T. Rowe Price
Limited-Term Bond Portfolio
Semiannual Report
June 30, 1998
Dear Investor
The U.S. bond market enjoyed another period of steady economic growth, low
inflation, and flat to declining interest rates during the six months ended June
30, 1998. Corporate bonds, in particular high-yield issues, did well, while
mortgage-backed bonds were sluggish. In this environment, the Limited-Term Bond
Portfolio posted solid returns that outpaced its peer group average.
Market Environment
After pushing short-term interest rates down for most of 1997, investors in the
U.S. bond market largely took a wait-and-see attitude over the past six months,
given the uncertainty caused by an Asian currency crisis and very strong
economic growth. Fortunately, a feared surge in inflation never materialized.
The annualized consumer price index (CPI) remained below 2%, and the producer
price index (PPI) showed prices flat to declining.
The Federal Reserve, seeing no inflation but remaining anxious about growth, has
kept the federal funds target rate at its current level for more than a year. In
the absence of Fed action, shorter-term interest rates drifted toward the target
rate and then fluctuated within a relatively narrow range. Five-year Treasury
rates, for example, swung back and forth in a 24-basis-point band in the last
six months (100 basis points equal one percent).
Interest Rate Levels
Current 5-Year 2-Year
Coupon Treasury Treasury
GNMA Note Note
6/30/97 7.43 6.31 6.01
7.00 6.00 5.81
7.38 6.22 5.98
9/97 6.98 5.94 5.76
6.95 5.78 5.66
6.99 5.82 5.73
12/97 6.90 5.71 5.66
6.63 5.48 5.40
6.87 5.60 5.54
3/98 6.62 5.62 5.57
6.67 5.72 5.66
6.63 5.57 5.56
6/30/98 6.59 5.50 5.51
The fallout from the Asian currency crisis was surprisingly beneficial. As many
economists predicted, weak currency caused many Asian nations to boost exports,
and the resulting influx of inexpensive goods was among the reasons domestic
inflation remained tame during the period.
Corporate bonds outperformed lower-yielding Treasuries. High-yield bonds
performed well for a while in response to the strong economy, even though they
struggled somewhat late in the period as Asian problems hurt corporate earnings.
Investors shied away from mortgage-backed bonds, as a year of declining interest
rates sparked a flurry of mortgage prepayments.
Performance and Strategy Review
Performance Comparison
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Limited-Term
Bond Portfolio 3.10% 7.30%
Lipper Variable Annuity
Underlying Short
Intermediate Investment-
Grade Debt Funds Average 2.80 6.45
Your fund finished the six-month period with a 3.10% total return, well ahead of
the 2.80% gain for the Lipper Variable Annuity Underlying Short Intermediate
Investment-Grade Debt Funds Average. That showing also helped the fund exceed
its benchmark over the past 12 months with a 7.30% return. We added value by
maintaining a slightly longer duration than the peer group at times and by
overweighting corporate debt securities, particularly lower-quality, BBB rated
issues with improving credit trends.
In the past six months, the fund took a somewhat more aggressive interest rate
posture within its prescribed limitations. Currently, it carries a 3.9-year
weighted average maturity and a 3.0-year weighted average effective duration, a
bit longer (more interest rate sensitive) than six months ago. The persistently
favorable interest rate environment, as well as low (and falling) domestic
inflation, made this shift possible. As short-term rates slipped, the
positioning provided the fund with attractive price gains.
The fund's success, however, owed more to its relatively high weighting in
corporate bonds. Nearly half of fund assets was in corporates, with 15% in
issues rated BBB and an additional 7% in noninvestment-grade bonds (the BB
position in the accompanying table), which may be rated investment grade by some
agencies but not others. These holdings not only offered a comparatively high
income but also responded well to sustained economic growth and a broad trend
toward improving credit quality. Nonetheless, the fund finished the period with
relatively high AA- average credit quality.
The fund's sector positioning shifted as we rotated into better valued sectors
when some of our best opportunities became fully valued. We maintained a
relatively large corporate bond position in the utilities sector. We added
significantly to industrials, where prices became more compelling after the
sector earlier lagged the market. On the other hand, we reduced banking holdings
after they performed strongly. We also picked up many attractively priced
consumer products issues in response to the growing strength in consumer
sentiment and demand. Some consumer issues continued to lag through the end of
the period, though fortunately not enough to offset the portfolio's stronger
performers or to drag down overall returns. Additionally, we cut back on our
cash position; the freed-up assets were redeployed to high-quality asset-backed
and government agency securities.
Outlook
The course of the domestic bond market will depend largely on how long the U.S.
economy and inflation maintain their surprising balancing act. While adding
uncertainty to 1998's second half growth outlook, the continuing Asian crisis
may help keep inflation in a range that encourages Fed inaction.
As long as the Fed holds the line on interest rates and the economy and
corporate profits remain favorable, we are likely to pursue a strategy that
incorporates longer bonds and lower-quality corporate holdings. Should the
environment change, we would probably increase holdings in asset-backed, federal
agency, and mortgage-backed holdings.
Respectfully submitted,
Edward A. Wiese
President and
Chairman of the Investment Advisory Committee
July 22, 1998
Portfolio Highlights
Key Statistics
Periods
Ended
6/30/98
- --------------------------------------------------------------------------------
Dividend Yield*
6 months 5.86%
12 months 6.00
Dividend Per Share
6 months $ 0.14
12 months 0.29
Change in Price Per Share
6 months (from $4.96 to $4.97) $ 0.01
12 months (from $4.91 to $4.96) 0.05
Weighted Average Maturity (years) 3.9
Weighted Average Effective Duration (years) 3.0
- --------------------------------------------------------------------------------
*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.
Portfolio Highlights
Quality Diversification
Percent of Percent of
Net Assets Net Assets
12/31/97 6/30/98
- --------------------------------------------------------------------------------
Quality Rating*
AAA 47% 45%
AA 6 8
A 25 25
BBB 18 15
BB 4 7
B -- --
- --------------------------------------------------------------------------------
Weighted Average Quality AA AA-
- --------------------------------------------------------------------------------
*Based on T. Rowe Price research.
Portfolio Highlights
Sector Diversification
Percent of Percent of
Net Assets Net Assets
Limited-Term Bond Portfolio 12/31/97 6/30/98
- --------------------------------------------------------------------------------
Corporate Bonds and Notes 51% 49%
Industrial 7 10
Utilities 10 10
Consumer Products 3 6
Banking 10 5
Finance and Credit 4 4
All Other 17 14
Asset-Backed Securities 3 7
Mortgage-Backed Securities 19 15
U.S. Government Obligations 15 19
U.S. Treasuries 13 12
Government Agency Obligations 2 7
Money Market Funds 11 8
Other Assets Less Liabilities 1 2
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
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.
Limited-Term Bond Portfolio
As of 6/30/98
Merrill-Lynch
1-5 Year
Corporate/
Limited-Term Government
Bond Portfolio Bond Index
5/13/94 10,000 10,000
6/94 10,046 10,079
6/95 10,814 10,975
6/96 11,215 11,558
6/97 11,941 12,349
6/98 12,813 13,279
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.
Limited-Term Bond Portfolio
Periods Ended 6/30/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
7.30% 5.82% 6.18% 5/13/94
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 Limited-Term Bond Portfolio
(Unaudited)
For a share outstanding throughout each period
----------------------------------------------------
6 Months Year 5/13/94
Ended Ended through
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 4.93 $ 4.93 $ 5.06 $ 4.92 $ 5.00
Investment activities
Net investment income 0.14 0.29 0.29 0.33 0.21
Net realized and
unrealized gain (loss) 0.04 0.03 (0.13) 0.14 (0.08)
Total from
investment activities 0.18 0.32 0.16 0.47 0.13
Distributions
Net investment income (0.14) (0.29) (0.29) (0.33) (0.21)
NET ASSET VALUE
End of period $ 4.97 $ 4.96 $ 4.93 $ 5.06 $ 4.92
----------------------------------------------------
Ratios/Supplemental Data
Total return(C) 3.10% 6.74% 3.26% 9.88% 2.62%
Ratio of expenses to
average net assets 0.70% 0.70% 0.70% 0.70% 0.70%!
Ratio of net
investment income to
average net assets 5.79%! 5.91% 5.83% 6.60% 6.63%!
Portfolio turnover rate 25.6% 48.7% 97.7% 73.7% 146.0%!
Net assets,
end of period
in thousands) $ 34,194 $ 24,280 $ 12,312 $ 3,966 $ 2,081
(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 Limited-Term Bond Portfolio
June 30, 1998 (Unaudited)
Par/Shares Value
In thousands
- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES 49.0%
Banking 5.1%
Banco Generale, (144a)
7.70%, 8/1/02 $ 250 $ 245
Bankers Trust of New York, Deb.
9.50%, 6/14/00 300 319
First Union, Sub. Notes
9.45%, 6/15/99 100 103
First USA Bank, MTN
7.00%, 8/20/01 150 155
HSBC Finance Nederland
Gtd. Sub. Notes, (144a)
7.40%, 4/15/03 80 84
Kansallis Osake Pankki (New York)
Sub. Notes
10.00%, 5/1/02 100 113
MBNA, Sub. Notes
7.25%, 9/15/02 150 155
Mercantile Safe Deposit & Trust
6.53%, 7/3/00 200 202
Midlantic, Deb.
9.25%, 9/1/99 100 104
Republic of New York, Deb.
8.875%, 2/15/01 110 117
Union Planters, Sub. Notes
6.25%, 11/1/03 135 135
1,732
Consumer Products 5.8%
Anheuser Busch, Deb.
8.75%, 12/1/99 100 104
Beckman Instruments
Sr. Notes, (144a)
7.10%, 3/4/03 175 176
Coca Cola Femsa
8.95%, 11/1/06 125 126
Grand Metropolitan, Gtd. Notes
6.50%, 9/15/99 200 201
Nabisco, 6.125%, 2/1/33 250 247
Pepsico, MTN
5.75%, 1/2/03 300 299
Philip Morris
7.25%, 9/15/01 284 291
Sony, 6.125%, 3/4/03 325 326
Watson Pharmaceuticals
7.125%, 5/15/08 225 227
1,997
Consumer Services 0.8%
Tenet Healthcare
Sr. Sub. Notes
8.625%, 1/15/07 $ 250 $ 256
256
Energy and Petroleum 3.0%
PDV America
7.875%, 8/1/03 400 417
Sr. Notes, 7.25%, 8/1/98 75 75
YPF Sociedad Anonima
7.25%, 3/15/03 325 316
Williams, 6.125%, 2/15/02 225 224
1,032
Finance and Credit 4.1%
American Express Credit, Deb.
8.50%, 6/15/99 100 102
American General Finance
5.875%, 7/1/00 125 125
Amvescap, Sr. Notes, (144a)
6.375%, 5/15/03 350 352
Aristar, Sr. Notes
7.875%, 2/15/99 50 51
Finova Capital, MTN
5.98%, 2/27/01 150 150
Fleet Mortgage
6.50%, 9/15/99 125 126
General Electric Capital, MTN
6.15%, 11/5/01 250 252
Heller Financial
5.625%, 3/15/00 100 99
Penske Truck Leasing
6.65%, 11/1/00 150 152
1,409
Industrials 9.7%
Alcan Aluminum, Deb.
5.875%, 4/1/00 130 130
Allied-Signal
5.75%, 3/15/01 300 298
Corning, Deb.
8.75%, 7/15/99 100 103
Eaton Off Shore, Gtd. Notes
9.00%, 2/15/01 100 107
General Motors Acceptance Corporation
MTN, 6.625%, 4/24/00 100 101
Hutchison Whampoa Finance, (144a)
6.95%, 8/1/07 400 346
Ingersoll Rand, Sr. Notes
6.255%, 2/15/01 $ 250 $ 251
International Paper, Deb.
9.70%, 3/15/00 100 106
Lockheed
6.75%, 3/15/03 325 333
Deb., 9.375%, 10/15/99 15 15
Northrop Grumman
8.625%, 10/15/04 300 335
Oracle, Sr. Notes
6.91%, 2/15/07 250 256
Praxair, 6.15%, 4/15/03 300 300
USA Waste Services, Sr. Notes
6.50%, 12/15/02 325 326
Waste Management
6.625%, 7/15/02 300 303
3,310
Insurance 1.7%
Chubb, Deb.
8.75%, 11/15/99 70 71
Lincoln National
6.50%, 3/15/08 340 343
Nationwide Mutual Insurance, (144a)
6.50%, 2/15/04 149 151
565
Investment Dealers 1.7%
Lehman Brothers, Sr. Sub. Notes
7.25%, 4/15/03 325 338
Salomon Smith Barney Holdings
7.30%, 5/15/02 250 259
597
Media and Communications 3.3%
Cox Communications
8.875%, 3/1/01 300 320
NWCG Holdings
Sr. Secured Disc. Notes
Zero Coupon, 6/15/99 150 142
Time Warner, (144a)
6.10%, 12/30/01 350 348
Viacom
6.75%, 1/15/03 150 151
Sr. Notes, 7.75%, 6/1/05 150 160
1,121
Retail 0.9%
Dayton Hudson
6.625%, 3/1/03 200 204
7.50%, 3/1/99 $ 100 $ 101
305
Transportation 3.3%
CSX, 9.50%, 8/1/00 150 160
Delta Air Lines, Deb.
9.875%, 5/15/00 185 197
ERAC USA Finance, (144a)
6.375%, 5/15/03 325 322
Norfolk Southern
7.875%, 2/15/04 270 290
Northwest Airlines
8.375%, 3/15/04 150 155
1,124
Utilities 9.6%
Baltimore Gas & Electric
1st Mtg. Notes
8.40%, 10/15/99 100 103
CE Electric UK Funding
Sr. Notes, (144a)
6.853%, 12/30/04 300 309
Cleveland Electric, Secured Notes
7.19%, 7/1/00 150 152
Entergy Mississippi
6.45%, 4/1/08 350 348
Houston Lighting & Power, MTN
6.10%, 3/1/00 125 126
MCI Communications, Sr. Notes
7.125%, 1/20/00 100 102
Midamerican Energy, Sr. Notes
6.50%, 12/15/01 100 101
Niagara Mohawk Power
7.375%, 8/1/03 225 234
Sr. Notes, 7.25%, 10/1/02 325 325
Orange & Rockland Utilities, Deb.
6.14%, 3/1/00 50 50
Pacific Gas & Electric
1st Mtg. Bonds
8.75%, 1/1/01 200 213
Progress Capital Holdings
MTN, (144a)
6.88%, 8/1/01 150 153
Public Service Electric & Gas
Mtg. Bonds, 8.875%, 6/1/03 175 195
1st Ref. Mtg. Bonds
6.25%, 1/1/07 75 76
Texas NM Power, 1st Mtg. Bonds
9.25%, 9/15/00 $ 300 $ 316
Texas Power, Secured Deb.
10.75%, 9/15/03 300 325
United Illuminating
6.25%, 12/15/02 160 159
3,287
Total Corporate Bonds and Notes
(Cost $16,666) 16,735
ASSET-BACKED SECURITIES 7.3%
Auto-Backed 0.4%
Banc One Auto Grantor Trust
6.27%, 11/20/03 130 131
131
Credit Card-Backed 1.0%
Fingerhut Master Trust
6.07%, 2/15/05 325 325
325
Home Equity Loans-Backed 0.9%
IMC Home Equity Loan Trust
6.36%, 8/20/22 325 325
325
Receivables-Backed 3.1%
Amresco Residential Securities
6.925%, 6/25/25 350 355
Green Tree Financial
8.35%, 3/15/20 100 102
Harley Davidson Eaglemark
5.94%, 2/15/04 125 125
6.35%, 10/15/02 50 51
NPF, 6.22%, 6/1/02 325 325
Yamaha Motor Master Trust
6.20%, 5/15/03 100 100
1,058
Utility "Stranded" Asset Trust 1.9%
California Infrastructure
6.25%, 6/25/04 150 151
6.38%, 9/25/08 500 508
659
Total Asset-Backed Securities (Cost $2,491) 2,498
U.S. GOVERNMENT OBLIGATIONS 19.4%
U.S. Government Agency Obligations 7.0%
Federal National Mortgage Assn.
5.75%, 4/15/03 $ 1,500 $ 1,501
Deb., 6.15%, 12/14/01 150 150
MTN
7.15%, 4/11/07 425 462
7.65%, 10/6/06 100 102
U.S. Department Housing & Urban
Development, 6.49%, 8/1/07 175 180
2,395
U.S. Treasury Obligations 12.4%
U.S. Treasury Notes
6.375%, 4/30 - 5/15/99 610 614
6.50%, 8/31/01 - 10/15/06 1,625 1,697
6.875%, 3/31/00 200 205
7.25%, 5/15/04 1,600 1,736
4,252
Total U.S. Government Obligations
(Cost $6,555) 6,647
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 15.3%
U.S. Government Agency Obligations 13.6%
Federal Home Loan Mortgage
5 year balloon
5.00%, 6/1/99 75 75
6.00%, 4/1/99 24 24
7 year balloon
6.50%, 12/1/99 - 5/1/05 1,616 1,626
CMO, 6.92%, 1/25/12 120 121
REMIC
5.40%, 10/15/12 97 96
5.50%, 6/15/13 71 71
6.00%, 8/15/06 - 1/15/08 1,500 1,502
6.50%, 1/15/17 184 184
6.75%, 10/15/03 107 107
Federal National Mortgage Assn.
7.00%, 4/1/09 377 385
9.00%, 5/1/05 370 379
REMIC
5.35%, 9/25/02 74 74
7.50%, 8/25/05 23 23
4,667
U.S. Government Guaranteed Obligations 1.7%
Government National Mortgage Assn.
I
6.50%, 5/15/09 $ 450 $ 455
10.00%, 11/15/09 - 4/15/19 79 88
Midget, I
10.00%, 11/15/00 - 2/15/01 22 23
10.50%, 6/15/99 12 13
579
Total U.S. Government Mortgage-Backed Securities
(Cost $5,209) 5,246
MUNICIPAL BONDS 0.1%
Taxable Municipal 0.1%
University of Miami, GO
6.90%, 4/1/04 25 26
Total Municipal Bonds (Cost $25) 26
WARRANTS 0.0%
Hotels and Gaming 0.0%
President Casinos !*+ 1 --
Total Warrants (Cost $1) --
MONEY MARKET FUNDS 7.4%
Reserve Investment Fund
5.69% # 2,535 2,535
Total Money Market Funds (Cost $2,535) 2,535
Total Investments in Securities
98.5% of Net Assets (Cost $33,482) $ 33,687
Other Assets Less Liabilities 507
NET ASSETS $ 34,194
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (22)
Accumulated net realized gain/loss -
net of distributions (33)
Net unrealized gain (loss) 205
Paid-in-capital applicable to 6,877,450
shares of $0.0001 value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 34,044
NET ASSETS $ 34,194
----------
NET ASSET VALUE PER SHARE $ 4.97
----------
! Private Placement
* Non-income producing
+ Securities contain some restrictions as to public resale.
# Seven-day yield
CMO Collateralized Mortgage Obligation
GO Government Obligation
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
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 period-end amounts to
7.3% of net assets.
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Limited-Term Bond Portfolio
(Unaudited)
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Interest income $ 903
Expenses
Investment management and administrative 97
Net investment income 806
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 57
Change in net unrealized gain or loss on securities (16)
Net realized and unrealized gain (loss) 41
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 847
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Limited-Term Bond Portfolio
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 806 $ 969
Net realized gain (loss) 57 (20)
Change in net unrealized
gain or loss (16) 196
Increase (decrease) in
net assets from operations 847 1,145
Distributions to shareholders
Net investment income (805) (970)
Capital share transactions*
Shares sold 13,226 17,436
Distributions reinvested 801 970
Shares redeemed (4,155) (6,613)
Increase (decrease) in
net assets from capital
share transactions 9,872 11,793
Net Assets
Increase (decrease)
during period 9,914 11,968
Beginning of period 24,280 12,312
End of period $ 34,194 $ 24,280
---------------------------------
*Share information
Shares sold 2,659 3,539
Distributions reinvested 161 197
Shares redeemed (835) (1,343)
Increase (decrease)
in shares outstanding 1,985 2,393
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Limited-Term Bond Portfolio
June 30, 1998 (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 Limited-Term Bond Portfolio (the fund),
a diversified, open-end management investment company, is one of the portfolios
established by the corporation and commenced operations on May 13, 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.
Valuationo Debt securities are generally traded in the over-the-counter market.
Investments in securities originally issued with 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 original
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.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
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.
Premiums and Discountso 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.
Othero 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
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $323,000 and $331,000, respectively, for the
six months ended June 30, 1998. Purchases and sales of U.S. government
securities aggregated $2,825,000 and $220,000, 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. The fund has unused realized capital loss carryforwards for
federal income tax purposes of $86,000, of which $70,000 expires in 2004, and
$16,000 in 2005.
At June 30, 1998, the aggregate cost of investments for federal income tax and
financial reporting purposes was $33,482,000, and net unrealized gain aggregated
$205,000, of which $297,000 related to appreciated investments and $92,000 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, 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.
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 $53,000 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
TRP656 (6/98) K15-054 6/30/98
