T. Rowe Price Limited-Term Bond Portfolio
Invest With Confidence
T. Rowe Price
Annual Report
December 31, 1995
Dear Investor
The bond market rebounded from a dismal 1994 to post one of its best years
ever. As measured by the Lehman Brothers Aggregate Bond Index, the market
returned almost 18.5% for the year and just over 6% for the second half. The
key ingredients in the yearlong rally were a slowing economy, subdued
inflation, and the prospect of a balanced federal budget.
The Federal Reserve, after raising key short-term interest rates through
1994 and into early 1995 to cool the surging economy, reversed course as the
economy ran out of steam. Economic growth slowed from a 3.5% annualized pace
in 1994 to an estimated rate of 2% to 2.5% last year. As a result, the Fed cut
the federal funds target in July and again in December to 5.5%.
After sputtering briefly in the summer, the bond market continued
rallying over the last six months as inflation remained benign and
budget-balancing efforts in Washington heated up. Interest rates fell across
all maturities, as the market discounted further Fed easing to help the
private sector compensate for the anticipated slower growth in federal
spending. Yields on the two- and five-year Treasury notes slid more than two
percentage points over the course of the year, ending at 5.2% and 5.4%,
respectively.
CHART 1 Yield Comparison
Performance and Strategy Review
After trailing its peer group average earlier in 1995, the portfolio staged a
comeback in the last six months. We began the year with a relatively short
duration since it was not clear that the Fed was finished raising interest
rates. While a shorter duration protects a portfolio's share price during
periods of rising rates, it restrains price appreciation when interest rates
drop. Consequently, our performance lagged the benchmark when rates dropped
sharply in the spring.
Since then, however, we gradually extended the portfolio's duration
(from 2.1 years last June to 2.8 years on December 31) and its weighted
average maturity (from 2.8 years to 3.8 years). These moves helped the
portfolio outperform its benchmark over the last six months as interest rates
declined further, although it continued to lag for the 12-month period due
primarily to our earlier defensive posture.
Performance Comparison
Periods Ended 12/31/95
6 Months 12 Months
________ _________
Limited-Term Bond Portfolio 4.27% 9.88%
Lipper Short Investment-Grade
Debt Funds Average 4.07 10.84
Given the favorable economic and corporate earnings environment, we felt
comfortable during the last six months in assuming a little more credit risk
to get a higher level of income. We trimmed our holdings of Treasuries from
33% to 30% of net assets and our mortgage-backed position from 26% to 18%. We
redeployed the proceeds into intermediate corporate securities, particularly
broadcasting and media, consumer products, and asset-backed sectors. These
issues enjoyed healthy demand, buoyed by steadily improving corporate
earnings.
We also took a modest position (5% of net assets) in high-yield,
lower-quality issues, which provided more attractive income than their
investment-grade counterparts. As usual, we focused on a select group of
BBB-rated instruments identified by our credit analysts as having less risk or
better prospects than other BBB-rated issues. However, since lower-quality
bonds are more sensitive to the economy than to daily fluctuations in interest
rates, we are likely to reduce our exposure in coming months as the economic
expansion matures.
While overall business fundamentals remain strong, earnings gains are
beginning to slow in some areas, particularly retailing and consumer finance.
If other industries begin to lose momentum as economic growth slows, we may
seek to improve the credit quality of our corporate holdings over the next six
months. The portfolio's overall credit quality remained high, with 48% of
assets invested in U.S. government obligations.
Summary and Outlook
We are cautiously optimistic that interest rates will decline in coming
months. This is reflected in the portfolio's slightly more aggressive stance
compared with its peer group. For instance, we are modestly overweighted in
lower-rated corporates, giving the fund a slightly higher yield. In addition,
we have a marginally longer maturity posture.
If Congress and the Clinton Administration can rise above their
rancorous debate to achieve meaningful steps toward deficit reduction,
interest rates are likely to edge lower in 1996. Although progress could still
evaporate, as it did with the Gramm-Rudman-Hollings law in the 1980s, we are
optimistic about the prospects for a balanced budget by 2002. In our view,
economic growth will slow as the expansion settles into its fifth year and
inflation will remain subdued, both good signs for the bond market.
Respectfully submitted,
Edward A. Wiese
Executive Vice President
and Chairman of the Investment
Advisory Committee
January 30, 1996
Chart 2 Performance Comparison
Average Annual Compound Total Return
Periods Ended December 31, 1995
Since Inception
1 Year 5/13/94
_______ ________________
9.88% 7.61%
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.
Portfolio Highlights
T. Rowe Price Limited-Term Bond Portfolio / December 31, 1995
Key Statistics
Periods Ended
Dividend Yield* 12/31/95
________________________ ____________
6 Months 6.48%
12 Months 6.86
Dividend Per Share
________________________
6 Months $ 0.16
12 Months 0.33
Change in Price Per Share
________________________
6 Months (From $5.01 to $5.06)$ 0.05
12 Months (From $4.92 to $5.06)0.14
___________________________________________
Weighted Average Maturity 3.8 yrs.
___________________________________________
Weighted Average
Effective Duration 2.8 yrs.
___________________________________________
*Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
Quality Diversification
Percent of Net Assets
TRPA Quality Rating* 12/31/94 6/30/95 12/31/95
__________________ _______ _______ _______
1 68% 66% 65%
2 - 1 2
3 11 17 17
4 16 12 12
5 4 3 2
6 1 1 2
____________________________________________________________
Weighted Average Quality 1.92 1.88 1.95
*On a scale of 1 to 10, with Grade 1 representing highest quality.
Sector Diversification*
Percent of Net Assets
12/31/94 6/30/95 12/31/95
_______ _______ _______
U.S. Treasury Obligations 21% 33% 30%
U.S. Government Mortgage-
Backed Securities 41 26 18
Commercial Paper 5 6 14
Banking and Finance 8 8 9
Industrials 13 12 9
Consumer Products
and Services 2 5 6
Investment Dealers 5 7 4
Broadcasting and Media - - 3
Utilities 3 2 3
Asset-Backed - 1 2
*Sectors representing at least 2% of net assets on 12/31/95.
Statement of Net Assets
T. Rowe Price Limited-Term Bond Portfolio / December 31, 1995
Amount Value
_______ _______
Corporate Bonds and Notes - 33.7%
BANKING AND FINANCE- 8.5%
Aristar, Sr. Notes,
7.875%, 2/15/99. . . . . . . . . . . $ 50,000 $ 53,002
Bankers Trust New York, Sub. Notes,
9.50%, 6/14/00 . . . . . . . . . . . 25,000 28,000
Dime Bancorp, Sr. Notes,
10.50%, 11/15/05 . . . . . . . . . . 10,000 11,000
Firstar, Sub. Notes,
7.15%, 9/1/00. . . . . . . . . . . . 15,000 15,437
Fleet Mortgage Group, Notes,
6.50%, 6/15/00 . . . . . . . . . . . 25,000 25,497
MBNA, MTN, 6.50%, 9/15/00. . . . . . 25,000 25,499
Northern Trust, MTN,
9.15%, 3/13/98 . . . . . . . . . . . 25,000 26,838
Provident Bank of Ohio, MTN,
5.00%, 6/15/96 . . . . . . . . . . . 50,000 49,822
Shawmut, Notes, 8.125%, 2/1/97 . . . 50,000 51,270
Union Planters, Sub. Notes,
6.25%, 11/1/03 . . . . . . . . . . . 25,000 24,868
Washington Mutual, Notes,
7.25%, 8/15/05 . . . . . . . . . . . 25,000 26,517
337,750
BROADCASTING AND MEDIA- 3.3%
Cox Communications, Notes,
6.375%, 6/15/00. . . . . . . . . . . 25,000 25,451
Granite Broadcasting, Sr. Sub. Notes,
10.375%, 5/15/05 . . . . . . . . . . 15,000 15,375
News America Holdings, Sr. Notes,
7.50%, 3/1/00. . . . . . . . . . . . 25,000 26,294
TCI Communications, Sr. Notes,
8.00%, 8/1/05. . . . . . . . . . . . 20,000 21,230
Time Warner, Notes, 7.95%, 2/1/00. . 25,000 26,354
Young Broadcasting, Gtd. Sr. Sub. Notes,
11.75%, 11/15/04 . . . . . . . . . . 15,000 16,800
131,504
CONSUMER PRODUCTS AND SERVICES - 5.7%
Coleman Holdings, Sr. Sec. Disc. Notes,
Zero Coupon, 5/27/98 . . . . . . . . 15,000 12,094
Columbia / HCA Healthcare, Notes,
6.41%, 6/15/00. . . . . . . . . 15,000 15,275
Sr. Notes, 6.50%, 3/15/99 . . . 15,000 15,255
Federated Department Stores,
Sr. Notes, 10.00%, 2/15/01 . . . . . 15,000 16,200
General Mills, MTN,
7.16%, 10/3/97 . . . . . . . . . . . 25,000 25,661
Joseph E. Seagram and Sons, Gtd. Notes,
9.75%, 6/15/00 . . . . . . . . . . . 25,000 25,347
Pepsico, MTN,
6.80%, 5/15/00 . . . . . . . . . . . 25,000 25,986
Philip Morris, Notes,
7.75%, 5/1/99. . . . . . . . . . . . 25,000 26,381
President Casinos, Gtd. Sr. Notes,
13.00%, 9/15/01. . . . . . . . . . . 25,000 21,000
Rouse, Notes, 8.50%, 1/15/03 . . . . 20,000 21,846
Sears Roebuck and Company, Notes,
8.55%, 8/1/96. . . . . . . . . . . . 20,000 20,311
225,356
ENERGY AND PETROLEUM - 0.8%
Occidental Petroleum, MTN,
5.85%, 11/9/98 . . . . . . . . . . . 25,000 25,062
Petroleum Heat and Power, Sr. Sub. Deb.,
12.25%, 2/1/05 . . . . . . . . . . . 5,000 5,513
30,575
INDUSTRIALS - 8.5%
Agriculture Minerals, Sr. Notes,
10.75%, 9/30/03. . . . . . . . . . . 15,000 16,575
Boise Cascade, MTN,
6.81%, 2/1/99. . . . . . . . . . . . 25,000 25,400
Coltec Industries, Sr. Sub. Notes,
10.25%, 4/1/02 . . . . . . . . . . . 20,000 20,550
Dow Capital B.V., Notes,
8.25%, 2/15/96 . . . . . . . . . . . 25,000 25,064
Exide, Sr. Notes, 10.00%, 4/15/05. . 5,000 5,425
Ford Motor, MTN, 7.02%, 10/10/00 . . 25,000 26,148
General Motors Acceptance Corporation,
8.625%, 7/15/96. . . . . . . . . . . 50,000 50,705
IMC Global, Deb., 9.45%, 12/15/11. . 15,000 16,200
Lockheed, Notes, 9.375%, 10/15/99. . $ 15,000 $ 16,819
Methanex, Notes, 7.40%, 8/15/02. . . 25,000 26,164
Noranda, Deb., 8.625%, 7/15/02 . . . 25,000 28,172
Reynolds Metals, MTN,
9.20%, 7/6/00. . . . . . . . . . . . 25,000 27,996
Tenneco Credit, Notes,
10.125%, 12/1/97 . . . . . . . . . . 25,000 26,973
Westinghouse Electric, Notes,
7.75%, 4/15/96 . . . . . . . . . . . 25,000 25,105
337,296
INVESTMENT DEALERS - 4.0%
Lehman Brothers Holdings, Notes,
5.50%, 6/15/96 . . . . . . . . . . . 50,000 49,778
Morgan Stanley Group, Sr. Notes,
8.00%, 10/15/96. . . . . . . . . . . 50,000 50,830
PaineWebber Group, Sr. Notes,
7.00%, 3/1/00. . . . . . . . . . . . 25,000 25,523
Smith Barney Holdings, Notes,
7.00%, 5/15/00 . . . . . . . . . . . 30,000 31,172
157,303
UTILITIES - 2.9%
Commonwealth Edison, 1st Mtg. Bonds,
9.375%, 2/15/00. . . . . . . . . . . 30,000 33,507
Consumers Power, 1st Mtg. Notes,
6.875%, 5/1/98 . . . . . . . . . . . 15,000 15,098
Detroit Edison, Sec. MTN,
6.27%, 3/15/00 . . . . . . . . . . . 30,000 30,334
Niagara Mohawk Power, 1st. Mtg. Notes,
5.875%, 11/1/96. . . . . . . . . . . 12,000 11,913
Texas Utilities Electric, Sec. MTN,
6.29%, 11/22/00. . . . . . . . . . . 25,000 25,132
115,984
Total Corporate Bonds and Notes
(Cost $1,315,146) 1,335,768
Warrants - 0.0%
President Casinos, Warrants!!*!
(Cost $ 885) . . . . . . . . . . . . 221 wts 221
U.S. Government Obligations - 30.0%
U.S. Treasury Notes, 5.75%,
10/31/00. . . . . . . . . . . . $ 150,000 152,156
6.50%, 8/15/05. . . . . . . . . 100,000 106,531
6.875%, 3/31/00 . . . . . . . . 150,000 158,461
7.50%, 5/15/02. . . . . . . . . 525,000 582,094
7.75%, 1/31/00. . . . . . . . . 125,000 135,781
9.125%, 5/15/99 . . . . . . . . 25,000 27,899
9.375%, 4/15/96 . . . . . . . . 25,000 25,285
Total U.S. Government Obligations
(Cost $1,168,766) 1,188,207
U.S. Government Mortgage-Backed Securities - 17.7%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.3%
Federal Home Loan Mortgage,
6.725%, 8/15/00 . . . . . . . . 30,000 30,530
7.50%, 2/15/06. . . . . . . . . 75,000 77,320
8.25%, 7/15/12. . . . . . . . . 20,000 20,700
5 year balloon,
6.00%, 4/1/99 . . . . . . . . . 46,056 46,231
7 year balloon,
7.00%, 7/1/02 . . . . . . . . . 73,191 74,714
249,495
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 11.4%
Government National Mortgage Assn., I,
10.00%, 11/15/09 - 4/15/19 . . . . . 159,609 176,190
Midget, I,
10.00%, 11/15/00 - 2/15/01. . . 123,704 130,546
10.50%, 4/15/98 - 6/15/99 . . . 138,018 145,652
452,388
Total U.S. Government
Mortgage-Backed Securities
(Cost $690,136) 701,883
Asset-Backed Securities - 2.4%
AUTO-BACKED - 0.6%
Ford Credit Auto Loan Master Trust,
6.50%, 8/15/02 . . . . . . . . . . . $ 25,000 $ 25,711
CREDIT CARD-BACKED - 1.2%
Banc One Credit Card Master Trust,
6.15%, 7/15/02 . . . . . . . . . . . 20,000 20,381
NationsBank Credit Card Master Trust,
6.45%, 4/15/03 . . . . . . . . . . . 25,000 25,766
46,147
RECEIVABLES-BACKED - 0.6%
Oakwood Mortgage, 6.45%, 12/31/99. . 25,000 25,402
Total Asset-Backed Securities
(Cost $94,783) 97,260
Commercial Paper - 13.9%
Investments in Commercial Paper
through a joint account, 5.90 - 6.05%, 1/2/96
(Cost $552,515). . . . . . . . . . . 552,880 552,514
Total Investments in Securities -
97.7% of Net Assets
(Cost $3,822,231). . . . . . . . . . 3,875,853
Other Assets Less Liabilities . . . 90,177
___________
Net Assets Consist of: Value
____________
Accumulated net investment income -
net of distributions . . . . . . . . $ (13,527)
Net unrealized gain (loss) . . . . . 53,622
Paid-in-capital applicable to 784,537
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of
the Corporation authorized . . . . . 3,925,935
___________
NET ASSETS . . . . . . . . . . . . . $3,966,030
___________
___________
NET ASSET VALUE PER SHARE. . . . . . $5.06
_____
_____
!! Restricted as to the resale of the security
! Private Placement
* Non-income producing
MTN Medium Term Note
Statement of Operations
T. Rowe Price Limited-Term Bond Portfolio / Year Ended December 31, 1995
INVESTMENT INCOME
Interest income. . . . . . . . . . . . . . . . . .$ 182,421
Investment management and
administrative expenses. . . . . . . . . . . . . . 17,488
_________
Net investment income. . . . . . . . . . . . . . . 164,933
_________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities . . . . . . (5,318)
Change in net unrealized gain or loss on securities 79,081
_________
Net realized and unrealized gain (loss). . . . . . 73,763
_________
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. $238,696
_________
_________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Limited-Term Bond Portfolio
From May 13, 1994
(Commencement of
Year Ended Operations) to
December 31, 1995 December 31, 1994
________________ __________________
INCREASE (DECREASE) IN
NET ASSETS FROM
Operations
Net investment income. . . . . . $ 164,933 $ 85,758
Net realized gain (loss) . . . (5,318) (10,426)
Change in net unrealized
gain or loss . . . . . . . . . 79,081 (25,459)
__________ __________
Increase (decrease) in
net assets from operations . . 238,696 49,873
__________ __________
Distributions to shareholders
Net investment income. . . . . (164,933) (85,758)
__________ __________
Capital share transactions*
Shares sold. . . . . . . . . . 2,069,715 1,931,000
Distributions reinvested . . . 165,653 85,757
Shares redeemed. . . . . . . . (423,853) (120)
__________ __________
Increase (decrease) in
net assets from
capital share transactions . . 1,811,515 2,016,637
__________ __________
Increase (decrease) in
net assets . . . . . . . . . . . 1,885,278 1,980,752
NET ASSETS
Beginning of period. . . . . . . 2,080,752 100,000
__________ __________
End of period. . . . . . . . . . $3,966,030 $2,080,752
__________ __________
__________ __________
*Share information
Shares sold. . . . . . . . . . 412,949 386,164
Distributions reinvested . . . 33,116 17,195
Shares redeemed. . . . . . . . (84,863) (24)
__________ __________
Increase (decrease) in
shares outstanding . . . . . . 361,202 403,335
__________ __________
__________ __________
The accompanying notes are an integral part of these financial statements.
Notes To Financial Statements
T. Rowe Price Limited-Term Bond Portfolio / December 31, 1995
Note 1 - Significant Accounting Policies
T. Rowe Price Fixed Income Series, Inc., (the Corporation) is registered under
the Investment Company Act of 1940. The Limited-Term Bond Portfolio (the
fund), a diversified, open-end management investment company, is one of the
portfolios established by the Corporation. 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.
A) Valuation - Debt securities are generally traded in the over-the-counter
market. Investments in securities with remaining maturities of one year or
more are stated at fair value as furnished by dealers who make markets in such
securities or by an independent pricing service, which considers yield or
price of bonds of comparable quality, coupon, maturity, and type, as well as
prices quoted by dealers who make markets in such securities. Securities with
remaining maturities of less than one year are stated at fair value, which is
determined by using a matrix system that establishes a value for each security
based on money market yields. Warrants are valued at the last bid price.
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.
B) Premiums and Discounts - Premiums and discounts on debt securities, other
than mortgage-backed securities, are amortized for both financial reporting
and tax purposes. Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
C) 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. 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
A) Commercial Paper Joint Account - The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
B) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $1,276,844 and $457,057,
respectively, for the year ended December 31, 1995. Purchases and sales of
U.S. government securities aggregated $1,632,718 and $1,181,128, respectively,
for the year ended December 31, 1995.
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. Capital loss carryforwards utilized in 1995 amounted to
$2,217.
For federal income tax purposes the Fund paid a distribution from net
long-term capital gains of $3,000 ($0.0038 per share) on December 29, 1995.
This amount differs from information elsewhere in this report due to
differences in the calculation for financial reporting and federal income tax
purposes.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $13,527 of
undistributed net investment income and $15,744 of undistributed net realized
gains were reclassified as a $2,217 decrease to paid-in-capital during the
year ended December 31, 1995. The results of operations and net assets were
not affected by the reclassifications.
At December 31, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $3,822,231 and net unrealized
gain aggregated $53,622, of which $56,475 related to appreciated investments
and $2,853 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, computed daily and paid monthly, equal to 0.70% 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.
Financial Highlights
T. Rowe Price Limited-Term Bond Portfolio
For a share outstanding through each period
______________________________________
From May 13, 1994
(Commencement
Year Ended of Operations) to
December 31, 1995December 31, 1994
_________________________________
NET ASSET VALUE, BEGINNING OF PERIOD . . . $ 4.92 $ 5.00
_____ _____
Investment activities
Net investment income. . . . . . . . . . 0.33 0.21
Net realized and unrealized gain (loss). 0.14 (0.08)
_____ _____
Total from investment activities . . . . 0.47 0.13
_____ _____
Distributions
Net investment income. . . . . . . . . . (0.33) (0.21)
_____ _____
NET ASSET VALUE, END OF PERIOD . . . . . . $ 5.06 $ 4.92
_____ _____
_____ _____
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . . . . . . . . . . 9.88% 2.62%
Ratio of expenses to average net assets. . 0.70% 0.70%!
Ratio of net investment income
to average net assets. . . . . . . . . . 6.60% 6.63%!
Portfolio turnover rate. . . . . . . . . . 73.7% 146.0%!
Net assets, end of period. . . . . . . . .$3,966,030$2,080,752
! Annualized.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Fixed Income Series, Inc.
and Shareholders of Limited-Term Bond 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
Limited-Term Bond Portfolio (constituting T. Rowe Price Fixed Income Series,
Inc., hereafter referred to as the "Fund") at December 31, 1995, 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, 1995 by
correspondence with custodians and brokers, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 18, 1996
Chart 1 - Yield Comparison: A 4-line chart showing interest rates on the
Current Coupon GNMA, 5-Year Treasury note, 2-Year Treasury note, and federal
funds rate from 12/31/94 to 12/31/95.
Chart 2: Performance Comparison line graph showing $10,000 growing to $11,276
for LTBP and to $11,406 for Merrill Lynch 1-Year Corp./Govt. Bond Index from
5/13/94 through 12/95.
