Annual Report
December 31, 1997
Mid-Cap Growth Portfolio
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
T. Rowe Price
Mid-Cap Growth Portfolio
Annual Report
December 31, 1997
Dear Investor
Following stellar gains in 1995 and 1996, the stock market turned
in another unusually good performance in 1997, again led by the
type of large-capitalization, blue chip companies that compose the
Standard & Poor's 500 Stock Index. The S&P 500's three-year gain of
125.61% was the best since the inception of the index in 1936.
Mid-cap stocks lagged the major large-cap indices in the first half
of the year, staged a strong comeback in the third quarter, and
faded again in the last three months of 1997. Except for a brief
period from April to October, growth stocks lagged value stocks by
a considerable margin. Consequently, while the Mid-Cap Growth
Portfolio outperformed an index of its peers for the last six
months and the year as a whole, it lagged the S&P MidCap Index for
both periods.
Performance Comparison
Periods Ended 12/31/97 6 Months 12 Months
________________________________________________________
Mid-Cap Growth Portfolio 11.76% 18.80%
S&P MidCap Index 17.04 32.25
Russell Midcap
Growth Index 10.86 22.54
Lipper Variable Annuity
Underlying Mid Cap
Funds Average 9.31 16.95
Note: We have added the Russell Midcap Growth Index to reflect
the growth portion of the mid-cap universe, where the
fund's program is focused.
Market Environment
The year was characterized by a nearly ideal environment for the
domestic stock market. The U.S. economy expanded for the seventh
consecutive year at a rate that was fast enough to accommodate good
corporate earnings growth but slow enough to allay any fears of
resurgent inflation. Reflecting the taming of inflation, long-term
bond yields fell sharply, ending 1997 below 6%. Meanwhile, in
Washington, both Republicans and Democrats appear to have converged
in the middle of the political spectrum on most economic issues,
facilitated in part, perhaps, by surging tax receipts and the
possibility of a balanced budget within the current fiscal year.
This convergence resulted in a tangible benefit for many
investors-a reduction in the long-term capital gains rate. With the
political and economic backdrop so positive, it is not surprising
that consumer confidence remains close to record levels.
The major investment concern emanated from Asia, as the
extraordinary economic growth of the Asian tiger economies was
imperiled. What began in July as a currency crisis in Thailand was
followed within weeks by devaluations in Indonesia, Malaysia, and
the Philippines, and by the de facto default of South Korea in the
fall. In Japan, which has still not recovered from the implosion of
its own real estate and stock market bubble, banks and brokerages
failed. Asian markets plunged,and their currencies fell
dramatically against the U.S. dollar, precipitating a major crisis.
Except for a volatile period last October, the U.S. stock market
thus far has been relatively unaffected by these events.
The U.S. stock market advanced 33.36%, as measured by the large-cap
Standard & Poor's 500 Stock Index. This was somewhat surprising to
us since the strengthening dollar is a drag on the earnings of many
large multinational companies. Furthermore, the stocks of small and
mid-sized companies usually outdistance larger stocks late in
economic expansions, but not this time. Perhaps the reason is that
larger companies have benefited from restructuring and
cost-cutting, whereas small and mid-sized companies are still
growing rapidly and have had little fat to cut. In any case,
mid-cap stocks generally lagged large-caps in 1997. Within the
mid-cap group, there was a pronounced difference between growth
stocks and value stocks, as exemplified by the Russell indices
below:
6 Months 12 Months
____________________________________________________________
Russell Midcap Index 14.54% 29.01%
Russell Midcap Growth Index 10.86 22.54
Russell Midcap Value Index 17.34 34.37
The largest difference in performance between the two mid-cap
segments was the performance of the financial stocks, particularly
the slower-growing mid-cap banks, which experienced a consolidation
frenzy during the year.
Portfolio Review
Driven by falling interest rates, financial services was the
best-performing sector in the market. Not surprisingly, two
financial stocks were also the fund's top contributors for 1997:
Franklin Resources, a leading mutual fund manager and distributor,
benefited from strong stock and bond markets; and ACE Limited, a
leading multi-specialty property and casualty insurer, reported
sharply rising earnings from recently acquired lines of business.
Several consumer companies were also top contributors: General
Nutrition, the leading retailer of vitamins and health supplements
in the U.S., had strong sales and earnings gains; and Royal
Caribbean Cruises experienced extremely strong bookings on its
ships. The top contributor for the second half of 1997 was Cox
Communications, a cable company that is leading its industry in the
implementation of new services, particularly high-speed Internet
access and local telephone service.
The year's worst detractor to performance was Mercury Finance, a
leader in used automobile lending. Along with other investors, we
were victimized by suspected management fraud and manipulation of
financial statements and are seeking redress through legal action.
The fund was also hurt by its position in Boston Chicken, a
restaurant operator whose stock fell when an unanticipated slowdown
precipitated a reevaluation by investors of what was, in hindsight,
an overly aggressive expansion plan and a problematic financial
structure. The worst-performing industry in 1997 was precious
metals, as gold fell from a 1997 high of $370 per ounce to a low of
$283 near year-end. Our holdings in two growing gold companies, TVX
Gold and Cambior, also fell. Finally, the worst performer in the
second half was United States Surgical. Unanticipated weakness in
the company's base non-invasive surgery supply business undercut
exciting growth in new product lines.
Your fund remains well diversified across sectors. We have made
only modest changes in the last six months, as shown below.
Sector Diversification
6/30/97 12/31/97
___________________________________________________________
Financial 9% 9%
Health Care 10 12
Consumer 17 20
Technology 7 10
Business Services 28 28
Energy 7 5
Industrial 10 7
Basic Materials 2 2
Reserves 10 7
___________________________________________________________
Total 100% 100%
Investment Strategy and Outlook
As we begin 1998, the critical investment issue is whether the
Asian economic crisis will affect the U.S. stock market. We have
already seen tremendous damage inflicted on Asian financial markets
and are likely to see the economies of many of these countries
begin to contract. There will be derivative effects on western
nations that are difficult to predict at this stage. However, it is
apparent that the overinvestment in productive capacity in many
Asian nations will take time to absorb, and part of the solution
will inevitably involve greater exports of cheaper goods into the
United States and fewer imports of suddenly expensive American
goods into Asia. This may well slow the U.S. economy and further
dampen our inflation rate. If domestic labor markets continue to
tighten, the result could be a squeeze on corporate profits as
wages rise but companies are unable to pass through price
increases. In 1998, we may well find out how globally integrated
the world's economies have become.
One thing we do surmise is that we have entered a period of change.
This usually entails higher risks. Stock market volatility, which
increased significantly in 1997, is often a signal of change,
although it is rarely obvious at the time what those changes are.
We should note, however, that we manage your fund not by making
major macroeconomic judgments but by picking stocks we believe will
produce good returns over a reasonable time horizon. We will
continue to invest based on the precept that fundamental research
will deliver superior long-term results. We devote our time to
carefully researching and evaluating company fundamentals. While we
typically examine a multitude of factors before we invest, and
virtually never invest before a face-to-face meeting with a
company's management, several of the criteria we focus on include
the growth in the company's industry sector; the growth rate we
foresee for the company over the next several years; the strength
of a company's business model (competitive advantages such as brand
names, low cost production, and patent positions); management we
respect; strong financial characteristics such as good cash flow
and healthy balance sheets; and, finally, reasonable valuations.
Nevertheless, at the margin, we make adjustments over time to
respond to changing conditions. A year ago, there had been a
bifurcation in the mid-cap growth stock universe into two groups:
the momentum stocks, featuring fast-growing companies with
accelerating fundamentals trading at extremely high valuations; and
the plodders, growing more slowly and less assuredly, but trading
at dramatically lower valuations. In the last year, many (though
not all!) of the formerly high-flying momentum stocks have returned
to more reasonable valuations, and we are focused on some of these
faster growers. Conversely, we are emphasizing the plodders a
little less, not only because the valuation differential with the
faster growers has narrowed, but also because we believe that in a
more difficult pricing environment, the faster-growing companies
are generally less dependent on pricing for their growth.
While the stock market as a whole continues to trade near the upper
end of its traditional valuation range, low interest rates provide
some support as long as earnings growth continues. Relative to the
overall market, we believe mid-cap growth stocks look quite
attractive. The aggregate underlying growth rate of our portfolio
companies is well in excess of the market as a whole, yet the
price/earnings ratio is only modestly higher than the market, and
well below many of the blue chip leaders. In addition, many of our
mid-cap companies have little direct foreign exposure, a factor
that could be an advantage for the first time in several years.
Finally, the drop in the long-term U.S. capital gains tax rate
should favor small and mid-cap growth companies, most of which pay
little or no dividends in order to reinvest in their own growth. We
believe the mid-cap growth sector, and your fund in particular, are
well-positioned to achieve attractive returns over the long run.
Respectfully submitted,
Brian W. H. Berghuis
President and Chairman of the Investment Advisory Committee
January 19, 1998
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended 12/31/97
Ten Best Contributors
_____________________________________________
Cox Communications 7(cents)
Royal Caribbean Cruises 7
Outdoor Systems 7
ACE Limited 6
Cendant 6
Comcast 5
SunGard Data Systems 5
JP Foodservice 4
Cooper Cameron 4
PLATINUM technology 4
_____________________________________________
Total 55(cents)
Ten Worst Contributors
_____________________________________________
United States Surgical - 4(cents)
Vencor* 4
Cambior 4
TVX Gold 3
OEA 3
St. Jude Medical 3
Fairfax Financial 3
Great Lakes Chemical 2
Xilinx 2
Quest Diagnostics** 2
_____________________________________________
Total - 30(cents)
12 Months Ended 12/31/97
Ten Best Contributors
_____________________________________________
ACE Limited* 11(cents)
Franklin Resources* 9
Outdoor Systems* 9
Royal Caribbean Cruises* 9
General Nutrition* 9
Gartner Group* 8
Cooper Cameron* 8
Cox Communications* 7
TriMas* 7
SunGard Data Systems* 7
_____________________________________________
Total 84(cents)
* Position added.
** Position eliminated.
Ten Worst Contributors
_____________________________________________
Mercury Finance** - 17(cents)
Boston Chicken** 10
TVX Gold* 7
Cambior* 6
Corporate Express* 6
American Pad & Paper** 5
Ikon Office Solutions* 5
OEA* 5
Scholastic** 4
Tupperware** 4
_____________________________________________
Total - 69(cents)
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/97
_____________________________________________
Warnaco Group 2.1%
JP Foodservice 1.9
Biogen 1.8
Suiza Foods 1.8
TriMas 1.8
Affiliated Computer Services 1.8
Danaher 1.7
Royal Caribbean Cruises 1.6
Outdoor Systems 1.6
Culligan Water Technologies 1.5
Circuit City Stores 1.5
SunGard Data Systems 1.5
ACE Limited 1.5
PartnerRe Holdings 1.5
Cox Communications 1.4
DST Systems 1.4
Interim Services 1.4
Cendant 1.4
FINOVA Group 1.4
360 Communications 1.3
Network Associates 1.3
Galileo International 1.3
Franklin Resources 1.3
Teleflex 1.3
Costco Companies 1.2
_____________________________________________
Total 38.3%
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 12/31/97
Lipper Variable
Mid-Cap Annuity Underlying
Growth S&P MidCap Mid Cap
Portfolio Index Funds Average
12/31/96 $10,000 $ 10,000 $10,000
12/97 11,880 13,225 11,757
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 12/31/97
Since Inception
1 Year Inception Date
__________________________________________________________
18.80% 18.80% 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
_______________________
12/31/96
Through
12/31/97
NET ASSET VALUE
Beginning of period $ 10.00
Investment activities
Net realized and
unrealized gain (loss) 1.88
NET ASSET VALUE
End of period $ 11.88
_________
Ratios/Supplemental Data
Total return 18.80%
Ratio of expenses to
average net assets 0.85%
Portfolio turnover rate 40.3%
Average commission rate paid $ 0.0460
Net assets, end of period
(in thousands) $ 15,272
The accompanying notes are an integral part of these financial
statements.
Statement of Net Assets
T. Rowe Price Mid-Cap Growth Portfolio
December 31, 1997
Shares/Par Value
In thousands
Common Stocks 92.8%
FINANCIAL 8.5%
Insurance 3.8%
ACE Limited 2,350 $ 227
Fairfax Financial (CAD) * 600 134
PartnerRe Holdings 4,800 223
584
Financial Services 4.7%
Capital One Financial 3,100 168
FINOVA Group 4,200 209
Franklin Resources 2,300 200
INMC Mortgage Holdings 5,900 138
715
Total Financial 1,299
HEALTH CARE 12.1%
Pharmaceuticals 1.6%
Agouron Pharmaceuticals * 2,700 79
ALZA (Class A) * 5,000 159
238
Biotechnology 2.9%
Biogen * 7,700 281
Gilead Sciences * 4,300 165
446
Medical Instruments and
Devices 2.8%
St. Jude Medical * 4,200 128
Sybron International * 3,300 155
United States Surgical 5,200 152
435
Health Care Services 4.8%
Cardinal Health 1,800 135
Covance * 9,400 187
Omnicare 5,400 168
Quorum Health Group * 7,100 186
Vencor * 2,100 51
727
Total Health Care 1,846
CONSUMER 19.6%
Soft Goods Retailers 2.1%
Gymboree * 6,500 178
Kohl's * 2,100 143
321
Hard Goods Retailers 6.6%
BJ's Wholesale Club * 5,400 $ 170
Circuit City Stores 6,500 231
Costco Companies * 4,200 187
Fred Myer * 4,400 160
General Nutrition * 4,600 156
ShopKo Stores * 4,600 100
1,004
Consumer Non-Durables 3.7%
Culligan Water
Technologies * 4,700 236
Warnaco Group (Class A) 10,300 323
559
Restaurants 0.9%
Outback Steakhouse * 4,600 133
133
Food and Beverages 1.8%
Suiza Foods * 4,600 274
274
Entertainment 1.6%
Royal Caribbean Cruises 4,700 251
251
Consumer Services 2.9%
Cendant * 6,141 211
La Quinta Inns 6,500 126
Stewart Enterprises
(Class A) 2,400 112
449
Total Consumer 2,991
TECHNOLOGY 10.3%
Computer Software 4.4%
BMC Software * 1,800 118
Intuit * 2,000 83
Network Associates * 3,850 203
PLATINUM technology * 1,500 42
Security Dynamics
Technologies * 2,300 82
Synopsys * 3,800 136
664
Semiconductors and Components 3.6%
Analog Devices * 4,200 117
Maxim Integrated Products * 4,000 138
Microchip Technology * 2,900 87
PMC-Sierra * 2,500 78
Xilinx * 3,600 $ 126
546
Networking and Telecom Equipment 0.5%
Anixter International * 4,800 79
79
E-Commerce 1.8%
Checkfree * 4,000 109
Sterling Commerce * 4,400 169
278
Total Technology 1,567
BUSINESS SERVICES 28.2%
Telecom Services 6.4%
360 Communications * 10,100 204
Cincinnati Bell 3,400 106
Comcast (Class A Special) 5,800 183
Cox Communications
(Class A) * 5,500 220
Omnipoint * 4,600 107
Paging Network * 10,700 115
Vanguard Cellular
(Class A) * 3,600 46
981
Computer Services 7.0%
Affiliated Computer Services
(Class A) * 10,300 271
DST Systems * 5,050 216
Galileo International 7,300 202
National Data 4,000 144
SunGard Data Systems * 7,400 229
1,062
Distribution 6.0%
Corporate Express * 11,400 147
Fastenal 1,500 58
Henry Schein * 1,400 49
Ikon Office Solutions 2,700 76
JP Foodservice * 7,899 292
MSC * 3,600 153
Richfood Holdings 5,000 141
916
Media and Advertising 3.4%
ADVO * 1,900 37
Catalina Marketing * 3,200 148
Jacor Communications * 1,900 101
Outdoor Systems * 6,200 $ 238
524
Real Estate Services 1.1%
Security Capital Group
(Class B) * 5,000 163
163
Environmental 1.0%
USA Waste Services * 3,700 145
145
Miscellaneous Business Services 3.3%
AccuStaff * 5,000 115
Gartner Group (Class A) * 4,800 179
Interim Services * 8,300 215
509
Total Business Services 4,300
ENERGY 5.0%
Exploration and Production 0.8%
United Meridian * 4,300 121
121
Energy Services 4.2%
Camco International 2,800 178
Cooper Cameron * 2,700 165
Smith International * 2,500 153
Weatherford Enterra * 3,400 149
645
Total Energy 766
INDUSTRIAL 6.9%
Defense and Aerospace 1.0%
BE Aerospace * 5,600 150
150
Auto Related 0.3%
OEA 1,900 55
55
Specialty Chemicals 0.9%
Great Lakes Chemical 3,100 139
139
Machinery 4.7%
Danaher 4,000 252
Teleflex 5,100 193
TriMas 7,900 272
717
Total Industrial 1,061
BASIC MATERIALS 1.6%
Mining 1.6%
Battle Mountain Gold
(Class A) 21,400 $ 126
Cambior 8,400 49
TVX Gold * 22,600 76
Total Basic Materials 251
Miscellaneous Common Stocks 0.6% 96
Total Common Stocks
(Cost $12,352) 14,177
Short-Term Investments 8.3%
Money Market Funds 8.3%
Government Reserve Investment
Fund
5.55%# 1,259,591 1,259
Total Short-Term Investments
(Cost $1,259) 1,259
Total Investments in
Securities
101.1% of Net Assets (Cost
$13,611) $ 15,436
Other Assets Less Liabilities (164)
NET ASSETS $ 15,272
_________
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions 83
Net unrealized gain (loss) 1,825
Paid-in-capital applicable to 1,285,661
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000 shares
of the corporation authorized 13,364
NET ASSETS $ 15,272
_________
NET ASSET VALUE PER SHARE $ 11.88
_________
* Non-income producing
# Seven-day yield
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
12/31/96
Through
12/31/97
Investment Income
Income
Interest $ 53
Dividend 27
Total income 80
Expenses
Investment management and
administrative 80
Net investment income -
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
on securities 83
Change in net unrealized gain or
loss on securities 1,825
Net realized and unrealized gain (loss) 1,908
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,908
_________
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
12/31/96
Through
12/31/97
Increase (Decrease) in Net Assets
Operations
Net realized gain (loss) $ 83
Change in net unrealized
gain or loss 1,825
Increase (decrease) in net
assets from operations 1,908
Capital share transactions*
Shares sold 17,090
Shares redeemed (3,726
)
Increase (decrease) in net
assets from capital
share transactions 13,364
Net Assets
Increase (decrease) during period 15,272
Beginning of period -
End of period $ 15,272
_________
*Share information
Shares sold 1,637
Shares redeemed (351)
Increase (decrease) in shares
outstanding 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, 1997
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.
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.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $15,666,000 and $3,397,000, respectively,
for the year ended December 31, 1997.
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.
At December 31, 1997, the aggregate cost of investments for federal
income tax and financial reporting purposes was $13,611,000 and net
unrealized gain aggregated $1,825,000 of which $2,291,000 related
to appreciated investments and $466,000 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. 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, 1997, totaled
$23,000 and are reflected as interest income in the accompanying
Statement of Operations.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price 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 constituting T. Rowe Price Equity Series, Inc.,
hereafter referred to as the "Fund") at December 31, 1997, and the
results of its operations, the changes in its net assets and the
financial highlights for the period December 31, 1996 (commencement
of operations) through December 31, 1997, 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 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, 1997 by correspondence with custodians 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 21, 1998
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 (12/97)
K15-068 12/31/97
