T. Rowe Price
Mid-Cap Growth Portfolio
Semiannual Report
June 30, 1999
Dear Investor
The U.S. stock market continued its long, upward climb in the first half of
1999. Large-company stocks, as measured by the S&P 500, continued to lead the
market, gaining 12.38% compared with 6.87% for the S&P MidCap Index. However,
this result masked a strong resurgence by small- and mid-cap stocks starting in
April.
Performance Comparison
Periods Ended 6/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio 11.21% 16.21%
S&P MidCap Index 6.87 17.18
Russell Midcap Growth Index 14.19 20.31
Lipper Variable Annuity
Underlying Mid Cap
Funds Average 13.00 17.27
After a 22.08% gain in 1998, the Mid-Cap Growth Portfolio rose a solid
11.21% in the first half of 1999, as shown in the table. This result
exceeded the return of the S&P MidCap Index, but lagged the Russell Midcap
Growth Index and the Lipper Variable Annuity Underlying Mid Cap Funds
Average. For the 12-month period, the fund rose 16.21%, a good return in
absolute terms but behind the various benchmarks.
Market Environment
The U.S. economy continued its robust growth in the first half, driven by
exuberant consumer spending. Unemployment hovered close to 30-year lows;
consumer confidence measures were at record highs; and the savings rate
dipped below zero for the first time, meaning that Americans were actually
disinvesting. Asian economies began to strengthen somewhat, and energy
prices rebounded sharply from their lows of last December. Since weak Asian
demand and low energy prices have been two of the key underpinnings of the
disinflationary environment of the last couple of years, investors sold
bonds, causing interest rates to rise from about 5% at year-end to about 6%
at the end of June. The Federal Reserve, in an effort to preempt the first
hints of inflation, nudged up short-term interest rates on June 30, the
first such increase in two years. While markets are often affected by
events in Washington, the impeachment process effectively paralyzed the
political agenda for the last year.
The stock market's first-half rally came in spite of rising interest rates.
Sentiment remained ebullient, especially toward technology stocks-and
Internet stocks in particular. Technology stocks gained over 30% in the
first half, and have now more than doubled from their lows of October 1998.
The Internet sector rose about 50% in the first half, although these stocks
had a volatile second quarter that ended with a slight overall decline. The
quarterly lows for many of these stocks were less than half of their highs
for the quarter. This was a speculative market, and the best-performing
stocks tended to be those with slim prospects of earnings or cash flows in
the intermediate future.
Beyond the Internet, the big story of the first half may have been the
resurgence of small- and mid-cap stocks after more than five years of
large-cap hegemony. While large-caps continued their outperformance in the
first quarter, the market's leadership changed abruptly in April, and
small-caps, mid-caps, and cyclicals outperformed in the second quarter. It
is not yet certain whether the small- and mid-cap move was simply a
technical bounce from the lowest relative valuations in 40 years, reached
in March, or an inflection point at which investors began to recognize the
attractiveness of these sectors.
Portfolio Review
Given the magnitude of the technology rally, it is not surprising that
technology stocks represented four of the top 10 contributors to the
portfolio's performance in the first half, even though our technology
positions tend to be smaller than the average position in the fund. We do
this to reduce specific stock risk and dampen the portfolio's volatility.
The top technology contributors in the half included SCI Systems, a leading
electronic manufacturing outsourcing company that we bought at depressed
prices this spring, and Xilinx, a leading specialty semiconductor company
that is benefiting from strong demand and a new product cycle.
The two top contributors to performance for both the 6- and 12-month
periods were companies that are benefiting from the use of technology. The
best performer was Western Wireless, a leading rural cellular service
provider in the mountain states, which is posting strong subscriber growth.
It recently spun out to its shareholders a subsidiary, VoiceStream
Wireless, an urban wireless company that we believe has a chance to
leverage its regional operation to become a much more valuable national
wireless provider. The portfolio's second-best contributor was longtime
holding Circuit City Stores, a leading consumer electronics retailer. The
stock nearly doubled in the first half as investors realized that the
company was beginning to benefit from a huge new wave of products such as
digital televisions, digital video disc players, and digital camcorders.
The worst detractor to first half performance was Network Associates, a
network security software company that fell well short of earnings
expectations after stumbling badly integrating several acquisitions. We
eliminated the stock. The second-worst performer in the period was
Omnicare, a provider of pharmaceuticals and related services to nursing
homes. The company recently announced disappointing earnings related to
changes in Medicare reimbursement policies. Investor sentiment toward the
health care services sector is extremely negative (note that four of our
worst 10 performers this year are in this segment). The basic issue is that
everyone favors more and better health care, but no one wants to pay for
it. The federal government, as the largest payer, is squeezing the revenues
of many of these companies. Nevertheless, we believe that valuations in
this sector are overly depressed, and that the stocks of the better
companies, like Omnicare, will recover and perform well over time.
As we noted in previous reports, the merger boom in Corporate America
continues to have an effect on the portfolio at the margin. In the last six
months, another half dozen or so of our holdings have been acquired or
announced they were being acquired, including Alza, General Nutrition,
Omnipoint, Saville Systems, Outdoor Systems, and Richfood Holdings. While
we never invest in a company simply because we think it might be an
acquisition candidate, our valuation discipline tends to lead us to
companies that are attractive to corporate acquirers.
The portfolio remains well diversified across industry sectors. We sold
some of our technology holdings as the sector appreciated. Significant new
holdings since our last report include Republic Services Group, a solid
waste company, Ingram Micro, a leading electronics distributor, and NOVA, a
credit card processor.
Investment Strategy and Outlook
Sector Diversification
12/31/98 6/30/99
- --------------------------------------------------------------------------------
Financial 10% 9%
Health Care 11 12
Consumer 19 20
Technology 15 12
Business Services 29 30
Energy 2 3
Industrial 4 5
Basic Materials - -
Reserves 10 9
- --------------------------------------------------------------------------------
Though the Mid-Cap Growth Portfolio's first half performance was roughly in
line with its various benchmarks, this was not as strong a period as many
others in the fund's history. This is primarily attributable to our lack of
emphasis on technology and telecommunications, particularly the high-flying
Internet and telecommunications companies where we view valuations as
proble-matic. While we have benefited somewhat from Internet-related
investments, we find ourselves increasingly on the sidelines because
valuations appear high. Although we feel a bit like wallflowers at a
boisterous party, in the past we have found that maintaining valuation
discipline under similar circumstances has been rewarded in the long run.
We have stated before that we view the Internet as one of the great
technological advances of the modern age. In rapid fashion, the Internet is
transforming paradigms across industries just as profoundly as the changes
triggered by the development of national transportation and communications
networks and the introduction of electricity in the late nineteenth
century. Many industries and companies will experience great leaps in
efficiency that will change business processes, alter pricing structures,
and upset the status quo. Nevertheless, a speculative frenzy has developed
in our capital markets, where the normal market discipline of demanding
profitability, or at least a roadmap to positive cash flow, has not applied
to Internet companies. The current collective wisdom advocates massive
spending to build first mover advantages and gain category dominance. While
this sounds impressive, profitability must follow within a reasonable time
frame, or else we will find that significant companies have been built on
business models lacking long-term viability. This might be analogous to
building a house without a foundation.
Some of the current Internet favorites may prove to be the blue chip
companies of the new century. However, many will flounder and even
disappear. The current beneficent environment for Internet stocks will
likely end long before we have to sort out the winners from the losers.
However, the longer the current speculation persists, the more Internet
spending will affect non-Internet companies, positively and negatively. For
instance, while the broadcasting industry is benefiting mightily from
Internet advertising, bookstores are suffering from slower growth as
Internet retailers garner incremental share, albeit at prices that do not
appear to be viable in the long run.
Moving beyond the Internet, we believe that earnings growth remains the key
driver to continued small- and mid-cap outperformance relative to larger
companies. The fact of the matter is that large U.S. companies have grown
their earnings at a faster rate than small- and mid-caps over the last few
years. This is a direct outgrowth, in our opinion, of a revolution in
American corporate management philosophy that emphasizes efficiency, return
on investment, and shareholder value. Large-company earnings have grown
much faster than sales over this period, and the key question is, How long
can this last? At some point, the higher internal growth of small- and
mid-cap companies will be recognized, probably as large-cap earnings
momentum begins to slow. Even though mid-cap stocks have recovered slightly
from their record low relative valuations in April, we believe they remain
compelling in comparison with large-caps. We continue to believe that the
Mid-Cap Growth Portfolio remains well positioned to achieve attractive
returns over time.
On a final note, we are delighted to report that John Wakeman has been
named executive vice president of the fund. John has been an integral part
of the fund management team since the fund's inception, and this
appointment recognizes his substantial contribution and role.
Respectfully submitted,
Brian W.H. Berghuis
President and
Chairman of the Investment Advisory Committee
John F. Wakeman
Executive Vice President
July 19, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/99
- --------------------------------------------------------------------------------
Circuit City Stores 2.5%
Affiliated Computer Services 2.0
Galileo International 1.8
Republic Services 1.8
NOVA 1.8
Waddell & Reed Financial 1.7
Warnaco Group 1.6
SCI Systems 1.6
Western Wireless 1.6
Jones Apparel Group 1.5
Analog Devices 1.4
Outdoor Systems 1.4
Whole Food Markets 1.4
Suiza Foods 1.4
BJ Services 1.4
VoiceStream Wireless 1.4
U.S. Foodservice 1.4
Royal Caribbean Cruises 1.3
Xilinx 1.3
BJ's Wholesale Club 1.3
Premier Parks 1.3
PMC-Sierra 1.3
Synopsys 1.2
SunGard Data Systems 1.2
Family Dollar Stores 1.2
- --------------------------------------------------------------------------------
Total 37.8%
- --------------------------------------------------------------------------------
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended 6/30/99
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
Western Wireless 28(cents)
Circuit City Stores 19
SCI Systems * 11
Xilinx 11
BJ Services 11
PMC-Sierra 10
Univision Communications 10
Smith International 10
Jones Apparel Group 9
Analog Devices 9
- --------------------------------------------------------------------------------
Total 128(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Network Associates ** - 13
Omnicare 13
Romac International 11
AmeriSource Health * 6
MSC 5
Total Renal Care Holdings 5
Henry Schein 5
Allied Waste Industries ** 4
Suiza Foods 4
NOVA 4
- --------------------------------------------------------------------------------
Total - 70
- --------------------------------------------------------------------------------
12 Months Ended 6/30/99
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
Western Wireless 30(cents)
Circuit City Stores 21
Xilinx 21
Biogen 20
Analog Devices 14
PMC-Sierra 14
Univision Communications 14
Gilead Sciences 12
SCI Systems * 11
Netscape Communications *** 11
- --------------------------------------------------------------------------------
Total 168(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Omnicare - 14(cents)
Warnaco Group 11
Paging Network ** 10
Romac International 10
Quorum Health Group ** 9
Corporate Express ** 8
Security Capital Group ** 8
MSC 8
Renaissance Worldwide ** 8
AMRESCO ** 7
- --------------------------------------------------------------------------------
Total - 93(cents)
- --------------------------------------------------------------------------------
* Position added
** Position eliminated
*** Position added and 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. An index
return does not reflect expenses, which have been deducted from the fund's
return.
Mid-Cap Growth Portfolio
As of 6/30/99
MGP S&P Lipper
12/31/96 10000 10000 10000
6/30/97 10630 11299 10703
6/30/98 13880 14367 13232
6/30/99 16129 16836 15709
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 6/30/99
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
16.21% 21.12% 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
(Unaudited)
For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year 12/31/96
Ended Ended Through
6/30/99 12/31/98 12/31/97
NET ASSET VALUE
Beginning of period $ 14.27 $ 11.88 $ 10.00
Investment activities
Net investment income -- (0.01) --
Net realized and
unrealized gain (loss) 1.60 2.61 1.88
Total from investment
activities 1.60 2.60 1.88
Distributions
Net realized gain -- (0.21) --
NET ASSET VALUE
End of period $ 15.87 $ 14.27 $ 11.88
Ratios/Supplemental Data
Total return(diamond) 11.21% 22.08% 18.80%
Ratio of total expenses to
average net assets 0.85%! 0.85% 0 .85%!
Ratio of net investment income
to average net assets (0.07)%! (0.11)% --
Portfolio turnover rate 51.2%! 47.8% 40.3%
Net assets, end of period
(in thousands) $53,427 $29,911 $15,272
(diamond) 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 Mid-Cap Growth Portfolio
June 30, 1999 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 91.2%
FINANCIAL 9.3%
Bank and Trust 0.8%
North Fork Bancorporation 20,200 $ 430
430
Insurance 3.8%
ACE Limited 9,200 260
E.W. Blanch 3,400 232
Fairfax Financial (CAD) * 1,000 268
MGIC Investment 8,300 404
Protective Life 12,800 422
Radian Group 9,200 449
2,035
Financial Services 4.7%
Capital One Financial 10,100 562
Heller Financial 18,300 509
The CIT Group (Class A) 18,600 537
Waddell & Reed Financial
(Class A) 24,300 667
Waddell & Reed Financial
(Class B) 8,100 219
2,494
Total Financial 4,959
HEALTH CARE 12.2%
Pharmaceuticals 2.4%
ALZA * 11,000 560
Shire Pharmaceuticals ADR * 5,300 137
Teva Pharmaceutical
Industries ADR 12,200 602
1,299
Biotechnology 3.5%
Biogen * 8,700 560
Centocor * 4,900 229
Gilead Sciences * 11,200 584
MedImmune * 6,000 407
Sepracor * 1,000 81
1,861
Medical Instruments and Devices 2.0%
Millipore 6,000 243
Sybron International * 21,100 582
Waters * 4,500 239
1,064
Health Care Services 4.3%
Covance * 19,900 $ 476
HCR Manor Care * 14,700 356
Omnicare 39,100 494
Total Renal Care Holdings * 27,500 428
Wellpoint Health Networks * 6,400 543
2,297
Total Health Care 6,521
CONSUMER 19.5%
Soft Goods Retailers 1.6%
Family Dollar Stores 26,300 631
Saks * 8,900 257
888
Hard Goods Retailers 8.8%
AutoZone * 12,200 367
BJ's Wholesale Club * 23,200 698
Borders Group * 16,500 261
Circuit City Stores 14,100 1,311
Costco Companies * 5,500 440
General Nutrition * 2,800 65
Kroger * 9,800 274
ShopKo Stores * 14,600 529
Whole Foods Market * 15,600 749
4,694
Consumer Non-Durables 3.8%
Boyds Collection Limited * 18,900 327
Jones Apparel Group * 24,000 824
Warnaco Group (Class A) 32,700 875
2,026
Restaurants 1.2%
Outback Steakhouse * 15,900 624
624
Food and Beverages 1.4%
Suiza Foods * 17,700 741
741
Entertainment 2.7%
Mirage Resorts * 3,700 62
Premier Parks * 18,600 683
Royal Caribbean Cruises 16,200 709
1,454
Total Consumer 10,427
TECHNOLOGY 12.2%
Computer Hardware 2.1%
Sanmina * 3,100 $ 235
SCI Systems * 18,300 869
1,104
Computer Software 3.4%
BMC Software * 6,100 329
Citrix Systems * 2,800 158
Intuit * 3,400 307
Parametric Technology * 26,900 374
Synopsys * 11,900 656
1,824
Peripherals 0.8%
Molex (Class A) 12,800 406
406
Semiconductors and Components 5.5%
Analog Devices * 15,000 753
KLA-Tencor * 4,300 279
Maxim Integrated Products * 7,900 525
PMC-Sierra * 11,500 678
Xilinx * 12,200 699
2,934
E-Commerce 0.4%
Sterling Commerce * 6,100 223
223
Total Technology 6,491
BUSINESS SERVICES 30.1%
Telecom Services 4.6%
Crown Castle International * 12,200 254
Omnipoint * 14,700 425
Rogers Communications * 11,600 188
Voicestream Wireless * 25,800 734
Western Wireless 32,000 865
2,466
Computer Services 10.5%
Acxiom * 18,000 449
Affiliated Computer Services
(Class A) * 20,800 1,053
Ceridian * 11,800 386
Concord EFS * 3,700 157
DST Systems * 1,750 110
Galileo International 17,700 946
National Data 12,900 551
NOVA * 37,500 $ 938
Saville Systems ADR * 26,900 391
SunGard Data Systems 18,900 652
5,633
Distribution 4.9%
AmeriSource Health * 20,200 515
Henry Schein * 12,500 396
Ingram Micro * 21,000 541
MSC * 15,900 163
Richfood Holdings 14,400 254
U.S. Foodservice * 17,100 729
2,598
Media and Advertising 3.2%
Catalina Marketing * 4,900 451
Clear Channel
Communications * 2,500 172
Outdoor Systems * 20,600 752
Univision Communications * 5,200 343
1,718
Environmental 1.8%
Republic Services (Class A) * 37,900 938
938
Miscellaneous Business Services 4.9%
CIBER * 28,100 537
Gartner Group (Class A) * 21,700 445
Interim Services * 22,300 460
Robert Half International * 8,800 229
Romac International * 26,100 231
Sodexho Marriott Services * 9,900 190
Viad 16,500 510
2,602
Transportation 0.2%
C.H. Robinson Worldwide 2,700 99
99
Total Business Services 16,054
ENERGY 2.9%
Energy Services 2.9%
BJ Services * 25,000 736
Ocean Energy * 25,500 246
Smith International 13,500 586
Total Energy 1,568
INDUSTRIAL 5.0%
Defense and Aerospace 0.6%
BE Aerospace * 16,700 $ 313
313
Specialty Chemicals 0.7%
Great Lakes Chemical 7,900 364
364
Machinery 3.7%
Danaher 9,800 569
Pentair 9,500 435
Teleflex 11,300 491
United Rentals * 17,700 522
2,017
Total Industrial 2,694
Total Common Stocks (Cost $39,251) 48,714
SHORT-TERM INVESTMENTS 10.5%
Money Market Funds 10.5%
Government Reserve Investment
Fund, 4.77% # 5,642,639 5,643
Total Short-Term Investments
(Cost $5,643) 5,643
Total Investments in Securities
101.7% of Net Assets (Cost $44,894) $54,357
Other Assets Less Liabilities (930)
NET ASSETS $53,427
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $(14)
Accumulated net realized gain/loss -
net of distributions 1,303
Net unrealized gain (loss) 9,463
Paid-in-capital applicable to 3,365,501
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000 shares of
the Corporation authorized 42,675
NET ASSETS $53,427
----------
NET ASSET VALUE PER SHARE $15.87
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Mid-Cap Growth Portfolio
(Unaudited)
In thousands
6 Months
Ended
6/30/99
Investment Income
Income
Interest $ 99
Dividend 47
Total income 146
Expenses
Investment management and administrative 160
Net investment income (14)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 1,262
Change in net unrealized gain or loss on securities 3,583
Net realized and unrealized gain (loss) 4,845
----------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $4,831
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Mid-Cap Growth Portfolio
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ (14) $ (21)
Net realized gain (loss) 1,262 394
Change in net unrealized gain or loss 3,583 4,055
Increase (decrease) in net
assets from operations 4,831 4,428
Distributions to shareholders
Net realized gain -- (415)
Capital share transactions*
Shares sold 24,814 20,628
Distributions reinvested -- 415
Shares redeemed (6,129) (10,417)
Increase (decrease) in net
assets from capital
share transactions 18,685 10,626
Net Assets
Increase (decrease) during period 23,516 14,639
Beginning of period 29,911 15,272
End of period $ 53,427 $ 29,911
------------ ------------
*Share information
Shares sold 1,696 1,598
Distributions reinvested -- 32
Shares redeemed (425) (821)
Increase (decrease) in shares outstanding 1,271 809
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Mid-Cap Growth Portfolio
June 30, 1999 (Unaudited)
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. 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 $25,733,000 and $8,922,000, respectively, for the
six months ended June 30, 1999.
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 June 30, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$44,894,000. Net unrealized gain aggregated $9,463,000 at period-end, of
which $11,137,000 related to appreciated investments and $1,674,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an all inclusive fee, of which
$17,000 was payable at June 30, 1999. The fee is computed daily and paid
monthly, and 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.
T. Rowe Price Mid-Cap Growth Portfolio
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 six months ended
June 30, 1999, totaled $99,000 and are reflected as interest income in the
accompanying Statement of Operations.
Invest With Confidence(registered trademark)
T. Rowe Price
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 (6/99)
K15-071 6/30/99
