T. Rowe Price
Limited-Term Bond Portfolio
Semiannual Report
June 30, 1999
Dear Investor
After declining in the last half of 1998, short- and intermediate-term interest
rates moved upward during the past six months, driven by investor concerns over
potentially inflationary economic growth. On June 30, the Federal Reserve raised
the federal funds target rate by one-quarter of a percent. The difficult
environment undermined total returns on short-term bond investments, and your
fund's six-month return was slightly negative.
Market Environment
The market environment of the past six months was dominated by concern over
rising pressure on interest rates. Interest rates rose relatively sharply
for several months: two- to five-year Treasuries were particularly affected
by the change in sentiment, with the yield on five-year Treasury notes
climbing more than one full percentage point. On June 30, 1999, the Federal
Reserve responded to these pressures by hiking the federal funds target
rate by 25 basis points, from 4.75% to 5%.
Interest Rate Levels
Current 5-Year 2-Year
Coupon Treasury Treasury
GNMA Note Note
6/98 6.59 5.50 5.51
6.60 5.51 5.48
6.33 5.07 5.09
9/98 5.96 4.24 4.31
6.25 4.22 4.10
6.25 4.62 4.64
12/98 6.26 4.59 4.61
6.22 4.56 4.59
6.70 5.11 5.05
3/99 6.65 5.12 4.99
6.68 5.15 5.03
7.05 5.51 5.35
6/99 7.27 5.76 5.61
The general effect of the move was to reverse the deep cuts in interest
rates between late September and mid-November of last year. At that time,
the Fed lowered the target rate in three steps from 5.50% to 4.75% to help
ease widespread international problems. Russia had defaulted on its debt,
investors sold off lower-quality securities, and a very large hedge fund
had collapsed. The demand for safe, high-quality investments was so high
that one-year Treasury bill yields were temporarily pushed below the
federal funds rate-an unusual occurrence.
The rate cuts paved the road to recovery for several international
economies, and also contributed to sustained economic strength in the U.S.
Indeed, data from the fourth quarter of 1998 and the first of 1999 was
surprisingly strong, with GDP growth running well ahead of projections and
consumer spending outpacing earnings. Inflation remained subdued, but the
price of oil rose and the pressures that could lead to rising prices
increased. Anticipating possible Fed action, investors began to sell down
their bond holdings and broadly pushed interest rates higher. Given this
environment, the Fed's decision to raise the target rate was largely
reassuring, as was its subsequent announcement that it had shifted toward a
neutral policy.
The federal budget surplus continued to affect the short-term fixed income
markets. The Treasury is expected to have paid down outstanding debt by
$105 billion during the first half of 1999. While indicative of a strong
econ-omy, public debt reduction significantly depletes the supply of
available investments in the marketplace. With demand holding steady,
declining availability puts downward pressure on yields.
Another important trend during the period was the revived popularity of
corporate and mortgage-backed securities. The spread to Treasuries for
these issues (that is, the difference in their yields) tightened from the
wide levels of late 1998. This suggested that investors felt renewed
confidence in the global economy and were no longer demanding a
historically high "risk premium" to invest in securities that carry
slightly more credit risk than Treasuries. As liquidity returned to the
marketplace, corporate bonds and mortgage-backed securities outperformed
Treasuries by respectable margins.
Performance and Strategy Review
Rising interest rates caused the fund's share price to drop from $5.02 to
$4.88 during the six-month period. Steady dividend income associated with a
concentration in corporate and mortgage-backed securities mitigated this
share price decline so that the fund posted only a slightly negative total
return of -0.16% for the period. Twelve-month returns were respectable,
again aided by income, but still were constrained by the bond market's
recent weakness. Performance in both periods modestly trailed the Lipper
benchmark.
Performance Comparison
Periods Ended 6/30/99 6 Months 12 Months
---------------------------------------------------------------------------
Limited-Term
Bond Portfolio -0.16% 3.89%
Lipper Variable Annuity
Underlying Short
Intermediate Investment-
Grade Debt Funds Average 0.65 3.94
The fund's relative performance was primarily the result of its duration
posture. (Duration is a measure of price sensitivity to changes in interest
rates. A fund having a duration of three years will have a 3% rise or
decline in price in response to a one-percentage-point fall or rise,
respectively, in interest rates.) Duration at the end of the period was 3.2
years, which was substantially longer (that is, more interest rate
sensitive) than our average peer fund. When rates rise sharply, as they did
during the past six months, a longer duration can result in negative
returns in the short run. We seek to maintain an overall interest rate
sensitivity consistent with a duration near three years. Despite the
potential for somewhat wider share price fluctuation, the higher yields
available on such a portfolio have benefited performance considerably since
the fund's inception.
In general, we prefer to maintain a consistent duration rather than try to
"time" interest rate movements. While the Fed may yet again raise the
federal funds target rate soon, we think the damage in the bond market is
mostly done, as real rates have already factored in further interest rate
hikes.
The strong returns of corporate bonds over the past six months benefited
the portfolio's substantial position in the sector. Good performance,
however, often means yields become less attractive as prices rise. In
response to this shift in the market, we trimmed the allocation to
corporate bonds and notes from 55% on December 31, 1998, to 45%. These
reductions were primarily in sectors that had recovered dramatically from
last year's weakness-for example, the banking and finance sector. We used
proceeds from some of the sales to increase investment in AAA rated
asset-backed and mortgage-backed securities, which often have higher yields
that are comparable to lower-rated corporate securities. The shift helped
increase the fund's average credit quality from AA- to AA.
Outlook
In general, we are taking a conservative view toward credit quality as we
wait to put the economic uncertainties of this year and the technical
uncertainties of the year 2000 behind us. We believe that the U.S. economic
expansion will slow modestly rather than boil over: the sluggishness of
numerous overseas economies in Asia, Europe, and elsewhere should provide
enough drag to postpone inflationary pressures at home, although consumer
spending could keep GDP growth at 3% or higher. Accordingly, we feel it is
appropriate to trim our corporate holdings (which would likely not respond
well to moderating growth) and to maintain a slightly above-average
duration. Should growth begin to exceed our expectations and raise the
specter of inflation, we would consider reducing the fund's duration, as
well.
The fund's long-term aim is to provide a higher income than a money market
fund with low volatility. Given the current market environment and the
fund's generally conservative investment program, we expect to continue
meeting this goal.
Respectfully submitted,
Edward A. Wiese
President and
Chairman of the Investment Advisory Committee
July 26, 1999
Portfolio Highlights
Key Statistics
Periods
Ended
6/30/99
- -------------------------------------------------------------------------------
Dividend Yield*
6 months 5.62%
12 months 5.72
Dividend Per Share
6 months $ 0.13
12 months 0.27
Change in Price Per Share
6 months (from $5.02 to $4.88) $ -0.14
12 months (from $4.97 to $4.88) -0.09
Weighted Average Maturity (years) 3.9
Weighted Average Effective Duration (years) 3.2
- --------------------------------------------------------------------------------
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
period.
Quality Diversification
Percent of Percent of
Net Assets Net Assets
12/31/98 6/30/99
- --------------------------------------------------------------------------------
Quality Rating*
AAA 37% 41%
AA 14 15
A 25 23
BBB 20 20
BB 3 1
B 1 0
Weighted Average Quality AA- AA
- --------------------------------------------------------------------------------
* Based on T. Rowe Price research.
Sector Diversification
Percent of Percent of
Net Assets Net Assets
Limited-Term Bond Portfolio 12/31/98 6/30/99
- --------------------------------------------------------------------------------
Corporate Bonds and Notes 55% 45%
Banking and Finance 14 11
Consumer Products and Services 15 9
Industrial 10 9
Utilities 8 7
All Other 8 9
Asset-Backed Securities 10 14
Mortgage-Backed Securities 14 18
U.S. Government Obligations 14 19
U.S. Treasuries 5 12
Government Agency Obligations 9 7
Money Market Funds 6 3
Other Assets Less Liabilities 1 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. An index
return does not reflect expenses, which have been deducted from the fund's
return.
Limited-Term Bond Portfolio
Merrill Lynch
Limited-Term 1-5 Year
Bond Corporate/Government
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
6/99 13,311 13,939
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 6/30/99
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
3.89% 5.88% 5.79% 5.73% 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
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 5.02 $ 4.96 $ 4.93 $ 5.06 $ 4.92 $ 5.00
Investment activities
Net investment
income 0.13 0.28 0.29 0.29 0.33 0.21
Net realized and
unrealized gain
(loss) (0.14) 0.07 0.03 (0.13) 0.14 (0.08)
Total from
investment
activities (0.01) 0.35 0.32 0.16 0.47 0.13
Distributions
Net investment
income (0.13) (0.28) (0.29) (0.29) (0.33) (0.21)
Net realized
gain -- (0.01) -- -- -- --
Total distributions (0.13) (0.29) (0.29) (0.29) (0.33) (0.21)
NET ASSET VALUE
End of period $ 4.88 $ 5.02 $ 4.96 $ 4.93 $ 5.06 $ 4.92
----------------------------------------------------------
Ratios/Supplemental Data
Total
return(diamond) (0.16)% 7.28% 6.74% 3.26% 9.88% 2.62%
Ratio of total
expenses to
average net assets 0.70%! 0.70% 0.70% 0.70% 0.70% 0.70%!
Ratio of net
investment
income to average
net assets 5.47%! 5.58% 5.91% 5.83% 6.60% 6.63%!
Portfolio
turnover rate 39.3%! 50.9% 48.7% 97.7% 73.7% 146.0%!
Net assets,
end of period
(in thousands) $ 50,816 $ 46,235 $ 24,280 $ 12,312 $ 3,966 $ 2,081
(diamond) 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, 1999 (Unaudited)
Par/Shares Value
- --------------------------------------------------------------------------------
In thousands
CORPORATE BONDS AND NOTES 44.7%
Banking and Finance 11.1%
ABN AMRO Bank (Chicago), N.V.
Gtd. Sub. Notes
7.25%, 5/31/05 $ 500 $ 509
American General Finance
5.875%, 7/1/00 125 125
Banco Generale, (144a)
7.70%, 8/1/02 250 245
Countrywide Home Loan
Sr. Sub. Notes
6.85%, 6/15/04 500 500
Finova Capital, MTN
5.98%, 2/27/01 150 149
First USA Bank, MTN
7.00%, 8/20/01 150 152
General Electric Capital, MTN
6.15%, 11/5/01 250 251
Heller Financial, 5.625%, 3/15/00 100 100
HSBC Finance Nederland
Sub. Gtd. Notes, (144a)
7.40%, 4/15/03 80 81
Kansallis Osake Pankki (New York)
Sub. Notes, 10.00%, 5/1/02 350 381
Marsh and McLennan, Sr. Notes
6.625%, 6/15/04 500 501
MBNA, Sub. Notes, 7.25%, 9/15/02 150 151
Mercantile Safe Deposit & Trust
6.53%, 7/3/00 200 199
Merrill Lynch, 7.00%, 3/15/06 500 502
Midlantic, Deb., 9.25%, 9/1/99 100 101
Nationwide Mutual Insurance, (144a)
6.50%, 2/15/04 149 146
Paine Webber Group
7.875%, 2/15/03 500 515
Penske Truck Leasing
6.65%, 11/1/00 150 151
Republic of New York
8.875%, 2/15/01 360 374
Salomon Smith Barney Holdings
7.30%, 5/15/02 350 357
Union Planters, Sub. Notes
6.25%, 11/1/03 135 132
5,622
Building and Real Estate 1.2%
Rouse Company,
8.00%, 4/30/09 $ 600 $ 585
585
Consumer Products and Services 9.4%
Amvescap, Sr. Notes, (144a)
6.375%, 5/15/03 350 342
Anheuser Busch, Deb.
8.75%, 12/1/99 150 152
Beckman Instruments, Sr. Notes
7.10%, 3/4/03 500 487
Coca Cola Femsa, 8.95%, 11/1/06 125 123
Comcast Cable Communications
6.20%, 11/15/08 400 372
Dayton Hudson, 6.625%, 3/1/03 200 201
Grand Metropolitan Investment
Zero Coupon, 1/6/04 750 558
Hospital Corporation of America
Zero Coupon, 6/1/01 500 426
Nabisco, 6.125%, 2/1/33 250 243
Pepsico, MTN, 5.75%, 1/2/03 300 296
Philip Morris, 7.25%, 9/15/01 284 288
Safeway, 5.75%, 11/15/00 500 497
Sony, 6.125%, 3/4/03 425 422
Viacom, 6.75%, 1/15/03 150 150
Watson Pharmaceuticals
7.125%, 5/15/08 225 216
4,773
Energy 0.8%
PDV America, 7.875%, 8/1/03 200 185
YPF Sociedad Anonima
7.25%, 3/15/03 200 194
379
Industrials 8.9%
Alcan Aluminum
5.875%, 4/1/00 130 130
7.25%, 12/15/99 250 252
Allied-Signal, 5.75%, 3/15/01 300 295
Corning, 8.75%, 7/15/99 100 100
Delphi Auto Systems
6.125%, 5/1/04 175 170
Eaton Offshore, Gtd. Notes
9.00%, 2/15/01 300 313
International Paper, 9.70%, 3/15/00 100 102
Lockheed, 6.75%, 3/15/03 475 472
Northrop Grumman
8.625%, 10/15/04 300 315
Parker Hannifin, MTN,
5.65%, 9/15/03 $ 500 $ 486
Praxair, 6.15%, 4/15/03 300 293
Raytheon, 5.70%, 11/1/03 500 484
Toyota Motor Credit
5.625%, 11/13/03 500 487
USA Waste Services, Sr. Notes
6.50%, 12/15/02 325 324
Waste Management
6.625%, 7/15/02 300 301
4,524
Media and Communications 2.5%
MCI Communications, Sr. Notes
7.125%, 1/20/00 100 100
MCI Worldcom, Sr. Notes
6.25%, 8/15/03 350 345
Seagram, 6.40%, 12/15/03 500 491
Sprint Capital, 5.70%, 11/15/03 375 360
1,296
Other 0.7%
Inter-American Development Bank
6.375%, 10/22/07 375 374
374
Transportation 3.1%
CSX, 9.50%, 8/1/00 150 155
Delta Air Lines, ETC
9.875%, 5/15/00 185 190
ERAC USA Finance, (144a)
6.375%, 5/15/03 325 318
Norfolk Southern
6.95%, 5/1/02 500 506
7.875%, 2/15/04 270 282
Northwest Airlines
8.375%, 3/15/04 150 146
1,597
Utilities 7.0%
CE Electric UK Funding, Sr. Notes
(144a) 6.853%, 12/30/04 300 298
Cleveland Electric, Secured Notes
7.19%, 7/1/00 150 151
Entergy Mississippi, 6.45%, 4/1/08 350 339
Midamerican Energy, Sr. Notes
6.50%, 12/15/01 100 100
National Rural Utilities
5.00%, 10/1/02 500 482
Niagara Mohawk Power
7.375%, 8/1/03 $ 225 $ 231
Sr. Notes, 7.25%, 10/1/02 325 327
Pacific Gas & Electric, 1st Mtg. Bonds
8.75%, 1/1/01 200 207
Progress Capital Holdings MTN
(144a) 6.88%, 8/1/01 150 150
Public Service Electric & Gas
1st Mtg. Bonds, 8.875%, 6/1/03 175 186
1st Ref. Mtg. Bonds
6.25%, 1/1/07 75 72
Texas NM Power
1st Mtg. Bonds, 9.25%, 9/15/00 300 309
Secured Deb., 10.75%, 9/15/03 300 313
United Illuminating,
6.25%, 12/15/02 160 157
Williams, 6.125%, 2/15/02 225 221
3,543
Total Corporate Bonds and Notes
(Cost $23,077) 22,693
ASSET-BACKED SECURITIES 13.8%
Amresco Residential Securities
6.925%, 6/25/25 350 351
Banc One Auto Grantor Trust
6.27%, 11/20/03 72 72
California Infrastructure
6.25%, 6/25/04 150 150
6.38%, 9/25/08 500 499
6.42%, 9/25/08 450 450
Comed Transitional Funding Trust
5.44%, 3/25/07 550 526
Fingerhut Master Trust
6.07%, 2/15/05 325 325
First Security Auto Owner Trust
6.20%, 10/15/06 500 498
First USA Secured Note Trust
Sec. Notes, (144a)
6.50%, 1/18/06 500 491
Green Tree Financial
8.35%, 3/15/20 41 41
Harley Davidson Eaglemark
5.94%, 2/15/04 125 124
6.35%, 10/15/02 29 29
IMC Home Equity Loan Trust
Zero Coupon, 8/20/22 $ 325 $ 317
Neiman Marcus Credit Master Trust
7.60%, 6/15/03 500 508
Newcourt Equipment Trust
5.393%, 5/20/04 500 483
NPF Receivables Trust, (144a)
6.22%, 6/1/02 325 322
Onyx Acceptance Owner Trust
5.83%, 3/15/04 500 497
Peco Energy Transport Trust
5.63%, 3/1/05 300 294
Residential Accredit Loans Mortgage
7.25%, 11/25/27 492 492
Sears Credit Account Master Trust
5.25%, 10/16/08 500 479
Yamaha Motor Master Trust
6.20%, 5/15/03 100 100
Total Asset-Backed Securities
(Cost $7,166) 7,048
U.S. GOVERNMENT OBLIGATIONS/AGENCIES 19.4%
U.S. Government Agency Obligations 7.4%
Federal Home Loan Banks
5.125%, 9/15/03 2,000 1,924
5.625%, 3/19/01 700 699
Federal National Mortgage Assn.
4.625%, 10/15/01 450 438
MTN
7.15%, 4/11/07 425 441
7.65%, 10/6/06 100 101
U.S. Department Housing & Urban
Development
6.49%, 8/1/07 175 175
3,778
U.S. Treasury Obligations 12.0%
U.S. Treasury Inflation-Indexed Notes
3.625%, 7/15/02 519 516
U.S. Treasury Notes
4.25%, 11/15/03 2,300 2,170
6.125%, 8/15/07 750 759
6.50%, 10/15/06 400 413
7.25%, 5/15/04 2,100 2,229
6,087
Total U.S. Government Obligations/Agencies
(Cost $10,065) 9,865
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 15.8%
U.S. Government Agency Obligations 13.3%
Federal Home Loan Mortgage
6.00%, 2/15/08 - 5/15/16 $ 1,500 $ 1,496
6.40%, 1/15/08 500 498
7 year balloon
6.50%, 12/1/99 - 5/1/05 1,343 1,333
CMO, 6.92%, 1/25/12 75 75
REMIC
6.00%, 8/15/06 - 1/15/08 1,169 1,160
6.50%, 4/15/21 500 499
Federal National Mortgage Assn.
6.00%, 1/1/14 483 466
7.00%, 4/1/09 281 282
9.00%, 5/1/05 - 11/25/08 924 952
REMIC, 7.50%, 8/25/05 6 6
6,767
U.S. Government Guaranteed Obligations 2.5%
Government National Mortgage Assn.
I
6.50%, 5/15/09 350 347
8.00%, 5/15/07 841 874
10.00%, 11/15/09 - 4/15/19 59 64
Midget, I, 10.00%, 2/15/01 3 3
1,288
Total U.S. Government Mortgage-Backed
Securities (Cost $8,167) 8,055
NON-U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 2.6%
LB Commercial Conduit Mortgage Trust
6.41%, 6/15/31 600 592
Prudential Securities
6.074%, 1/15/08 740 722
Total Non-U.S. Government Mortgage-Backed
Securities (Cost $1,343) 1,314
MUNICIPAL BONDS 0.1%
Taxable Municipal 0.1%
University of Miami, GO
6.90%, 4/1/04 25 25
Total Municipal Bonds (Cost $25) 25
Warrants 0.0%
Hotels and Gaming 0.0%
President Casinos, Warrants
9/30/99 *+ 221 $ --
Total Warrants (Cost $1) --
Money Market Funds 2.9%
Reserve Investment Fund,
5.05% # 1,456,000 1,456
Total Money Market Funds
(Cost $1,456) 1,456
Total Investments in Securities
99.3% of Net Assets (Cost $51,300) $ 50,456
Other Assets Less Liabilities 360
NET ASSETS $ 50,816
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (22)
Accumulated net realized gain/loss -
net of distributions (38)
Net unrealized gain (loss) (844)
Paid-in-capital applicable to 10,407,272
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 51,720
NET ASSETS $ 50,816
----------
NET ASSET VALUE PER SHARE $ 4.88
----------
# Seven-day yield
* Non-income producing
+ Security contains some restrictions as to public resale-total of such
securities at period-end amounts to 0.00% of net assets.
CMO Collateralized Mortgage Obligation
ETC Equipment Trust Certificate
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 4.71% 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
6/30/99
Investment Income
Interest income $ 1,508
Expenses
Investment management and administrative 171
Net investment income 1,337
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (98)
Change in net unrealized gain
or loss on securities (1,257)
Net realized and unrealized gain (loss) (1,355)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (18)
--------
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
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,337 $ 1,927
Net realized gain (loss) (98) 241
Change in net unrealized
gain or loss (1,257) 192
Increase (decrease) in net
assets from operations (18) 2,360
Distributions to shareholders
Net investment income (1,337) (1,926)
Net realized gain -- (91)
Decrease in net assets
from distributions (1,337) (2,017)
Capital share transactions*
Shares sold 11,396 31,647
Distributions reinvested 1,317 2,033
Shares redeemed (6,777) (12,068)
Increase (decrease) in net
assets from capital
share transactions 5,936 21,612
Net Assets
Increase (decrease) during period 4,581 21,955
Beginning of period 46,235 24,280
End of period $ 50,816 $ 46,235
-----------------------
*Share information
Shares sold 2,295 6,327
Distributions reinvested 266 406
Shares redeemed (1,369) (2,410)
Increase (decrease) in
shares outstanding 1,192 4,323
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Limited-Term Bond Portfolio
June 30, 1999 (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.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities with original 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 (MBS), are amortized for both financial
reporting and tax purposes. Premiums and discounts on all MBS are
recognized upon disposition or principal repayment as gain or loss for
financial reporting purposes. For tax purposes, premiums and discounts on
MBS acquired on or before June 8, 1997, are recognized upon disposition or
principal repayment as ordinary income. For MBS acquired after June 8,
1997, premiums are recognized as gain or loss; discounts are recognized as
gain or loss, except to the extent of accrued market discount.
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 $6,065,000 and $4,291,000, respectively,
for the six months ended June 30, 1999. Purchases and sales of U.S.
government securities aggregated $10,461,000 and $4,808,000, respectively,
for the six months ended June 30, 1999.
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, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$51,300,000. Net unrealized loss aggregated $844,000 at period-end, of
which $75,000 related to appreciated investments and $919,000 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 $15,000 was payable at June 30, 1999. The fee,
computed daily and paid monthly, is 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, 1999, totaled $76,000 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 dis-
tribution only to those who have
received a copy of the portfolio's
prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP656 (6/99)
K15-059 6/30/99
