary expenses are paid directly by the fund.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the six months ended June 30, 1998, totaled
$886,000 and are reflected as interest income in the accompanying Statement of
Operations.
Invest With Confidence(registered trademark)
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to those who have received a
copy of the portfolio's prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP654 (6/98) K15-057 6/30/98
