Annual Report
December 31, 1999
Equity Income Portfolio
T. Rowe Price, Invest With Confidence(registration mark)
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
Dear Investor
The last year of the millennium will be remembered as the year the S&P 500
continued its unprecedented five-year streak of returns in excess of 20%, but
also as the year in which more S&P 500 stocks declined than advanced. It was
unquestionably a disappointing year for value stocks and your fund with its
conservative orientation. Without trying to dodge any bullets, we were affected
by some factors that were beyond our control, but with the benefit of hindsight,
there are some stocks we could have avoided in favor of others.
Performance Comparison
---------------------------------------------------------------------------
Periods Ended 12/31/99 6 Months 12 Months
---------------------------------------------------------------------------
Equity Income Portfolio -7.69% 3.72%
S&P 500 7.71 21.04
Lipper Variable Annuity
Underlying Equity Income
Funds Average -1.14 9.78
As we reported in our last letter, the Equity Income Portfolio enjoyed a
very strong first six months of the year, almost matching the S&P 500 and
surpassing the Lipper universe of comparably managed funds. However, during
the second half of 1999, we struggled relative to the broad market and the
Lipper average and generated a total return of 3.72% for the year ended
December 31, 1999. We adopted a more conservative posture toward the
high-flying technology sector than many other funds in our peer group,
which accounted for the shortfall versus other equity income funds. As you
check the fund's results in the Performance Comparison table, we would like
to call your attention to the big gap between equity income funds in
general and the S&P 500. We will comment in detail about this issue in the
Portfolio Strategy section.
DIVIDEND DISTRIBUTIONS
On December 14, your Board of Directors declared a fourth quarter income
dividend of $0.10, bringing the total for 1999 to $0.38. On the same day, a
$0.78 capital gain distribution was declared of which $0.13 was short term
and $0.65 long term. The dividend and capital gain distributions were paid
on December 16, 1999, to shareholders of record on December 14.
PORTFOLIO STRATEGY
In terms of overall market environment, 1999 was characterized by a
pronounced investor preference for growth stocks and an advance led by a
relatively small number of companies. The business press and general media
have consistently focused on the market's daily gyrations along with the
most dramatic and volatile issues traded, usually the latest "dot-com"
wonders. Time's "Person of the Year" award went to the CEO of a well-known
but highly unprofitable Internet company.
It is hard to imagine that in the context of such robust stock market
performance, more than half of the stocks in the S&P 500 declined in value
while the rest advanced, in some cases significantly. Most of the
excitement centered on the Nasdaq Composite dominated by technology stocks,
which enjoyed the lion's share of gains last year. The major factor behind
our lagging relative performance was our underweighting in technology, a
sector that nearly doubled in value in 1999. We would not normally expect
to hold large positions in this sector, since the lofty valuations of most
technology shares exclude them as candidates for purchase. In terms of
market breadth, some of the most highly valued companies provided a
disproportionate amount of the S&P 500's return, with only seven companies
accounting for half of it.
Value investing was rendered even more challenging by a deteriorating
interest rate environment. As fixed income investors can testify, bond
returns were mostly negative as interest rates rose throughout the year.
Similarly, it was difficult to profit from investments in stocks with
above-average dividend yields since they, too, suffered as rates climbed.
It is revealing to examine what took place in the universe of stocks with
low price/earnings ratios and high dividends. The data show that,
perversely, the lower the price/earnings ratio and the higher the yield,
the more difficult the going in 1999 - the opposite of what one would
expect. In fact, the lowest P/E and highest-yielding stocks in the S&P 500
actually fell. Our performance suffered, since these are precisely the
kinds of stocks we hold in our portfolio. These factors were especially
detrimental during the second half of the year. However, every cloud has a
silver lining. Because of their weak performance in 1999, value stocks are
currently extremely attractive as they are selling at the greatest
price/earnings discount to the general market in 25 years.
Despite the setback for value stocks, a number of investments were
successful for us. The fund benefited from several companies involved in
mergers and acquisitions, and further activity in 2000 should help
performance. Our winners included BCE, Citigroup, Reynolds Metals, Dow
Jones, and US West. However, other solid companies were disappointing,
including our holdings in Bank One, National City, Heinz, and Waste
Management, which struggled through the year and largely offset our more
profitable investments. We took advantage of market volatility by adding
new positions and beefing up existing holdings. Among our purchases were
Disney, American Home Products, Lockheed Martin, Unilever, and Xerox. In
our view, these companies possess far more value and appreciation potential
than the market is currently giving them credit for.
Financial Profile
Equity Income
Portfolio S&P 500
---------------------------------------------------------------------------
Current Yield 2.7% 1.1%
Price/Book Ratio 3.5 8.1
Price/Earnings Ratio
(2000 estimated EPS) 17.5 28.1
Historical Beta
(based on monthly
returns for 5 years) 0.65 1.00
Our preference for high-yielding, lower P/E companies is evident in the
Financial Profile table, and it has been a consistent cornerstone of our
investment approach since the fund commenced operations. Given the wide
variations in performance among companies and sectors over the last two
years, we believe investors will eventually recognize the exciting
opportunities that exist in our segment of the market. We are not alone in
our frustration with recent market trends; the managers of many companies
we hold in the portfolio have told us about their own disappointment with
their firms' stock performance. Many of them are actively working to
enhance shareholder value through share repurchase programs, cost-cutting
measures, and strategically rethinking their business models. This type of
activity bodes well for value stocks in coming years.
SUMMARY AND OUTLOOK
Based on most historical measures, the equity market appears somewhat
expensive, as it has for some time now. The market's overall price/earnings
ratio is approaching 30 and the average dividend yield is barely above one
percent. A review of aggregate market value relative to GDP and other
valuation measures suggests at least some degree of overvaluation. Many
individual investors have focused almost exclusively on maximum short-term
returns with little regard for traditional long-term financial goals or
sensitivity to risk.
We expect the Fed to maintain its monetary stance in favor of tightening
with a view toward restraining inflation in a rapidly growing economy.
While the economic news and low rate of inflation continue to be positive,
it's difficult to envision an even more positive environment for stocks
than we have so far experienced. These factors prompt us to remain cautious
in our expectations for 2000. However, since so many sectors were left
behind in the great bull market of the past couple of years, many
interesting opportunities have become available in the midst of the general
euphoria.
In particular, we believe value stocks offer good potential for
appreciation especially when compared with some of the more extended
sectors of the market. The best strategy when our investment style has been
out of sync with the overall market has been to stick to basics and
concentrate on companies with below-average price/earning ratios and
above-average dividend yields. We will continue to manage the fund in our
traditionally conservative style.
As always, we appreciate your confidence in T. Rowe Price and your
continued support.
Respectfully submitted,
Brian C. Rogers
President and Chairman of the
Investment Advisory Committee
January 21, 2000
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/99
---------------------------------------------------------------------------
Exxon Mobil 3.3%
SBC Communications 1.8
International Paper 1.8
Mellon Financial 1.8
BP Amoco 1.7
Atlantic Richfield 1.7
GTE 1.6
American Home Products 1.5
Kimberly-Clark 1.5
ALLTEL 1.4
General Mills 1.4
Citigroup 1.4
Chevron 1.3
BCE 1.3
Bell Atlantic 1.2
DuPont 1.2
Disney 1.2
Fannie Mae 1.2
Fleet Boston Financial 1.2
3M 1.2
Pharmacia & Upjohn 1.2
Texaco 1.2
US West 1.1
Royal Dutch Petroleum 1.1
American General 1.1
---------------------------------------------------------------------------
Total 36.4%
---------------------------------------------------------------------------
Major Portfolio Changes
Six Months Ended 12/31/99
Listed in descending order of size
LARGEST PURCHASES (10)
---------------------------------------------------------------------------
Disney
Waste Management
Xerox*
UNUMProvident*
Lockheed Martin
American Home Products
Unilever NV
US West
Fort James
Hershey Foods
LARGEST SALES (10)
---------------------------------------------------------------------------
Browning-Ferris**
Honeywell International
GE**
Nalco Chemical**
Transamerica**
ALLTEL
Telebras**
Dow Chemical
Reynolds Metals
Chase Manhattan
---------------------------------------------------------------------------
*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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
SEC Chart: Equity Income Portfolio
Lipper
Annuity
Underlying Equity
Equity Income S&P 500 Income
Funds Average Index Portfolio
3/30/94 10,000 10,000 10,000
12/94 10,532 10,392 10,715
12/95 14,489 13,876 14,439
12/96 17,816 16,560 17,263
12/97 23,760 21,676 22,244
12/98 30,550 24,791 24,262
12/99 36,978 27,177 25,164
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 12/31/99
Since Inception
1 Year 3 Years 5 Years Inception Date
---------------------------------------------------------------------------
3.72% 13.38% 18.62% 17.40% 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 Equity Income Portfolio
For a share outstanding throughout each period
-------------------------------------------------------
Year
Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 19.25 $ 18.59 $ 15.26 $ 13.21 $ 10.42
Investment activities
Net investment
income (loss) 0.38 0.39 0.40 0.42 0.44
Net realized and
unrealized gain (loss) 0.33 1.27 3.94 2.13 3.05
Total from
investment activities 0.71 1.66 4.34 2.55 3.49
Distributions
Net investment income (0.38) (0.39) (0.40) (0.42) (0.44)
Net realized gain (0.85) (0.61) (0.61) (0.08) (0.26)
Total distributions (1.23) (1.00) (1.01) (0.50) (0.70)
NET ASSET VALUE
End of period $ 18.73 $ 19.25 $ 18.59 $ 15.26 $ 13.21
----------------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 3.72% 9.07% 28.85% 19.56% 34.76%
Ratio of total expenses to
average net assets 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment
income (loss) to average
net assets 1.90% 2.15% 2.56% 2.94% 3.61%
Portfolio turnover rate 32.6% 18.2% 20.5% 17.4% 10.1%
Net assets,
end of period
(in thousands) $595,433 $526,952 $344,724 $103,751 $ 14,658
(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.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Equity Income Portfolio
December 31, 1999
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 95.0%
FINANCIAL 15.4%
Bank and Trust 7.9%
Bank of America 74,200 $ 3,724
Bank One 142,227 4,560
Chase Manhattan 23,608 1,834
FirStar 96,400 2,029
Fleetboston Financial 201,817 7,026
J. P. Morgan 46,500 5,888
KeyCorp 52,700 1,166
Mellon Financial 308,800 10,518
Mercantile Bankshares 98,150 3,138
National City 87,800 2,080
Wells Fargo 117,660 4,758
46,721
Insurance 4.9%
American General 88,200 6,692
Chubb 77,200 4,347
Lincoln National 73,800 2,952
SAFECO 116,800 2,902
St. Paul 189,576 6,386
UNUMProvident 129,900 4,165
XL Capital (Class A) 37,400 1,940
29,384
Financial Services 2.6%
Citigroup 151,348 8,409
Fannie Mae 114,700 7,162
15,571
Total Financial 91,676
UTILITIES 14.1%
Telephone 9.5%
ALLTEL 103,900 8,591
AT&T 53,400 2,710
BCE ADR 85,800 7,738
Bell Atlantic 119,900 7,381
BellSouth 57,200 2,678
GTE 137,900 9,731
SBC Communications 224,968 10,967
US West 94,950 6,837
56,633
Electric Utilities 4.6%
DQE 78,912 $ 2,732
Duke Energy 91,800 4,601
Entergy 73,600 1,895
FirstEnergy 143,320 3,252
Niagara Mohawk * 85,900 1,197
Reliant Energy 94,900 2,171
Scottish Power ADR 80,388 2,251
Southern 172,300 4,049
Teco Energy 74,500 1,383
Unicom 119,600 4,007
27,538
Total Utilities 84,171
CONSUMER NONDURABLES 17.7%
Cosmetics 1.0%
International Flavors &
Fragrances 161,700 6,104
6,104
Beverages 1.7%
Anheuser-Busch 87,100 6,173
Brown-Forman (Class B) 69,500 3,979
10,152
Food Processing 6.3%
Campbell 97,500 3,772
General Mills 239,800 8,573
Heinz 136,800 5,446
Hershey Foods 109,000 5,178
Kellogg 86,500 2,665
McCormick 142,400 4,236
Quaker Oats 64,200 4,213
Unilever (EUR) 66,100 3,652
37,735
Hospital Supplies/Hospital Management 1.2%
Abbott Laboratories 101,800 3,697
Becton, Dickinson 45,200 1,209
Smith & Nephew (GBP) 702,500 2,360
7,266
Pharmaceuticals 3.2%
American Home Products 229,900 9,067
Merck 41,100 2,756
Pharmacia & Upjohn 153,592 6,912
18,735
Miscellaneous Consumer Products 4.3%
Armstrong World 82,700 $ 2,760
Fortune Brands 81,600 2,698
Hasbro 130,300 2,484
Philip Morris 179,200 4,155
PPG Industries 60,300 3,773
Stanley Works 147,400 4,440
UST 203,200 5,118
25,428
Total Consumer Nondurables 105,420
CONSUMER SERVICES 6.7%
General Merchandisers 0.7%
J.C. Penney 77,900 1,553
May Department Stores 88,700 2,861
4,414
Specialty Merchandisers 1.1%
Rite Aid 136,000 1,522
Toys "R" Us * 262,000 3,750
Tupperware 77,600 1,314
6,586
Entertainment and Leisure 2.1%
Disney 248,700 7,274
Hilton 259,400 2,497
Reader's Digest (Class A) 85,800 2,510
12,281
Media and Communications 2.8%
Dow Jones 56,900 3,869
Dun & Bradstreet 125,200 3,693
Knight-Ridder 102,800 6,117
R.R. Donnelley 108,700 2,697
16,376
Total Consumer Services 39,657
CONSUMER CYCLICALS 5.4%
Automobiles and Related 1.8%
Dana 56,700 1,698
Genuine Parts 151,250 3,753
GM 33,600 2,442
TRW 58,700 3,049
10,942
Building and Real Estate 2.0%
Rouse 112,900 2,399
Simon DeBartolo
Group, REIT 163,436 3,749
Starwood Hotels &
Resorts, Worldwide, REIT 177,505 $ 4,171
Vornado Realty
Trust, REIT 44,800 1,456
11,775
Miscellaneous Consumer Durables 1.6%
Eastman Kodak 98,600 6,532
Whirlpool 46,400 3,019
9,551
Total Consumer Cyclicals 32,268
TECHNOLOGY 4.0%
Electronic Systems 0.9%
Hewlett-Packard 47,200 5,378
5,378
Office Automation 0.7%
Xerox 177,900 4,036
4,036
Aerospace & Defense 1.9%
Boeing 93,200 3,874
Honeywell International 29,787 1,718
Lockheed Martin 269,500 5,895
11,487
Information Processing 0.5%
COMPAQ Computer 107,800 2,917
2,917
Total Technology 23,818
CAPITAL EQUIPMENT 0.9%
Electrical Equipment 0.4%
Hubbell 95,600 2,605
2,605
Machinery 0.5%
Cooper Industries 71,267 2,882
2,882
Total Capital Equipment 5,487
BUSINESS SERVICES AND TRANSPORTATION 3.6%
Miscellaneous Business Services 1.5%
GATX 36,400 1,228
H&R Block 78,600 3,439
Waste Management 227,372 3,908
8,575
Railroads 2.1%
Burlington Northern
Santa Fe 58,700 $ 1,424
Norfolk Southern 252,200 5,170
Union Pacific 136,100 5,937
12,531
Total Business Services and Transportation 21,106
ENERGY 14.0%
Energy Services 0.9%
Baker Hughes 258,100 5,436
5,436
Integrated Petroleum - Domestic 3.6%
Amerada Hess 101,700 5,771
Atlantic Richfield 115,700 10,008
Phillips Petroleum 51,800 2,435
USX-Marathon 119,800 2,958
21,172
Integrated Petroleum - International 8.6%
BP Amoco ADR 175,548 10,412
Chevron 92,150 7,982
Exxon Mobil 240,561 19,380
Royal Dutch Petroleum ADR 111,800 6,757
Texaco 127,000 6,898
51,429
Exploration & Production 0.9%
Unocal 163,800 5,498
5,498
Total Energy 83,535
PROCESS INDUSTRIES 11.2%
Diversified Chemicals 3.0%
Dow Chemical 42,500 5,679
DuPont 111,600 7,352
Hercules 179,200 4,995
18,026
Specialty Chemicals 3.4%
3M 70,800 6,930
CK Witco 110,257 1,475
Great Lakes Chemical 115,800 4,422
Imperial Chemical ADR 73,800 3,141
Pall 199,300 4,297
20,265
Paper and Paper Products 3.0%
Consolidated Papers 119,300 $ 3,795
Fort James 191,700 5,248
Kimberly-Clark 134,100 8,750
17,793
Forest Products 1.8%
International Paper 187,953 10,607
10,607
Total Process Industries 66,691
BASIC MATERIALS 2.0%
Metals 1.5%
Inco 94,500 2,221
Phelps Dodge 47,000 3,155
Reynolds Metals 47,200 3,616
8,992
Mining 0.5%
Newmont Mining 123,249 3,020
3,020
Total Basic Materials 12,012
Total Common Stocks (Cost $535,561) 565,841
U.S. GOVERNMENT OBLIGATIONS/AGENCIES 0.4%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 500,000 457
6.25%, 8/15/23 20,000 19
U.S. Treasury Notes
5.625%, 2/15/06 250,000 239
5.75%, 8/15/03 400,000 392
5.875%, 2/15/04 20,000 20
6.50%, 5/31/01 700,000 703
7.00%, 7/15/06 400,000 409
Total U.S. Government Obligations (Cost $2,220) 2,239
SHORT-TERM INVESTMENTS 5.6%
Money Market Funds 5.6%
Reserve Investment Fund
6.16% # 33,261,199 33,261
Total Short-Term Investments (Cost $33,261) 33,261
Total Investments in Securities
101.0% of Net Assets (Cost $571,042) $ 601,341
Other Assets Less Liabilities (5,908)
NET ASSETS $ 595,433
----------
Net Assets Consist of:
Accumulated net investment
income - net of distributions $ 9
Accumulated net realized gain/loss -
net of distributions 9,529
Net unrealized gain (loss) 30,299
Paid-in-capital applicable to 31,797,669
shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares authorized 555,596
NET ASSETS $ 595,433
----------
NET ASSET VALUE PER SHARE $ 18.73
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
EUR Euro
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
12/31/99
Investment Income (Loss)
Income
Dividend $ 14,263
Interest 1,670
Total income 15,933
Expenses
Investment management and administrative 4,929
Net investment income (loss) 11,004
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 33,150
Foreign currency transactions (2)
Net realized gain (loss) 33,148
Change in net unrealized gain or loss on securities (26,050)
Net realized and unrealized gain (loss) 7,098
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 18,102
----------
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
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 11,004 $ 9,569
Net realized gain (loss) 33,148 16,737
Change in net unrealized
gain or loss (26,050) 10,524
Increase (decrease) in
net assets from operations 18,102 36,830
Distributions to shareholders
Net investment income (11,093) (9,471)
Net realized gain (25,635) (15,696)
Decrease in net assets
from distributions (36,728) (25,167)
Capital share transactions*
Shares sold 126,172 201,955
Distributions reinvested 36,728 25,167
Shares redeemed (75,793) (56,557)
Increase (decrease) in
net assets from capital
share transactions 87,107 170,565
Net Assets
Increase (decrease)
during period 68,481 182,228
Beginning of period 526,952 344,724
End of period $ 595,433 $ 526,952
-----------------------
*Share information
Shares sold 6,291 10,502
Distributions reinvested 1,944 1,321
Shares redeemed (3,817) (2,983)
Increase (decrease) in
shares outstanding 4,418 8,840
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Equity Income Portfolio
December 31, 1999
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $236,724,000 and $177,593,000, respectively, for the
year ended December 31, 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 December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$571,042,000. Net unrealized gain aggregated $30,299,000 at period-end, of
which $77,770,000 related to appreciated investments and $47,471,000 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 $416,000 was payable at December 31, 1999. 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, 1999, totaled $1,472,000 and are reflected as interest income
in the accompanying Statement of Operations.
Tax Information (Unaudited) for the Tax Year Ended 12/31/99
- --------------------------------------------------------------------------------
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 $3,948,000 from short-term capital gains,
o $21,687,000 from long-term capital gains, subject to the 20% rate gains
category.
For corporate shareholders, $12,687,000 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 comprising T. Rowe Price
Equity Series, Inc., hereafter referred to as the "Fund") at December 31,
1999, 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 accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the
United States, 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, 1999 by correspondence with
custodians, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
