Annual Report
December 31, 1997
Equity Income 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
Equity Income Portfolio
Annual Report
December 31, 1997
Dear Investor
The equity market performed well in 1997 as good corporate
earnings results, continued low inflation, and a supportive
interest rate environment provided ample ammunition to fuel the
advance. The performance of stocks in the second half was
particularly impressive in light of the market's October jitters
and concern over the volatility of the Asian markets.
Performance Comparison
Periods Ended 12/31/97 6 Months 12 Months
______________________________________________________________
Equity Income Portfolio 12.26% 28.85%
S&P 500 10.58 33.36
Lipper Variable Annuity
Underlying Equity Income
Funds Average* 10.84 29.13
* The Portfolio was inadvertently excluded by Lipper in
calculating these average returns.
Portfolio returns over the last six months exceeded both the
Lipper Variable Annuity Underlying Equity Income Funds Average
and the unmanaged Standard & Poor's 500 Stock Index. For the
year as a whole, the fund was roughly in line with the Lipper
average and trailed the broad market; it is not uncommon for
conservative funds like Equity Income to underperform the S&P
500 in very strong years such as 1997.
Equity returns were notably impressive coming on the heels of
considerable market strength in 1995 and 1996. The 1995-1997
period, in fact, is the first time in modern history that stock
market returns have exceeded 20% in three consecutive years.
DISTRIBUTIONS
Your Board of Directors declared a fourth quarter income
dividend of $0.12 per share, bringing your 1997 total to $0.40
per share. At the same time, a $0.51 per share capital gain
distribution was declared, of which $0.24 represented short-term
gains and $0.27 long-term gains. These distributions were paid
on December 30, 1997, to shareholders of record on December 26.
PORTFOLIO STRATEGY
The past year was characterized by tremendous stock market
volatility. Equities struggled in the first quarter,
particularly in the small-capitalization sector, but prices
rebounded sharply in the second and third quarters. The fourth
quarter returned to a pattern of mixed results as weakness in
October, culminating with the decline of 554 points for the Dow
Jones Industrial Average on October 27, was more than offset by
steady gains in November and December.
Security Diversification Pie Chart:
Common Stocks 91%
Bonds 1%
Reserves 8%
In this volatile environment, we tried to tune out as much
short-term noise as possible by doing what we have always done:
identify reasonably valued investment opportunities with
attractive yields and price/earnings ratios, good upside
potential, and limited downside risk.
No example demonstrates the fickle nature of investor behavior
better than AT&T, a company we discussed in our December 1996
report. At the time, the price of AT&T's stock had languished
for several years. The company's problems were analyzed in the
media almost daily. Few Wall Street brokerage firms found
anything positive to say about the firm or its shares, which in
our opinion represented an attractive investment opportunity.
Today new management is in place, investor sentiment has turned
positive, and the stock price has rebounded strongly. We are
naturally attracted to situations fraught with controversy like
this one. As long as investor psychology ebbs and flows, there
will be ample opportunities to uncover promising investments.
As the Major Portfolio Changes table following this letter
demonstrates, we executed a number of transactions over the last
six months, adding major new holdings such as Norfolk Southern,
Eastman Kodak, and Olin. These companies, in our opinion,
possess interesting valuation characteristics and the potential
for price gains in the year ahead. The largest sales during the
second half were securities whose prices had advanced to the
point where we no longer felt comfortable with their relative
valuations. Our largest sale was Tambrands, which was acquired
by Procter & Gamble last summer. Another acquisition-related
sale was ITT, which is being bought by Starwood Lodging at a
significant premium to our cost.
In our last few reports, we commented on our holdings in the
electric utility and telephone company sectors. Thankfully,
these stocks performed well in the last six months after several
years of underperformance. Strong price appreciation in stocks
such as Bell Atlantic, BellSouth, BGE, and Unicom helped your
fund's return in the second half of the year.
In terms of overall portfolio structure, as shown in the
security diversification table on page 1, 91% of fund assets
were invested in equities at year-end, up from 86% six months
earlier; 1% was in bonds, and 8% in short-term money market
instruments.
SUMMARY AND OUTLOOK
The equity market has provided investors with three
unprecedented years of prosperity, culminating with the gains of
the last six months, and the investment environment has been
exceptionally conducive to good returns. As prices have
advanced, the market's valuation appeal and likely near-term
upside potential have diminished.
We are mindful of how virtually impossible it is to make
accurate market predictions, and we never try to manage your
fund based on someone else's market forecasts. However, we do
question how long the "delinkage" between the underlying rate of
corporate earnings and dividend growth on one hand, and the more
rapid advance of security prices on the other, can continue. The
volatility we experienced in the opening weeks of 1998, due in
part to the turmoil in Asia, is a reminder that investing
entails risks that sometimes get in the way of positive returns.
While our emphasis is solely on uncovering interesting
investment values, we believe it is prudent to have more modest
expectations for equity market performance in the year ahead.
As always, we will strive to make sound investments on your
behalf, and we appreciate your continued confidence and support.
Respectfully submitted,
Brian C. Rogers
President and Chairman of the Investment Advisory Committee
January 23, 1998
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/97
______________________________________________________
AT&T 1.9%
Mellon Bank 1.8
Dow Chemical 1.6
Atlantic Richfield 1.5
ALLTEL 1.3
Union Pacific 1.3
American Home Products 1.2
Philip Morris 1.2
SBC Communications 1.1
Pharmacia & Upjohn 1.1
GTE 1.1
Exxon 1.1
Mobil 1.0
Anheuser-Busch 1.0
UST 1.0
J.C. Penney 1.0
Bell Atlantic 0.9
Fannie Mae 0.9
International Flavors &
Fragrances 0.9
GE 0.9
Texaco 0.9
Duke Energy 0.9
DuPont 0.9
Chase Manhattan 0.9
St. Paul Companies 0.9
_____________________________________________________________
Total 28.3%
______________________________________________________
Portfolio Highlights
Major Portfolio Changes
Six Months Ended 12/31/97
Listed in descending order of size
LARGEST PURCHASES (10)
______________________________________________________
Norfolk Southern*
Eastman Kodak*
Union Pacific
United States Surgical*
Philip Morris
American Home Products
Olin*
AT&T
Transamerica*
GM
LARGEST SALES (10)
_______________________________________________________
Tambrands**
Novartis**
GM
Betz Laboratories**
Georgia-Pacific
Kellogg**
Eaton**
ITT
Gannett**
Unilever N.V.
* Position added
** Position eliminated
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.
Equity Income Portfolio
As of 12/31/97
Lipper Variable
Annuity Underlying
Equity Income Equity Income
Portfolio S&P 500 Funds Average
3/31/94 $ 10,000 $10,000 $ 10,000
12/94 10,715 10,532 10,405
12/95 14,439 14,489 13,805
12/96 17,263 17,816 16,425
12/97 22,244 23,760 21,263
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.
Equity Income Portfolio
Periods Ended 12/31/97
Since Inception
1 Year 3 Years Inception Date
_________________________________________________________
28.85% 27.57% 23.73% 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
For a share outstanding throughout each period
Year 3/31/94
Ended Through
12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of
period $ 15.26 $ 13.21 $ 10.42 $ 10.00
Investment activities
Net investment
income 0.40 0.42 0.44 0.30
Net realized and
unrealized
gain (loss) 3.94 2.13 3.05 0.41
Total from
investment
activities 4.34 2.55 3.49 0.71
Distributions
Net investment
income (0.40) (0.42) (0.44) (0.29)
Net realized
gain (0.61) (0.08) (0.26) -
Total distri-
butions (1.01) (0.50) (0.70) (0.29)
NET ASSET VALUE
End of period $ 18.59 $ 15.26 $ 13.21 $ 10.42
_______________________________________
Ratios/Supplemental Data
Total return 28.85% 19.56% 34.76% 7.15%
Ratio of expenses
to average net
assets 0.85% 0.85% 0.85% 0.85%!
Ratio of net
investment
income to average
net assets 2.56% 2.94% 3.61% 3.88%!
Portfolio turnover
rate 20.5% 17.4% 10.1% 21.3%!
Average
commission
rate paid $ 0.0327 $ 0.0359 - -
Net assets, end
of period
(in thousands) $ 344,724 $ 103,751 $ 14,658 $ 2,191
! Annualized.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Equity Income Portfolio
December 31, 1997
Shares/Par Value
In thousands
Common Stocks 90.7%
FINANCIAL 15.7%
Bank and Trust 9.0%
BANC ONE 50,570 $ 2,747
BankBoston 20,700 1,944
Bankers Trust New York 25,200 2,833
Chase Manhattan 27,804 3,045
First Union 39,410 2,020
Fleet Financial Group 34,100 2,555
J. P. Morgan 25,400 2,867
Mellon Bank 102,600 6,220
Mercantile Bankshares 39,350 1,525
National City 26,800 1,762
PNC Bank 24,900 1,421
Wells Fargo 5,966 2,025
30,964
Insurance 4.6%
American General 48,700 2,633
EXEL 33,300 2,110
Hilb, Rogal and Hamilton 11,600 224
Lincoln National 24,000 1,875
SAFECO 35,300 1,719
St. Paul Companies 36,400 2,987
Transamerica 18,900 2,013
USF&G 58,300 1,286
Willis-Corroon ADR 89,100 1,097
15,944
Financial Services 2.1%
American Express 18,700 1,669
Fannie Mae 56,500 3,224
Travelers Group 44,999 2,425
7,318
Total Financial 54,226
UTILITIES 17.6%
Telephone Services 9.3%
ALLTEL 110,700 4,546
AT&T 104,900 6,425
BCE 55,300 1,842
Bell Atlantic 35,500 3,230
BellSouth 43,400 2,444
Frontier 50,000 1,203
GTE 71,400 3,731
SBC Communications 52,671 $ 3,858
Southern New England
Telecommunications 34,700 1,746
Sprint 26,300 1,542
U S WEST Communications 31,750 1,433
32,000
Electric Utilities 8.3%
BGE 32,100 1,093
Central and South West 42,300 1,145
Dominion Resources 41,650 1,773
DQE 51,612 1,813
Duke Energy 56,600 3,134
Entergy 53,400 1,599
FirstEnergy 84,820 2,460
GPU 15,100 636
Houston Industries 71,100 1,897
PacifiCorp 60,200 1,644
PECO Energy 57,800 1,402
PG&E 30,700 934
Public Service Enterprise 32,700 1,036
Southern Company 106,100 2,745
Teco Energy 41,500 1,167
Unicom 82,500 2,537
Western Resources 35,200 1,514
28,529
Total Utilities 60,529
CONSUMER NONDURABLES 17.0%
Cosmetics 0.9%
International Flavors &
Fragrances 62,100 3,198
3,198
Beverages 1.6%
Anheuser-Busch 81,000 3,564
Brown-Forman (Class B) 33,700 1,862
5,426
Food Processing 3.6%
Cadbury Schweppes (GBP) 91,600 925
General Mills 39,900 2,858
Heinz 46,000 2,337
McCormick 77,800 2,183
Quaker Oats 51,800 2,733
Sara Lee 26,200 1,475
12,511
Hospital Supplies/Hospital
Management 2.9%
Abbott Laboratories 31,700 $ 2,078
Bausch & Lomb 40,500 1,605
Baxter International 24,900 1,256
C. R. Bard 30,200 946
Smith & Nephew (GBP) 457,000 1,351
United States Surgical 89,900 2,635
9,871
Pharmaceuticals 2.7%
American Home Products 56,000 4,284
Amgen 19,900 1,077
Pharmacia & Upjohn 103,592 3,794
9,155
Miscellaneous Consumer Products 5.3%
Armstrong World 18,800 1,405
Colgate-Palmolive 6,400 471
Fortune Brands 49,600 1,838
Philip Morris 87,700 3,974
PPG Industries 29,100 1,662
RJR Nabisco 45,300 1,699
Tomkins (GBP) 466,200 2,205
Unilever N.V. ADR 25,600 1,599
UST 95,900 3,542
18,395
Total Consumer Nondurables 58,556
CONSUMER SERVICES 6.0%
General Merchandisers 1.4%
J.C. Penney 57,200 3,450
May Department Stores 26,400 1,391
4,841
Specialty Merchandisers 0.4%
Tupperware 46,000 1,282
1,282
Entertainment and Leisure 0.9%
Hilton 38,300 1,140
ITT * 12,800 1,061
Reader's Digest (Class A) 43,900 1,037
Reader's Digest (Class B) 1,200 29
3,267
Media and Communications 3.3%
Dow Jones 42,500 2,282
Dun & Bradstreet 63,400 1,961
Knight-Ridder 53,200 2,766
McGraw-Hill 25,800 $ 1,909
R.R. Donnelly 64,900 2,418
11,336
Total Consumer Services 20,726
CONSUMER CYCLICALS 4.6%
Automobiles and Related 1.8%
Echlin 41,500 1,502
Genuine Parts 68,850 2,337
GM 37,600 2,279
6,118
Building and Real Estate 1.3%
Rouse 16,300 534
SECURITY CAPITAL
PACIFIC TRUST
REIT 25,400 616
Simon DeBartolo
Group, REIT 81,236 2,655
Weingarten Realty
Investors, REIT 14,900 668
4,473
Miscellaneous Consumer Durables 1.5%
Eastman Kodak 46,700 2,840
Whirlpool 45,600 2,508
5,348
Total Consumer Cyclicals 15,939
TECHNOLOGY 0.7%
Electronic Components 0.7%
AMP 53,400 2,243
Total Technology 2,243
CAPITAL EQUIPMENT 1.9%
Electrical Equipment 1.4%
GE 43,500 3,192
Hubbell (Class B) 33,700 1,662
4,854
Machinery 0.5%
Cooper Industries 36,867 1,806
1,806
Total Capital Equipment 6,660
BUSINESS SERVICES AND TRANSPORTATION 4.6%
Transportation Services 0.2%
Alexander & Baldwin 25,050 $ 688
688
Miscellaneous Business Services 1.7%
Deluxe Corp. 17,500 604
GATX 14,200 1,030
H&R Block 55,500 2,487
Waste Management 58,000 1,595
5,716
Railroads 2.7%
Burlington Northern
Santa Fe 23,000 2,138
Norfolk Southern 94,300 2,906
Union Pacific 70,300 4,389
9,433
Total Business Services
and Transportation 15,837
ENERGY 11.5%
Energy Services 0.8%
Witco 72,000 2,938
2,938
Gas Transmission 0.5%
Enron 38,000 1,579
1,579
Integrated Petroleum - Domestic 4.4%
Amerada Hess 43,600 2,392
Atlantic Richfield 62,700 5,024
British Petroleum ADR 25,300 2,016
Occidental Petroleum 67,200 1,970
Phillips Petroleum 36,600 1,780
USX-Marathon 57,600 1,944
15,126
Integrated Petroleum - International 5.8%
Amoco 35,000 2,980
Chevron 36,650 2,822
Exxon 60,800 3,720
Mobil 49,900 3,602
Repsol ADR 29,500 1,256
Royal Dutch Petroleum ADR 45,700 2,476
Texaco 58,500 3,181
20,037
Total Energy 39,680
PROCESS INDUSTRIES 9.0%
Diversified Chemicals 3.6%
Dow Chemical 54,200 $ 5,501
DuPont 51,600 3,099
Eastman Chemical 21,100 1,257
Olin 50,600 2,372
12,229
Specialty Chemicals 2.9%
3M 13,000 1,067
Great Lakes Chemical 58,500 2,625
Imperial Chemical ADR 26,600 1,727
Lubrizol 37,200 1,372
Nalco Chemical 37,000 1,464
Pall 85,200 1,763
10,018
Paper and Paper Products 1.6%
Consolidated Papers 32,200 1,719
Kimberly-Clark 19,300 952
Union Camp 55,200 2,963
5,634
Forest Products 0.8%
Georgia-Pacific 14,900 905
International Paper 46,100 1,988
2,893
Building and Construction 0.1%
Georgia-Pacific Timber 14,900 338
338
Total Process Industries 31,112
BASIC MATERIALS 1.7%
Metals 1.1%
Inco 34,400 585
Reynolds Metals 30,200 1,812
USX-U.S. Steel 40,400 1,262
3,659
Mining 0.6%
LONRHO (GBP) 312,800 483
Newmont Mining 56,849 1,670
2,153
Total Basic Materials 5,812
Miscellaneous Common
Stocks 0.4% 1,439
Total Common Stocks (Cost
$267,066) 312,759
U.S. Government
Obligations/Agencies 0.9%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 500,000 $ 499
6.25%, 8/15/23 20,000 21
U.S. Treasury Notes
5.625%, 2/15/06 250,000 247
5.75%, 8/15/03 400,000 400
5.875%
11/15/99 - 2/15/04 920,000 923
6.50%, 5/31/01 700,000 717
7.00%, 7/15/06 400,000 432
Total U.S. Government
Obligations/Agencies
(Cost $3,107) 3,239
Short-Term Investments 8.4%
Money Market Funds 8.4%
Reserve Investment Fund
5.84%# 28,779,368 28,779
Total Short-Term Investments
(Cost $28,779) 28,779
Total Investments in Securities
100.0% of Net Assets (Cost
$298,952) $ 344,777
Other Assets Less Liabilities (53)
NET ASSETS $ 344,724
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ 975
Net unrealized gain (loss) 45,825
Paid-in-capital applicable to
18,540,425 shares of $0.0001
par value capital stock
outstanding; 1,000,000,000
shares of the corporation
authorized 297,924
NET ASSETS $ 344,724
_________
NET ASSET VALUE PER SHARE $ 18.59
_________
* Non-income producing
# Seven-day yield
ADR American Depository Receipt
REIT Real Estate Investment Trust
GBP British sterling
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Equity Income Portfolio
In thousands
Year
Ended
12/31/97
Investment Income
Income
Dividend $ 5,816
Interest 1,497
Total income 7,313
Expenses
Investment management
and administrative 1,821
Net investment income 5,492
Realized and Unrealized
Gain (Loss)
Net realized gain (loss)
Securities 10,104
Foreign currency transactions (22)
Net realized gain (loss) 10,082
Change in net unrealized gain
or loss
Securities 37,579
Other assets and liabilities
denominated in foreign currencies 1
Change in net unrealized gain
or loss 37,580
Net realized and unrealized
gain (loss) 47,662
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 53,154
_________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Equity Income Portfolio
In thousands
Year
Ended
12/31/97 12/31/96
Increase (Decrease) in
Net Assets
Operations
Net investment income $ 5,492 $ 1,502
Net realized gain (loss) 10,082 1,676
Change in net unrealized
gain or loss 37,580 6,821
Increase (decrease) in net
assets from operations 53,154 9,999
Distributions to shareholders
Net investment income (5,541) (1,787)
Net realized gain (9,992) (470)
Decrease in net assets
from distributions (15,533) (2,257)
Capital share transactions*
Shares sold 206,293 89,085
Distributions reinvested 15,533 2,256
Shares redeemed (18,474) (10,297)
Increase (decrease) in
net assets from capital
share transactions 203,352 81,044
Net equalization - 307
Net Assets
Increase (decrease) during
period 240,973 89,093
Beginning of period 103,751 14,658
End of period $ 344,724 $ 103,751
______________________
*Share information
Shares sold 11,952 6,273
Distributions reinvested 862 153
Shares redeemed (1,074) (736)
Increase (decrease) in
shares outstanding 11,740 5,690
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Equity Income 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 Equity Income 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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the valuations
are made. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market
for such security. Listed securities not traded on a particular day and
securities regularly traded in the over-the-counter market are valued at the
mean of the latest bid and asked prices. Other equity securities are valued
at a price within the limits of the latest bid and asked prices deemed by the
Board of Directors, or by persons delegated by the Board, best to reflect
fair value.
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.
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. Effective January 1, 1997, the fund
discontinued its practice of equalization. The results of operations and net
assets were not affected by this change.
Note 2 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $214,456,000 and $39,294,000, 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.
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, 1997. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
Undistributed net investment
income $ 49,000
Undistributed net realized gain (49,000)
At December 31, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $298,952,000, and net unrealized
gain aggregated $45,825,000, of which $48,069,000 related to appreciated
investments and $2,244,000 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 $218,000 was payable at December 31, 1997. 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 $519,000 and are reflected as interest income in the
accompanying Statement of Operations.
During the year ended December 31, 1997, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $88,000 with
certain affiliates of the manager and paid commissions of $200 related
thereto.
T. Rowe Price Equity Income Portfolio
Tax Information (Unaudited) for the Tax Year Ended 12/31/97
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $4,546,000 from short-term capital gains, and
o $5,446,000 from long-term capital gains; of which $2,606,000 was subject
to the 20% rate gains category.
For corporate shareholders, 52% of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Equity Series, Inc.
and Shareholders of 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 financial
highlights present fairly, in all material respects, the financial position
of Equity Income 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 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, 1997 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 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
TRP654 (12/97)
K15-052 12/31/97
