T. Rowe Price Equity Income Portfolio
Annual Report
December 31, 1994
Dear Investor
This is our first report since the inception of the fund on March 31, 1994,
and we would like to welcome you as investors.
The equity market's flat performance late in the year capped an
uninspiring 1994 for the unmanaged Standard & Poor's 500 Stock Index, which
generated a total return of 1.3%. The stock market was notable for its
extremely low overall volatility in 1994, continuing the pattern of the prior
two years. The sharp increase in interest rates was the year's big financial
story. Despite the most adverse interest rate environment since the early
1980s, strong corporate earnings growth and continued investor demand provided
support for stocks. The broad market averages hovered near their highs for
most of the year, although approximately half of New York Stock Exchange
issues traded at least 20% below their 1994 highs sometime during the year.
Your fund performed well in a difficult environment, surpassing both the
Lipper Equity Income Fund average and the broad market during the periods
shown below.
Performance Comparison
__________________________________________________________________________
Periods Ended 12/31/94
9 Months
Since
6 Months Inception
______________________________
Equity Income Portfolio 5.4% 7.2%
S&P 500 4.9 5.3
Lipper Equity Income
Fund Average 4.1 -1.3
__________________________________________________________________________
Dividend Distribution
On December 27, your Board of Trustees declared a fourth quarter dividend of
$0.10, bringing the total for 1994 to $0.29. The latest distribution was paid
on December 29 to shareholders of record on December 27.
Portfolio Review
It was a successful beginning for your fund, considering the sluggishness of
the broad market. We benefited from several situations, including an
investment in American Cyanamid, which was acquired late in the year by
American Home Products. Other positions in health care - somewhat
controversial when we initiated them - paid off for the fund. Just as we were
early then, so we were early with our recent purchases of electric utility
stocks. This sector had been buffeted by concerns over rising interest rates
as well as increasing competition. Prices fell precipitously to levels that
appear to represent reasonable value, and we have been investing in this area
for the past few quarters.
Chart 1 - Security Diversification
The table showing major portfolio changes following this letter
highlights recent purchases and sales. We initiated positions in several
companies, such as First Interstate, General Mills, Sallie Mae, Fannie Mae,
BellSouth, Dominion Resources, and Knight-Ridder, which offer above-average
dividend yields and attractive total return potential. The chart below shows
the diversification of portfolio securities at the end of the year.
Summary and Outlook
The economy should continue to perform reasonably well in 1995, with good
corporate earnings and dividend growth. However, we believe that the pattern
of rising interest rates could limit the stock market's potential.
Consequently, we anticipate modest total returns over the near term.
Nevertheless, our strategy of identifying relatively high-yielding stocks with
attractive valuations should enable us to take advantage of opportunities in
what could be another challenging year.
We appreciate your confidence and support.
Respectfully submitted,
Brian C. Rogers
Executive Vice President and Chairman of the
Investment Advisory Committee
January 31, 1995
Twenty-Five Largest Holdings
__________________________________________________________________________
T. Rowe Price Equity Income Portfolio / December 31, 1994
Percent of
Company Net Assets
__________________________________________________________________________
Exxon 1.9%
GE 1.9
Philip Morris 1.8
Royal Dutch Petroleum 1.5
American Home Products 1.4
Baxter International 1.4
SmithKline Beecham 1.4
Upjohn 1.4
Atlantic Richfield 1.4
Texaco 1.4
Schering-Plough 1.4
Eastman Kodak 1.3
J.P. Morgan 1.3
Sara Lee 1.3
Dun & Bradstreet 1.3
GTE 1.2
Continental Cablevision 1.2
American Brands 1.2
Eli Lilly 1.2
Loews 1.2
Travelers 1.2
PacifiCorp 1.2
Mobil 1.2
Chemical Banking 1.1
Florida Progress 1.1
__________________________________________________________________________
Total 33.9%
__________________________________________________________________________
Chart 2 - Fiscal-Year Performance Comparison
Major Portfolio Changes
__________________________________________________________________________
Largest Purchases Cost
__________________________________________________________________________
First Interstate* $21,427
General Mills* 21,149
Sallie Mae* 19,019
Kimberly-Clark* 17,696
Southern Company* 11,448
Chevron* 10,754
BellSouth* 10,548
Alexander & Baldwin* 9,094
SCEcorp* 8,963
Cooper Industries* 8,140
Largest Sales Proceeds
__________________________________________________________________________
American Cyanamid** $67,753
Dow Chemical** 37,094
Georgia-Pacific** 29,775
First Union** 27,638
Alexander & Alexander** 17,563
Texas Utilities** 8,979
Warner-Lambert 8,244
Black & Decker** 7,446
USF&G** 7,042
Northrop** 4,418
__________________________________________________________________________
* Position added
** Position eliminated
Fiscal-Year Performance
__________________________________________________________________________
Period Ended December 31, 1994
Since Inception
(3/31/94)
_________
7.2%
__________________________________________________________________________
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original
purchase.
Statement of Net Assets
T. Rowe Price Equity Income Portfolio / December 31, 1994
Value
______
COMMON STOCKS - 81.1%
BUSINESS SERVICES & TRANSPORTATION - 1.5%
__________________________________________________________________________
MISCELLANEOUS BUSINESS SERVICES - 0.1%
100 shs. Deluxe Corp.. . . . . . . $ 2,650
TRANSPORTATION SERVICES - 1.4%
400 Alexander & Baldwin . . . 8,900
600 PHH . . . . . . . . . . . 20,850
29,750
Total Business Services & Transportation 32,400
CAPITAL EQUIPMENT - 2.2%
__________________________________________________________________________
ELECTRICAL EQUIPMENT - 1.8%
800 GE. . . . . . . . . . . . 40,800
MACHINERY - 0.4%
250 Cooper Industries . . . . 8,531
Total Capital Equipment. . . . . . . . . . 49,331
CONSUMER CYCLICALS - 3.7%
__________________________________________________________________________
AUTOMOBILES & RELATED - 0.2%
200 Volvo (Class B) (SEK) . . 3,768
BUILDING & REAL ESTATE - 1.9%
1,000 General Growth
Properties. . . . . . . 22,625
500 Weingarten Realty
Investors . . . . . . . 18,938
41,563
MISCELLANEOUS CONSUMER DURABLES - 1.6%
600 Eastman Kodak . . . . . . 28,650
500 Maytag. . . . . . . . . . 7,500
36,150
Total Consumer Cyclicals 81,481
CONSUMER NONDURABLES - 19.6%
__________________________________________________________________________
BEVERAGES - 0.6%
400 Brown-Forman (Class B). . 12,200
FOOD PROCESSING - 4.8%
400 CPC International . . . . 21,300
400 General Mills . . . . . . 22,800
600 Heinz . . . . . . . . . . 22,050
600 Pet . . . . . . . . . . . 11,850
1,100 Sara Lee. . . . . . . . . 27,775
105,775
HOSPITAL SUPPLIES/
HOSPITAL MANAGEMENT - 1.4%
1,100 Baxter International. . . 31,075
MISCELLANEOUS CONSUMER PRODUCTS - 4.9%
700 American Brands . . . . . 26,250
700 Philip Morris . . . . . . 40,250
500 Tambrands . . . . . . . . 19,312
800 UST . . . . . . . . . . . 22,200
108,012
PHARMACEUTICALS - 7.9%
500 shs. American Home Products. . $ 31,375
400 Eli Lilly . . . . . . . . 26,250
400 Schering-Plough . . . . . 29,600
900 SmithKline Beecham,
equity units ADR. . . . 30,825
1,000 Upjohn. . . . . . . . . . 30,750
300 Warner-Lambert. . . . . . 23,100
171,900
Total Consumer Nondurables 428,962
CONSUMER SERVICES - 6.8%
__________________________________________________________________________
ENTERTAINMENT & LEISURE - 1.0%
500 Reader's Digest
(Class B) . . . . . . . 22,375
GENERAL MERCHANDISERS - 1.4%
500 K mart. . . . . . . . . . 6,500
500 Sears . . . . . . . . . . 23,000
29,500
MEDIA & COMMUNICATIONS - 3.4%
500 Dun & Bradstreet. . . . . 27,500
100 Knight-Ridder . . . . . . 5,050
300 McGraw-Hill . . . . . . . 20,063
700 Times Mirror. . . . . . . 21,962
74,575
SPECIALTY MERCHANDISERS - 1.0%
400 Fleming Companies . . . . 9,300
400 Melville. . . . . . . . . 12,350
21,650
Total Consumer Services 148,100
ENERGY - 10.2%
__________________________________________________________________________
ENERGY SERVICES - 1.1%
700 Halliburton . . . . . . . 23,188
INTEGRATED PETROLEUM-DOMESTIC - 2.7%
300 Atlantic Richfield. . . . 30,525
300 Pennzoil. . . . . . . . . 13,237
1,000 USX-Marathon. . . . . . . 16,375
60,137
INTEGRATED PETROLEUM-
INTERNATIONAL - 6.4%
250 Chevron . . . . . . . . . 11,156
700 Exxon . . . . . . . . . . 42,525
300 Mobil . . . . . . . . . . 25,275
300 Royal Dutch Petroleum . . 32,250
500 Texaco. . . . . . . . . . 29,938
141,144
Total Energy 224,469
FINANCIAL - 16.5%
__________________________________________________________________________
BANK & TRUST - 8.2%
600 Chase Manhattan . . . . . 20,625
700 Chemical Banking. . . . . 25,112
300 First Interstate. . . . . 20,288
500 shs. J.P. Morgan . . . . . . . $ 28,000
600 Mellon Bank . . . . . . . 18,375
900 National City . . . . . . 23,288
450 NationsBank . . . . . . . 20,306
800 PNC Bank. . . . . . . . . 16,900
1,200 * SE Banken (SEK) . . . . . 6,864
179,758
FINANCIAL SERVICES - 3.7%
800 American Express. . . . . 23,600
200 Fannie Mae. . . . . . . . 14,575
550 Sallie Mae. . . . . . . . 17,875
800 Travelers . . . . . . . . 26,000
82,050
INSURANCE - 4.6%
600 American General. . . . . 16,950
1,200 * Continental . . . . . . . 22,800
300 Loews . . . . . . . . . . 26,062
800 Provident Life & Accident
Insurance (Class B) . . . 17,400
200 Torchmark . . . . . . . . 6,975
1,000 Willis-Corroon ADR. . . . 10,250
100,437
Total Financial 362,245
PROCESS INDUSTRIES - 4.3%
__________________________________________________________________________
DIVERSIFIED CHEMICALS - 2.0%
400 DuPont. . . . . . . . . . 22,500
300 Monsanto. . . . . . . . . 21,150
43,650
PAPER & PAPER PRODUCTS - 0.8%
350 Kimberly-Clark. . . . . . 17,675
SPECIALTY CHEMICALS - 1.5%
600 Avery Dennison. . . . . . 21,300
100 Great Lakes Chemical. . . 5,700
200 Lubrizol. . . . . . . . . 6,775
33,775
Total Process Industries 95,100
TECHNOLOGY - 1.7%
__________________________________________________________________________
ELECTRONIC SYSTEMS - 0.9%
600 Honeywell . . . . . . . . 18,900
TELECOMMUNICATIONS - 0.8%
200 ITT . . . . . . . . . . . 17,725
Total Technology 36,625
UTILITIES - 14.3%
__________________________________________________________________________
ELECTRIC UTILITIES - 8.9%
1,000 BGE . . . . . . . . . . . 22,125
1,500 Centerior Energy. . . . . 13,312
150 Dominion Resources. . . . 5,363
1,000 Entergy . . . . . . . . . 21,875
800 Florida Progress. . . . . 24,000
600 General Public Utilities. 15,750
200 shs. New England Electric
System. . . . . . . . . $ 6,425
800 Pacific Gas and Electric. 19,500
1,400 PacifiCorp. . . . . . . . 25,375
700 SCEcorp . . . . . . . . . 10,237
600 Southern Company. . . . . 12,000
800 Unicom. . . . . . . . . . 19,200
195,162
TELEPHONE - 5.4%
400 Bell Atlantic . . . . . . 19,900
200 BellSouth . . . . . . . . 10,825
900 GTE . . . . . . . . . . . 27,337
700 Pacific Telesis . . . . . 19,950
700 Southern New England
Telecommunications. . . 22,488
500 U. S. WEST. . . . . . . . 17,813
118,313
Total Utilities 313,475
Miscellaneous Common Stocks - 0.3% 5,725
Total Common Stocks (Cost $1,739,281) 1,777,913
CONVERTIBLE PREFERRED STOCK - 0.5%
500 Cooper Industries,
$1.60 . . . . . . . . . 10,188
Total Convertible Preferred Stocks
(Cost $11,905) 10,188
CONVERTIBLE BONDS - 0.6%
$ 15,000 Time Warner, Sub. Deb.,
8.75%, 1/10/15. . . . . 14,175
Total Convertible Bonds (Cost $14,970) 14,175
CORPORATE BONDS - 4.2%
25,000 Coca-Cola Bottling Group,
9.00%, 11/15/03 . . . . 21,938
30,000 Continental Cablevision, Sr.
Deb., 9.00%, 9/1/08 . . 27,000
25,000 Paging Network, Sr. Sub.
Notes, 8.875%, 2/1/06 . 19,500
25,000 Westpoint Stevens, Sr. Notes,
8.75%, 12/15/01 . . . . 23,000
Total Corporate Bonds (Cost $98,880) 91,438
U.S. GOVERNMENT OBLIGATIONS/
AGENCIES - 3.6%
20,000 U.S. Treasury Bonds, 6.25%,
8/15/23 . . . . . . . . 16,259
20,000 U.S. Treasury Notes, 5.875%,
2/15/04 . . . . . . . . 17,441
25,000 U.S. Treasury Notes, 6.125%,
7/31/96 . . . . . . . . 24,461
20,000 U.S. Treasury Notes, 7.375%,
11/15/97. . . . . . . . 19,787
Total U.S. Government Obligations/Agencies
(Cost $80,934) 77,948
SHORT-TERM INVESTMENTS - 9.3%
COMMERCIAL PAPER - 9.3%
$100,000 Hewlett Packard, 5.10%,
2/15/95 . . . . . . . . $ 97,492
107,000 President & Fellows Harvard
College, 6.00%, 1/3/95. 106,929
Total Short-Term Investments
(Cost $204,421) 204,421
__________________________________________________________________________
Total Investments in Securities - 99.3%
(Cost $2,150,391) 2,176,083
__________________________________________________________________________
Other Assets Less Liabilities . . . . . . 15,273
Net Assets Consisting of:
Accumulated net
investment income -
net of distributions . . . . $ 2,359
Accumulated realized
gains/losses . . . . . . . . 55,180
Net unrealized gain. . . . . . 25,692
Paid-in-capital applicable to
210,346 shares of $0.0001
par value capital stock
outstanding; 1,000,000,000
shares authorized. . . . . . 2,108,125
_________
NET ASSETS $2,191,356
__________
__________
NET ASSET VALUE PER SHARE $10.42
______
______
__________________________________________________________________________
* Non-income producing
SEK Swedish Krona
__________________________________________________________________________
Statement of Operations
T. Rowe Price Equity Income Portfolio / From March 31, 1994 (Commencement of
Operations) to December 31, 1994
INVESTMENT INCOME
Income
Dividends. . . . . . . . . . . . . . . . . $ 56,323
Interest . . . . . . . . . . . . . . . . . 18,723
_________
Total income . . . . . . . . . . . . . . . 75,046
_________
Expenses
Investment management and
administrative . . . . . . . . . . . . . 13,539
_________
Net investment income . . . . . . . . . . . 61,507
_________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities . . . . . . . . . . . . . . . . 55,229
Foreign currency transactions. . . . . . . (49)
_________
Net realized gain . . . . . . . . . . . . 55,180
Change in net unrealized gain or
loss on securities . . . . . . . . . . . . 25,692
_________
Net realized and unrealized gain . . . . . . 80,872
_________
INCREASE IN NET ASSETS FROM OPERATIONS . . . $ 142,379
_________
_________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Equity Income Portfolio / From March 31, 1994 (Commencement of
Operations) to December 31, 1994
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income. . . . . . . . . . $ 61,507
Net realized gain . . . . . . . . . . . 55,180
Change in net unrealized gain . . . . . 25,692
__________
Increase in net assets from
operations . . . . . . . . . . . . . . . 142,379
__________
Distributions to shareholders
Net investment income. . . . . . . . . . (59,148)
__________
Capital share transactions1
Shares sold. . . . . . . . . . . . . . . 1,998,875
Distributions reinvested . . . . . . . . 59,128
Shares redeemed. . . . . . . . . . . . . (168)
__________
Increase in net assets from capital
share transactions . . . . . . . . . . . 2,057,835
__________
Net equalization . . . . . . . . . . . . . 290
__________
Increase in net assets . . . . . . . . . . 2,141,356
NET ASSETS
Beginning of period . . . . . . . . . . . 50,000
__________
End of period . . . . . . . . . . . . . . $2,191,356
__________
__________
__________________________________________________________________________
1Capital share transactions (number of shares)
Shares sold. . . . . . . . . . . . . . . 199,651
Distributions reinvested . . . . . . . . 5,711
Shares redeemed. . . . . . . . . . . . . (16)
__________
Increase in capital shares
outstanding . . . . . . . . . . . . . . 205,346
__________
__________
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Equity Income Portfolio / December 31, 1994
Note 1 - Significant Accounting Policies
T. Rowe Price Equity Series Inc., (the Corporation) is registered under the
Investment Company Act of 1940. The Equity Income Portfolio (the fund), a
diversified, open-end management investment company, is one of the portfolios
established by the Corporation. 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.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange (including Nasdaq) 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. Other equity securities and those listed
securities that are not traded on a particular day 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.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their cost which, when combined with
accrued interest, approximates fair value.
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.
B) 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 or losses is reflected as a component of such gains
or losses.
C) Discounts and Premiums - Discounts and premiums on debt securities are
amortized for both financial and tax reporting purposes.
D) 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 an 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. The fund follows the practice of
equalization under which undistributed net investment income per share is
unaffected by fund shares sold or redeemed.
Note 2 - Organization
The Corporation was organized on January 31, 1994, and had no operations prior
to March 31, 1994, other than those related to organizational matters,
including the sale of 5,000 shares of its capital stock at $10.00 per share on
March 28, 1994, to T. Rowe Price Associates, Inc.
Note 3 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $2,116,192 and $303,036, respectively, for
the period ended December 31, 1994.
Note 4 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends 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, $290 of
undistributed net investment income was reclassified as an increase to
paid-in-capital during the period ended December 31, 1994. The results of
operations and net assets were not affected by the reclassification.
At December 31, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $2,150,391 and net unrealized
gain aggregated $25,692, of which $108,199 related to appreciated investments
and $82,507 to depreciated investments.
Note 5 - Related Party Transactions
The investment management and administrative agreement between the fund and T.
Rowe Price Associates, Inc. (the Manager) provides for an all-inclusive annual
fee, computed daily and paid monthly, equal to 0.85% of the fund's average
daily net assets. Pursuant to the agreement, investment management,
shareholder servicing, transfer agency, fund accounting and investment custody
services are provided to the fund and interest, taxes, brokerage commissions
and extraordinary expenses are paid directly by the fund.
__________________________________________________________________________
Financial Highlights
T. Rowe Price Equity Income Portfolio / From March 31, 1994 (Commencement of
Operations) to December 31, 1994
For a share outstanding throughout the period
_____________________________________________
NET ASSET VALUE, BEGINNING
OF PERIOD. . . . . . . . . . . $10.00
______
Investment Activities
Net investment income . . . . 0.30
Net realized and unrealized
gain . . . . . . . . . . . 0.41
______
Total from Investment
Activities . . . . . . . . 0.71
______
Distributions
Net investment income . . . . (0.29)
______
NET ASSET VALUE, END OF PERIOD . $10.42
______
______
__________________________________________________________________________
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . . 7.2%
Ratio of Expenses to Average
Net Assets. . . . . . . . . . 0.85%!
Ratio of Net Investment Income to
Average Net Assets. . . . . . 3.88%!
Portfolio Turnover Rate. . . . . 21.3%!
Net Assets, End of Period . . . $2,191,356
__________________________________________________________________________
! Annualized.
To the Board of Directors of
T. Rowe Price Equity Series, Inc.
and Shareholders of the Equity Income Portfolio
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of the Equity Income Portfolio (one of the portfolios constituting T. Rowe
Price Equity Series, Inc.) at December 31, 1994, and the results of its
operations, the changes in its net assets and the selected per share data and
information for the period March 31, 1994 (commencement of operations) through
December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and
information (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 audit. We conducted our
audit 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 audit, which included confirmation of securities at December 31, 1994 by
correspondence with custodians, provides a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 19, 1995
Chart 1 - Security Diversification
Pie chart showing the percent of fund assets allocated among common stocks
(81%), convertibles (1%), bonds (8%), and reserves (10%).
Chart 2 - Fiscal-Year Performance Comparison
Fiscal-Year Performance Comparison: A two-line chart comparing the growth in
an initial $10,000 investment in the Equity Income Portfolio and the same
investment in the S&P 500 Stock Index starting 3/31/94 and ending on 12/31/94.
