T. Rowe Price
New America Growth Portfolio
Annual Report
December 31, 1998
Dear Investor
Stock prices were extraordinarily volatile in the second half of 1998, declining
sharply in late summer in response to renewed global economic concerns but then
rallying strongly in the fourth quarter to new all-time highs. Driven by a small
number of the largest-capitalization stocks, the S&P 500 Stock Index rose 9.22%
for the six months and 28.57% for the full year, marking a record fourth
consecutive year of gains in excess of 20%. Other more broad-based market
indices, however, registered quite different results as the average New York
Stock Exchange issue fell 1.25% for the year and the average Nasdaq stock
actually fell 11%. Even in the S&P 500, the average stock gained just 13% for
the year.
Your fund kept pace with the S&P 500 in the first half but declined much
more sharply in the third quarter. Despite a strong recovery in the last
three months, the New America Growth Portfolio trailed the S&P 500 by a
wide margin in the second half and for the full year, as noted in the
accompanying performance table. New America invests in both mid- and
large-cap growth issues and had minimal representation in the narrow list
of the largest-cap blue chips, which drove the S&P 500's return. We trailed
the performance of the average growth fund in 1998 for the same reason. We
still think that these market-leading stocks are at extended valuations,
and we continue to find better earnings growth and more reasonable
valuations in stocks outside the very largest companies.
Performance Comparison
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Periods Ended 12/31/98 6 Months 12 Months
New America
Growth Portfolio 1.20% 18.51%
S&P 500 9.22 28.57
Lipper Variable Annuity
Underlying Growth
Funds Average 6.90 24.94
Year-End Distribution
Your Board of Directors declared a long-term capital gain of $0.50 per
share, paid on December 17 to shareholders of record on December 15. You
should have already received a statement reflecting this distribution.
Market Environment
The U.S. economy performed exceptionally well again in 1998, providing an
excellent backdrop for the financial markets. Last year marked the eighth
consecutive year of economic growth, one of the longest such periods in
U.S. history. The consumer sector, which accounts for over two-thirds of
GDP, was the main engine for growth as employment levels surged and the
jobless rate fell to lows not seen in recent history. The manufacturing
sector, however, showed mixed results due to weakness in many other
economies around the world and increased global competition. Corporate
earnings rose overall, but more companies experienced downturns than at any
time since the 1990-1991 recession.
The lack of any meaningful inflationary pressure was another positive for
the financial markets. The consumer price index rose less than 2% in 1998
as commodity prices, including oil, were extremely weak and labor rates
remained under control despite record employment. Low inflation, slower
overall economic growth, and a generally strong dollar helped push yields
on long-term Treasury bonds below 5% for the first time in 30 years. This
"virtuous circle" was then completed as low interest rates in turn led to
higher price/earnings ratios and higher overall stock prices.
Investor confidence also remained robust during the year, and mutual fund
inflows were sizable but below the record levels of 1996 and 1997.
Investors all but ignored Washington as the midterm elections proved to be
a nonevent and Wall Street paid little attention to President Clinton's
growing legal problems, even as the impeachment process moved forward at
year-end.
The market did, however, experience its sharpest correction since 1990 in
the third quarter as stock prices fell 20% from peak to trough. The
catalyst for the sell-off was a financial crisis in Russia and several
other developing nations and related concern about the potential impact on
many of our largest financial institutions, which had direct and indirect
exposure to these suddenly questionable credits. This led to a credit
squeeze here at home, but fortunately Federal Reserve Chairman Alan
Greenspan took swift action, lowering interest rates in three successive
steps beginning September 30, and stock prices then rebounded to record
levels.
Preparing for the Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millennium. The issue for investors is that many
computer programs throughout the world use two digits instead of four to
identify the year and may assume the next century starts with 1900. If
these programs are not modified, they will not be able to correctly handle
the century change when the year changes from "99" to "00" on January 1,
2000, and they will no longer be able to perform necessary functions. The
Year 2000 issue affects all companies and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
Our Plan of Action
We began to address these issues several years ago by requiring that all
new systems process and store four-digit years. All critical systems have
been reprogrammed (including business applications required to service our
customers and processing infrastructure necessary to ensure the integrity
of customer data and investments), and they are currently being tested.
Because we exchange data electronically with customers and vendors, we are
working with them to assess the adequacy of their own compliance efforts.
Our goal is to ensure the continuation of the same level of service to all
our mutual fund shareholders and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be
able to modify their interface files prior to December 31, 1999. In
addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and
calculations function properly as we move into the next century.
Smooth Transition Planned
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products
or services to our retail mutual fund shareholders, retirement plan
sponsors, and participants, and we have modified them where necessary for
the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test
of Year 2000 readiness. The test was considered successful in terms of
transactions completed and will serve as the basis for the SIA's
industry-wide approach. During October 1998, T. Rowe Price completed its
beta test of Year 2000 readiness with the SIA and is ready for the
industry-wide test that is scheduled for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(www.troweprice.com).
As discussed at the outset, the S&P 500's strong return masked weakness
beneath the surface, as the average stock substantially trailed the overall
performance. Market leadership was extremely narrow, a phenomenon that
typically occurs late in a market cycle. Growth stocks were favored in 1998
as slower economic growth and weakness in the cyclical manufacturing and
industrial sectors drove investors to companies with more assured growth
prospects. Very large blue chip growth companies became a safe haven for
investors, although smaller and mid-size growth companies did not receive
the same attention. We were disappointed that our portfolio of primarily
domestic, high-growth, service-based businesses of all sizes did not
receive more investor focus.
Sector Diversification
---------------------------------------------------------------------------
12/31/97 6/30/98 12/31/98
---------------------------------------------------------------------------
Financial Services 19% 16% 15%
Consumer Services 35 36 39
Business Services 40 44 45
Reserves 6 4 1
---------------------------------------------------------------------------
Total 100% 100% 100%
Portfolio Review
Consumer stocks, especially retailers, were the portfolio's standout
performers in the last six months. Favorable employment trends and high
consumer confidence led to strong retail sales. Five of the fund's top 10
contributors in the latest six-month period were retailers, led by Office
Depot and Home Depot. We reestablished a position in Office Depot, a former
holding, when the company acquired another fund holding, Viking Office
Products. Food retailers Safeway and Fred Meyer were also strong
performers.
We added several new retailers-Williams-Sonoma, Abercrombie & Fitch, and
Saks-to the portfolio in September and October when the market was
concerned about the economic outlook. All rose sharply by year-end from
their initial purchase prices.
Communications companies were also very strong performers for the second
half as well as the full year. MCI WorldCom and AirTouch Communications,
the fund's two largest holdings at year-end, were our top contributors for
all of 1998. MCI WorldCom, the long distance carrier that was the product
of the merger last year between MCI and WorldCom, more than doubled in
price during the year. We owned both companies prior to the merger.
AirTouch, the leading domestic wireless-communications company, which
became the subject of takeover speculation itself around year-end, rose
nearly 75% in 1998.
Portfolio performance was hurt in the second half by our financial services
and health care holdings. Turmoil in the financial markets led to price
declines for Franklin Resources and Morgan Stanley Dean Witter, though
Morgan Stanley recovered substantially. Health care services was our
worst-performing group as continued pressures on service providers led to
sharp declines in our holdings, including Quorum Health Group, Concentra
Managed Care, and PhyCor.
Our worst performer for the year was Cendant, the fund's largest holding at
year-end 1997. Cendant's stock dropped precipitously in April when the
company announced the discovery of accounting irregularities. We reduced
our position significantly following this announcement. The stock continued
to decline in the summer and early fall as the accounting fraud was deeper
than originally thought, and as it took longer than expected for the
company to get its arms around the situation. When the stock fell below $10
in early October, down from a high of over $40 in April, we repurchased
much of what we had sold. The stock has nearly doubled since our latest
purchases, and the company is making substantial headway in resolving its
accounting and legal problems. The company continues to be solidly
profitable and generate sustainable free cash flow. We have confidence that
management is taking the right steps to get the company back on track.
Changes in sector weightings were relatively modest during the year. As the
accompanying Sector Diversification table shows, we reduced our holdings of
financial services stocks, principally by trimming some insurance
positions. The increase in consumer services shown reflects the addition of
the retailers mentioned earlier. Business services holdings increased due
to the continued buildup in media services positions, including new
holdings in Fox Entertainment Group and Infinity Broadcasting.
Portfolio Characteristics
---------------------------------------------------------------------------
New America
As of 12/31/98 Growth Portfolio S&P 500
---------------------------------------------------------------------------
Earnings Growth Rate
Estimated Next 5 Years* 20.9% 13.6%
Profitability-Return on
Equity Latest 12 Months 18.4 23.4
Dividend Yield on Stocks 0.3 1.3
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 23.8X 25.4X
* Earnings forecasts are based on T. Rowe Price research and are
in no way indicative of future investment returns.
Outlook
The stock market enters 1999 healthy on the surface but with some
disturbing undercurrents. The S&P 500 is near all-time highs reflecting a
still-growing economy, low inflation and interest rates, and strong
investor confidence. But market leadership is very narrow. The average NYSE
stock at year-end was 28% below its 1998 high, and the average Nasdaq stock
was 38% below its high. Only 57% of all public companies reported an
increase in earnings in their latest quarter. The speculation in any stock
even remotely related to the Internet is worrisome and symptomatic of a
market top.
We believe strong employment trends and continued low inflation make
another year of positive economic growth highly likely. Continued worldwide
economic and financial turbulence plus market speculation here at home
suggest that the stock market will remain highly volatile in 1999. While
the market leaders have extended valuations, most stocks, including the New
America Growth Portfolio's holdings, are more reasonably valued. Based on
our research analysts' estimates, we believe our portfolio will show
earnings growth over the next five years of 20.9% annually compared with
13.6% for the S&P 500, as shown in the table. Yet the average price/
earnings ratio for the portfolio's holdings is 23.8 times estimated
calendar 1999 earnings, a discount to the S&P 500's P/E of 25.4 times. We
believe the portfolio is positioned for improved relative performance in
1999.
Respectfully submitted,
John H. Laporte
President and Chairman of the Investment Advisory Committee
Brian W.H. Berghuis
Executive Vice President
January 28, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
Percent of
Net Assets
12/31/98
- --------------------------------------------------------------------------------
MCI WorldCom 3.4%
AirTouch Communications 3.1
Office Depot 2.9
Comcast 2.7
Waste Management 2.6
Cendant 2.5
Freddie Mac 2.5
Chancellor Media 2.3
Outdoor Systems 2.3
Telecom Liberty Media 2.2
The CIT Group 2.1
Affiliated Computer Services 2.1
Home Depot 2.1
Fred Meyer 2.0
Circuit City Stores 1.9
Costco Companies 1.9
Carnival 1.9
Galileo International 1.8
Total Renal Care Holdings 1.8
Associates First Capital 1.8
BISYS Group 1.8
Acxiom 1.8
AutoZone 1.7
SunGard Data Systems 1.6
Catalina Marketing 1.6
- --------------------------------------------------------------------------------
Total 54.4%
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
- --------------------------------------------------------------------------------
6 Months Ended 12/31/98
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
MCI WorldCom 30(cents)
Comcast 21
Williams-Sonoma * 17
Home Depot 17
Freddie Mac 17
Fred Meyer 15
Office Depot 15
AirTouch Communications 14
Safeway 13
Catalina Marketing 11
- ------------------------------------------------------------------------------
Total 170(cents)
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Franklin Resources - 26(cents)
General Nutrition 26
Cole National 23
Sinclair Broadcast Group ** 20
Concentra Managed Care 18
Quorum Health Group 18
Republic Industries ** 17
Paging Network ** 16
PhyCor ** 13
Metamor Worldwide 13
- --------------------------------------------------------------------------------
Total - 190(cents)
12 Months Ended 12/31/98
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
MCI WorldCom 50(cents)
AirTouch Communications 34
Comcast 33
Office Depot 30
Home Depot 29
Telecom Liberty Media 27
Outdoor Systems 25
Carnival 23
Safeway 22
Freddie Mac 22
- --------------------------------------------------------------------------------
Total 295(cents)
TEN WORST CONTRIBUTORS
- -------------------------------------------------------------------------------
Cendant - 37(cents)
General Nutrition 29
PhyCor ** 24
Concentra Managed Care * 23
Quorum Health Group 17
Republic Industries ** 16
Smith International 15
Sinclair Broadcast Group ** 14
Cole National 13
Corporate Express ** 12
- --------------------------------------------------------------------------------
Total - 200(cents)
* 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.
New America Growth Portfolio
- --------------------------------------------------------------------------------
As of 12/31/98
Lipper
New America S&P 500 Variable Annuity
Growth Stock Underlying Growth
Portfolio Index Funds Average
3/31/94 10,000 10,000 10,000
12/94 10,100 10,532 10,236
12/95 15,260 14,489 13,580
12/96 18,325 17,816 16,391
12/97 22,195 23,760 20,775
12/98 26,303 30,547 26,210
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.
New America Growth Portfolio
Periods Ended 12/31/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
18.51% 19.90% 22.56% 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 Through
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 21.35 $ 17.67 $ 15.23 $ 10.10 $ 10.00
Investment activities
Net investment income (0.08) -- 0.04 0.03 0.01
Net realized and
unrealized gain (loss) 3.97 3.73 2.94 5.12 0.09
Total from investment
ativities 3.89 3.73 2.98 5.15 0.10
Distributions
Net investment income -- -- (0.04) (0.02) --
Net realized gain (0.50) (0.05) (0.50) -- --
Total distributions (0.50) (0.05) (0.54) (0.02) --
NET ASSET VALUE
End of period $ 24.74 $ 21.35 $ 17.67 $ 15.23 $ 10.10
----------------------------------------------------
Ratios/Supplemental Data
Total return# 18.51% 21.12% 20.09% 51.10% 1.00%
Ratio of expenses to
average net assets 0.85% 0.85% 0.85% 0.85% 0.85%!
Ratio of net investment
income to average
net assets (0.34)% 0.02% 0.18% 0.23% 0.15%!
Portfolio turnover rate 46.0% 37.3% 27.2% 54.5% 81.0%!
Net assets, end of period
(in thousands) $118,989 $ 96,991 $ 60,241 $ 12,304 $ 2,028
# Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
! 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, 1998
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 99.3%
CONSUMER SERVICES 39.2%
Retailing/General Merchandisers 5.6%
Costco Companies * 31,000 $ 2,242
Fred Meyer * 40,000 2,410
Safeway * 19,900 1,213
Saks * 25,000 789
6,654
Retailing/Specialty Merchandisers 12.5%
Abercrombie & Fitch
(Class A) * 13,500 955
AutoZone * 62,000 2,042
Circuit City Stores 46,000 2,297
Cole National (Class A) * 55,000 942
General Nutrition * 83,500 1,354
Home Depot 40,000 2,448
Office Depot * 93,500 3,454
Williams-Sonoma * 35,000 1,411
14,903
Entertainment and Leisure 4.3%
Carnival (Class A) 46,000 2,208
Extended Stay America * 110,000 1,155
Premier Parks * 58,000 1,754
5,117
Restaurants/Food Distribution 1.5%
Outback Steakhouse * 44,000 1,752
1,752
Personal Services 7.6%
Apollo Group (Class A) * 45,000 1,522
Avis Rent A Car * 67,000 1,620
Cendant * 157,500 3,002
Service Corp. International 27,500 1,047
Sylvan Learning Systems * 60,000 1,832
9,023
Communication Services 7.7%
AirTouch Communications * 51,500 3,714
MCI WorldCom * 56,500 4,056
Western Wireless * 65,000 1,428
9,198
Total Consumer Services 46,647
BUSINESS SERVICES 44.4%
Health Care Services 4.0%
Concentra Managed Care * 66,700 $ 707
McKesson 16,000 1,265
Quorum Health Group * 49,000 632
Total Renal Care Holdings * 72,500 2,143
4,747
Computer Services 10.4%
Acxiom * 68,000 2,104
Affiliated Computer
Services (Class A) * 54,500 2,453
BISYS Group * 41,000 2,114
First Data 50,000 1,584
Galileo International 49,500 2,153
SunGard Data Systems * 48,500 1,925
12,333
Environmental Services 4.1%
Allied Waste Industries * 75,000 1,772
Waste Management 67,000 3,124
4,896
Other Business Services 8.4%
ADVO * 45,000 1,187
Catalina Marketing * 27,500 1,880
Gartner Group (Class A) * 53,000 1,126
Interim Services * 68,500 1,601
Metamor Worldwide * 62,500 1,551
Modis Professional Services * 115,000 1,668
Paychex 20,500 1,055
10,068
Energy Services 1.7%
Schlumberger 30,000 1,384
Smith International * 24,500 617
2,001
Transportation Services 0.9%
Coach USA * 32,400 1,124
1,124
Media Services 14.9%
Chancellor Media * 57,500 2,751
Comcast (Class A Special) 54,000 3,171
Fox Entertainment Group * 69,000 1,738
Infinity Broadcasting * 55,000 1,505
Jacor Communications * 29,000 1,876
Outdoor Systems * 90,000 2,700
Telecom Liberty
Media (Series A) * 57,000 $ 2,627
Tribune 20,000 1,320
17,688
Total Business Services 52,857
FINANCIAL 15.4%
Bank and Trust 1.5%
Wells Fargo 45,000 1,797
1,797
Insurance 2.2%
ACE Limited 30,500 1,050
Fairfax Financial (CAD) * 2,000 707
MGIC Investment 21,500 856
2,613
Investment Services 4.0%
Franklin Resources 57,000 1,824
Morgan Stanley Dean Witter 23,500 1,668
Waddell & Reed
Financial (Class B) * 50,100 1,165
4,657
Other Financial 7.7%
Associates First Capital
(Class A) 50,000 2,119
CIT Group (Class A) 77,500 2,466
Fannie Mae 22,000 1,628
Freddie Mac 46,000 2,964
9,177
Total Financial 18,244
Miscellaneous Common Stocks 0.3% 376
Total Common Stocks (Cost $82,048) 118,124
Short-Term Investments 0.7%
Money Market Fund 0.7%
Reserve Investment Fund
5.42% # 911,117 $ 911
Total Short-Term Investments (Cost $911) 911
Total Investments in Securities
100.0% of Net Assets (Cost $82,959) $ 119,035
Other Assets Less Liabilities (46)
NET ASSETS $ 118,989
----------
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ 1,407
Net unrealized gain (loss) 36,076
Paid-in-capital applicable to
4,809,243 shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares of the
corporation authorized 81,506
NET ASSETS $ 118,989
----------
NET ASSET VALUE PER SHARE $ 24.74
----------
# Seven-day yield
* Non-income producing
CAD Canadian dollar
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
12/31/98
Investment Income
Income
Dividend $ 303
Interest 252
Total income 555
Expenses
Investment management and administrative 925
Net investment income (370)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 3,712
Change in net unrealized gain or loss on securities 13,748
Net realized and unrealized gain (loss) 17,460
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 17,090
---------
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
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (370) $ 13
Net realized gain (loss) 3,712 65
Change in net unrealized gain or loss 13,748 15,691
Increase (decrease) in
net assets from operations 17,090 15,769
Distributions to shareholders
Net realized gain (2,354) (227)
Capital share transactions*
Shares sold 32,866 36,823
Distributions reinvested 2,354 227
Shares redeemed (27,958) (15,842)
Increase (decrease) in
net assets from capital
share transactions 7,262 21,208
Net Assets
Increase (decrease) during period 21,998 36,750
Beginning of period 96,991 60,241
End of period $ 118,989 $ 96,991
---------------------------------
*Share information
Shares sold 1,429 1,964
Distributions reinvested 107 11
Shares redeemed (1,270) (842)
Increase (decrease)
in shares outstanding 266 1,133
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price New America Growth Portfolio
December 31, 1998
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.
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.
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.
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 $57,803,000 and $48,047,000, respectively, for the
year ended December 31, 1998.
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, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $370,000
Paid-in-capital (370,000)
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$82,959,000. Net unrealized gain aggregated $36,076,000 at period-end, of
which $39,699,000 related to appreciated investments and $3,623,000 to
depreciated investments.
T. Rowe Price New America Growth Portfolio
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 $61,000 was payable at December 31, 1998. 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, 1998, totaled $252,000 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 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 New America Growth Portfolio (one of portfolios comprising T. Rowe Price
Equity Series, Inc., hereafter referred to as the "Fund") at December 31,
1998, 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, 1998 by correspondence
with custodians, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
T. Rowe Price New America Growth Portfolio
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
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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 distribution included $2,354,000 from long-term capital gains,
subject to the 20% rate gains category.
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InvestWith Confidence(registered trademark)
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for dis-
tribution only to those who have
received a copy of the portfolio's
prospectus.
T. Rowe Price Investment Services, Inc., Distributor TRP652 (12/98)
K15-055 12/31/98
