T. Rowe Price New America Growth Portfolio
Annual Report
December 31, 1994
Dear Investor
This letter is our first annual report since the New America Growth Portfolio
commenced operations on March 31, 1994. As reflected in the fund's results,
growth stocks performed better in the second half of the year than in the
first half. For the six-month period ended December 31, 1994, the portfolio
rose in line with stock prices generally, slightly trailing the unmanaged
Standard & Poor's 500 Stock Index but performing a bit better than the average
growth mutual fund. For the nine-month period since inception, results lagged
the S&P 500 by a wider margin but were in line with other growth funds.
Performance Comparison
________________________________________________________________________
Periods Ended 12/31/94
______________________________
9 Months
6 Months Since Inception
___________________________
New America
Growth Portfolio 4.4% 1.0%
S&P 500 4.9 5.3
Nasdaq Composite* 6.5 1.1
Lipper Growth
Fund Average 4.1 1.2
__________________________________________________________________________
*Principal only
Market Environment
The stock and bond markets had a challenging year in 1994. Strong economic
growth brought fears of rising inflation and prompted the Federal Reserve to
raise short-term interest rates six times during the year. Against this
backdrop, long-term interest rates also rose sharply, interrupting the long
bull market in bonds. Stock prices showed little change for the full year, as
the positive impact of extremely strong corporate earnings growth was offset
by the negative effects of higher interest rates.
Stock prices fell in the second quarter of the year, a victim of the
sharp increases in interest rates. However, stronger-than-expected earnings
gains for most companies led to a recovery in the second half. The best
performers for the year were companies with truly explosive earnings growth,
including most technology companies and many cyclicals, which are not part of
this portfolio's investment program. In this environment, the New America
Growth Portfolio, which focuses on consistent growth companies primarily in
service businesses, had lackluster results.
Portfolio Strategy
Your fund's investment philosophy is based on our view that investments in
companies with above-average earnings growth will result in superior stock
performance over time. Our research targets U.S. companies in service
businesses that generate consistent, noncyclical earnings growth of at least
15% annually. The service sector of the economy, which encompasses over two-
thirds of GNP and over 70% of the country's employment, has grown faster than
the manufacturing sector in the post-World War II period and has never
experienced a full-year decline during this period.
The portfolio's top 25 holdings are shown in a table following this
report. As examples of the types of companies we favor, our largest holding is
CUC International. CUC is a consumer services company offering memberships in
services that provide discounts on shopping, travel, dining, and several other
consumer areas. The company has close to 35 million members and is beginning
to sell outside the U.S. A second top holding is Alco Standard. Alco is in two
businesses: distributing office machines and supplies and distributing paper
and paper products. A third major holding is First Financial Management, a
very large processor of credit card transactions with a growing involvement in
related computer processing businesses.
As shown in the table, the portfolio is invested in three main sectors:
financial, consumer, and business services. Over the past six months, we
increased our investments in business service companies, where we found
stronger earnings growth, and decreased our holdings in financial and consumer
companies, where earnings were less robust.
Outlook
Entering 1995, the stock market is still going through a difficult transition,
and our near-term outlook is cautious. Economic growth remains very strong but
will inevitably slow as the year progresses. The Fed seems likely to continue
to push short-term interest rates higher in an effort to prevent the economy
from overheating and to prolong the current expansion. Also, the Fed wants to
nip in the bud any rise in inflationary pressures and expectations.
The Fed's task is a tricky one. Too little restraint might start a new
inflationary spiral and send long-term interest rates much higher, while
applying the brakes too hard could end the expansion prematurely. Either
extreme would not be good for the stock market. Stock market valuations,
however, are more reasonable than a year ago, as strong earnings gains and
little change in stock prices have brought P/E ratios down significantly. We
conclude that a modest rise in stock prices is likely, but by no means
assured.
Sector Diversification
________________________________________________________________________
6/30/94 12/31/94
__________ __________
Financial Services 17% 12%
Consumer Services 38 34
Business Services 41 48
Reserves 4 6
Total 100% 100%
__________________________________________________________________________
We are somewhat more optimistic about the prospects for the Fund in
1995. Cyclicals, which did so well in 1994, may see their earnings peak and
their growth slow in the coming months. Our portfolio is much less
economically sensitive, and the 20% and higher earnings growth we expect from
portfolio companies should attract investor interest in a slower growth
environment. Lastly, growth stocks, which have tended to lag the market over
the past several years, are likely to perform better in 1995, particularly if
the new Republican Congress succeeds in lowering the capital gains tax rate.
Respectfully submitted,
John H. Laporte
Executive Vice President and Chairman
of the Investment Advisory Committee
Brian W. H. Berghuis
Executive Vice President
January 31, 1995
CHART 1 - Fiscal-Year Performance Comparison
Fiscal-Year Performance
________________________________________________________________________
Period Ended December 31, 1994
Since Inception (3/31/94)
___________________________
1.0%
__________________________________________________________________________
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original
purchase.
Twenty-Five Largest Holdings
December 31, 1994
Percent of
Net Assets
___________
CUC International 4.1%
Alco Standard 3.4
First Financial Management 3.0
Cardinal Health 2.7
Danka Business Systems 2.7
Pittston Services 2.6
OfficeMax 2.6
Viacom 2.5
SunGard Data Systems 2.5
Sanifill 2.5
Paychex 2.4
Office Depot 2.4
Sierra Health Services 2.3
Sbarro 2.3
Foundation Health 2.3
United HealthCare 2.2
CMAC Investment 2.1
ADVO 2.1
Patterson Dental 2.0
Ceridian 2.0
Schlumberger 2.0
Toys "R" Us 2.0
Mobile Telecommunication Technologies 1.9
Corporate Express 1.9
Wal-Mart 1.9
__________________________________________________________________________
Total 60.4%
__________________________________________________________________________
Statement of Net Assets
T. Rowe Price New America Growth Portfolio / December 31, 1994
Value
______
COMMON STOCKS - 93.8%
FINANCIAL SERVICES - 12.0%
__________________________________________________________________________
BANK & TRUST - 1.4%
1,000 shs. State Street Boston . . . $ 28,625
INSURANCE - 2.1%
1,500 CMAC Investment. . . . . . . 43,312
INVESTMENT SERVICES - 3.7%
3,800 Duff & Phelps. . . . . . . . 32,775
766 Duff & Phelps Credit
Rating. . . . . . . . . . 7,564
1,000 Franklin Resources . . . . . 35,625
75,964
OTHER FINANCIAL SERVICES - 4.8%
400 Fannie Mae . . . . . . . . . 29,150
600 Freddie Mac. . . . . . . . . 30,300
2,000 Money Store. . . . . . . . . 37,000
96,450
Total Financial Services 244,351
CONSUMER SERVICES - 33.9%
__________________________________________________________________________
RETAILING/GENERAL
MERCHANDISERS - 1.9%
1,800 Wal-Mart . . . . . . . . . . 38,250
RETAILING/SPECIALTY
MERCHANDISERS - 11.2%
1,000 * General Nutrition . . . . . 29,000
500 Nordstrom. . . . . . . . . . 21,000
2,000 * Office Depot . . . . . . . . 48,000
2,000 * OfficeMax. . . . . . . . . . 53,000
1,500 * Revco. . . . . . . . . . . . 35,715
1,300 * Toys "R" Us. . . . . . . . . 39,650
226,365
ENTERTAINMENT & LEISURE - 6.0%
100 * National Gaming. . . . . . . 1,200
1,200 * Promus Companies . . . . . . 37,200
2,000 Turner Broadcasting Systems
(Class B) . . . . . . . . 32,620
1,212 * Viacom (Class B) . . . . . . 49,238
2,000 rts. * Viacom, 9/29/95 . . . . . 2,250
122,508
MEDIA/COMMUNICATIONS
SERVICES - 3.5%
1,000 shs. * ALC Communications. . . . 31,125
2,000 * Mobile Telecommunication
Technologies. . . . . . . 39,000
70,125
RESTAURANTS/FOOD
DISTRIBUTION - 7.2%
2,000 shs. * Boston Chicken. . . . . . $ 34,750
2,000 * Brinker International. . . . 36,250
1,500 * Lone Star Steakhouse &
Saloon. . . . . . . . . . 29,170
1,800 Sbarro . . . . . . . . . . . 46,800
146,970
PERSONAL SERVICES - 4.1%
2,500 * CUC International. . . . . . 83,750
Total Consumer Services 687,968
BUSINESS SERVICES - 47.0%
__________________________________________________________________________
HEALTH CARE SERVICES - 8.6%
1,000 Columbia/HCA Healthcare. . . 36,500
1,500 * Foundation Health. . . . . . 46,500
1,500 * Sierra Health Services . . . 47,438
1,000 United HealthCare. . . . . . 45,125
175,563
DISTRIBUTION SERVICES - 10.9%
1,100 Alco Standard. . . . . . . . 69,025
1,200 Cardinal Health. . . . . . . 55,650
2,500 Danka Business Systems
ADR . . . . . . . . . . . 54,062
2,000 * Patterson Dental . . . . . . 41,500
220,237
COMPUTER SERVICES - 7.5%
1,500 * Ceridian . . . . . . . . . . 40,313
1,000 First Financial Management . 61,625
1,300 * SunGard Data Systems . . . . 50,050
151,988
ENVIRONMENTAL SERVICES - 2.5%
2,000 * Sanifill . . . . . . . . . . 50,000
ENERGY SERVICES - 3.9%
2,000 * Enterra. . . . . . . . . . . 38,000
800 Schlumberger . . . . . . . . 40,300
78,300
OTHER BUSINESS SERVICES - 13.6%
2,500 ADVO . . . . . . . . . . . . 43,125
2,000 * Corporate Express. . . . . . 39,000
2,500 * DIMAC. . . . . . . . . . . . 31,562
1,000 * Hospitality Franchise. . . . 26,500
1,000 * Micro Warehouse. . . . . . . 35,000
1,200 Paychex. . . . . . . . . . . 48,600
2,000 Pittston Services. . . . . . 53,000
276,787
Total Business Services 952,875
Miscellaneous - 0.9% $ 17,325
Total Common Stocks (Cost $1,867,564) 1,902,519
SHORT-TERM INVESTMENTS - 11.3%
COMMERCIAL PAPER - 11.3%
$ 30,000 President & Fellows Harvard
College, 6.00%, 1/3/95. . 29,980
100,000 Procter & Gamble, 5.95%,
1/6/95. . . . . . . . . . 99,884
100,000 UBS Finance (Delaware),
6.00%, 1/3/95 . . . . . . 99,934
Total Short-Term Investments (Cost $229,798) 229,798
__________________________________________________________________________
Total Investments in Securities - 105.1%
(Cost $2,097,362) 2,132,317
__________________________________________________________________________
Other Assets Less Liabilities. . . . . . . . . . (103,944)
Net Assets Consisting of:
Accumulated net
investment income . . . . . . . . $ 2,236
Accumulated realized
gains/losses. . . . . . . . . . . (16,582)
Net unrealized gain. . . . . . . . 34,955
Paid-in-capital applicable to 200,799 shares
of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares
authorized . . . . . . . . . . . . 2,007,764
_________
NET ASSETS . . . . . . . . . . . . $2,028,373
__________
__________
NET ASSET VALUE PER SHARE. . . . . $10.10
______
______
__________________________________________________________________________
*Non-income producing
__________________________________________________________________________
Statement of Operations
T. Rowe Price New America Growth Portfolio / From March 31, 1994 (Commencement
of Operations) to December 31, 1994
INVESTMENT INCOME
Income
Dividends. . . . . . . . . . . . . . . . . . $ 10,272
Interest . . . . . . . . . . . . . . . . . . 4,806
_______
Total income . . . . . . . . . . . . . . . . 15,078
_______
Expenses
Investment management and administrative . . 12,842
_______
Net investment income. . . . . . . . . . . . . 2,236
_______
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on securities. . . . . . . . (16,582)
Change in net unrealized gain or loss on securities . . 34,955
_______
Net realized and unrealized gain . . . . . . . 18,373
_______
INCREASE IN NET ASSETS FROM OPERATIONS . . . . $ 20,609
_______
_______
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price New America Growth Portfolio / From March 31, 1994 (Commencement
of Operations) to December 31, 1994
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income . . . . . . . . . . . $ 2,236
Net realized loss. . . . . . . . . . . . . . (16,582)
Change in net unrealized gain . . . . . . . 34,955
__________
Increase in net assets from operations . . . 20,609
__________
Capital share transactions1
Shares sold. . . . . . . . . . . . . . . . . 1,957,764
Shares redeemed. . . . . . . . . . . . . . . (7)
__________
Increase in net assets from capital
share transactions. . . . . . . . . . . . . 1,957,757
__________
Net equalization . . . . . . . . . . . . . . . 7
__________
Increase in net assets . . . . . . . . . . . . 1,978,373
NET ASSETS
Beginning of period. . . . . . . . . . . . . . 50,000
__________
End of period. . . . . . . . . . . . . . . . . $2,028,373
__________
__________
__________________________________________________________________________
1Capital share transactions (number of shares)
Shares sold. . . . . . . . . . . . . . . . . 195,800
Shares redeemed. . . . . . . . . . . . . . . (1)
__________
Increase in capital shares outstanding . . . 195,799
__________
__________
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price New America Growth 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 New America Growth 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.
Short-term debt securities are valued at their cost which, when combined with
accrued interest, approximates fair value.
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) 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.
Note 3 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $3,039,693 and $1,155,534, 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. The fund has unused realized capital loss carryforwards for federal
income tax purposes of $16,583 which expire in 2002.
At December 31, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $2,097,362 and net unrealized
gain aggregated $34,955, of which $120,662 related to appreciated investments
and $85,707 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 New America Growth 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. . . . . . . 0.01
Net realized and unrealized gain . 0.09
______
Total from Investment Activities . . 0.10
______
NET ASSET VALUE, END OF PERIOD . . . $10.10
______
______
__________________________________________________________________________
RATIOS / SUPPLEMENTAL DATA
Total Return . . . . . . . . . . . . 1.0%
Ratio of Expenses to Average
Net Assets . . . . . . . . . . . . 0.85%!
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 0.15%!
Portfolio Turnover Rate. . . . . . . 81.0%!
Net Assets, End of Period . . . . . $2,028,373
__________________________________________________________________________
!Annualized.
To the Board of Directors of
T. Rowe Price Equity Series, Inc.
and Shareholders of the New America 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 selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of the New America Growth 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 and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 19, 1995
CHART 1 - Fiscal-Year Performance Comparison
A two-line chart comparing the growth in an initial $10,000 investment in the
Fund with the same investment in the S&P 500 Stock Index starting on 3/31/94
and ending on 12/31/94.
