Annual Report
December 31, 1999
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Limited-Term Bond Portfolio
T. Rowe Price, Invest With Confidence(registration mark)
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
Dear Investor
The U.S. economy continued its remarkable run of strong, steady growth during
the 12 months ended December 31, 1999. Although signs of inflation were modest,
the Federal Reserve raised the federal funds target rate three times to
forestall inflationary pressure, and interest rates overall rose significantly.
Many bond funds lost principal in this environment, even those with short
average maturities, but dividends broadly improved.
Market Environment
There was little doubt during the past 12 months that the U.S. economy was
on solid footing. Annual GDP data painted an attractive picture, with
growth rates fluctuating between 3.5% and 4.5% for nearly four years now.
However, both the Fed and the market kept a wary eye on modest but steady
growth in employment and rising prices on some basic goods, such as oil. An
improving outlook overseas throughout 1999 prompted the Fed to raise the
federal funds target rate in June, August, and November by a total of 75
basis points (100 basis points equal one percent). The target rate now
stands at 5.5% - the same as August 1998, just before the Fed cut it
three-quarters of a percent to alleviate a global financial crisis.
Line Chart: Interest Rate Levels
Current 5-Year 2-Year
Coupon GNMA Treasury Note Treasury Note
12/31/98 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
7.61 5.75 5.59
7.77 5.71 5.61
9/99 7.48 5.81 5.66
7.51 6.09 5.92
7.64 6.03 5.96
12/31/99 7.83 6.31 6.22
At this point, however, the extent to which consumer price inflation has
been held in check by the Fed's action has been remarkable. Both the
closely watched employment cost index and the wage component of the monthly
employment report have shown only modest increases, and a portion of those
gains can be explained by short-term events, such as seasonal hiring for
the holidays. Clearly technology and increased globalization have played
significant roles in containing costs, reducing pricing power, and
improving productivity and efficiency. These trends, combined with the
Fed's sound monetary policy, are very positive for bonds in the long term.
The market largely anticipated the Fed's actions, pushing rates sharply
higher throughout the year, especially on intermediate-term bonds.
Five-year Treasury note yields climbed 172 basis points to 6.31% on
December 31 from one year earlier, and two-year note yields rose 161 basis
points to 6.22%. A considerable portion of those increases occurred in the
last few months of the period. For example, the two-year rate rose 56 basis
points in the last quarter of the year. Rates rose among mortgage-backed
securities as well, spiking in August and again in December. At the
period's end, mortgages offered attractive yields compared with Treasuries.
The rising interest rate environment was not the only challenge the bond
markets faced. Out of concern for the Y2K bug, Wall Street broker/dealers
cut back their bond market activities, resulting in declining volatility
after midyear. Reduced liquidity exaggerated volatility in the markets,
especially in response to negative surprises, and made it more difficult
for money managers to trade efficiently. Better-yielding issues, such as
mortgage-backed bonds and high-yield bonds, temporarily struggled in the
fall. By year-end, however, these problems had largely righted themselves.
Anticipating better liquidity and performance after January 1, investors
initiated a rally in high-yield markets in December. In general, the New
Year came without disruption, and we are pleased to report that we
experienced no Y2K related problems.
Performance and Strategy Review
Your fund's 1.00% six-month total return fell behind the 1.49% move for the
Lipper peer group average. In this report, we are also including the
short-term results of the Merrill Lynch 1-5 Year Corporate and Government
Bond Index, the broad benchmark we use for long-term comparisons in the
Performance Comparison chart on page 4. The 1.54% results of the Merrill
Lynch index also outpaced your fund, and both benchmarks exceeded your
fund's return for the 12-month period. Because rising interest rates caused
a modest decline in the fund's share price for both periods, gains came
entirely from income. For the first time in many quarters, six-month
dividends per share increased from the previous period. Dividend income
tends to lag a rise in market rates, and, assuming rates do not again fall
sharply, we anticipate higher distributions in the coming period.
Performance Comparison
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Periods Ended 12/31/99 6 Months 12 Months
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Limited-Term
Bond Portfolio 1.00% 0.84%
Merrill Lynch 1-5 Year
Corporate and Government
Bond Index 1.54 2.19
Lipper Variable Annuity
Underlying Short
Intermediate Investment-
Grade Debt Funds Average 1.49 2.06
The sharp rise in interest rates was the main culprit behind the fund's
relative weakness. Six months ago, duration stood at 3.2 years - somewhat
longer than the average durations represented by our benchmarks. (Duration
is a measure of interest rate sensitivity where higher numbers reflect a
greater potential negative response to a rise in rates, and vice versa.)
Throughout the past six months, we gradually reduced fund duration from 3.2
years to 2.8 years. This move helped keep returns in the black but was not
sufficient to benefit relative performance. The fund can be expected to
remain somewhat more rate-sensitive than its average peer over time, but
longer durations often result in higher yields. It is our belief that
better yields result in better long-term total returns.
As explained in the last report, we trimmed exposure to corporate bonds
from 55% to 45% in the first half of the year. This move proved beneficial:
corporate securities (and lower-rated securities in particular)
underperformed throughout most of the summer because of poor market
liquidity and a lack of Wall Street sponsorship. During August and
September, we saw an opportunity to take advantage of values created by the
liquidity crunch and began to rebuild our corporate position, raising it to
47% of assets. New assets largely went into the consumer products and
services sector; among the bonds we added were Johnson & Johnson, Wal-Mart,
and US West. At the same time, holdings in Treasuries declined modestly.
Quality diversification reflected our renewed interest in corporates. The
percentage of assets in AAA securities declined from 41% to 38% during the
period, while AA holdings climbed. Our position in BBB and BB issues also
rose modestly. Nonetheless, average portfolio credit quality did not
change, remaining at a solid AA.
Nonetheless, some of our corporate holdings weakened as their issuers
encountered problems. In August, we purchased the debt of Rite-Aid, but the
firm's surprise downward earnings revisions and management upheaval
disappointed investors and resulted in rating agency downgrades to below
investment grade. We continue to hold these bonds because we expect their
prices to recover from distressed levels. Rite-Aid has a viable business as
the nation's third-largest drug store chain, and new management is taking
aggressive action to restore its financial health.
Other holdings have come under pressure, including Waste Management/U.S.
Waste Services (1.1% of assets) and Raytheon (0.9% of assets), which
experienced earnings difficulties associated with recent merger activity.
Despite some price weakness, we are not giving up on them. They contribute
significantly to income, which should benefit shareholders over the long
term.
Outlook
We expect the year 2000 to be more favorable for bond investors. Although
there is a good chance the Fed will raise rates again in the first quarter
of 2000, the market already seems to factor in this possibility, and we
think that further interest rate rises will be manageable. Economic growth
should moderate eventually, to an annual rate of 3.5% or slightly lower.
U.S. consumer demand will likely slow, since mortgage refinancing (a source
of spendable cash) has dried up and because the recent rise in oil prices
will act like a tax increase on consumers. Given the Fed's proactive stance
and the positive influence of technological advancements, including the
Internet, we expect inflation to remain at 3% or lower. In that
environment, the higher yields available in the marketplace today are very
attractive, especially among the corporate and mortgage-backed securities
your fund focuses on. We believe the fund is well positioned to deliver
results more in line with its long-term average in the year ahead.
Respectfully submitted,
Edward A. Wiese
President and Chairman of the Investment Advisory Committee
January 19, 2000
Portfolio Highlights
Quality Diversification
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Percent of Percent of
Net Assets Net Assets
6/30/99 12/31/99
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Quality Rating*
AAA 41% 38%
AA 15 17
A 23 22
BBB 20 21
BB 1 2
B -- --
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Weighted Average Quality AA AA
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*Based on T. Rowe Price research.
Portfolio Highlights
Key Statistics
Periods
Ended
12/31/99
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Dividend Yield*
6 months 5.73%
12 months 5.81
Dividend Per Share
6 months $0.14
12 months 0.27
30-Day Standardized Yield 6.37%
Change in Price Per Share
6 months (from $4.88 to $4.79) $-0.09
12 months (from $5.02 to $4.79) -0.23
Weighted Average Maturity (years) 3.5
Weighted Average Effective Duration (years) 2.8
*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.
Portfolio Highlights
Sector Diversification
Percent of Percent of
Net Assets Net Assets
6/30/99 12/31/99
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Corporate Bonds and Notes 45% 47%
Consumer Products and Services 9 11
Banking and Finance 11 12
Industrial 9 9
Utilities 7 7
All Other 9 8
Asset-Backed Securities 14 14
Mortgage-Backed Securities 18 18
U.S. Government Obligations 19 18
U.S. Treasuries 12 11
Government Agency Obligations 7 7
Money Market Funds 3 2
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Other Assets Less Liabilities 1 1
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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 benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
SEC Chart: Limited-Term Bond Portfolio
Merrill Lynch 1-5
Year Corporate &
Government Bond Index Limited-Tem Bond Portfolio
5/13/94 10,000 10,000
12/94 10,157 10,262
12/95 11,473 11,276
12/96 12,003 11,643
12/97 12,862 12,428
12/98 13,850 13,332
12/31/99 14,153 13,444
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 12/31/99
Since Inception
1 Year 3 Years 5 Years Inception Date
0.84% 4.91% 5.55% 5.39% 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
Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 5.02 $ 4.96 $ 4.93 $ 5.06 $ 4.92
Investment activities
Net investment
income (loss) 0.27 0.28 0.29 0.29 0.33
Net realized and
unrealized gain (loss) (0.23) 0.07 0.03 (0.13) 0.14
Total from
investment activities 0.04 0.35 0.32 0.16 0.47
Distributions
Net investment income (0.27) (0.28) (0.29) (0.29) (0.33)
Net realized gain - (0.01) - - -
Total distributions (0.27) (0.29) (0.29) (0.29) (0.33)
NET ASSET VALUE
End of period $ 4.79 $ 5.02 $ 4.96 $ 4.93 $ 5.06
Ratios/Supplemental Data
Total return(diamond) 0.84% 7.28% 6.74% 3.26% 9.88%
Ratio of total expenses
to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment
income (loss) to
average net assets 5.54% 5.58% 5.91% 5.83% 6.60%
Portfolio turnover rate 36.2% 50.9% 48.7% 97.7% 73.7%
Net assets, end of
period (in thousands) $ 53,148 $ 46,235 $ 24,280 $ 12,312 $ 3,966
(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.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Limited-Term Bond Portfolio
December 31, 1999
Shares/Par Value
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In thousands
CORPORATE BONDS AND NOTES 46.7%
Banking and Finance 11.9%
ABN AMRO Bank (Chicago), N.V.
Gtd. Sub. Notes
7.25%, 5/31/05 $ 500 $ 493
American General Finance
5.875%, 7/1/00 125 125
Amvescap, Sr. Notes, (144a)
6.375%, 5/15/03 350 336
Banco Generale, (144a)
7.70%, 8/1/02 250 242
CIT Group, 5.50%, 2/15/04 500 468
Finova Capital, MTN
5.98%, 2/27/01 150 148
First USA Bank, MTN
7.00%, 8/20/01 150 150
General Electric Capital MTN
6.15%, 11/5/01 250 247
Heller Financial
5.625%, 3/15/00 100 100
HSBC Finance Nederland
Sub. Gtd. Notes, (144a)
7.40%, 4/15/03 80 80
Inter-American Development Bank
6.375%, 10/22/07 375 359
Kansallis Osake Pankki (New York)
Sub. Notes, 10.00%, 5/1/02 350 371
Marsh and McLennan
Sr. Notes, 6.625%, 6/15/04 500 488
MBNA, Sub. Notes
7.25%, 9/15/02 150 149
Mercantile Safe Deposit & Trust
6.53%, 7/3/00 200 199
Merrill Lynch
7.00%, 3/15/06 500 487
Nationwide Mutual Insurance
(144a), 6.50%, 2/15/04 149 144
Paine Webber Group
7.875%, 2/15/03 500 503
Penske Truck Leasing
6.65%, 11/1/00 150 150
Potomac Capital Investment, MTN
7.55%, 11/19/01 250 248
Republic of New York
8.875%, 2/15/01 $ 360 $ 367
Salomon Smith Barney Holdings
7.30%, 5/15/02 350 351
Union Planters, Sub. Notes
6.25%, 11/1/03 135 129
6,334
Consumer Products and Services 10.9%
Beckman Instruments
Sr. Notes, 7.10%, 3/4/03 500 474
Coca Cola Femsa, 8.95%, 11/1/06 125 125
Comcast Cable Communications
6.20%, 11/15/08 400 362
Dayton Hudson, 6.625%, 3/1/03 200 197
Federated Department Stores
Sr. Notes
8.125%, 10/15/02 500 510
Grand Metropolitan Investment
Zero Coupon, 1/6/04 750 565
Hospital Corporation of America
Zero Coupon, 6/1/01 500 443
Johnson & Johnson
6.625%, 9/1/09 425 410
Nabisco, 6.125%, 2/1/33 250 238
Pepsico, MTN, 5.75%, 1/1/03 300 289
Philip Morris, 7.25%, 9/15/01 284 281
Rite Aid, (144a), 6.00%, 10/1/03 500 380
Sony, 6.125%, 3/4/03 425 413
Viacom, 6.75%, 1/15/03 150 148
Wal Mart Stores, 6.55%, 8/10/04 750 736
Watson Pharmaceuticals
7.125%, 5/15/08 225 198
5,769
Energy 0.7%
PDV America, 7.875%, 8/1/03 200 182
YPF Sociedad Anonima
7.25%, 3/15/03 200 195
377
Industrials 9.0%
Alcan Aluminum, 5.875%, 4/1/00 130 130
Allied-Signal, 5.75%, 3/15/01 300 296
Caterpillar Financial Services
6.875%, 8/1/04 500 492
Delphi Auto Systems
6.125%, 5/1/04 250 236
Eaton Offshore, Gtd. Notes
9.00%, 2/15/01 $ 300 $ 307
International Paper
6.125%, 11/1/03 500 478
9.70%, 3/15/00 100 101
Lockheed, 6.75%, 3/15/03 475 459
Northrop Grumman
8.625%, 10/15/04 300 306
Parker Hannifin, MTN
5.65%, 9/15/03 500 471
Raytheon, 5.70%, 11/1/03 500 468
Toyota Motor Credit
5.625%, 11/13/03 500 475
USA Waste Services
Sr. Notes
6.50%, 12/15/02 325 301
Waste Management
6.625%, 7/15/02 300 282
4,802
Media and Communications 3.6%
360 Communications
Sr. Notes
7.125%, 3/1/03 500 497
MCI Communications
Sr. Notes
7.125%, 1/20/00 100 100
Seagram & Sons
6.40%, 12/15/03 500 481
Sprint Capital
5.70%, 11/15/03 375 356
US West Capital Funding, (144a)
6.875%, 8/15/01 500 498
1,932
Transportation 3.7%
CSX, 9.50%, 8/1/00 150 152
Delta Air Lines
7.90%, 12/15/09 300 294
ETC, 9.875%, 5/15/00 185 187
ERAC USA Finance, (144a)
6.375%, 5/15/03 175 168
Norfolk Southern
6.95%, 5/1/02 500 496
7.875%, 2/15/04 270 274
Northwest Airlines
8.375%, 3/15/04 150 140
Union Pacific
6.125%, 1/15/04 $ 250 $ 235
1,946
Utilities 6.9%
CE Electric UK Funding
Sr. Notes, (144a)
6.853%, 12/30/04 300 289
Cleveland Electric
Secured Notes
7.19%, 7/1/00 150 150
Entergy Mississippi
6.45%, 4/1/08 350 324
National Rural Utilities
5.00%, 10/1/02 500 475
Niagara Mohawk
7.375%, 7/1/03 265 263
Sr. Notes, 7.25%, 10/1/02 246 245
Pacific Gas & Electric
1st Mtg. Bonds
8.75%, 1/1/01 200 204
Public Service Electric & Gas
1st Mtg. Bonds, 8.875%, 6/1/03 175 177
1st Ref. Mtg. Bonds
6.25%, 1/1/07 75 70
Texas NM Power,
1st Mtg. Bonds, 9.25%, 9/15/00 300 304
Secured Deb., 10.75%, 9/15/03 300 303
United Illuminating
6.25%, 12/15/02 160 155
Utilicorp United, Sr. Notes
7.00%, 7/15/04 500 483
Williams, 6.125%, 2/15/12 225 219
3,661
Total Corporate Bonds and Notes
(Cost $25,741) 24,821
ASSET-BACKED SECURITIES 13.5%
Banc One Auto Grantor Trust
6.27%, 11/20/03 50 50
BMW Vehicle Owner Trust
6.54%, 4/25/04 500 494
California Infrastructure
6.25%, 6/25/04 150 148
6.38%, 9/25/08 500 484
6.42%, 9/25/08 450 437
Comed Transitional Funding Trust
5.44%, 3/25/07 $ 550 $ 514
Fingerhut Master Trust
6.07%, 2/15/05 325 323
First Security Auto Owner Trust
6.20%, 10/15/06 500 489
First USA Secured Note Trust
(144a), 6.50%, 1/18/06 500 483
Green Tree Financial
8.35%, 3/15/20 8 8
Harley Davidson Eaglemark
5.94%, 2/15/04 125 123
6.35%, 10/15/02 18 18
Heller Equipment
6.65%, 3/14/04 500 497
MBNA Credit Card Trust
7.45%, 4/16/07 250 247
MMCA Automobile Trust
6.80%, 8/15/03 500 499
Neiman Marcus Credit Master Trust
7.60%, 6/15/03 500 502
New Holland Equipment, (144a)
6.80%, 12/15/07 500 493
Onyx Acceptance, 5.83%, 3/15/04 500 488
Peco Energy, 5.63%, 3/1/05 300 291
Residential Accredit Loans
7.25%, 11/25/27 487 469
Yamaha Motor Master Trust
6.20%, 5/15/03 100 99
Total Asset-Backed Securities
(Cost $7,346) 7,156
U.S. GOVERNMENT OBLIGATIONS/AGENCIES 17.8%
U.S. Government Agency Obligations 7.0%
Federal Home Loan Banks
5.125%, 9/15/03 2,000 1,890
5.625%, 3/19/01 700 693
Federal National Mortgage Assn.
4.625%, 10/15/01 450 436
Deb., 6.375%, 6/15/09 451 429
MTN, 7.65%, 10/6/06 100 99
U.S. Department Housing &
Urban Development, 6.49%, 8/1/07 175 169
3,716
U.S. Treasury Obligations 10.8%
U.S. Treasury Inflation-Indexed Notes
3.625%, 7/15/02 $ 1,050 $ 1,038
U.S. Treasury Notes
4.25%, 11/15/03 1,800 1,672
6.50%, 10/15/06 900 896
7.25%, 5/15/04 2,100 2,163
5,769
Total U.S. Government Obligations/Agencies
(Cost $10,853) 9,485
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 16.0%
U.S. Government Agency Obligations 13.1%
Federal Home Loan Mortgage
6.00%, 2/15/08 - 5/15/16 1,500 1,480
6.40%, 1/15/08 500 493
7 year balloon, 6.50%, 5/1/05 976 961
CMO, 6.92%, 1/25/12 23 23
REMIC
5.75%, 6/15/10 1,000 987
6.00%, 8/15/06 - 1/15/08 985 967
6.50%, 4/15/21 500 489
Federal National Mortgage Assn.
6.00%, 1/1/14 458 435
7.00%, 4/1/09 251 250
9.00%, 5/1/05 - 1/25/08 874 900
REMIC, 7.50%, 8/25/05 1 1
6,986
U.S. Government Guaranteed Obligations 2.1%
Government National Mortgage Assn.
I
6.50%, 5/15/09 313 306
8.00%, 5/15/07 714 731
10.00%, 11/15/09 - 4/15/19 52 56
1,093
Total U.S. Government Mortgage-Backed
Securities (Cost $8,256) 8,079
NON-U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 3.2%
GMAC Commercial
Mortgage Securities
6.15%, 5/15/35 $ 463 $ 443
LB Commercial Conduit
Mortgage Trust, 6.41%, 8/15/07 588 566
Prudential Securities
6.074%, 1/15/08 717 682
Total Non-U.S. Government Mortgage-Backed
Securities (Cost $1,762) 1,691
MUNICIPAL BONDS 0.0%
Taxable Municipal 0.0%
University of Miami, GO
6.90%, 4/1/04 25 25
Total Municipal Bonds (Cost $25) 25
MONEY MARKET FUNDS 2.4%
Reserve Investment Fund
6.16% # 1,268 1,268
Total Money Market Funds (Cost $1,268) 1,268
Total Investments in Securities
98.8% of Net Assets (Cost $54,251) $ 52,525
Other Assets Less Liabilities 623
NET ASSETS $ 53,148
-----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $(22)
Accumulated net realized gain/loss -
net of distributions (166)
Net unrealized gain (loss) (1,726)
Paid-in-capital applicable to 11,098,193
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 55,062
NET ASSETS $ 53,148
-----------
NET ASSET VALUE PER SHARE $ 4.79
-----------
# Seven-day yield
CMO Collateralized Mortgage Obligation
ETC Equipment Trust Certificate
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 5.86% of net assets.
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Limited-Term Bond Portfolio
In thousands
Year
Ended
12/31/99
Investment Income (Loss)
Interest income $ 3,164
Expenses
Investment management and administrative 355
Net investment income (loss) 2,809
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (226)
Change in net unrealized gain or loss on securities (2,139)
Net realized and unrealized gain (loss) (2,365)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 444
------------
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
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 2,809 $ 1,927
Net realized gain (loss) (226) 241
Change in net unrealized gain or loss (2,139) 192
Increase (decrease) in net assets from operations 444 2,360
Distributions to shareholders
Net investment income (2,809) (1,926)
Net realized gain - (91)
Decrease in net assets from distributions (2,809) (2,017)
Capital share transactions*
Shares sold 18,783 31,647
Distributions reinvested 2,806 2,033
Shares redeemed (12,311) (12,068)
Increase (decrease) in net
assets from capital
share transactions 9,278 21,612
Net Assets
Increase (decrease) during period 6,913 21,955
Beginning of period 46,235 24,280
End of period $53,148 $46,235
----------------------
*Share information
Shares sold 3,820 6,327
Distributions reinvested 575 406
Shares redeemed (2,512) (2,410)
Increase (decrease) in shares outstanding 1,883 4,323
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Limited-Term Bond Portfolio
December 31, 1999
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 $15,259,000 and $10,104,000,
respectively, for the year ended December 31, 1999. Purchases and sales of
U.S. government securities aggregated $12,759,000 and $7,209,000,
respectively, for the year ended December 31, 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. As of December 31, 1999, the fund has capital loss
carryforwards for federal income tax purposes of $155,000, all of which
expires in 2007.
At December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$54,251,000. Net unrealized loss aggregated $1,726,000 at period end, of
which $15,000 related to appreciated investments and $1,741,000 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 $28,000 was payable at December 31, 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 year ended
December 31, 1999, totaled $140,000 and are reflected as interest income in
the accompanying Statement of Operations.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Fixed Income Series, Inc. and
Shareholders of Limited-Term Bond Portfolio
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of Limited-Term Bond Portfolio (one of the portfolios comprising T. Rowe
Price Fixed Income Series, Inc., hereafter referred to as the "Fund") at
December 31, 1999, 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 accounting principles generally accepted in
the United States. 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 auditing standards generally
accepted in the United States, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
