T. Rowe Price
Prime Reserve
Portfolio
Semiannual Report
June 30, 1997
Dear Investor
It is a pleasure to welcome you as investors in the Prime
Reserve Portfolio. In the fund's first six months, the money
markets were affected by rapid economic growth, an interest rate
hike by the Federal Reserve, and paydowns of Treasury bills. In
this environment, Prime Reserve Portfolio provided an
above-average return.
MARKET ENVIRONMENT
The economy grew at a vigorous annualized rate of 4.9% in the
first quarter of 1997, roughly double its average pace during
the current six-year expansion. Consumers kept the cash
registers ringing for such items as building materials, major
appliances, and furniture. With jobs being created at a rapid
clip, the civilian unemployment rate dropped to 4.8% in May, its
lowest level in more than two decades. Seeking to preempt a rise
in inflation, the Federal Reserve lifted the federal funds
target by a quarter-point in March to 5.5%.
Interest Rate Levels Chart 6/30/97
1-Yr T-Bill 90-Day T-Bill Fed Funds
6/30/96 5.696 5.173 5.25
5.582 5.194 5.25
5.977 5.329 5.25
9/30/96 5.637 5.007 5.25
5.424 5.152 5.25
5.369 5.121 5.25
12/31/96 5.435 5.131 5.25
5.556 5.131 5.25
5.688 5.225 5.25
3/31/97 6.008 5.322 5.5
5.887 5.228 5.5
5.74 4.924 5.5
6/30/97 5.663 5.249 5.5
As the chart shows, the money markets had anticipated this
increase in rates, with yields on both shorter- and longer-term
securities rising sharply throughout the first quarter. Yields
slipped a bit in April and May, however, as repeated reports of
subdued inflation reduced the likelihood of further rate
increases. Indeed, the Fed passed up the opportunity to raise
rates again in May. U.S. Treasury bill yields were particularly
depressed over the past three months because the federal
government retired a significant amount of short-term debt,
creating a temporary supply and demand imbalance for these
instruments.
PERFORMANCE AND STRATEGY REVIEW
In keeping with the general trend in interest rates, your fund's
seven-day simple yield increased over the past six months and
now stands at 5.24%. Your fund also offered a strong relative
performance, outgaining the Lipper average for similar funds in
the six-month period, as shown in the table. Several strategic
shifts helped us achieve these returns. We adjusted the fund's
average maturity on numerous occasions as the interest rate
environment changed. (When interest rates are stable or falling,
we often move toward longer-maturity issues to delay the
rollover of assets into lower-yielding securities, thus
enhancing the fund's yield. Conversely, when rates are rising,
we may favor shorter-maturity issues to hasten the rollover of
assets into higher-yielding securities, again with the aim of
enhancing yield.) As of June 30, the fund's average maturity was
57 days.
Performance Comparison
Period Ended 6/30/97 6 Months
________________________________________________________
Prime Reserve Portfolio 2.56%
Lipper Variable Annuity Underlying
Money Market Funds Average 2.47
We also modestly "barbelled" the portfolio by combining very
short one-month securities with a smaller set of higher-yielding
issues approaching one year in maturity. This helped us maintain
our overall yield while still being prepared to quickly capture
higher yields when the Fed increased the federal funds target
rate.
Our exposure to negotiable certificates of deposit and bank
notes was high due to ample supplies of attractively priced
issues in that sector. Asset-backed securities and asset-backed
structured notes represented 18% of the fund's holdings,
reflecting the growing number of new securities with competitive
yields. (Sector diversification is shown in the table following
this letter.) The fund carries a notable stake in certificates
of deposit from high-quality foreign bank issuers, which offers
attractive yields compared with commercial paper and provides a
measure of diversification.
Finally, our investments in floating rate instruments were 11%
of assets. We would have liked to increase our exposure to these
instruments, which reset to higher rates when interest rates are
rising. However, because supply of these issues was tight, we
felt the yield premium they offered over fixed rate obligations
was not sufficient, given their somewhat higher credit risk.
OUTLOOK
Further increases in short-term rates cannot be ruled out as the
Fed attempts to slow growth, keep inflation at bay, and thus
prolong the current expansion. We will continue to hold a large
percentage of shorter maturity debt so that the fund may be in
the best position to take advantage of higher yields when and if
they become available.
Respectfully submitted,
Edward A. Wiese
President and
Chairman of the Investment Advisory Committee
July 26, 1997
Portfolio Highlights
Key Statistics
Period
Ended
6/30/97
________________________________________________________
Price Per Share $ 1.00
Dividend Per Share
6 months .025
Dividend Yield (7-Day Compound) * 5.38%
Weighted Average Maturity (days) 57
Weighted Average Quality ** First Tier
*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.
**All securities purchased in the money fund are rated in the
two highest categories (tiers) as established by national rating
agencies or, if unrated, are deemed of comparable quality by T.
Rowe Price.
Sector Diversification
Percent of
Net Assets
6/30/97
_________________________________________________________
U.S. Dollar-Denominated Foreign
Negotiable CDs and Bank Notes 18%
Banking 14
Asset-Backed 13
Finance and Credit 13
Automobiles and Related 7
Asset-Backed Structured Notes 5
Broker-Dealers 4
Foreign Government and Municipalities 4
Petroleum 4
University 4
Industrial 3
U.K. Building Societies 3
Domestic Negotiable Bank Notes 2
Domestic Negotiable CDs 2
All Other 2
Other Assets Less Liabilities 2
Total 100%
_________________________________________________________
Fixed Rate Obligations 89
Floating Rate Obligations 11
_________________________________________________________
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.
Prime Reserve Portfolio SEC chart 6/30/97
Lipper Variable
T. Rowe Price Annuity Underlying
Prime Reserve Money Market
Portfolio Funds Average
13/31/96 $ 10,000 $ 10,000
3/97 10,123 10,120
6/97 10,256 10,247
Total Return
Primes Reserve Portfolio
Periods Ended 6/30/97
Since Inception
6 Months Inception Date
________________________________________________________
2.56% 2.56% 12/31/96
Investment return and yield represent past performance and will vary. While
the fund is managed to maintain a stable share price of $1.00, this is not
guaranteed. An investment in the fund is not insured or guaranteed by the
U.S. government.
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 Prime Reserve Portfolio
(Unaudited)
For a share outstanding
throughout the period
_______________________
12/31/96
to
6/30/97
NET ASSET VALUE
Beginning of period $ 1.000
Investment activities
Net investment income 0.025
Distributions
Net investment income (0.025)
NET ASSET VALUE
End of period $ 1.000
___________
Ratios/Supplemental Data
Total return 2.56%
Ratio of expenses to average
net assets 0.55%!
Ratio of net investment income
to average net assets 5.17%!
Net assets, end of period
(in thousands) $ 8,690
! Annualized.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Prime Reserve Portfolio
June 30, 1997 (Unaudited)
Par Value
In thousands
BANK NOTES 4.6%
First America Bank
6.15%, 3/27/98 $ 100 $ 100
First Tennessee Bank
5.70%, 7/17/97 100 100
Westpac Banking
6.07%, 5/27/98 200 200
Total Bank Notes (Cost $400) 400
CERTIFICATES OF DEPOSIT 17.6%
ABN AMRO, 6.05%, 8/1/97 100 100
Commerzbank
5.93%, 6/26/98 100 100
Deutsche Bank AG
5.78%, 8/12/97 300 300
Hessische Landesbank
6.09%, 9/11/97 100 100
6.13%, 4/7/98 100 100
National Westminster Bank
5.66%, 2/11/98 100 100
Royal Bank of Canada
5.58%, 12/11/97 100 99
5.91%, 6/17/98 100 100
Societe Generale
5.61%, 11/3/97 50 50
Swiss Bank
5.66%, 7/23/97 200 200
5.98%, 3/19/98 100 100
World Savings Bank
5.57%, 7/8/97 180 180
Total Certificates of Deposit
(Cost $1,529) 1,529
COMMERCIAL PAPER 60.7%
AON, 5.63%, 8/1/97 140 139
B.B.V. Finance (Delaware)
5.30%, 10/10/97 81 80
Banque Nationale de Paris
5.74%, 9/29/97 150 148
BMW U.S. Capital
5.57%, 7/15/97 160 160
California Pollution Control
5.58%, 7/14/97 300 300
Caterpillar Financial Services
5.75%, 10/7/97 $ 100 $ 98
Corporate Asset Funding, 4(2)
5.53%, 7/21/97 300 299
Countrywide Funding
5.60%, 8/7/97 100 99
Electricite de France
5.65%, 7/22/97 200 199
Emerson Electric
6.20%, 7/1/97 199 199
Falcon Asset Securitization, 4(2)
5.54%, 7/17/97 250 249
Finova Capital
5.65%, 7/9/97 72 72
Ford Motor Credit
5.52%, 7/3/97 70 70
General Electric Capital
5.58%, 8/15/97 200 198
Golden Managers Acceptance
5.60%, 7/8/97 330 330
Halifax, 5.54%, 7/14/97 275 274
International Lease Finance
5.65%, 7/17/97 85 85
Island Finance of Puerto Rico
5.63%, 7/10/97 200 200
Kredietbank N.A. Finance
5.57%, 8/5/97 250 249
Market Street Funding
5.60%, 7/7/97 270 270
Merrill Lynch
5.57%, 8/20/97 100 99
5.63%, 8/8/97 100 100
National Australia Funding
5.55%, 8/8/97 250 248
Oesterrichische Kontrollbank
5.585%, 9/25/97 150 148
Societe Generale
5.63%, 7/7/97 100 100
Southern New England
Telecommunications, 4(2)
5.60%, 7/17/97 100 100
Svenska Handelsbanken
5.75%, 11/14/97 150 147
Toyota Motor Credit
5.65%, 7/21/97 319 318
Yale University
5.56%, 7/9/97 $ 300 $ 300
Total Commercial Paper
(Cost $5,278) 5,278
MEDIUM-TERM NOTES 11.2%
Beneficial, 6.21%, 9/11/97 100 100
Chrysler Financial
7.26%, 7/1/98 50 51
Goldman Sachs Group
VR
5.626%, 7/18/97 70 70
5.691%, 11/26/97 100 100
Household Finance
6.014%, 8/11/97 50 50
PHH, VR, 5.688%, 7/10/97 150 150
Rabobank Optional Redemption
Trust, VR
5.688%, 7/7/97! 200 200
Short Term Card Account Trust
VR, (144a)
5.708%, 7/18/98 100 100
Tiers Trust, VR, (144a)
5.718%, 7/15/97 150 150
Total Medium-Term Notes (Cost $971) 971
U.S. GOVERNMENT AGENCY OBLIGATIONS 1.1%
Federal Farm Credit Bank
5.23%, 7/10/97 100 100
Total U.S. Government Agency
Obligations (Cost $100) 100
FUNDING AGREEMENTS 2.9%
General American Life Insurance,
VR
5.89%, 7/31/98! $ 150 $ 150
Security Life of Denver Insurance
5.688%, 7/28/97! 100 100
Total Funding Agreements (Cost $250) 250
Total Investments in Securities
98.1% of Net Assets (Cost $8,528) 8,528
Other Assets Less Liabilities 162
NET ASSETS $ 8,690
Net Assets Consist of:
Paid-in-capital applicable to 8,689,581
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized $ 8,690
NET ASSETS $ 8,690
_________
NET ASSET VALUE PER SHARE $ 1.00
_________
! Private Placement
VR Variable Rate
4(2) Commercial Paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of the
Securities Act of 1933, as amended, and may be sold only to
dealers in that program or other "accredited investors".
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 2.9% of net assets.
Statement of Operations
T. Rowe Price Prime Reserve Portfolio
(Unaudited)
In thousands
The accompanying notes are an integral part of these financial statements.
12/31/96
to
6/30/97
Investment Income
Income
Interest income $ 159
Expenses
Investment management and administrative 15
Net investment income 144
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 144
_________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Prime Reserve Portfolio
(Unaudited)
In thousands
12/31/96
to
6/30/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 144
Distributions to shareholders
Net investment income (144)
Capital share transactions*
Shares sold 12,744
Distributions reinvested 144
Shares redeemed (4,198)
Increase (decrease) in net assets
from capital share transactions 8,690
Net Assets
Increase (decrease) during period 8,690
Beginning of period -
End of period $ 8,690
_________
*Share information
Shares sold 12,744
Distributions reinvested 144
Shares redeemed (4,198)
Increase (decrease) in shares
outstanding 8,690
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Prime Reserve Portfolio
June 30, 1997 (Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price Fixed Income Series, Inc. (the corporation) is registered under
the Investment Company Act of 1940. The Prime Reserve Portfolio (the fund),
a diversified, open-end management investment company, is one of the
portfolios established by the corporation and commenced operations on
December 31, 1996. 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.
Valuation Securities are valued at amortized cost. Assets and liabilities
for which such valuation procedures 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.
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. 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 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
qualify as a regulated investment company and distribute all of its taxable
income.
At June 30, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $8,528,000.
Note 3 - 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 0.55% 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.
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for dis-
tribution only to those who have
received a copy of the portfolio's
prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP658 (6/97)
K15-072 6/30/97
