Annual Report
December 31, 1997
Limited-Term Bond 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
Limited-Term Bond Portfolio
Annual Report
December 31, 1997
Dear Investor
Reversing the pattern of the preceding six months, interest
rates fell and prices of short-term bonds rose during the six
months ended December 31, 1997. Inflation remained subdued
despite strong economic growth, and currency turmoil in the
emerging markets increased demand for high-quality domestic
bonds. In this environment, the Limited-Term Bond Portfolio
performed well, ahead of its Lipper peer group average.
Market Environment
At the time of our last report, the possibility of rising
inflation was a significant concern to the bond market.
A March 1997 interest rate hike by the Fed, intended to curb
economic growth, crowned a period of rising rates, with yields
on five-year Treasury bonds topping 6.6% in March and April. In
the six months ended December 31, however, the economy performed
well-gross domestic product continued to grow at a more than 3%
annualized rate-but inflation, unexpectedly, seemed to
decelerate.
Yield Comparison chart
Current 5-Year Treasury 2-Year Treasury
Coupon GNMA Note Note
12/31/96 7.6 6.12 5.84
7.56 6.36 6.03
7.56 6.31 6.01
3/97 7.91 6.66 6.36
7.66 6.62 6.33
7.68 6.6 6.29
6/97 7.43 6.31 6.01
7 6 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
12/31/97 6.9 5.71 5.66
A bond rally in April, and a subsequent easing of inflation
fears, allowed yields to fall (and prices to rise) on most fixed
income instruments. A strong dollar, which makes imports
cheaper, helped keep inflation in check. In addition, a
late-fall currency crisis in Southeast Asia drove global
investors to invest more heavily in domestic bonds, especially
U.S. Treasuries, largely because of their high credit quality
and U.S. dollar exposure. Long-term securities benefited most
from these trends, but short-term bonds also climbed on falling
interest rates and rising demand. Between June 30 and December
31, 1997, yields on five-year Treasuries fell 60 basis points
(100 basis points equal one percentage point), pushing their
prices up by more than two percentage points.
The Asia-inspired flight to quality caused Treasuries to
outperform mortgage-backed bonds (which suffer from increased
prepayments when rates fall sharply) and lower-quality issues
over the past six months. However, lower-quality bonds bounced
back from late-October losses and were the best performers for
the year as a whole. Investors have been willing to buy
lower-quality, higher-yielding bonds for most of this year in
the belief that the strong economy would lead to credit quality
improvements.
Performance and Strategy Review
The fund finished the six-month period with a 4.07% total
return, outperforming the 3.51% return for the Lipper Variable
Annuity Underlying Short Intermediate Investment-Grade Debt
Funds Average. For the year, the fund's 6.74% results were ahead
of the Lipper average by 40 basis points. Dividends were stable
throughout the year.
Performance Comparison
Periods Ended 12/31/97 6 Months 12 Months
________________________________________________________
Limited-Term
Bond Portfolio 4.07% 6.74%
Lipper Variable Annuity
Underlying Short
Intermediate Investment-
Grade Debt Funds Average 3.51 6.34
The fund enhanced returns by holding mortgage-backed securities
and lower-rated holdings, which were strong performers in the
early part of the year. These issues, however, are more
vulnerable to market crises. The Asian currency meltdowns and
the ensuing global stock market correction led investors to
increase their holdings of Treasuries while shying away from
corporates in late fall. This flight to quality caused some
lower-rated bonds to underperform in the tumultuous environment.
As a whole, however, the bond market and your fund continued to
advance.
We did not significantly alter our investment plan and made few
changes in sector diversification or credit quality exposure.
Over the long-term investment horizon, we seek to outperform our
peers by emphasizing better-yielding corporate and
mortgage-backed issues. Throughout the period, we kept the
fund's stake in corporate and asset-backed securities around
55%, with concentrations in utility and banking bonds. We also
kept a 17% to 20% stake in BBB bonds, which are the lowest-rated
(and highest-yielding) investment-grade bonds. Nonetheless, the
fund's overall average credit quality increased modestly from
AA- to AA (the top bond rating is AAA).
We decreased the fund's stake in mortgage-backed securities,
from 25% six months ago to 19% at December 31. Falling interest
rates hinder the performance of these issues, because they
increase the likelihood of early principal repayments, which
then must be reinvested at lower rates. Our mortgage-backed
holdings consisted primarily of seasoned five- and seven-year
balloon mortgages, conservatively structured CMOs, and discount
coupon 15-year pass throughs. Compared with typical 30-year
pass-through securities, these holdings tend to have relatively
stable cash flows and less risk of principal prepayments as
interest rates fall.
Although interest rates moved considerably during the period,
the fund's duration changed little, ending the period at 2.7
years. (Duration measures a fund's price sensitivity to interest
rates changes. A longer duration enhances a fund's price
appreciation when rates fall, while a shorter duration helps
limit losses when rates rise.)
Outlook
Despite the economy's strength, we believe the recent
developments in Asia and continued subdued inflation may obviate
the need for any action by the Fed. Indeed, it is no longer a
foregone conclusion that the Fed's next move will be a
tightening.
Looking further ahead, we expect a continuation of good growth,
although perhaps a touch slower than the recent pace. Consumer
spending on big ticket items may decline, since many individuals
are burdened with high debt and may be worried about volatility
in the stock markets. However, employment is strong and consumer
confidence is high, suggesting that growth could continue
unabated. We believe that the outlook for the fixed income
market is favorable as long as inflation remains subdued.
Respectfully submitted,
Edward A. Wiese
President and Chairman of the Investment Advisory Committee
January 28, 1998
Portfolio Highlights
Key Statistics
Periods
Ended
12/31/97
________________________________________________________
Dividend Yield*
6 months 5.97%
12 months 6.09
Dividend Per Share
6 months $ 0.15
12 months 0.29
30-Day Standardized Yield 5.75%
Change in Price Per Share
6 months (from $4.91 to $4.96) $ .05
12 months (from $4.93 to $4.96) .03
Weighted Average Maturity (years) 3.7
Weighted Average Effective Duration (years) 2.7
________________________________________________________
*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 Percent of
Net Assets Net Assets
6/30/97 12/31/97
____________________________________________________________
Quality Rating*
AAA 43% 47%
AA 7 6
A 27 25
BBB 17 18
BB 6 4
B - -
____________________________________________________________
Weighted Average Quality AA- AA
____________________________________________________________
*Based on T. Rowe Price research.
Sector Diversification
Percent of Percent of
Net Assets Net Assets
6/30/97 12/31/97
___________________________________________________________
Corporate Bonds and Notes 54% 51%
___________________________________________________________
Utilities 8 10
Banking 11 10
Industrial 7 7
Media and Communications 4 5
Finance and Credit 6 4
All Other 18 15
Asset-Backed Securities 3% 3%
___________________________________________________________
Mortgage-Backed Securities 25% 19%
___________________________________________________________
U.S. Government Obligations 15% 15%
___________________________________________________________
U.S. Treasuries 12 13
Government Agency Obligations 3 2
Cash Equivalents 5% 11%
___________________________________________________________
Money Market Funds - 11
Commercial Paper 5 -
Other Assets Less Liabilities - 2% 1%
___________________________________________________________
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 12/31/97
Merrill Lynch
Limited-Term 1-5 Year Corporate/
Bond Government
Portfolio Bond Index
5/13/94 $ 10,000 $ 10,000
12/94 10,262 10,157
12/95 11,276 11,473
12/96 11,643 12,003
12/97 12,428 12,862
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 12/31/97
Since Inception
1 Year 3 Years Inception Date
_________________________________________________________
6.74% 6.59% 6.16% 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
For a share outstanding throughout each period
Year 5/13/94
Ended Through
12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of
period $ 4.93 $ 5.06 $ 4.92 $ 5.00
Investment activities
Net investment
income 0.29 0.29 0.33 0.21
Net realized and
unrealized
gain (loss) 0.03 (0.13) 0.14 (0.08)
Total from
investment
activities 0.32 0.16 0.47 0.13
Distributions
Net investment
income (0.29) (0.29) (0.33) (0.21)
NET ASSET VALUE
End of period $ 4.96 $ 4.93 $ 5.06 $ 4.92
_______________________________________
Ratios/Supplemental Data
Total return 6.74% 3.26% 9.88% 2.62%
Ratio of expenses
to average
net assets 0.70% 0.70% 0.70% 0.70%!
Ratio of net
investment
income to average
net assets 5.91% 5.83% 6.60% 6.63%!
Portfolio turnover
rate 48.7% 97.7% 73.7% 146.0%!
Net assets, end of
period
(in thousands) $ 24,280 $ 12,312 $ 3,966 $ 2,081
! Annualized.
The accompanying notes are an integral part of these financial
statements.
Statement of Net Assets
T. Rowe Price Limited-Term Bond Portfolio
December 31, 1997
Shares/Par Value
In thousands
CORPORATE BONDS AND NOTES 51.0%
Banking 9.6%
Banco Generale, (144a)
7.70%, 8/1/02 $ 250 $ 239
Bankers Trust of New York
Deb., 9.50%, 6/14/00 150 161
Barnett Banks, Sub. Notes
8.50%, 3/1/99 75 77
First Hawaiian, Sr. Notes
6.25%, 8/15/00 100 99
First Union, Sub. Notes
9.45%, 6/15/99 100 104
First USA Bank, MTN
7.00%, 8/20/01 150 154
Greenpoint Bank
6.70%, 7/15/02 250 252
HSBC Finance Nederland
Sub. Gtd. Notes, (144a)
7.40%, 4/15/03 80 84
Kansallis Osake Pankki
(New York), Sub. Notes
10.00%, 5/1/02 100 113
Keycorp Institutional Capital
(144a), 6.625%, 6/15/99 175 176
MBNA, Sub. Notes
7.25%, 9/15/02 150 154
Mercantile Safe Deposit & Trust
6.53%, 7/3/00 200 202
Midlantic, Deb.
9.25%, 9/1/99 100 105
National City Capital Trust
Gtd. Notes, (144a)
6.75%, 6/1/99 150 151
Republic of New York, Deb.
8.875%, 2/15/01 110 118
Union Planters, Sub. Notes
6.25%, 11/1/03 135 134
2,323
Consumer Products 2.7%
Anheuser Busch, Deb.
8.75%, 12/1/99 100 105
Coca Cola Femsa
8.95%, 11/1/06 125 129
Grand Metropolitan Investment
Gtd. Notes
6.50%, 9/15/99 200 201
Philip Morris
7.25%, 9/15/01 $ 209 $ 214
649
Consumer Services 1.1%
Tenet Healthcare
Sr. Sub. Notes
8.625%, 1/15/07 250 258
258
Finance and Credit 4.4%
American Express Credit, Deb.
8.50%, 6/15/99 100 103
American General Finance
5.875%, 7/1/00 125 124
Aristar, Sr. Notes
7.875%, 2/15/99 50 51
Finova Capital, MTN
5.98%, 2/27/01 150 149
Fleet Mortgage
6.50%, 9/15/99 125 126
General Electric Capital, MTN
6.15%, 11/5/01 250 252
Heller Financial, Notes
5.625%, 3/15/00 100 99
Penske Truck Leasing
6.65%, 11/1/00 150 152
1,056
Industrials 7.2%
Alcan Aluminum Ltd., Deb.
5.875%, 4/1/00 130 129
Corning, Deb.
8.75%, 7/15/99 100 104
Eaton Off Shore Ltd.
Gtd. Notes
9.00%, 2/15/01 100 108
General Motors Acceptance
Corporation, MTN
6.625%, 4/24/00 100 101
Hutchison Whampoa Finance
(144a), 6.95%, 8/1/07 400 383
Ingersoll Rand, Sr. Notes
6.255%, 2/15/01 250 250
International Paper, Deb.
9.70%, 3/15/00 100 107
Lockheed, Deb.
9.375%, 10/15/99 15 16
Lockheed Martin, Gtd. Notes
6.55%, 5/15/99 $ 85 $ 85
Northrop Grumman
8.625%, 10/15/04 200 223
Oracle, Sr. Notes
6.91%, 2/15/07 250 250
1,756
Insurance 2.9%
American Annuity Group
Capital Trust, (144a)
7.25%, 9/25/01 145 147
Chubb, Deb.
8.75%, 11/15/99 50 52
Liberty Mutual Insurance, (144a)
8.20%, 5/4/07 340 377
USF&G, 7.00%, 5/15/98 125 125
701
Investment Dealers 0.4%
Lehman Brothers
6.75%, 5/24/99 100 101
101
Media and Communications 5.3%
Comcast Cable Communications
(144a), 8.125%, 5/1/04 200 216
Cox Communications
8.875%, 3/1/01 150 160
NWCG Holdings
Sr. Secured Disc. Notes
Zero Coupon, 6/15/99 150 137
TCI Communciations
8.65%, 9/15/04 400 438
Time Warner
4.90%, 7/29/99 200 195
Viacom, 6.75%, 1/15/03 150 148
1,294
Petroleum 0.7%
PDV America
Sr. Notes
7.25%, 8/1/98 75 75
7.875%, 8/1/03 100 104
179
Retail 2.6%
Dayton Hudson
6.625%, 3/1/03 200 202
7.50%, 3/1/99 100 102
Federated Department Stores
Sr. Notes
8.50%, 6/15/03 $ 200 $ 218
Sears Roebuck & Co.
MTN, 8.23%, 5/4/99 100 103
625
Transportation 3.8%
CSX, 9.50%, 8/1/00 150 161
Delta Air Lines, Deb.
9.875%, 5/15/00 185 199
Federal Express
6.25%, 4/15/98 97 97
Norfolk Southern
7.875%, 2/15/04 170 183
Northwest Airlines
8.375%, 3/15/04 150 154
Union Pacific
7.00%, 6/15/00 135 138
932
Utilities 10.3%
Baltimore Gas & Electric
1st Mtg. Notes
8.40%, 10/15/99 100 104
CE Electric UK Funding
Sr. Notes, (144a)
6.853%, 12/30/04 300 302
Cleveland Electric, (144a)
7.19%, 7/1/00 150 152
Consumers Energy
1st Ref. Mtg. Bonds
6.875%, 5/1/98 15 15
Houston Lighting & Power
MTN, 6.10%, 3/1/00 125 125
Long Island Lighting
Gen. Ref. Bonds
9.75%, 5/1/21 150 152
MCI Communications
Sr. Notes
7.125%, 1/20/00 100 102
MCN Financing
6.305%, 6/1/98 175 175
Midamerican Energy
Sr. Notes
6.50%, 12/15/01 100 101
Orange & Rockland Utilities
Deb., 6.14%, 3/1/00 $ 50 $ 50
Pacific Gas & Electric
1st Mtg. Bonds
8.75%, 1/1/01 200 214
Potomac Capital, (144a)
6.80%, 9/12/01 250 251
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 74
System Energy Resources
1st Mtg. Notes
7.625%, 4/1/99 175 178
Texas New Mexico Power
1st Mtg. Bonds
9.25%, 9/15/00 50 53
Texas Power, Secured Deb.
10.75%, 9/15/03 100 109
2,505
Total Corporate Bonds and Notes
(Cost $12,276) 12,379
ASSET-BACKED SECURITIES 3.2%
Auto-Backed 0.7%
Banc One Auto Grantor Trust
6.27%, 11/20/03 165 165
165
Home Equity Loans-Backed 0.4%
Access Financial Mortgage Loan Trust
6.90%, 5/18/11 100 100
100
Receivables-Backed 1.1%
Green Tree Financial
8.35%, 3/15/20 100 102
Harley Davidson Eaglemark
(144a), 6.35%, 10/15/02 50 50
Yamaha Motor Master Trust
6.20%, 5/15/03 100 101
253
Utility "Stranded" Asset Trust 1.0%
California Infrastructure
6.38%, 9/25/08 $ 250 $ 252
252
Total Asset-Backed Securities
(Cost $764) 770
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 18.7%
U.S. Government Agency Obligations 16.0%
Federal Home Loan Mortgage
5 year balloon
5.00%, 6/1/99 91 90
6.00%, 4/1/99 31 31
7 year balloon
6.50%, 12/1/99 649 653
REMIC
5.40%, 10/15/12 200 199
5.50%, 6/15/13 174 174
6.00%, 8/15/06 1,000 998
6.50%, 1/15/17 200 201
6.75%, 10/15/03 250 252
6.92%, 1/25/12 120 121
Federal National Mortgage Assn.
7.00%, 4/1/09 417 425
9.00%, 5/1/05 453 465
REMIC
5.35%, 9/25/02 240 238
7.50%, 8/25/05 32 33
3,880
U.S. Government Guaranteed
Obligations 2.7%
Government National Mortgage Assn.
I
6.50%, 5/15/09 494 498
10.00%
11/15/09 - 4/15/19 101 112
Midget, I
10.00%
11/15/00 - 2/15/01 36 37
10.50%
4/15/98 - 6/15/99 22 23
670
Total U.S. Government Mortgage-
Backed Securities (Cost $4,510) 4,550
U.S. GOVERNMENT OBLIGATIONS 14.7%
U.S. Government Agency Obligations 1.8%
Federal National Mortgage Assn.
Deb., 6.15%, 12/14/01 $ 150 $ 149
MTN, 7.65%, 10/6/06 100 102
U.S. Department of Housing
& Urban Development
6.49%, 8/1/07 175 179
430
U.S. Treasury Obligations 12.9%
U.S. Treasury Notes
6.375%
4/30 - 5/15/99 610 616
6.50%
8/31/01 - 10/15/06 2,225 2,311
6.875%, 3/31/00 200 205
3,132
Total U.S. Government
Obligations (Cost $3,490) 3,562
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%
President Casinos
Warrants, 9/30/99*!+ 1 0
Total Warrants (Cost $1) 0
MONEY MARKET FUNDS 11.0%
Reserve Investment Fund
5.84%# 2,684 2,684
Total Money Market Funds
(Cost $2,684) 2,684
Total Investments in Securities
98.7% of Net Assets (Cost $23,750) $ 23,971
Other Assets Less Liabilities 309
NET ASSETS $ 24,280
_________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (23)
Accumulated net realized gain/loss -
net of distributions (90)
Net unrealized gain (loss) 221
Paid-in-capital applicable to
4,892,336 shares of $0.0001
par value capital stock
outstanding; 1,000,000,000
shares of the Corporation
authorized 24,172
NET ASSETS $ 24,280
_________
NET ASSET VALUE PER SHARE $ 4.96
_________
! Private Placement
* Non-income producing
+ Securities contain some restrictions as to public
resale.
# Seven-day yield
GO General 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 10.2% of net assets.
Statement of Operations
T. Rowe Price Limited-Term Bond Portfolio
In thousands
Year
Ended
12/31/97
Investment Income
Income
Interest income $ 1,084
Expenses
Investment management and
administrative 115
Net investment income 969
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (20)
Change in net unrealized gain or
loss on securities 196
Net realized and unrealized gain
(loss) 176
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,145
_________
The accompanying notes are an integral part of these financial
statements.
Statement of Changes in Net Assets
T. Rowe Price Limited-Term Bond Portfolio
In thousands
Year
Ended
12/31/97 12/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 969 $ 477
Net realized gain (loss) (20) (78)
Change in net unrealized
gain or loss 196 (29)
Increase (decrease) in net
assets from operations 1,145 370
Distributions to shareholders
Net investment income (970) (477)
Capital share transactions*
Shares sold 17,436 15,053
Distributions reinvested 970 477
Shares redeemed (6,613) (7,077)
Increase (decrease) in net
assets from capital
share transactions 11,793 8,453
Net Assets
Increase (decrease) during
period 11,968 8,346
Beginning of period 12,312 3,966
End of period $ 24,280 $ 12,312
_____________________
*Share information
Shares sold 3,539 3,056
Distributions reinvested 197 97
Shares redeemed (1,343) (1,438)
Increase (decrease) in
shares outstanding 2,393 1,715
The accompanying notes are an integral part of these financial
statements.
Notes to Financial Statements
T. Rowe Price Limited-Term Bond Portfolio
December 31, 1997
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.
Valuation 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 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.
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
Purchases and sales of portfolio securities, other than
short-term and U.S. government securities, aggregated
$11,749,000 and $4,278,000, respectively, for the year ended
December 31, 1997. Purchases and sales of U.S. government
securities aggregated $5,119,000 and $3,272,000, 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. 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 December 31, 1997, the aggregate cost of investments for
federal income tax and financial reporting purposes was
$23,750,000, and net unrealized gain aggregated $221,000, of
which $259,000 related to appreciated investments and $38,000 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 year ended December 31, 1997, totaled $32,000 and
are reflected as interest income in the accompanying Statement
of Operations.
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
(one of the portfolios constituting T. Rowe Price Fixed Income
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 the custodian 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
TRP656 (12/97)
K15-054 12/31/97
