T. Rowe Price
New America Growth Portfolio
Annual Report
December 31, 1996
Dear Investor
Stock prices continued their record-breaking advance in the second
half of 1996 with all the major market indices setting new highs
near year-end. A brief but sharp correction around midyear, caused
by an increase in long-term bond yields of over one percentage
point, was followed by a surprising surge back into record
territory over the last five months of the year.
The 1996 return of 23% for the unmanaged Standard & Poor's 500
Stock Index was particularly impressive coming in the aftermath of
1995's nearly 38% advance. The 1995-96 market was the first period
of back-to-back gains exceeding 20% since 1982-83, the beginning of
this record 15-year bull market. The cumulative gain of 69% for the
past two years was the best for the S&P 500 since 1975-76.
The New America Growth Portfolio had a strong first half,
outperforming both the S&P 500 and the average growth fund as
measured by the Lipper Growth Funds Average. The second half,
however, proved to be tougher sledding, as the fund trailed both
the market and its peer average. For the full year, the fund also
lagged the S&P 500 but outperformed the average growth fund.
Performance Comparison
Periods Ended 12/31/96 6 Months 12 Months
___________________________________________________________________
New America
Growth Portfolio 5.77% 20.09%
S&P 500 11.68 22.96
Lipper Growth
Funds Average 8.23 19.24
Year-End Distributions
The fund's Board of Directors declared an income distribution of
$0.02 and a long-term capital gain distribution of $0.12 per share.
Both were paid on December 30 to shareholders of record on December
26. You should have received your statement reflecting these
distributions in early January.
Market Environment
The surprising feature of 1996's record-breaking market is that it
occurred while interest rates rose. The primary impetus for this
long bull market was a secular decline in interest rates that took
long rates from a high of 14% in early 1982 to less than 6% in late
1995. Long-term rates rose approximately 75 basis points overall in
1996 (100 basis points equal one percentage point), and yet the
market cruised to new highs after a brief skittish period around
midyear.
The stock market was able to buck the backup in long-term interest
rates for several reasons. First, underlying inflation in the
economy showed little change and remained close to 3% with very few
signs of a pickup. Rising inflation is anathema to a strong stock
market. Also, the market responded favorably to steady economic
growth at a moderate, sustainable overall rate of 2.3% for 1996.
Just as important, corporate profits remained surprisingly strong
for this stage of the economic cycle. We have now had six
consecutive years of economic growth without any signs of a
recession, and for 1996 the average company in the S&P 500 should
report profit gains in excess of 10%.
Investors also viewed 1996's election results favorably. Both
parties seem to have become more moderate over the past four years.
Furthermore, the split control of the Executive and Legislative
branches of government between the two parties assured investors
that no radical changes to the status quo on tax, business, and
social issues would upset the economy's underlying strength and
growth.
Lastly, record mutual fund inflows and merger and acquisition
activity created strong demand for stocks in 1996 that was only
partially offset by a record amount of new stock issuance by
corporations. Domestic equity mutual fund inflows tailed off
somewhat late in the year, but initial reports in January suggest
a sharp pickup in early 1997.
Overall, the positive economic, inflation, profit, supply and
demand, and psychological environment helped drive the market to
record levels. Your fund outperformed in the first half while
interest rates were rising and investors feared this increase would
choke off the economy's growth. Growth stocks led the way in the
first half, while cyclicals lagged. Your fund's focus on
noncyclical growth companies in service businesses led us to many
of the best-performing sectors of the market. In the second half,
as investors realized that moderately higher interest rates would
not choke off the economy, cyclicals regained market favor while
growth stocks and your fund lagged.
Portfolio Review
In the first half, the fund's strong performance was concentrated
in the business services sector with top holdings such as HFS, ADT,
and Alco Standard leading the way. Overall, business services
positions underperformed in the second half, giving back some of
the first half's strong gains. Financial services companies were
the fund's best performers in the second half, as interest rates
stabilized and fears of further rises subsided. Insurers MGIC
Investment and ACE Limited and consumer lender Norwest were among
our best holdings in this area. The two largest contributors to
fund performance in the last six months were two drug retailers,
Revco and Eckerd. Revco rose over 50% in the second half as it
rebounded following a failed takeover attempt by Rite Aid, and
Eckerd climbed just under 50% in response to the continued takeover
activity in the group as well as to strong underlying fundamentals.
For the full year, business services holdings were our best
performers. In fact, the top five contributors to fund performance
all were in this category. Coincidentally, our best performer for
the year was home security company, ADT, which was the object of a
failed takeover attempt during the year by Republic Industries, our
second-largest contributor. Republic is a rapidly growing solid
waste disposal and auto retailing company, headed up by well-known
entrepreneur Wayne Huizenga. Another solid waste disposal company,
USA Waste Services, was our third-best performer. During the year,
USA Waste acquired another portfolio holding, Sanifill.
The worst performers for the year were health care service
companies including former top holding United HealthCare, a leading
HMO, and Apria Healthcare, a top home health care provider.
Earnings were moderately disappointing at both companies, and
investors became increasingly wary about managed care companies in
general. Several retail holdings, including vitamin marketer
General Nutrition and personal computer direct marketer Micro
Warehouse, hurt fund performance due to disappointing sales
results.
The major sector diversification of the portfolio has evolved
substantially over the course of 1996, as indicated in the
accompanying table.
Sector Diversification
12/31/95 6/30/96 12/31/96
_____________________________________________________________
Financial Services 10% 17% 20%
Consumer Services 40 32 30
Business Services 41 42 41
Reserves 9 9 9
_____________________________________________________________
Total 100% 100% 100%
The most significant change was a doubling of our financial
services weighting during 1996 from 10% to 20% of the portfolio.
New additions in early 1996 included Norwest, Green Tree Financial,
and PMI Group. We added to financial services names in the second
half by boosting our holdings in existing companies. As noted
earlier, this sector was our best performer in the second half.
Consumer holdings were trimmed from 40% to 30% of the portfolio as
we anticipated an increasingly competitive environment for
retailers, restaurant companies, entertainment companies, and
communications providers. Business services, our largest sector,
was little changed over the year and remains our most fertile area
for sustainable, high-growth service companies.
Portfolio characteristics remain strong. Our analysts forecast 18%
annual earnings growth for the portfolio companies over the next
five years, 50% higher than the forecasted growth for the S&P 500.
Our portfolio sells at a valuation premium of less than 20%, based
on its average P/E ratio, which seems a very reasonable trade-off
for the much higher expected growth.
Portfolio Characteristics
New America
As of 12/31/96 Growth Portfolio S&P 500
_________________________________________________________________
Earnings Growth Rate
Estimated Next 5 Years * 18.0% 12.2%
Profitability - Return on
Equity Latest 12 Months 15.6 19.4
Dividend Yield on Stocks 0.4 2.0
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 19.4X 16.5X
* Earnings forecasts are based on T. Rowe Price research and are
in no way indicative of future investment returns.
Outlook
While the better-than-20% annual stock market returns of the past
two years are clearly not replicable going forward, the favorable
environment that drove the market in 1996 remains largely in place
as we begin 1997. Economic growth is solid, profit momentum is
strong, inflation remains low, and investor appetite for stocks
continues at record levels.
Our portfolio companies remain vibrant and should continue to show
strong earnings growth even if overall economic growth falls off.
Having cooled down a bit over the past six months, the valuation
characteristics of the portfolio look more attractive. We believe
that the fund's focus on less cyclical, consistent high-growth
companies, operating primarily in service businesses, will continue
to provide shareholders with above-average long-term returns.
Respectfully submitted,
John H. Laporte
President
Brian W. H. Berghuis
Executive Vice President
January 20, 1997
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/96
___________________________________________________________
ADT 2.7%
HFS 2.5
PriceCostco 2.3
Franklin Resources 2.3
ACE Limited 2.2
CUC International 2.2
Alco Standard 2.1
USA Waste Services 2.1
Quorum Health Group 2.1
Comcast 2.1
Western Atlas 2.0
General Nutrition 2.0
Columbia/HCA Healthcare 1.9
UNUM 1.9
Corporate Express 1.9
La Quinta Inns 1.9
Revco 1.9
PMI Group 1.8
Cardinal Health 1.8
Norwest 1.8
SunGard Data Systems 1.8
Outback Steakhouse 1.7
Freddie Mac 1.6
Green Tree Financial 1.6
MGIC Investment 1.6
___________________________________________________________
Total 49.8%
T. Rowe Price New America Growth Portfolio
December 31, 1996
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.
Chart 1 - New America Growth Portfolio
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.
SinceInception
Periods Ended 12/31/96 1 YearInception Date
_________________________________________________________________
New America Growth Portfolio 20.09% 24.60% 3/31/94
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 New America Growth Portfolio
For a share outstanding
throughout each period
________________________________________
Year 3/31/94
Ended to
12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 15.23 $ 10.10 $ 10.00
Investment activities
Net investment income 0.04 0.03 0.01
Net realized and
unrealized gain (loss) 2.94 5.12 0.09
Total from
investment activities 2.98 5.15 0.10
Distributions
Net investment income (0.04) (0.02) -
Net realized gain (0.50) - -
Total distributions (0.54) (0.02) -
NET ASSET VALUE
End of period $ 17.67 $ 15.23 $ 10.10
________________________________________
Ratios/Supplemental Data
Total return 20.09% 51.10% 1.00%
Ratio of expenses to
average net assets 0.85% 0.85% 0.85%!
Ratio of net investment
income to average
net assets 0.18% 0.23% 0.15%!
Portfolio turnover rate 27.2% 54.5% 81.0%!
Average commission rate
paid $ 0.0996 - -
Net assets, end of period
(in thousands) $ 60,241 $ 12,304 $ 2,028
! Annualized.
The accompanying notes are an integral part of these financial
statements.
Statement of Net Assets
T. Rowe Price New America Growth Portfolio
December 31, 1996
Shares/Par Value
In thousands
Common Stocks 90.6%
FINANCIAL SERVICES 19.7%
Bank and Trust 1.8%
Norwest 25,000 $ 1,088
1,088
Insurance 7.6%
ACE Limited 22,500 1,353
MGIC Investment 12,500 950
PMI Group 20,000 1,107
UNUM 16,000 1,156
4,566
Investment Services 2.3%
Franklin Resources 20,000 1,367
1,367
Other Financial Services 8.0%
Associates First Capital 7,500 331
Fannie Mae 17,000 633
Freddie Mac 9,000 991
Green Tree Financial 25,000 966
Household International 8,000 738
Mercury Finance 62,600 767
Money Store 15,000 416
4,842
Total Financial Services 11,863
CONSUMER SERVICES 30.1%
Retailing/General Merchandisers 2.3%
PriceCostco * 55,000 1,385
1,385
Retailing/Specialty Merchandisers 10.2%
AutoZone * 20,000 550
Circuit City Stores 20,000 603
Cole National (Class A) * 25,000 656
Eckerd * 6,445 206
General Nutrition * 70,000 1,190
Home Depot 12,500 627
Kohl's * 19,500 765
Revco * 30,900 1,143
Tommy Hilfiger * 8,000 384
6,124
Entertainment and Leisure 3.9%
Carnival (Class A) 18,700 617
Disney 8,500 592
La Quinta Inns 60,000 $ 1,148
2,357
Media/Communication Services 6.1%
AirTouch Communications * 25,000 631
Comcast (Class A Special) 70,000 1,247
Cox Communications
(Class A) * 10,000 231
Gaylord Entertainment 35,000 801
Paging Network * 20,900 320
PanAmSat * 16,000 450
3,680
Restaurants/Food Distribution 4.0%
Boston Chicken * 24,000 861
Lone Star Steakhouse
& Saloon * 20,000 536
Outback Steakhouse * 38,000 1,012
2,409
Personal Services 3.6%
CUC International * 56,250 1,336
Service Corp. 30,000 840
2,176
Total Consumer Services 18,131
BUSINESS SERVICES 39.9%
Health Care Services 7.6%
Apria Healthcare * 30,500 572
Columbia/HCA Healthcare 28,500 1,162
PacifiCare Health Systems
(Class B) * 11,000 936
Quorum Health Group * 42,500 1,259
Vencor * 21,000 664
4,593
Distribution Services 4.9%
Alco Standard 25,000 1,291
Cardinal Health 18,750 1,092
Patterson Dental * 19,100 537
2,920
Computer Services 6.0%
BISYS Group * 22,500 834
Ceridian * 8,000 324
Electronic Data Systems 13,500 584
First Data 22,000 803
SunGard Data Systems * 27,000 1,076
3,621
Environmental Services 3.2%
Republic Industries * 21,000 $ 655
USA Waste Services * 40,000 1,275
1,930
Energy Services 6.3%
BJ Services * 16,000 816
Camco International 15,000 692
Schlumberger 3,500 349
Smith International * 16,000 718
Western Atlas * 17,000 1,205
3,780
Other Business Services 11.9%
ADT * 70,000 1,601
ADVO 27,500 385
Catalina Marketing * 14,000 772
Corporate Express * 39,000 1,148
HFS * 25,000 1,494
Interim Services * 24,800 880
Micro Warehouse * 9,000 105
Paychex 2,700 139
Scholastic * 9,800 655
7,179
Total Business Services 24,023
Miscellaneous Common Stocks 0.9% 551
Total Common Stocks (Cost $47,931) 54,568
Short-Term Investments 9.0%
Commercial Paper 9.0%
Asset Securitization
Cooperative, 4(2)
5.30%, 2/6-2/20/97 $ 2,000,000 1,988
Delaware Funding, 4(2),
5.45%, 1/10/97 1,000,000 999
Investments in Commercial
Paper through a
joint account
6.75 - 7.10%
1/2/97 $ 1,460,606 $ 1,460
Preferred Receivables Funding
5.35%, 1/13/97 1,000,000 998
Total Short-Term Investments
(Cost $5,445) 5,445
Total Investments in Securities
99.6% of Net Assets (Cost $53,376) $ 60,013
Other Assets Less Liabilities 228
NET ASSETS $ 60,241
___________
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ 198
Net unrealized gain (loss) 6,637
Paid-in-capital applicable to 3,409,303
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares
authorized 53,406
NET ASSETS $ 60,241
___________
NET ASSET VALUE PER SHARE $ 17.67
___________
* Non-income producing
4(2) Commercial paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of
the Securities Act of 1933, as amended, and may be sold only
to dealers in that program or other "accredited investors."
The accompanying notes are an integral part of these financial
statements.
Statement of Operations
T. Rowe Price New America Growth Portfolio
In thousands
Year
Ended
12/31/96
Investment Income
Income
Interest $ 222
Dividend 154
Total income 376
Expenses
Investment management and administrative 311
Net investment income 65
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 637
Change in net unrealized gain or loss
on securities 5,130
Net realized and unrealized gain (loss) 5,767
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 5,832
___________
The accompanying notes are an integral part of these financial
statements.
Statement of Changes in Net Assets
T. Rowe Price New America Growth Portfolio
In thousands
Year
Ended
12/31/96 12/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $ 65 $ 11
Net realized gain (loss) 637 385
Change in net unrealized gain or loss 5,130 1,472
Increase (decrease) in net assets
from operations 5,832 1,868
Distributions to shareholders
Net investment income (92) (4)
Net realized gain (765) -
Decrease in net assets from distributions (857) (4)
Capital share transactions*
Shares sold 51,507 9,399
Distributions reinvested 857 4
Shares redeemed (9,492) (998)
Increase (decrease) in net assets from capital
share transactions 42,872 8,405
Net equalization 90 7
Net Assets
Increase (decrease) during period 47,937 10,276
Beginning of period 12,304 2,028
End of period $60,241 $12,304
___________________
*Share information
Shares sold 3,117 680
Distributions reinvested 52 -
Shares redeemed (568) (73)
Increase (decrease) in shares outstanding 2,601 607
The accompanying notes are an integral part of these financial
statements.
Notes to Financial Statements
T. Rowe Price New America Growth Portfolio
December 31, 1996
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
and commenced operations on March 31, 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.
Valuation Equity securities listed or regularly traded on a
securities exchange are valued at the last quoted sales price at
the time 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.
Short-term debt securities are valued at their amortized 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.
Premiums and Discounts Premiums and discounts on debt securities
are amortized for both financial reporting and tax purposes.
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. 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 - Investment Transactions
Commercial Paper Joint Account The fund, and other affiliated
funds, may transfer uninvested cash into a commercial paper joint
account, the daily aggregate balance of which is invested in
high-grade commercial paper. All securities purchased by the joint
account satisfy the fund's criteria as to quality, yield, and
liquidity.
Other Purchases and sales of portfolio securities, other than
short-term securities, aggregated $47,326,000 and $8,935,000,
respectively, for the year ended December 31, 1996.
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, 1996. The results of operations and net assets were
not affected by the reclassifications.
______________________________________________________________
Undistributed net investment income $ (72,000)
Undistributed net realized gain (43,000)
Paid-in-capital 115,000
At December 31, 1996, the aggregate cost of investments for federal
income tax and financial reporting purposes was $53,376,000, and
net unrealized gain aggregated $6,637,000, of which $8,119,000
related to appreciated investments and $1,482,000 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 $30,000 was payable at
December 31, 1996. 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.
Report of Independent Accountants
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 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.,
hereafter referred to as the "Fund") at December 31, 1996, 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, 1996, by correspondence with custodians and, where
appropriate, the application of alternative auditing procedures for
unsettled security transactions, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 20, 1997
Invest With Confidence(registered trademark)
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to contractholders
and to others who have received a copy of the portfolio's
prospectus.
T. Rowe Price Investment Services, Inc., Distributor
TRP652 (3/97)
RPRTNAP 12/31/96
Chart 1 - New America Growth Portfolio - Performance Comparison
showing the cumulative growth of $10,000 invested in the New
America Growth Portfolio from inception compared with $10,000
invested in a broad-based index and average over the same period.
