T. Rowe Price
Mid-Cap Growth
Portfolio
Annual Report
December 31, 1998
Dear Investor
Despite the market's increased volatility during the year, investors enjoyed
strong stock market gains once again in 1998. The S&P 500 Stock Index of
large-capitalization stocks soared 28.57%, a record fourth consecutive year of
returns in excess of 20%. Large, blue chip companies continued to lead the
advance.
Performance Comparison
Periods Ended 12/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio 4.49% 22.08%
S&P MidCap Index 9.64 19.11
Russell Midcap
Growth Index 5.36 17.86
Lipper Variable Annuity
Underlying Mid Cap
Funds Average 3.76 19.30
Although mid-cap stocks lagged large-caps, the S&P MidCap Index rebounded
sharply after a plunge of 30% to finish 1998 with a 19.11% gain. The Mid-Cap
Growth Portfolio outperformed two passive benchmarks, the S&P MidCap Index and
the Russell Midcap Growth Index, for the year, though we lagged slightly in the
second half. The fund beat a peer group of other mid-cap variable annuity
portfolios for both periods.
Market Environment
The primary concern entering the year was the collapse of many of the Asian
economies and the effect that this might have on the U.S. economy and stock
market. In retrospect, the economic and political dislocations in Asia have
been even greater than many anticipated, yet their effects on the U.S. have
been less than was feared. However, the changed perception of the risks in
emerging markets has reverberated around the world. The Russian economy
collapsed in late summer, taking several hedge funds with it and triggering
a bailout of one of them by a group of financial institutions coordinated
by the Federal Reserve. A brief credit crunch ensued, but was alleviated by
three successive reductions in interest rates by the Fed between September
30 and November 18.
The stock market started the year with a strong gain in the first several
months but suffered a significant correction in the summer and early fall,
particularly in the small- and mid-cap sectors, before rallying strongly in
the fourth quarter. The domestic economic backdrop was very supportive: GDP
grew moderately, powered by low unemployment and strong consumer
confidence; inflation continued to decline to almost negligible levels,
spurred by excess supplies of many commodities; and long-term interest
rates fell from about 5.9% at the beginning of 1998 to 5.1% at year-end.
The extraordinarily long domestic economic expansion has turned a massive
federal government deficit into an annual surplus in just several years.
Washington was consumed by President Clinton's legal and political problems
in 1998, but most investors ignored his actual impeachment.
For the fifth consecutive year, mid- and small-cap stocks lagged the S&P
500 Index as investors continued to gravitate toward large, blue chip
companies. Commodity-dependent stocks suffered all year long. Technology
stocks were the year's best performers, led by manic speculation in the
Internet sector.
Mid-Cap Stock Returns
Periods Ended 12/31/98 6 Months 12 Months
---------------------------------------------------------------------------
Russell Midcap Index 0.88% 10.09%
Russell Midcap Growth Index 5.36 17.86
Russell Midcap Value Index -1.94 5.08
Portfolio Review
After leading the plunge in stock prices in the third quarter, technology
stocks staged a ferocious rally in the fourth quarter, and represented five
of the top 10 contributors to the portfolio for the second half of 1998.
Acquisition targets led the list: Netscape Communications, a leading
Internet software company that we purchased near the market lows in
October, subsequently accepted an offer from America Online; and Berg
Electronics, an electronic connector manufacturer, was acquired by a French
company for a healthy premium.
The other industry sector that contributed significantly to second half
performance was biotechnology. The fund's top contributor for both the half
and the year was Biogen, which gained significant market share after the
launch of its multiple sclerosis drug, Avonex. The second best contributor
to performance in the second half of the year was Agouron Pharmaceuticals,
which rebounded strongly as its drug for treating HIV became the leading
seller in its class.
Preparing for the Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning
beyond the arrival of a new millennium. The issue for investors is that
many computer programs throughout the world use two digits instead of four
to identify the year and may assume the next century starts with 1900. If
these programs are not modified, they will not be able to correctly handle
the century change when the year changes from "99" to "00" on January 1,
2000, and they will no longer be able to perform necessary functions. The
Year 2000 issue affects all companies and organizations.
T. Rowe Price has been taking steps to assure that its computer
systems and processes are capable of functioning in the Year 2000. Detailed
plans for remediation efforts have been developed and are currently being
executed.
Our Plan of Action
We began to address these issues several years ago by requiring that
all new systems process and store four-digit years. All critical systems
have been reprogrammed (including business applications required to service
our customers and processing infrastructure necessary to ensure the
integrity of customer data and investments), and they are currently being
tested. Because we exchange data electronically with customers and vendors,
we are working with them to assess the adequacy of their own compliance
efforts. Our goal is to ensure the continuation of the same level of
service to all our mutual fund shareholders and clients after December 31,
1999.
We are asking all vendors and companies we do business with for a Year
2000 compliance status, with the expectation that some organizations will
not be able to modify their interface files prior to December 31, 1999. In
addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and
calculations function properly as we move into the next century.
Smooth Transition Planned
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products
or services to our retail mutual fund shareholders, retirement plan
sponsors, and participants, and we have modified them where necessary for
the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test
of Year 2000 readiness. The test was considered successful in terms of
transactions completed and will serve as the basis for the SIA's
industry-wide approach. During October 1998, T. Rowe Price completed its
beta test of Year 2000 readiness with the SIA and is ready for the
industry-wide test that is scheduled for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(www.troweprice.com).
---------------------------------------------------------------------------
The worst contributor to the portfolio's performance in the second half was
Warnaco, a leading apparel vendor to department stores, which suffered a
slight earnings disappointment in the third quarter because of sluggish
sales to Asia. Warnaco's stock was cut in half as the shortfall coincided
with negative investor sentiment toward the apparel sector in general. We
continue to like the company's prospects, and we feel its valuation is
modest. Two communications stocks, Paging Network, the largest U.S.
paging-service provider, and Omnipoint, a wireless phone service company,
both experienced operating difficulties and saw their stocks punished as a
result. The most deleterious contributor to performance for 1998 as a whole
was Security Capital Group, a commercial real estate investment advisory
company; commercial property stocks were pummeled this year, and the
company fell well short of investors' earnings expectations.
As we noted in our midyear report, the current merger boom has not entirely
passed us by. More than a dozen of the portfolio's holdings have been
acquired or announced they were being acquired in the last 12 months
including Netscape, Jacor Communications, Fred Meyer, and Culligan Water
Technologies, to name a few. While we never invest in a company simply
because we think it might be an acquisition candidate, our valuation
discipline tends to lead us to companies that are often attractive to
corporate acquirers.
The portfolio remains well diversified across industry sectors. Our
exposure to technology, an area we've traditionally underweighted relative
to many other growth funds, increased a little in recent months, due partly
to an increase in emphasis during the early fall sell-off, but mostly due
to appreciation. We have also increased our exposure to the consumer sector
recently with the purchase of new positions in companies such as Whole
Foods Market, Family Dollar Stores, Saks, and Jones Apparel Group.
Sector Diversification
6/30/98 12/31/98
---------------------------------------------------------------------------
Financial 11% 10%
Health Care 15 11
Consumer 18 19
Technology 11 15
Business Services 31 29
Energy 3 2
Industrial 5 4
Basic Materials 1 --
Reserves 5 10
---------------------------------------------------------------------------
Total 100% 100%
Investment Strategy and Outlook
There are many investment crosscurrents as we enter 1999. The U.S. economy
is growing, though not as fast as a few quarters ago. European growth
appears to be slackening, but some Asian economies seem to be bottoming.
The U.S. is teetering on the cusp of deflation, driven by lower commodity
prices, yet the labor market is very tight, raising the potential for
higher inflation in the not-too-distant future. With inflation low and
profit margins close to historic highs, it is possible that corporate
earnings may stall or decline; in fact, this process may have already
started.
Though absolute stock market valuations are high, the current beneficent
environment-low inflation, declining interest rates, and high consumer
confidence-could persist for some time. However, we have experienced a long
period of prosperity, and history tells us that booms do not last forever.
The most disquieting aspect of the current environment is the Internet
stock mania. It is worth stating that we view the Internet as one of the
great technological advances of the modern age. Time will tell, but it may
change paradigms across industries in ways every bit as profound as the
development of national transportation and communications networks and the
introduction of electricity in the late 19th century. Many industries and
companies may experience great leaps in efficiency that will dramatically
change business processes, alter pricing structures, and upset the status
quo.
For example, as recently as five years ago, most individuals wishing to
invest in specific stocks would go to a full-service broker charging 25
cents or more per share for a 1,000 share trade. A minority would trade
through a discount broker, at perhaps half the price. The Internet,
however, has dramatically changed the economics of the discount brokerage
business because it provides the communications tools for individuals to
interface directly with the broker's computers. In effect, client service,
the most significant cost factor in this segment, has largely been
automated. As prices for Internet trades have plunged to 3 cents per share
or less (well below what large institutions typically pay), the individual
investor has reemerged as a factor in the stock market, which had been
dominated for years by institutional trading.
While the ascendancy of the individual investor may be the start of a
long-term trend, in the short-term it is also being accompanied by
speculation of a magnitude not seen in many years, focused on-you guessed
it-Internet stocks. In this buying frenzy, day traders rule, Internet IPOs
double and triple on their first day as public companies, announcements of
Web sites are greeted with exaggerated upward stock movements, and Internet
chat rooms and bulletin boards provide forums for the tumultuous exchange
of views by professionals, individuals, corporate insiders, speculators,
and hucksters alike. Stocks get pushed to valuations that discount the
hereafter.
The most recent speculative parallel was probably the frenzy in
biotechnology stocks in the early 1990s, but the Internet frenzy has
already gone much further. The lessons from the biotechnology craze and
other speculative bouts like it are that, ultimately, corporate
profitability and return on invested capital matter. If previous manias are
any indication, many of today's high-fliers will never achieve
profitability and will go out of business. Others will be acquired. A
select few will emerge to become blue chip companies of the next decade.
But many of the rewards will accrue to companies that haven't even been
formed or dreamt of yet. Obviously, we are taking a very cautious approach
to the Internet sector at this juncture, but we look forward to becoming
more active after the speculative bubble bursts.
As an aside, the Internet sector has waylaid many institutional investors,
including us. For example, though we owned America Online when it was a
mid-cap company (and admittedly sold it much, much too early), it began
1998 as a $10 billion market capitalization company, double the upper
threshold of what we consider to be mid-cap but still in the S&P MidCap
Index. As the stock rose almost sevenfold during the year, it contributed
more than seven percentage points of the index's 19.11% gain for 1998,
vastly exceeding the contribution of any other stock to a major U.S. stock
index. In contrast, the single largest contributor to the S&P 500 was
Microsoft, which was responsible for just 1.39 percentage points of the
index's 28.57% gain. Ironically, AOL's influence on the mid-cap index was
magnified by the news that it was being removed from the index! AOL jumped
9% on New Year's Eve as it was about to leave the S&P MidCap Index and join
the S&P 500. Its market capitalization (share price multiplied by shares
outstanding) was $73 billion at year-end.
The stock market wasted little time recovering from the extreme pessimism
of late summer to set new record highs in late November and again in early
January. The market now trades once again in the upper reaches of its
historic valuation range, as we described in our last report. The failure
of small- and mid-cap stocks to exert leadership at this late stage of the
market and economic cycle remains a puzzle. Even though we expect these
companies to grow their earnings significantly faster than their large-cap
counterparts over the next several years, their valuations are at record
lows relative to the S&P 500 stocks. We continue to believe the Mid-Cap
Growth Portfolio is well positioned to achieve attractive returns over the
long term.
Respectfully submitted,
Brian W.H. Berghuis
President and
Chairman of the Investment Advisory Committee
January 19, 1999
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended 12/31/98
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
Biogen 12(cents)
Agouron Pharmaceuticals 11
Netscape Communications* 10
Xilinx 10
Berg Electronics** 9
U.S. Foodservice 9
Danaher 7
Gilead Sciences 6
Network Associates 6
Analog Devices 6
- --------------------------------------------------------------------------------
Total 86(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Warnaco Group -12(cents)
Paging Network 11
Omnipoint 9
Corporate Express** 9
Security Capital Group** 8
Renaissance Worldwide 8
Ocean Energy 8
General Nutrition 7
Quorum Health Group 7
AMRESCO** 7
- --------------------------------------------------------------------------------
Total -86(cents)
- --------------------------------------------------------------------------------
12 Months Ended 12/31/98
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
Biogen 19(cents)
Capital One Financial 18
Affiliated Computer Services 13
Agouron Pharmaceuticals 12
Outdoor Systems 12
Network Associates 11
Galileo International 11
Danaher 10
Netscape Communications* 10
Xilinx 9
- --------------------------------------------------------------------------------
Total 125(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Security Capital Group** -11(cents)
Omnipoint 10
AMRESCO** 10
Ocean Energy* 9
Smith International 9
Gymboree** 9
Corporate Express** 8
Corrections Corp of America** 8
General Nutrition 7
Quorum Health Group 7
- --------------------------------------------------------------------------------
Total -88(cents)
- --------------------------------------------------------------------------------
*Position added.
**Position eliminated.
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/98
- --------------------------------------------------------------------------------
Affiliated Computer Services 1.9%
U.S. Foodservice 1.8
Suiza Foods 1.8
Galileo International 1.7
Circuit City Stores 1.7
Warnaco Group 1.6
Gilead Sciences 1.6
Outdoor Systems 1.5
Analog Devices 1.5
Waddell & Reed 1.5
Univision Communications 1.4
Danaher 1.4
Xilinx 1.4
Covance 1.4
Allied Waste Industries 1.3
Network Associates 1.3
Saville Systems 1.3
Premier Parks 1.3
FINOVA Group 1.3
Synopsys 1.3
Western Wireless 1.2
Whole Foods Market 1.2
Romac International 1.2
The CIT Group 1.2
Biogen 1.2
- --------------------------------------------------------------------------------
Total 36.0%
- --------------------------------------------------------------------------------
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.
Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------
As of 12/31/98
Lipper
Mid-Cap S&P Variable Annuity
Growth Mid-Cap Underlying Mid Cap
Portfolio Index Funds Average
12/96 10,000 10,000 10,000
12/97 11,880 13,225 11,714
12/98 14,503 15,753 13,999
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.
Mid-Cap Growth Portfolio
Periods Ended 12/31/98
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
22.08% 20.43% 12/31/96
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 Mid-Cap Growth Portfolio
For a share outstanding
throughout each period
-------------------------
Year 12/31/96
Ended Through
12/31/98 12/31/97
NET ASSET VALUE
Beginning of period $ 11.88 $ 10.00
Investment activities
Net investment income (0.01) --
Net realized and unrealized gain (loss) 2.61 1.88
Total from investment activities 2.60 1.88
Distributions
Net realized gain (0.21) --
NET ASSET VALUE
End of period $ 14.27 $ 11.88
Ratios/Supplemental Data
Total return# 22.08% 18.80%
Ratio of expenses to
average net assets 0.85% 0.85%!
Ratio of net investment
income to average
net assets (0.11)% --
Portfolio turnover rate 47.8% 40.3%
Net assets, end of period (in thousands) $ 29,911 $ 15,272
# 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 Mid-Cap Growth Portfolio
December 31, 1998
Shares Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 90.2%
FINANCIAL 10.1%
Bank and Trust 1.0%
North Fork Bancorporation 13,500 $ 323
323
Insurance 3.5%
ACE Limited 6,750 232
Fairfax Financial (CAD) * 600 212
Fairfax Financial Rights (144a) (CAD) * 100 34
PartnerRe Holdings 6,100 279
Protective Life 7,200 287
1,044
Financial Services 5.6%
Capital One Financial 3,100 356
FINOVA Group 7,000 378
Franklin Resources 4,500 144
The CIT Group (Class A) 11,500 366
Waddell & Reed Financial
(Class A) * 12,800 303
Waddell & Reed Financial
(Class B) * 5,700 133
1,680
Total Financial 3,047
HEALTH CARE 10.7%
Pharmaceuticals 1.7%
ALZA * 4,200 219
Teva Pharmaceutical
Industries ADR 7,400 302
521
Biotechnology 4.6%
Agouron Pharmaceuticals * 3,800 223
BioChem Pharma * 4,600 132
Biogen * 4,400 365
Gilead Sciences * 11,400 468
MedImmune * 1,800 179
1,367
Medical Instruments and Devices 1.2%
Sybron International * 13,000 354
354
Health Care Services 3.2%
Covance * 13,900 405
Omnicare 5,400 $ 187
Quorum Health Group * 8,500 110
Total Renal Care Holdings * 8,800 260
962
Total Health Care 3,204
CONSUMER 19.6%
Soft Goods Retailers 2.1%
Family Dollar Stores 14,800 326
Saks * 9,600 303
629
Hard Goods Retailers 9.5%
AutoZone * 9,900 326
BJ's Wholesale Club * 7,800 361
Borders Group * 7,000 175
Circuit City Stores 10,000 499
Costco Companies * 4,400 318
Fred Meyer * 5,800 350
General Nutrition * 10,800 175
ShopKo Stores 8,100 269
Whole Foods Market * 7,600 369
2,842
Consumer Non-Durables 2.7%
Jones Apparel Group * 15,700 346
Warnaco Group (Class A) 18,800 475
821
Restaurants 1.1%
Outback Steakhouse * 8,100 322
322
Food and Beverages 1.7%
Suiza Foods * 10,300 525
525
Entertainment 2.5%
Premier Parks * 12,600 381
Royal Caribbean Cruises 9,600 355
736
Total Consumer 5,875
TECHNOLOGY 14.7%
Semiconductors and Components 5.9%
Analog Devices * 13,900 436
KLA-Tencor * 5,600 243
Maxim Integrated Products * 7,400 323
PMC-Sierra * 4,900 309
Sanmina * 900 $ 56
Xilinx * 6,300 410
1,777
Networking and Telecom Equipment 0.4%
Anixter International * 6,100 124
124
E-Commerce 2.1%
Checkfree Holdings * 8,100 189
E*Trade * 2,700 126
Sterling Commerce * 7,200 324
639
Computer Software 6.3%
BMC Software * 3,000 134
Intuit * 2,500 181
Netscape Communications * 3,300 200
Network Associates * 5,850 388
Parametric Technology * 18,600 302
Synopsys * 6,900 374
The Learning Company * 11,400 296
1,875
Total Technology 4,415
BUSINESS SERVICES 28.7%
Telecom Services 3.9%
Comcast (Class A Special) 6,100 358
Cox Communications
(Class A) * 4,300 297
Omnipoint * 9,800 92
Paging Network * 8,900 41
Western Wireless * 17,000 374
1,162
Computer Services 10.4%
Acxiom * 8,100 251
Affiliated Computer Services (Class A) * 12,800 576
CIBER * 1,100 31
DST Systems * 5,850 334
Galileo International 11,800 513
Gartner Group (Class A) * 15,700 334
National Data 7,200 350
Saville Systems ADR * 20,400 387
SunGard Data Systems * 8,500 337
3,113
Distribution 3.6%
Henry Schein * 7,600 $ 340
MSC * 10,200 231
U.S. Foodservice * 10,800 529
1,100
Media and Advertising 4.6%
Catalina Marketing * 3,600 246
Jacor Communications * 4,000 259
Outdoor Systems * 15,100 453
Univision Communications * 11,900 430
1,388
Environmental 2.0%
Allied Waste Industries * 16,600 392
Waste Management 4,300 201
593
Miscellaneous Business Services 4.2%
Interim Services * 13,100 306
NOVA * 9,400 326
Renaissance Worldwide * 9,200 57
Romac International * 16,600 368
Viad 6,400 195
1,252
Total Business Services 8,608
ENERGY 2.1%
Exploration and Production 0.2%
Ocean Energy * 10,400 66
66
Energy Services 1.9%
BJ Services * 16,700 261
Smith International * 12,400 312
573
Total Energy 639
INDUSTRIAL 4.0%
Defense and Aerospace 0.9%
BE Aerospace * 11,900 250
250
Specialty Chemicals 0.6%
Great Lakes Chemical 4,700 188
188
Machinery 2.5%
Danaher 7,800 $ 424
Teleflex 7,200 328
752
Total Industrial 1,190
BASIC MATERIALS 0.3%
Mining 0.3%
Battle Mountain Gold 19,700 81
Total Basic Materials 81
Total Common Stocks (Cost $21,179) 27,059
SHORT-TERM INVESTMENTS 8.8%
Money Market Funds 8.8%
Government Reserve Investment Fund, 4.76% # 2,645 2,645
Total Short-Term Investments
(Cost $2,645) 2,645
Total Investments in Securities
99.0% of Net Assets (Cost $23,824) $ 29,704
Other Assets Less Liabilities 207
NET ASSETS $ 29,911
--------------
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ 41
Net unrealized gain (loss) 5,880
Paid-in-capital applicable to 2,095,441
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000
shares of the Corporation authorized 23,990
NET ASSETS $ 29,911
--------------
NET ASSET VALUE PER SHARE $ 14.27
--------------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
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
0.11% of net assets.
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Mid-Cap Growth Portfolio
In thousands
Year
Ended
12/31/98
Investment Income
Income
Interest $ 95
Dividend 51
Total income 146
Expenses
Investment management and administrative 167
Net investment income (21)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 394
Change in net unrealized gain or loss on securities 4,055
Net realized and unrealized gain (loss) 4,449
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 4,428
--------------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Mid-Cap Growth Portfolio
In thousands
Year 12/31/96
Ended Through
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (21) $-
Net realized gain (loss) 394 83
Change in net unrealized gain or loss 4,055 1,825
Increase (decrease) in net
assets from operations 4,428 1,908
Distributions to shareholders
Net realized gain (415) --
Capital share transactions*
Shares sold 20,628 17,090
Distributions reinvested 415 --
Shares redeemed (10,417) (3,726)
Increase (decrease) in net assets
from capital 10,626 13,364
Net Assets
Increase (decrease) during period 14,639 15,272
Beginning of period 15,272 --
End of period $ 29,911 $ 15,272
---------------------------
* Share information
Shares sold 1,598 1,637
Distributions reinvested 32 --
Shares redeemed (821) (351)
Increase (decrease) in shares outstanding 809 1,286
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Mid-Cap Growth Portfolio
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Equity Series, Inc. (the corporation) is registered under the
Investment Company Act of 1940. The Mid-Cap Growth Portfolio (the fund), a
diversified, open-end management investment company, is one of the
portfolios established by the corporation and commenced operations on
December 31, 1996. The shares of the fund are currently being offered only
to separate accounts of certain insurance companies as an investment medium
for both variable annuity contracts and variable life insurance policies.
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 Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter
market are valued at the mean of the latest bid and asked prices. Other
equity securities are valued at a price within the limits of the latest bid
and asked prices deemed by the Board of Directors, or by persons delegated
by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
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.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
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. Dividend income and
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
securities, aggregated $17,167,000 and $8,733,000, respectively, for the
year ended December 31, 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.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
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Undistributed net investment income $ 21,000
Undistributed net realized gain $ (21,000)
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$23,824,000. Net unrealized gain aggregated $5,880,000 at period-end, of
which $6,816,000 related to appreciated investments and $936,000 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 $7,000 was payable at December 31, 1998. The fee,
computed daily and paid monthly, is equal to 0.85% 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, 1998, totaled $95,000 and are reflected as interest income in
the accompanying Statement of Operations.
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $259,000 from short-term capital gains,
o $156,000 from long-term capital gains, all of which is subject to the 20%
rate gains category.
For corporate shareholders, $41,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Equity Series, Inc.
and Shareholders of Mid-Cap Growth 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 Mid-Cap Growth Portfolio (one of the portfolios comprising T. Rowe Price
Equity Series, Inc., hereafter referred to as the "Fund") at December 31,
1998, 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, 1998, by correspondence
with custodians, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
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 TRP657 (12/98)
K15-068 12/31/98
