Annual Report
December 31, 1999
- --------------------------------------------------------------------------------
Mid-Cap Growth 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 U.S. stock market continued its relentless upward climb with a strong finish
to 1999. In fact, the large-cap S&P 500 Stock Index rose more than 20% for an
unprecedented fifth year in a row. Although large-company stocks have dominated
in recent years, small- and mid-cap stocks kept pace during the last 12 months.
Technology and telecom stocks dominated the market's advance, while most other
sectors languished.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio 11.26% 23.73%
S&P MidCap Index 7.34 14.72
Russell Midcap
Growth Index 32.49 51.29
Lipper Variable Annuity
Underlying Mid Cap
Funds Average 25.85 46.25
After a 22.08% gain in 1998, the Mid-Cap Growth Portfolio rose a solid
23.73% in 1999, as shown in the table. This result exceeded the return of
the unmanaged S&P MidCap Index, but trailed the returns of the Russell
Midcap Growth Index and the Lipper Variable Annuity Underlying Mid Cap
Funds Average, as our weightings in technology and Internet issues lagged
these benchmarks.
MARKET ENVIRONMENT
As we began the 1990s, with the economy sputtering under the weight of high
unemployment, low consumer confidence, and a decline in the stock market,
who would have predicted that the decade would end with the longest
economic expansion in U.S. history? As we begin the new millennium, the
economy appears to be in nearly perfect condition: Economic growth remains
robust, consumer confidence is at record levels, and inflation is close to
a 30-year low. But amid the exuberance of our time, subtle harbingers of
inflation give us pause. Asian economies have begun to recover from their
deep recessions, and European growth is also accelerating. Energy prices
rose sharply in 1999, as demand began to increase. Since weak Asian demand
and low energy prices had been viewed as key underpinnings of the
disinflationary environment in recent years, investors sold bonds, causing
long-term interest rates to rise from 5% to 6.5% during the year. The
inflation, increased short-term interest rates three times - in June,
August and November - yet still seems behind the curve.
While rising interest rates are not normally conducive to good stock market
performance, investor sentiment remained ebullient, especially toward
technology stocks, and Internet stocks in particular. Technology stocks
more than doubled during the year, and have now more than tripled from
their lows of October 1998. As if this performance were not remarkable
enough, Internet stocks rose considerably more. This was a very speculative
market, in which stocks of companies without earnings rose the most.
Winners were clustered in the technology, telecom, and biotech sectors,
while stocks in other industries generally declined for the year. In fact,
more New York Stock Exchange stocks fell than rose for the year, and the
median NYSE stock fell 7.4%.
After five years of large-cap hegemony, small- and mid-cap stocks performed
comparably to large-cap stocks in 1999. However, the larger story was
investment style. Riding the technology tsunami, growth investment
approaches at all capitalization levels trounced value investing,
delivering by some measures the largest-ever annual differential between
the two styles. Reflecting current investment performance, the press fawned
over Generation X entrepreneurs and pilloried icons of value investing such
as Warren Buffett.
PORTFOLIO REVIEW
Given the narrowness of the market's advance and the magnitude of the rally
in technology, telecom, and biotech stocks, it is not surprising that
virtually all of the fund's top contributors for both the last six months
and the year came from these three sectors. The top technology contributors
in both periods were PMC-Sierra, a leader in communications semiconductors,
Analog Devices, a leading semiconductor supplier specializing in
analog-to-digital processors, and SCI Systems, one of the top electronics
suppliers to the computer and telecommunications industries, which we
bought at depressed prices last spring.
The two top contributors to performance for both the 6- and 12-month
periods were Western Wireless, a leading rural cellular service provider in
the mountain states that is posting strong revenue growth, and VoiceStream
Wireless, an urban wireless company that we believe is in the process of
leveraging its regional operation to become a much more valuable national
wireless provider. Actually, VoiceStream was spun off from Western Wireless
in May 1999, so both stocks originate from the same investment. The two
stocks combined were up about ninefold at year-end from our purchase price
in the spring of 1998 and easily comprise the best investment in the
portfolio's history. The meteoric ascent of both stocks reflects strong
competitive positioning, outstanding management, and the market's
infatuation with wireless stocks.
The worst detractor to fund performance for the year was Network
Associates, a network security software company that fell well short of
earnings expectations after stumbling badly while integrating several
acquisitions. We eliminated the stock. The worst detriment to second half
performance came from Warnaco Group, a leading apparel company, which also
posted disappointing earnings results. Many of our worst contributors were
health care service companies. Most experienced disappointing earnings
results. We tend to sell companies that miss our expectations over time.
However, we added significantly to two health care holdings on the worst
contributors list - Omnicare, an institutional pharmacy provider, and
AmeriSource Health, a drug distributor - at prices we believed to be very
depressed. While both companies suffered unexpected pressures on their
businesses in 1999, in our opinion they are well managed and their
long-term growth prospects are little changed. We believe that, in
retrospect, the dramatic declines in both stocks will prove to have been
gross overreactions.
The portfolio remains well diversified across industry sectors. We have
sold some of our consumer stocks since midyear, and our technology
weighting has increased, mostly due to the sector's outperformance.
Significant new holdings since our last report include Hertz, the world's
leading car rental company, Manpower, a leader in staffing services, and
TJX, an off-price retail chain whose best known brands are T.J. Maxx and
Marshalls.
INVESTMENT STRATEGY AND OUTLOOK
Though the Mid-Cap Growth Portfolio's absolute return of 23.73% was very
respectable (and more than we should expect for most years going forward),
this was not as strong a period in relation to our benchmarks as many
others in the portfolio's history. This was primarily attributable to our
lack of emphasis on technology, particularly in the high-flying Internet
companies where we view valuations as problematic. This portfolio has
always invested in companies that, in our view, have strong managements,
proven business models, good financial characteristics, and reasonable
valuations. These companies were not generally rewarded in the stock market
in 1999.
Sector Diversification
- --------------------------------------------------------------------------------
6/30/99 12/31/99
- --------------------------------------------------------------------------------
Financial 9% 9%
Health Care 12 13
Consumer 20 14
Technology 12 17
Business Services 30 30
Energy 3 4
Industrial 5 4
Reserves 9 9
- --------------------------------------------------------------------------------
Total 100% 100%
In the last year, we have seen a dramatic dichotomy develop in the market.
On one hand, the New Economy stocks, consisting of technology,
telecommunications, biotechnology, and especially Internet issues, were
irrepressible. Hundreds of companies came public with little or no revenues
and scant prospects of earnings or positive cash flow for many years, yet
garnered fabulous valuations. It will be many years before we know whether
most of these new companies' business models work, and during that time,
they will be dependent on the capital markets to fund their losses. Day
traders drive many of these stocks, and their valuations are increasingly
divorced from reality. However, institutional investors have also joined
the fray, following the momentum of stock price performance. On the other
hand, Old Economy stocks have drifted, even though many of these companies
continue to grow nicely, generate strong cash flow, and sell at already
modest valuations. Wall Street views New Economy stocks as attractive at 20
times sales, but ignores Old Economy stocks at 10 times earnings. In the
mid-cap universe in 1999, the median gain for 58 stocks with negative
earnings was 34.3%; conversely, the median loss for 804 stocks with real
earnings was -10.3%. The best investment strategy in 1999 was to invest in
companies that lose money.
It is conceivable that technology companies will continue to grow and
maintain extraordinary rates of growth for years to come - but this would
be unprecedented. The technology sector is cyclical, and its structural
dynamics change rapidly. Many of today's darlings will be tomorrow's road
kill. Traditionally, failure rates have been highest in technology stocks.
Investors may be underestimating the difficulty these companies will have
staying ahead of the obsolescence curve.
The rapid innovation that is taking place is not good for incumbents, and
may not be good for investors, either, when the mania subsides. Let's look
at recent history. In the early 1980s, euphoria over the limitless
potential of the personal computer swept the market. Ultimately, the PC did
change our lives, but most of the stocks from that period failed miserably.
In the early 1990s, biotech stocks soared as investors dreamt of huge
advances in medical technology. Once again, the industry fulfilled much of
its promise, but investors suffered huge losses. In the nineteenth and
early twentieth centuries, similar waves of enthusiasm centered on exciting
industries of the future, such as railroads, electricity, and autos, and
the pattern was eerily similar. The lesson is clear: Most of today's
upstarts will be unable to build enduring companies or achieve
profitability, but, for a few, the rewards will be enormous.
Do not mistake us for Luddites. We own and use plenty of technology. The
current technology mania ultimately will be good for America. The deluge of
capital being lavished on the Internet sector is spurring tremendous
technological innovation which, in turn, is pushing workplace productivity
to new levels and providing consumers with a panoply of new choices that
enhance many aspects of daily life. The technology sector's fundamentals
are outstanding. But what does one pay for a New Economy stock? Valuations
based on earnings and cash flows have been discarded; even price-to-revenue
ratios are giving way to the notion of price to market opportunity. In this
environment, stocks take on a life of their own, detached from any inherent
value, moving in whichever direction the momentum takes them. Who's to say
a stock is worth $50, or even $500? Prices are restrained only by the
limits of imagination.
In the Mid-Cap Growth Portfolio, we are focused on identifying companies we
believe will be long-term beneficiaries of the Internet economy, and
sprinkling new names into the portfolio where we can justify their
valuations. For example, during the year we purchased Citrix Systems, a
leader in Internet application software, and Peregrine Systems, a provider
of electronic infrastructure management software. Recognizing that many Old
Economy companies will be losers in this fast-changing environment, we are
working to identify and eliminate holdings that will be negatively affected
over the long run. Nevertheless, we believe that one of the surprises of
the new year may be that many Old Economy companies, such as Circuit City,
with its new on-line shopping site, and Sotheby's, with its on-line auction
network, will successfully adapt their business models to the Internet
environment. If this were to narrow the valuation chasm between the new and
old economy stocks, watch out!
Moving beyond the Internet, we believe that earnings growth remains the key
to reestablishing mid-cap outperformance. 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 several 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.
However, large-company earnings have grown much faster than sales over this
period, and the 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
last 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.
Respectfully submitted,
Brian W.H. Berghuis
President and Chairman of the
Investment Advisory Committee
John F. Wakeman
Executive Vice President
January 8, 2000
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended 12/31/99
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
VoiceStream Wireless* 67(cents)
Western Wireless 34
PMC-Sierra 18
Analog Devices 17
MedImmune 16
SCI Systems* 14
Omnipoint** 12
Novell* 11
Xilinx 11
Intuit 10
- --------------------------------------------------------------------------------
Total 210(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Warnaco Group -13(cents)
Republic Services 12
Galileo International 11
Ingram Micro** 8
Covance** 7
AmeriSource Health 7
United Rentals 7
ShopKo Stores 7
Henry Schein 7
Total Renal Care Holdings** 6
- --------------------------------------------------------------------------------
Total -85(cents)
- --------------------------------------------------------------------------------
12 Months Ended 12/31/99
TEN BEST CONTRIBUTORS
- --------------------------------------------------------------------------------
VoiceStream Wireless* 68(cents)
Western Wireless 62
PMC-Sierra 28
Analog Devices 26
SCI Systems* 26
Xilinx 21
Omnipoint** 20
BJ Services 19
MedImmune 19
Circuit City Stores 18
- --------------------------------------------------------------------------------
Total 307(cents)
- --------------------------------------------------------------------------------
TEN WORST CONTRIBUTORS
- --------------------------------------------------------------------------------
Network Associates** -13(cents)
AmeriSource Health* 13
Warnaco Group 12
Romac International** 12
Omnicare 12
Henry Schein 11
Total Renal Care Holdings** 11
Covance** 11
Ingram Micro*** 9
Suiza Foods** 8
- --------------------------------------------------------------------------------
Total -112(cents)
- --------------------------------------------------------------------------------
* Position added
** Position eliminated
*** Position added and eliminated
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
12/31/99
- --------------------------------------------------------------------------------
VoiceStream Wireless 2.9%
Western Wireless 2.5
Analog Devices 2.2
SCI Systems 2.0
Circuit City Stores 2.0
NOVA 1.8
BJ Services 1.6
Affiliated Computer Services 1.5
Waddell & Reed Financial 1.5
Teva Pharmaceutical Industries 1.5
CIBER 1.4
BJ's Wholesale Club 1.3
MedImmune 1.3
Catalina Marketing 1.2
Whole Foods Market 1.2
U.S. Foodservice 1.2
Xilinx 1.2
Hertz 1.2
Smith International 1.1
Novell 1.1
Jones Apparel Group 1.1
Intuit 1.1
Synopsys 1.1
Wellpoint Health Networks 1.1
Viad 1.1
- --------------------------------------------------------------------------------
Total 37.2%
- --------------------------------------------------------------------------------
Note: Table excludes reserves.
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: Mid-Cap Growth Portfolio
Lipper Variable
S&P Mid Annuity Underlying Mid-Cap
Cap Index Mid Cap Funds Average Growth Portfolio
12/31/96 10,000 10,000 10,000
6/97 11,299 10,740 10,630
12/97 13,225 11,714 11,880
6/98 14,367 13,218 13,880
12/98 15,753 13,839 14,503
6/99 16,836 15,663 16,129
12/99 18,072 20,904 17,945
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Mid-Cap Growth Portfolio
Periods Ended 12/31/99
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
23.73% 21.52% 12/31/96
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Total returns do not include charges imposed by your insurance company's
separate account. If these were included, performance would have been lower.
Financial Highlights
T. Rowe Price Mid-Cap Growth Portfolio
For a share outstanding throughout each period
-----------------------------------------------
Year 12/31/96
Ended Through
12/31/99 12/31/98 12/31/97
NET ASSET VALUE
Beginning of period $14.27 $11.88 $10.00
Investment activities
Net investment
income (loss) - (0.01) -
Net realized and
unrealized
gain (loss) 3.37 2.61 1.88
Total from
investment activities 3.37 2.60 1.88
Distributions
Net realized gain (0.18) (0.21) -
NET ASSET VALUE
End of period $17.46 $14.27 $11.88
-----------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 23.73% 22.08% 18.80%
Ratio of total expenses
to average net assets 0.85% 0.85% 0.85%
Ratio of net
investment income
(loss) to average net assets 0.01% (0.11)% -
Portfolio turnover rate 48.1% 47.8% 40.3%
Net assets, end of period
(in thousands) $127,228 $ 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.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Mid-Cap Growth Portfolio
December 31, 1999
Shares Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS 90.8%
FINANCIAL 9.4%
Bank and Trust 0.9%
First Tennessee National 11,500 $ 328
North Fork Bancorporation 48,600 850
1,178
Insurance 3.5%
ACE Limited 42,600 711
E.W. Blanch 11,000 674
MGIC Investment 17,100 1,029
Protective Life 29,800 948
Radian Group 21,800 1,041
4,403
Financial Services 5.0%
Capital One Financial 24,200 1,166
eSpeed (Class A) * 3,200 114
Federated Investors (Class B) 56,400 1,132
Heller Financial (Class A) 57,000 1,144
Nextcard * 6,200 179
The CIT Group (Class A) 35,900 758
Waddell & Reed Financial
(Class A) 62,200 1,687
Waddell & Reed Financial
(Class B) 8,100 203
6,383
Total Financial 11,964
HEALTH CARE 12.8%
Pharmaceuticals 3.2%
Mylan Laboratories 42,400 1,068
Shire Pharmaceuticals ADR * 31,600 914
Teva Pharmaceutical
Industries ADR 26,000 1,862
Watson Pharmaceuticals * 4,500 161
4,005
Biotechnology 4.9%
Affymetrix * 4,600 780
Biogen * 14,100 1,191
Gilead Sciences * 21,200 1,146
MedImmune * 10,100 1,675
QLT Phototherapeutics * 8,100 475
Sepracor * 9,200 914
6,181
Medical Instruments and Devices 2.6%
Millipore 29,200 $ 1,128
Sybron International * 53,400 1,318
Waters * 17,200 912
3,358
Health Care Services 2.1%
Omnicare 108,400 1,301
Wellpoint Health Networks
(Class A) * 21,200 1,398
2,699
Total Health Care 16,243
CONSUMER 13.6%
Soft Goods Retailers 1.8%
Family Dollar Stores 72,700 1,186
TJX 54,600 1,116
2,302
Hard Goods Retailers 7.6%
BJ's Wholesale Club * 46,200 1,686
Borders Group * 31,700 509
Circuit City Stores 55,800 2,515
Consolidated Stores * 48,600 790
Costco Wholesale * 8,500 775
O'Reilly Automotive * 42,600 928
ShopKo Stores * 38,900 895
Whole Foods Market * 34,100 1,575
9,673
Consumer Non-Durables 1.2%
Jones Apparel Group * 52,200 1,416
Warnaco Group (Class A) 13,700 169
1,585
Restaurants 0.8%
Outback Steakhouse * 37,700 980
980
Entertainment 1.8%
Premier Parks * 40,100 1,158
Royal Caribbean Cruises 23,000 1,134
2,292
Consumer Services 0.4%
Apollo Group (Class A) * 6,400 128
Sotheby's (Class A) 13,300 399
527
Total Consumer 17,359
TECHNOLOGY 17.4%
Computer Hardware 2.6%
Sanmina * 7,400 $ 737
SCI Systems * 31,600 2,597
3,334
Computer Software 4.1%
Citrix Systems * 5,500 676
Intuit * 23,600 1,414
Parametric Technology * 38,300 1,035
Peregrine Systems * 8,500 715
Synopsys * 21,200 1,412
5,252
Semiconductors and Components 7.8%
Analog Devices * 29,900 2,781
KLA-Tencor * 8,500 947
Lattice Semiconductor * 9,800 464
Maxim Integrated Products * 28,000 1,320
Molex (Class A) 26,600 1,197
PMC-Sierra * 7,200 1,154
Quantum * 35,000 529
Xilinx * 32,900 1,496
9,888
Networking and Telecom Equipment 1.8%
ADC Telecommunications * 11,800 856
Novell * 36,400 1,452
2,308
E-Commerce 1.1%
CNET * 4,300 244
EarthLink Network * 6,200 264
PSINet * 12,200 755
Safeguard Scientifics * 600 97
1,360
Total Technology 22,142
BUSINESS SERVICES 29.9%
Telecom Services 8.9%
Allegiance Telecom * 3,000 276
Charter Communications
(Class A) * 35,900 785
Crown Castle International * 37,000 1,186
McLeod USA * 8,600 506
Pinnacle Holdings * 22,900 979
Rogers Communications
(Class B) * 24,200 599
Tritel (Class A) * 2,700 $ 85
VoiceStream Wireless * 25,800 3,666
Western Wireless (Class A) * 48,100 3,208
11,290
Computer Services 7.0%
Affiliated Computer
Services (Class A) * 41,300 1,900
Ceridian * 54,600 1,177
Concord EFS * 10,850 279
Galileo International 36,500 1,093
National Data 32,900 1,116
NOVA * 72,700 2,295
SunGard Data Systems * 42,700 1,014
8,874
Distribution 3.3%
AmeriSource Health (Class A) * 72,700 1,104
Henry Schein * 20,400 270
MSC (Class A) * 31,700 420
Tech Data * 30,400 825
U.S. Foodservice * 92,100 1,543
4,162
Media and Advertising 2.6%
Catalina Marketing * 13,700 1,586
Infinity Broadcasting
(Class A) * 25,750 932
Univision Communications
(Class A) * 7,900 807
3,325
Environmental 1.0%
Republic Services (Class A) * 84,900 1,221
1,221
Miscellaneous Business Services 6.0%
CIBER * 63,100 1,735
Hertz (Class A) 29,200 1,464
Keane * 43,100 1,368
Manpower 31,600 1,189
Robert Half International * 17,600 503
Viad 49,100 1,369
7,628
Transportation 0.6%
C.H. Robinson Worldwide 14,200 565
Expeditors International
of Washington 6,200 270
835
Engineering and Construction 0.5%
Martin Marietta Materials 15,800 $ 648
648
Total Business Services 37,983
ENERGY 4.3%
Exploration and Production 1.5%
Devon Energy 38,900 1,279
Ocean Energy * 78,900 611
1,890
Energy Services 2.8%
BJ Services * 49,800 2,082
Smith International * 29,300 1,456
3,538
Total Energy 5,428
INDUSTRIAL 3.4%
Specialty Chemicals 0.5%
Great Lakes Chemical 17,100 653
653
Machinery 2.9%
Danaher 19,400 936
Pentair 34,000 1,309
Teleflex 24,200 758
United Rentals * 41,500 710
3,713
Total Industrial 4,366
Total Common Stocks (Cost $94,289) 115,485
SHORT-TERM INVESTMENTS 9.7%
Money Market Funds 9.7%
Government Reserve Investment
Fund, 4.80% # 12,349,000 $ 12,349
Total Short-Term Investments
(Cost $12,349) 12,349
Total Investments in Securities
100.5% of Net Assets (Cost $106,638) $127,834
Other Assets Less Liabilities (606)
NET ASSETS $127,228
---------
Net Assets Consist of:
Accumulated net investment
income - net of distributions $8
Accumulated net realized gain/loss -
net of distributions 1,992
Net unrealized gain (loss) 21,196
Paid-in-capital applicable to 7,287,808
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000
shares of the Corporation authorized 104,032
NET ASSETS $127,228
---------
NET ASSET VALUE PER SHARE $17.46
---------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Mid-Cap Growth Portfolio
In thousands
Year
Ended
12/31/99
Investment Income (Loss)
Income
Interest $ 323
Dividend 194
Total income 517
Expenses
Investment management and administrative 509
Net investment income (loss) 8
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 3,171
Change in net unrealized gain or loss on securities 15,316
Net realized and unrealized gain (loss) 18,487
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 18,495
-----------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Mid-Cap Growth Portfolio
In thousands
Year
Ended
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $8 $(21)
Net realized gain (loss) 3,171 394
Change in net unrealized gain or loss 15,316 4,055
Increase (decrease) in net assets from operations 18,495 4,428
Distributions to shareholders
Net realized gain (1,220) (415)
Capital share transactions*
Shares sold 92,776 20,628
Distributions reinvested 1,220 415
Shares redeemed (13,954) (10,417)
Increase (decrease) in net
assets from capital
share transactions 80,042 10,626
Net Assets
Increase (decrease) during period 97,317 14,639
Beginning of period 29,911 15,272
End of period $127,228 $29,911
-----------------------
*Share information
Shares sold 6,036 1,598
Distributions reinvested 76 32
Shares redeemed (919) (821)
Increase (decrease) in shares outstanding 5,193 809
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Mid-Cap Growth 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 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.
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.
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 $96,665,000 and $26,726,000, 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
$106,638,000. Net unrealized gain aggregated $21,196,000 at period-end, of
which $26,468,000 related to appreciated investments and $5,272,000 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 $66,000 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 $323,000 and are reflected as interest income in
the accompanying Statement of Operations.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Equity Series, Inc. and
Shareholders of Mid-Cap Growth Portfolio
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of Mid-Cap Growth Portfolio (one of the portfolios 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 the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
T. Rowe Price Mid-Cap Growth Portfolio
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 $339,000 from short-term capital gains,
o $881,000 from long-term capital gains, subject to the 20% rate
gains category.
For corporate shareholders, $174,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
