T. Rowe Price
Personal Strategy Balanced Portfolio
Annual Report
December 31, 1998
Dear Investor
Stocks sold off in late summer following the financial collapse in Russia and
continuing weakness in Asian markets, then rebounded during the final quarter to
recapture their earlier highs. Most types of bonds suffered from the turmoil
during the past six months, except for Treasuries and high-grade corporate
bonds, which benefited from an investor flight to safety.
PERFORMANCE AND STRATEGY REVIEW
Performance Comparison
Periods Ended 12/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Personal Strategy
Balanced Portfolio 4.06% 14.32%
Combined Index
Portfolio* 7.67 20.55
Merrill Lynch-Wilshire
Capital Market Index 6.13 18.45
* An unmanaged portfolio composed of 60% stocks (S&P 500), 30% bonds (Lehman
Brothers Aggregate Bond Index), and 10% money markets (90-day Treasury
bills).
The objective of this fund is to provide the highest total return consistent
with an emphasis on both income and capital appreciation. The typical asset mix
is 60% stocks, 30% bonds, and 10% cash reserves-with 10-percentage-point
variations permitted for each asset class.
The rally in both U.S. stocks and bonds helped the fund post respectable
absolute returns, although it trailed the Combined Index Portfolio and the
Merrill Lynch-Wilshire Capital Market Index during both periods shown in the
table. The fund's lagging performance was primarily due to a slight
underweighting in equities compared with the benchmarks, and a heavier
allocation to the weaker bond sector. Your fund was also hurt by the increase of
small-capitalization stocks in the portfolio. Small-cap shares have been
underperforming their larger brethren for some time, although they have recently
begun to strengthen. For the year as a whole, a small group of large-cap growth
stocks accounted for a significant percentage of the stock market's overall
return.
Asset Allocation
12/31/98
Stocks Bonds Money Markets
59 37 4
On December 31, your fund had 59% of its assets in stocks, the same as at the
end of June, 37% in bonds (down one percentage point), and the remaining 4% in
cash reserves. We continued to favor bonds over stocks, international stocks
over domestic, and growth as opposed to value stocks. In the current
environment, we believe bonds offer better potential for total returns than
stocks, that European stocks in particular are more attractively valued than
domestic shares, and that growth stocks have a better chance than value stocks
to sustain their earnings growth if the economy slows-as we expect. In the bond
area, the committee maintained the fund's low exposure to foreign bonds, since
we expect the dollar to strengthen, and focused on both investment-grade and
high-yield bonds in the domestic market. Among the major holdings in the
portfolio were GE, Philip Morris, Mobil, and British Petroleum.
MARKET REVIEW
Global stock markets recovered after the Federal Reserve initiated a series
of key short-term rate cuts in an attempt to arrest further weakness in the
U.S. and foreign economies. This loosening of monetary policy sent a
positive message around the globe, and investors responded
enthusiastically.
Treasury bonds benefited from the global uncertainty, and the 30-year yield
fell to its lowest level in decades. As can be seen in the chart on page 3,
the long-term yield dropped from nearly 6% a year ago to 5.12% at the end
of December. The five-year note yield declined by a wider margin, from
5.71% to 4.59%, and the 90-day Treasury bill yield ended at 4.55%, down
from 5.40% last December. Corporate bonds were mixed, as Treasuries
outperformed high-yield securities for the year, although the high-yield
sector did bounce back during the final quarter of the year.
Preparing for the Year 2000
The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millen-nium. 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)
Interest Rate Levels
30 Year 5-Year 90-day
Treasury Treasury Treasury
Bond Note Bill
12/31/97 5.93 5.71 5.40
5.89 5.48 5.22
5.84 5.60 5.16
3/31 5.92 5.62 5.19
6.02 5.72 5.05
5.83 5.57 5.09
6/30 5.65 5.50 5.06
5.73 5.51 5.07
5.42 5.07 5.03
9/30 5.00 4.24 4.38
5.12 4.22 4.21
5.21 4.62 4.58
12/31/98 5.12 4.59 4.55
OUTLOOK
Twelve months of global financial turmoil and economic upheaval have had an
impact on the domestic economy. Weakening exports have expanded the
external trade deficit, and available data indicate that export growth may
be meager at best. Low exports and surging imports have reduced demand for
domestic production, restraining the manufacturing sector. Corporate profit
growth has also waned, due in large measure to constrained corporate
pricing power in an atmosphere of excess global supply. This confluence of
forces has put downward pressure on business fixed income investment and
employment growth, curtailing personal income expansion.
The cumulative effect of these evolving conditions could hold real GDP
growth to less than 2%, at least through the middle of 1999. Sluggish
growth such as this could lead to an upward drift in unemployment,
alleviating wage and price pressures. We anticipate stable to slightly
declining short-and long-term interest rates, as well as moderating stock
returns next year. In this environment, the balanced strategy offered by
the fund could serve shareholders well.
Respectfully submitted,
Edmund M. Notzon
Chairman of the Investment Advisory Committee
January 22, 1999
- --------------------------------------------------------------------------------
Change in Management
Peter Van Dyke, a managing director of T. Rowe Price Associates and director of
the taxable bond department, retired at the end of 1998. Mr. Van Dyke joined the
company in 1985 and managed the Personal Strategy Balanced Portfolio since its
inception in 1994. We are grateful for his contributions and wish him the best
for the future.
Edmund M. Notzon, a managing director of T. Rowe Price Associates, has been
appointed chairman of the Personal Strategy Balanced Portfolio Investment
Advisory Committee, responsible for day-to-day management of the portfolio. Mr.
Notzon joined T. Rowe Price in 1989 and manages several fixed income and asset
allocation portfolios. He has served as executive vice president and
co-portfolio manager of the Personal Strategy Funds and Spectrum Funds. Other
committee members include Stephen W. Boesel, Donald J. Peters, William T.
Reynolds, M. David Testa, Judith B. Ward, and Richard T. Whitney.
The preceding updates the Personal Strategy Balanced Portfolio prospectus of
October 1, 1998.
- --------------------------------------------------------------------------------
Portfolio Highlights
Portfolio Overview
Percent of
Net Assets
12/31/98
- --------------------------------------------------------------------------------
Reserves 4.4%
- --------------------------------------------------------------------------------
Money Market Funds 3.3
Other Assets Less Liabilities 1.1
Bonds 36.7%
- --------------------------------------------------------------------------------
U.S. Government Agencies 9.4
Corporate 16.7
Mortgage-Backed 8.5
Foreign Government Agencies 2.1
Stocks 58.9%
- --------------------------------------------------------------------------------
10 Largest Holdings 5.6%
------------------------------------------------------------------------------
GE 0.7
Philip Morris 0.7
Mobil 0.6
British Petroleum 0.6
Amoco 0.5
SBC Communications 0.5
American Home Products 0.5
Fannie Mae 0.5
MCI WorldCom 0.5
AT&T 0.5
- --------------------------------------------------------------------------------
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.
Personal Strategy Balanced Portfolio
As of 12/31/98
Personal Merrill
Strategy Combined Lynch-Wilshire
Balanced Index Capital
Portfolio Portfolio Market Index
12/30/94 10,000 10,000 10,000
12/95 12,866 12,821 12,809
12/96 14,694 14,763 14,576
12/97 17,345 18,177 17,931
12/98 19,829 21,912 21,239
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.
Personal Strategy Balanced Portfolio
Periods Ended 12/31/98
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
14.32% 15.51% 18.65% 12/30/94
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 Personal Strategy Balanced Portfolio
For a share outstanding throughout each period
------------------------------------------------
Year 12/30/94
Ended Through
12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 15.13 $ 13.44 $ 12.43 $ 10.00
Investment activities
Net investment income 0.47 0.46 0.41 0.42
Net realized and
unrealized gain (loss) 1.65 1.93 1.32 2.41
Total from
investment activities 2.12 2.39 1.73 2.83
Distributions
Net investment income (0.48) (0.46) (0.41) (0.40)
Net realized gain (0.61) (0.24) (0.31) --
Total distributions (1.09) (0.70) (0.72) (0.40)
NET ASSET VALUE
End of period $ 16.16 $ 15.13 $ 13.44 $ 12.43
-----------------------------------------------
Ratios/Supplemental Data
Total return* 14.32% 18.04% 14.21% 28.66%
Ratio of expenses to
average net assets 0.90% 0.90% 0.90% 0.90%
Ratio of net investment
income to average
net assets 3.04% 3.37% 3.33% 3.69%
Portfolio turnover rate 47.6% 32.8% 51.7% 39.3%
Net assets, end of period
(in thousands) $ 79,475 $ 63,005 $ 33,263 $ 5,625
* 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 Personal Strategy Balanced Portfolio
December 31, 1998
Shares/Par Value
In thousands
- --------------------------------------------------------------------------------
Common Stocks 58.9%
FINANCIAL 10.0%
Bank and Trust 5.9%
Abbey National (GBP) 9,500 $ 203
ABN Amro (NLG) 3,600 76
Air Liquide (L) (FRF) 495 91
Australia & New Zealand
Banking ADR 1,500 49
Banca Commerciale
Italiana (ITL) 18,100 125
Banco de Bilbao
Vizcaya ADR 7,200 115
Banco Frances del Rio
de la Plata ADR 2,995 62
Bank of New York 4,100 165
Bank One 5,150 263
BankAmerica 6,300 379
Bankgesellschaft
Berlin (DEM) 3,000 49
Barclay's (GBP) 4,000 86
Charter One Financial 907 25
Chase Manhattan 3,960 269
Citigroup 6,899 341
Citizens Banking 1,100 37
Deutsche Bank (DEM) 1,440 85
Downey Financial 1,400 36
Dresdner Bank (DEM) 1,700 71
First Bell Bancorp 600 9
First Mariner Bancorp * 600 8
First Security 800 19
First Union 2,800 170
Frankfort First Bancorp 400 6
Glacier Bancorp 1,650 37
HSBC Holdings (GBP) 6,300 169
J. P. Morgan 1,200 126
KBC Bancassurance
Holding (BEF) 1,500 119
KeyCorp 3,900 125
Marshall & Ilsley 200 12
Mediobanca (ITL) 8,100 113
Mellon Bank 3,840 264
Mercantile Bancorporation 400 18
National City 1,500 109
Societe Generale (FRF) 813 $ 132
State Street 200 14
Summit Bancorp 800 35
Svenska Handelsbank (SEK) 2,000 84
U.S. Bancorp 800 28
Washington Mutual 4,985 190
Wells Fargo 7,500 299
WestAmerica 400 15
Westpac Bank (AUD) 4,000 27
4,655
Insurance 1.6%
ACE Limited 3,800 131
Allstate 1,100 42
American General 1,500 117
American International
Group 175 17
EXEL (Class A) 2,021 152
Harleysville Group 1,200 31
PartnerRe Holdings 1,300 59
Poe & Brown 800 28
Selective Insurance 600 12
St. Paul Companies 7,400 257
Sumitomo Marine &
Fire Insurance (JPY) 14,000 89
Travelers Property
Casualty (Class A) 7,600 236
UNUM 1,340 78
W. R. Berkley 800 27
1,276
Financial Services 2.5%
American Express 2,550 261
Associates First Capital
(Class A) 3,000 127
AXA (FRF) 1,300 188
Capital One Financial 700 81
Delta Financial * 1,200 7
Fairfax Financial
Rights (144a) (CAD) * 300 101
Fannie Mae 5,420 401
Financial Federal * 700 17
Freddie Mac 5,480 353
Household International 600 24
ING Groep (NLG) 2,050 125
ITLA Capital * 300 5
Morgan Stanley Dean Witter 800 $ 57
Pearson (GBP) 6,000 119
Providian Financial 150 11
Unidanmark (Class A)
(DKK) 1,300 117
1,994
Total Financial 7,925
UTILITIES 4.9%
Telephone Services 3.1%
Aliant Communications 2,700 110
ALLTEL 2,200 132
AT&T 5,320 400
BellSouth 3,600 180
British Telecommunications ADR 900 137
Compania de Telecomunicaciones
de Chile (Class A) ADR 1,525 32
Frontier 5,500 187
GTE 800 52
Hong Kong Telecommunications
ADR 2,500 44
Nippon Telegraph &
Telephone (JPY) 13 100
Rural Cellular (Class A) * 1,000 10
SBC Communications 7,920 425
Telebras ADR * 1,400 102
Telecom Corp. of
New Zealand ADR 3,400 121
Telecom Italia (ITL) 14,330 122
Telecom Italia
Mobile (ITL) * 17,400 129
Telefonica de Espana ADR 816 110
Telefonos de Mexico
(Class L) ADR 2,000 97
Western Wireless * 900 20
2,510
Electric Utilities 1.8%
Cleco 700 24
Electrabel (BEF) 310 136
Empresa Nacional de Electricidad
Chile ADR 2,000 23
Endesa ADR 3,200 86
FirstEnergy 7,892 257
GPU 2,000 88
Hong Kong Electric (HKD) 15,000 $ 45
PECO Energy 2,800 117
Texas Utilities 5,540 259
Unicom 6,200 239
Veba (DEM) 2,310 138
1,412
Total Utilities 3,922
CONSUMER NONDURABLES 11.8%
Cosmetics 0.8%
Gillette 1,000 48
International Flavors &
Fragrances 8,600 380
Kao (JPY) 8,000 181
609
Beverages 0.8%
Anheuser-Busch 5,000 328
Coca-Cola 400 27
Diageo ADR 1,823 84
LVMH (FRF) 645 128
PepsiCo 2,860 117
684
Food Processing 2.2%
American Italian Pasta * 500 13
Bestfoods 2,400 128
Cadbury Schweppes (GBP) 900 15
Cadbury Schweppes ADR 1,800 125
Campbell 800 44
CSM (NLG) 1,500 87
Danisco (DKK) 1,300 70
Eridania Beghin-Say (FRF) 530 92
General Mills 2,930 228
Heinz 900 51
Imperial Holly 2,400 19
McCormick 4,400 149
Nestle (CHF) 125 272
P F Chang's China Bistro * 100 2
Ralston Purina 4,940 160
Sara Lee 9,060 255
Seneca Foods (Class A) * 400 5
Seneca Foods (Class B) * 500 6
United Natural Foods * 700 17
1,738
Hospital Supplies/Hospital Management 0.7%
American Oncology
Resources * 2,500 $ 37
Arterial Vascular
Engineering * 500 26
Guidant 800 88
HealthSouth * 4,300 66
Medtronic 300 22
Mentor 2,400 56
Pediatrix Medical Group * 200 12
Quorum Health Group * 1,600 21
Renal Care Group * 1,050 31
Smith & Nephew (GBP) 10,000 30
Steris * 1,000 28
Terumo (JPY) 5,000 118
535
Pharmaceuticals 3.8%
Alkermes * 900 20
American Home Products 7,480 421
Astra (Class B) (SEK) 5,333 108
Aviron * 100 3
Biogen * 1,200 100
Bristol-Myers Squibb 2,480 332
COR Therapeutics * 400 5
Coulter Pharmaceutical * 200 6
Eli Lilly 1,300 116
Gehe (DEM) 700 48
Gilead Sciences * 200 8
Glaxo Wellcome ADR 2,000 139
Johnson & Johnson 1,480 124
Merck 1,400 207
Millennium
Pharmaceuticals * 1,200 31
Neurocrine Biosciences * 600 4
Novartis (CHF) 106 208
PathoGenesis * 100 6
Pfizer 2,840 356
Pharmacia & Upjohn 2,817 159
PharmaPrint * 1,200 16
Schering-Plough 2,900 160
Takeda Chemical
Industries (JPY) 6,000 231
Warner-Lambert 2,900 218
3,026
Health Care Services 0.4%
Altana AG (DEM) 600 $ 43
AmeriPath * 2,000 18
Concentra Managed Care * 2,000 21
Inhale Therapeutic
Systems * 600 20
Monarch Dental * 900 4
Northfield Laboratories * 1,100 14
Orthodontic Centers
of America * 900 17
ProMedCo * 1,500 9
SteriGenics International * 1,600 40
United HealthCare 2,800 121
307
Biotechnology 0.0%
Cell Genesys * 1,100 7
Zonagen * 500 9
16
Miscellaneous Consumer Products 3.1%
Benetton Group (ITL) 28,800 58
Bridgestone (JPY) 4,000 91
Colgate-Palmolive 3,440 319
Cone Mills * 2,200 12
CSS Industries * 500 15
Culp 500 4
Dan River * 2,000 24
Equity Corp. International * 1,200 32
Hasbro 2,600 94
Huhtamaki (FIM) 600 23
Kuraray (JPY) 10,000 110
Lion Nathan (NZD) 26,300 67
Newell 1,700 70
Philip Morris 9,980 534
Philips Electronics ADR 1,500 102
Procter & Gamble 1,000 91
Service Corp. International 1,500 57
Sola * 1,600 28
Tomkins (GBP) 4,000 19
Tomkins ADR 3,200 64
Unifi 10,100 198
Unilever N.V. ADR 2,000 166
US Can * 1,000 18
UST 6,130 $ 214
WestPoint Stevens * 700 22
Yue Yuen Industrial (HKD) 25,000 47
2,479
Total Consumer Nondurables 9,394
CONSUMER SERVICES 6.9%
Restaurants 0.0%
Logan's Roadhouse * 900 21
PJ America * 500 9
30
General Merchandisers 1.6%
Bon-Ton Stores * 2,400 18
Carrefour (FRF) 130 98
Casey's General Stores 3,000 39
Columbia Sportswear * 1,000 17
Dayton Hudson 2,600 141
Fred Meyer * 2,800 169
JUSCO (JPY) 4,000 81
Marui (JPY) 4,000 77
Pinault Printemps
Redoute (FRF) 1,000 191
Saks * 3,600 113
Tesco (GBP) 40,159 117
Wal-Mart 2,000 163
Warnaco Group (Class A) 2,500 63
1,287
Specialty Merchandisers 2.1%
American Stores 8,500 314
Christian Dior (FRF) 400 44
CompuCom Systems * 4,200 15
CVS 3,128 172
Goody's Family Clothing * 400 4
Home Depot 2,200 134
Kroger * 700 42
McKesson 700 55
Omron (JPY) * 4,000 55
Performance Food Group * 1,100 31
Rite Aid 2,200 109
Safeway * 4,000 244
St. John Knits 800 21
Toys "R" Us * 11,000 186
Tupperware 12,700 209
Urban Outfitters * 700 12
1,647
Entertainment and Leisure 1.0%
Carnival (Class A) 2,100 $ 101
Disney 1,810 54
Hutchison Whampoa (HKD) 24,000 170
McDonald's 1,670 128
Reader's Digest (Class A) 9,600 242
Seattle Filmworks * 900 4
Sharp (JPY) 5,000 45
US WEST Media * 1,400 66
810
Media and Communications 2.2%
American Tower Systems
(Class A) * 200 6
Asatsu (JPY) 3,000 72
CBS 5,700 187
Chancellor Media * 800 38
Clear Channel
Communications * 1,100 60
Elsevier (NLG) 4,000 56
Emmis Broadcasting
(Class A) * 500 22
Fox Entertainment Group * 3,200 81
France Telecom ADR 3,100 245
Infinity Broadcasting * 6,000 164
Jacor Communications * 700 45
Pegasus Communications * 400 10
R.R. Donnelley 3,800 166
Sinclair Broadcast
Group (Class A) * 1,100 22
Time Warner 3,600 223
Tribune 1,700 112
Valassis Communications * 800 41
Vanguard Cellular
(Class A) * 300 8
Vodafone ADR 900 145
Young Broadcasting
(Class A) * 900 38
1,741
Total Consumer Services 5,515
CONSUMER CYCLICALS 3.1%
Automobiles and Related 0.4%
A.O. Smith (Class B) 2,750 $ 68
Cycle & Carriage (SGD) 4,000 14
Federal-Mogul* 1,700 101
Honda ADR 1,500 100
Keystone Automotive * 300 6
Littelfuse * 800 15
SPX * 500 34
338
Building and Real Estate 1.8%
Apartment Investment &
Management, REIT 600 22
Arden Realty, REIT 1,200 28
Cheung Kong
Holdings (HKD) 18,000 130
City Developments (SGD) 5,000 22
Crescent Real Estate
Equities, REIT 2,200 51
DBS Land (SGD) 5,000 7
EastGroup Properties, REIT 2,000 37
Federal Realty Investment
Trust, REIT 7,500 177
First Washington Realty
Trust, REIT 1,200 28
Glenborough Realty
Trust, REIT 400 8
JP Realty, REIT 500 10
Parkway Properties, REIT 1,500 47
Reckson Associates
Realty, REIT 10,500 233
Simon DeBartolo
Group, REIT 7,596 216
Starwood Hotels &
Resorts, REIT 14,800 336
Tower Realty Trust, REIT 1,600 32
Western Water * 500 3
Woodhead Industries 2,400 30
1,417
Miscellaneous Consumer Durables 0.9%
CompX * 1,200 32
Corning 7,600 342
Eastman Kodak 300 21
Harman International 200 8
Masco 3,400 $ 98
OCE (NLG) 1,200 43
Ricoh (JPY) 7,000 64
Sony (JPY) 1,000 73
681
Total Consumer Cyclicals 2,436
TECHNOLOGY 3.9%
Electronic Components 1.4%
American Superconductor * 300 3
Analogic 1,300 49
Burr Brown * 900 21
EMC * 1,600 136
Exar * 400 6
Intel 1,700 201
Linear Technology 500 45
Maxim Integrated Products * 2,300 100
Methode Electronics
(Class A) 1,400 22
Optek Technology * 1,200 22
Planar Systems * 1,700 12
PMC-Sierra * 200 13
Texas Instruments 700 60
Trident International * 1,700 16
UBS (CHF) 1,070 329
Xilinx * 1,100 72
1,107
Electronic Systems 0.6%
Applied Micro Circuits * 700 24
Electromagnetic Sciences * 1,700 24
Hewlett-Packard 1,400 96
Lifeline Systems * 800 20
Lo-Jack * 1,700 20
Nokia ADR 2,100 253
437
Information Processing 0.3%
COMPAQ Computer 1,400 59
Dell Computer * 1,000 73
Hitachi ADR 1,100 66
IBM 400 74
272
Office Automation 0.1%
Ceridian * 900 63
63
Specialized Computer 0.1%
Sun Microsystems * 800 $ 68
68
Telecommunications 1.1%
AirTouch Communications * 1,800 130
Avant * 600 10
Cisco Systems * 1,800 167
LM Ericsson (Class B) ADR 4,200 100
Lucent Technologies 200 22
MCI WorldCom * 5,585 401
Premisys Communications * 500 5
Tellabs * 400 27
West TeleServices * 600 6
868
Aerospace and Defense 0.3%
AlliedSignal 4,500 199
Raytheon (Class B) 800 43
Woodward Governor 600 13
255
Total Technology 3,070
EDUCATION 0.0%
ITT Educational Service * 900 31
Total Education 31
CAPITAL EQUIPMENT 2.4%
Electrical Equipment 1.6%
ABB (CHF) 50 58
Canon (JPY) 3,000 64
GE 5,260 537
Holophane * 1,700 44
Matsushita Electric
Works (JPY) 3,000 31
Mitsubishi Electric (JPY) 7,000 22
Siemens (DEM) 1,100 71
Tyco International 4,976 375
1,202
Machinery 0.8%
Danaher 4,500 244
GKN (GBP) 7,000 93
JLG Industries 2,000 31
Man (DEM) 310 91
NN Ball & Roller 1,200 7
S I G Schweis (CHF) 130 77
Teleflex 1,400 $ 64
Toolex Alpha * 1,000 12
Valmet (FIM) 2,000 27
646
Capital Equipment 0.0%
Omniquip International 1,500 23
23
Total Capital Equipment 1,871
BUSINESS SERVICES AND TRANSPORTATION 6.4%
Computer Service and Software 2.5%
Adobe Systems 300 14
America Online 1,300 200
Analysts International 600 12
Ascend Communications * 700 46
Automatic Data Processing 1,840 148
BISYS Group * 300 16
BMC Software * 3,000 134
Computer Associates 500 21
Compuware * 1,100 86
Concur Technologies * 200 6
Electronic Arts * 200 11
First Data 3,034 96
Galileo International 1,800 78
Great Plains Software * 400 19
HBO 4,400 126
HCIA * 1,900 8
Microsoft * 2,420 335
Network Associates * 2,600 173
Oracle * 2,300 99
Parametric Technology * 6,100 99
Peerless Systems * 1,200 10
Phoenix Technologies * 600 5
PSINet * 300 6
Saville Systems ADR * 2,100 40
Sterling Commerce * 1,500 68
Summit Design * 1,200 11
SunGard Data Systems * 1,700 68
Synopsys * 100 5
Vantive * 200 2
Visio * 800 29
1,971
Distribution Services 0.3%
Cardinal Health 585 $ 44
MSC * 1,100 25
Primesource 700 5
Richfood Holdings 2,000 41
SED International
Holdings * 1,400 6
SunSource 800 15
U.S. Foodservice * 2,442 120
Watsco (Class A) 1,800 30
286
Environmental 0.1%
CUNO * 1,000 16
IT Group 200 2
Rentokil Group (GBP) 5,000 38
Waterlink * 2,400 9
65
Transportation Services 0.2%
C.H. Robinson Worldwide 700 18
Coach USA * 1,600 56
Comfort Systems USA * 2,200 39
Eagle USA Air Freight * 1,200 29
Expeditors International
of Washington 400 17
Frozen Food Express 1,000 8
Heartland Express * 400 7
Hub Group (Class A) * 100 2
International Shipholding 700 11
Mitsubishi Heavy
Industries (JPY) 6,000 23
210
Miscellaneous Business Services 2.4%
Alternative Resources * 1,200 13
Billing Information
Concepts * 1,800 20
British Airport
Authorities (GBP) 6,900 81
Browning-Ferris 10,600 301
Cendant * 2,900 55
CORT Business Services * 900 22
Electro Rent * 2,100 34
Equifax 1,300 44
H&R Block 6,900 311
Insituform Technologies
(Class A) * 2,000 29
Iron Mountain * 700 $ 25
McGrath RentCorp 1,300 28
Metamor Worldwide * 700 17
MPW Industrial Services
Group * 800 9
New England Business
Service 1,900 74
Omnicom 2,500 145
Paging Network * 600 3
Paxar * 1,100 10
Renaissance Worldwide * 1,600 10
Romac International * 1,800 40
Shorewood Packaging * 3,100 64
Strayer Education 1,200 42
Superior Services * 300 6
Tetra Tech * 1,950 53
The Peterson Companies
(Class A) * 800 27
The Vincam Group * 600 11
Unitog 900 26
Waste Management 8,322 388
1,888
Airlines 0.4%
Delta 5,000 260
KLM Royal Dutch Air ADR 1,500 45
Midwest Express Holdings * 200 5
310
Railroads 0.5%
Burlington Northern
Santa Fe 1,500 51
Norfolk Southern 10,100 320
371
Total Business Services and Transportation 5,101
ENERGY 4.3%
Energy Services 0.8%
Baker Hughes 12,400 219
Carbo Ceramics 100 2
Cooper Cameron * 200 5
Elf Aquitaine ADR 1,100 62
Halliburton 2,500 74
Johnson Electric (HKD) 50,400 129
Schlumberger 400 $ 19
Smith International * 200 5
TOTAL ADR 1,700 85
Weatherford International * 200 4
604
Exploration and Production 0.0%
Rutherford-Moran Oil * 700 2
Santos (AUD) 9,000 24
26
Integrated Petroleum - Domestic 1.3%
Atlantic Richfield 2,060 134
British Petroleum ADR 4,640 441
Occidental Petroleum 5,500 93
Unocal 7,230 211
USX-Marathon 3,860 116
995
Integrated Petroleum - International 2.2%
Amoco 7,200 425
Chevron 800 66
ENI S.P.A. ADR 1,800 122
Exxon 2,320 170
Mobil 5,660 493
Repsol ADR 1,700 93
Royal Dutch Petroleum ADR 2,700 129
Shell Transport &
Trading ADR 2,500 93
Texaco 3,540 187
1,778
Total Energy 3,403
PROCESS INDUSTRIES 4.0%
Diversified Chemicals 0.9%
Dow Chemical 2,900 264
DuPont 4,300 228
Hercules 9,200 252
744
Specialty Chemicals 1.6%
3M 1,370 97
A. Schulman 4,200 95
Akzo Nobel (NLG) 1,600 73
BASF AG (DEM) 3,050 116
Bayer (DEM) 2,930 122
Furon * 400 7
Great Lakes Chemical 6,450 258
Hauser * 1,700 8
Octel * 1,677 23
Pall 11,100 281
Sumitomo Chemicals (JPY) 7,000 $ 27
Technip (FRF) 1,210 114
1,221
Paper and Paper Products 0.9%
Dai Nippon Printing (JPY) 4,000 64
Fort James 7,400 296
Jefferson Smurfit * 900 14
Kimberly-Clark 6,000 327
701
Forest Products 0.4%
Georgia-Pacific 1,900 111
International Paper 900 41
Weyerhaeuser 3,500 178
330
Building and Construction 0.2%
Blue Circle Industries (GBP) 12,143 64
Holderbank Financiere
Glarus (CHF) 80 95
Layne Christensen * 1,500 11
Simpson Manufacturing * 200 7
177
Total Process Industries 3,173
BASIC MATERIALS 0.8%
Metals 0.7%
Anglo American
Platinum (ZAR) 5,000 69
AngloGold ADR 331 6
Cambior 3,100 15
Gibraltar Steel * 400 9
Inco 10,600 112
Matthews International
(Class A) 1,800 56
Reynolds Metals 5,400 285
552
Mining 0.1%
Homestake Mining 740 7
Lonrho Africa (GBP) 2,000 1
Rio Tinto (AUD) 4,200 50
TVX Gold * 2,800 5
63
Miscellaneous Materials 0.0%
Malayan Cement (MYR) * 7,500 2
Synthetic Industries * 500 9
11
Total Basic Materials 626
MISCELLANEOUS 0.1%
Conglomerates 0.1%
Berkshire Hathaway * 21 $ 49
Orkla (Class A) (NOK) 3,600 54
Total Miscellaneous 103
FOREIGN EQUITY 0.3%
Europe 0.2%
AXA Colonia
Konzern (DEM) 500 57
Svenska Cellulosa (SEK) 4,000 87
144
Other Foreign 0.1%
Bobst (CHF) 66 81
81
Total Foreign Equity 225
Total Common Stocks (Cost $37,354) 46,795
Corporate Bonds 16.7%
Agricultural Minerals, Sr. Notes
10.75%, 9/30/03 $ 50,000 50
American Radio Systems
Sr. Sub. Notes
9.00%, 2/1/06 100,000 108
American Safety Razor, Sr. Notes
9.875%, 8/1/05 25,000 25
American Standard,
9.25%, 12/1/16 53,000 55
Amerigas Partners, Sr. Notes
10.125%, 4/15/07 50,000 51
APCOA, Sr. Sub. Notes
9.25%, 3/15/08 100,000 92
Archibald Candy, Sr. Secured Notes
10.25%, 7/1/04 25,000 25
Associated Materials, Sr. Sub. Notes
9.25%, 3/1/08 100,000 102
Aurora Foods, Sr. Sub. Notes
9.875%, 2/15/07 100,000 109
B&G Foods, Sr. Sub. Notes
9.625%, 8/1/07 100,000 97
Ballys Health & Tennis
Sr. Sub. Notes
9.875%, 10/15/07 50,000 49
Banque Parabas New York
6.875%, 3/1/09 $ 800,000 $ 795
Bway, Sr. Sub. Notes
10.25%, 4/15/07 100,000 105
Chattem, Sr. Sub. Notes
12.75%, 6/15/04 100,000 112
Cinemark USA, Sr. Sub. Notes
8.50%, 8/1/08 100,000 99
Coach USA, Gtd. Sr. Sub. Notes
9.375%, 7/1/07 100,000 103
Coinmach, Sr. Sub. Notes
11.75%, 11/15/05 50,000 55
Comcast Cable Communications
8.50%, 5/1/27 800,000 1,001
Communications & Power Industries
Sr. Sub. Notes
12.00%, 8/1/05 100,000 104
Container Corp of America
Sr. Notes, 9.75%, 4/1/03 50,000 51
Gtd., 10.75%, 5/1/02 25,000 26
Dan River, Sr. Sub. Notes
10.125%, 12/15/03 100,000 103
Delta Mills, Sr. Notes
9.625%, 9/1/07 100,000 97
Doane Products, Sr. Sub. Notes
(144a), 9.75%, 5/15/07 173,000 178
Dyersburg, Sr. Sub. Notes
9.75%, 9/1/07 50,000 45
Dyncorp, Sr. Sub. Notes
9.50%, 3/1/07 75,000 74
Energy Corporation of America
Sr. Sub. Notes
9.50%, 5/15/07 100,000 93
Fairchild Semiconductor
Sr. Sub. Notes
10.125%, 3/15/07 50,000 50
Fairfax Financial
8.25%, 10/1/15 800,000 815
Federal-Mogul, Sr. Notes
7.75%, 7/1/06 100,000 101
First Federal Financial
11.75%, 10/1/04 50,000 52
Flag Limited, Sr. Notes
8.25%, 1/30/08 100,000 99
Frontiervision, Sr. Notes
11.00%, 10/15/06 $ 50,000 $ 56
Fundy Cable, Sr. Secured 2nd
Priority Notes
11.00%, 11/15/05 50,000 53
Furon, Sr. Sub. Notes
8.125%, 3/1/08 100,000 99
Genesis Health Ventures
Sr. Sub. Notes
9.25%, 10/1/06 50,000 47
GMAC, 7.125%, 6/1/99 25,000 25
Grand Casinos, Sr. Sub. Notes
10.125%, 12/1/03 100,000 109
Harcourt General, Sr. Deb.
7.20%, 8/1/27 500,000 486
Hawk, Sr. Notes
10.25%, 12/1/03 100,000 105
Herff Jones, Sr. Sub. Notes
11.00%, 8/15/05 100,000 108
HMH Properties, Sr. Notes
7.875%, 8/1/08 100,000 97
Holmes Products, Gtd. Notes
9.875%, 11/15/07 100,000 94
Host Marriott Travel, Sr. Notes
9.50%, 5/15/05 50,000 52
Intermedia Communications
Sr. Notes
8.50%, 1/15/08 100,000 95
International Wire, Sr. Sub. Notes
11.75%, 6/1/05 25,000 26
(144a) 11.75%, 6/1/05 75,000 79
Intertek Finance, Sr. Sub. Notes
10.25%, 11/1/06 50,000 47
Iron Mountain, Sr. Sub. Notes
8.75%, 9/30/09 100,000 103
Jitney-Jungle Stores, Sr. Sub. Notes
12.00%, 3/1/06 100,000 111
Keebler, Sr. Sub. Notes
10.75%, 7/1/06 50,000 57
Lenfest Communications, Sr. Notes
8.375%, 11/1/05 20,000 22
Mastec, Sr. Sub. Notes
7.75%, 2/1/08 100,000 96
Medicom Capital, Sr. Notes
8.50%, 4/15/08 $ 75,000 $ 77
Nextel Communications,
Sr. Disc. Notes
STEP, 0%, 10/31/07 150,000 92
Niagara Mohawk
Sr. Disc Notes, STEP
0%, 7/1/10 100,000 77
Sr. Notes
7.75%, 10/1/08 25,000 27
Northland Cable Television
Sr. Sub. Notes
10.25%, 11/15/07 100,000 105
Owens & Minor, Sr. Sub. Notes
10.875%, 6/1/06 25,000 27
Owens Illinois, Sr. Notes
7.35%, 5/15/08 800,000 815
Paine Webber, Sr. Notes
6.55%, 4/15/08 800,000 805
Plastic Containers
Sr. Secured Notes
10.00%, 12/15/06 75,000 79
Pride Petroleum Services
Sr. Notes
9.375%, 5/1/07 75,000 70
Principal Mutual, (144a)
8.00%, 3/1/44 800,000 812
Protection One Alarm, (144a)
8.125%, 1/15/09 100,000 100
Purina Mills, Sr. Sub. Notes
9.00%, 3/15/10 150,000 149
Quest Diagnostics
Gtd. Sr. Sub. Notes
10.75%, 12/15/06 100,000 111
Qwest Communications
Sr. Disc. Notes
Zero Coupon, 10/15/07 100,000 78
Sr. Notes, (144a)
7.50%, 1/1/08 25,000 26
R & B Falcon, Sr. Notes
6.95%, 4/15/08 800,000 691
Revlon Consumer Products
Sr. Sub. Notes
6.25%, 2/1/08 75,000 69
8.125%, 2/1/06 25,000 24
Rio Hotel & Casino
Gtd. Sr. Sub. Notes
9.50%, 4/15/07 $ 75,000 $ 83
Scotland International Finance
Sub. Notes, (144a)
6.50%, 2/15/11 100,000 99
Six Flags Entertainment
Sr. Notes,
8.875%, 4/1/06 75,000 77
Six Flags Theme Parks
Sr. Sub. Disc. Notes
12.25%, 6/15/05 125,000 139
Smithfield Foods,
Sr. Sub. Notes
7.625%, 2/15/08 50,000 50
Specialty Retailers, Sr. Notes
8.50%, 7/15/05 75,000 65
Sprint, 6.125%, 11/15/08 350,000 357
Stena, Sr. Notes,
10.50%, 12/15/05 100,000 103
Synthetic Industries, Sr. Sub. Notes
9.25%, 2/15/07 50,000 51
Tenet Healthcare, Sr. Sub. Notes
8.625%, 1/15/07 50,000 52
US Can, Sr. Gtd. Notes
10.125%, 10/15/06 50,000 53
Westpoint Stevens, Sr. Notes
7.875%, 6/15/08 100,000 101
WorldCom
7.75%, 4/1/07 800,000 905
Total Corporate Bonds (Cost $13,521) 13,257
Foreign Government Obligations/Agencies 2.1%
European Investment Bank
3.00%, 9/20/06 JPY 40,000,000 383
4.625%, 2/26/03 JPY 20,000,000 201
Federal Republic of Germany
6.00%, 7/4/07 DEM 330,000 227
6.50%, 7/15/03 DEM 50,000 34
8.375%, 5/21/01 DEM 145,000 97
Government of Canada
8.50%, 4/1/02 CAD 147,000 107
Government of France
5.50%, 4/25/07 FRF 1,140,000 $ 228
8.50%, 11/25/02 FRF 492,000 105
Government of Japan +
4.50%, 6/20/03 JPY 4,000,000 39
Republic of Italy
8.50%, 8/1/04 ITL 40,000,000 30
United Kingdom Treasury Notes
7.50%, 12/7/06 GBP 64,000 128
8.00%, 6/10/03 GBP 31,000 59
8.50%, 12/7/05 GBP 10,000 20
Total Foreign Government
Obligations/Agencies (Cost $1,523) 1,658
U.S. Government Mortgage-
Backed Securities 8.5%
Federal National Mortgage Assn.
6.50%, 1/1/26 $ 227,110 229
Government National Mortgage Assn.
I
6.00%
12/15/23 - 4/15/26 2,043,533 2,028
6.50%
4/15/24 - 11/15/28 1,693,244 1,710
7.00%
5/15/23 - 8/15/28 1,071,083 1,095
7.50%
5/15/24 - 7/15/25 338,106 349
8.00%
10/15/25 - 6/15/26 390,978 406
8.50%, 12/15/24 23,901 26
11.50%,11/15/19 23,113 26
II
7.00%, 9/20/27 872,126 890
Total U.S. Government Mortgage-
Backed Securities (Cost $6,514) 6,759
U.S. Government Obligations/Agencies 9.4%
Tennessee Valley Authority
5.88%, 4/1/36 600,000 $ 625
6.235%, 7/15/45 1,000,000 1,032
U.S. Treasury Bonds
6.75%, 8/15/26 4,900,000 5,870
Total U.S. Government
Obligations/Agencies (Cost $6,785) 7,527
Short-Term Investments 3.3%
Certificates of Deposit 0.0%
Chase Manhattan Bank, N.A., fixed deposit
4.00%, 1/9/99 MYR 36,045 8
8
Money Market Funds 3.3%
Reserve Investment Fund
5.42% # 2,615,111 2,615
2,615
Total Short-Term Investments
(Cost $2,623) 2,623
Total Investments in Securities
98.9% of Net Assets (Cost $68,320) $ 78,619
Other Assets Less Liabilities 856
NET ASSETS $ 79,475
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (13)
Accumulated net realized gain/loss -
net of distributions 1,741
Net unrealized gain (loss) 10,302
Paid-in-capital applicable to 4,918,353
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
corporation authorized 67,445
NET ASSETS $ 79,475
----------
NET ASSET VALUE PER SHARE $ 16.16
----------
# Seven-day yield
* Non-income producing
+ Securities contain some restrictions as to public resale total of such
securities at period - end amounts to 0.05% of net assets.
ADR American Depository Receipt
REIT Real Estate Investment Trust
STEP Stepped coupon note for which the interest rate will adjust on specified
future date(s)
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers-total of such securities at period-end amounts to
1.76% of net assets.
AUD Australian dollar
BEF Belgian franc
CAD Canadian dollar
CHF Swiss franc
DEM German deutschemark
DKK Danish krone
FIM Finnish mark
FRF French franc
GBP British sterling
HKD Hong Kong dollar
ITL Italian lira
JPY Japanese yen
MYR Malaysian ringgit
NLG Dutch guilder
NOK Norwegian krone
NZD New Zealand dollar
SEK Swedish krona
SGD Singapore dollar
ZAR South African rand
L Local registered shares
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Personal Strategy Balanced Portfolio
In thousands
Year
Ended
12/31/98
Investment Income
Income
Interest $ 2,135
Dividend 773
Total income 2,908
Expenses
Investment management and administrative 665
Net investment income 2,243
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 4,456
Foreign currency transactions (9)
Net realized gain (loss) 4,447
Change in net unrealized gain or loss
Securities 2,850
Assets and liabilities denominated
in foreign currencies 5
Change in net unrealized
gain or loss 2,855
Net realized and unrealized gain (loss) 7,302
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 9,545
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Personal Strategy Balanced Portfolio
In thousands
Year
Ended
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 2,243 $ 1,630
Net realized gain (loss) 4,447 1,039
Change in net unrealized
gain or loss 2,855 5,343
Increase (decrease) in net
assets from operations 9,545 8,012
Distributions to shareholders
Net investment income (2,267) (1,619)
Net realized gain (2,857) (951)
Decrease in net assets
from distributions (5,124) (2,570)
Capital share transactions*
Shares sold 23,134 28,650
Distributions reinvested 5,124 2,570
Shares redeemed (16,209) (6,920)
Increase (decrease) in net
assets from capital
share transactions 12,049 24,300
Net Assets
Increase (decrease)
during period 16,470 29,742
Beginning of period 63,005 33,263
End of period $ 79,475 $ 63,005
---------------------------------
*Share information
Shares sold 1,450 1,996
Distributions reinvested 323 174
Shares redeemed (1,018) (482)
Increase (decrease) in
shares outstanding 755 1,688
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Personal Strategy Balanced 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 Personal Strategy Balanced Portfolio
(the fund), a diversified, open-end management investment company, is one
of the portfolios established by the corporation and commenced operations
on December 30, 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 Discountso Premiums and discounts on debt securities, other
than mortgage-backed securities (MBS), are amortized for both financial
reporting and tax purposes. Premiums and discounts on all MBS are
recognized upon disposition or principal repayment as gain or loss for
financial reporting purposes. For tax purposes, premiums and discounts on
MBS acquired on or before June 8, 1997, are recognized upon disposition or
principal repayment as ordinary income. For MBS acquired after June 8,
1997, premiums are recognized as gain or loss; discounts are recognized as
gain or loss, except to the extent of accrued market discount.
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 and U.S.
government securities, aggregated $36,888,000 and $29,124,000,
respectively, for the year ended December 31, 1998. Purchases and sales of
U.S. government securities aggregated $5,260,000 and $4,559,000,
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.
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$68,320,000. Net unrealized gain aggregated $10,299,000 at period-end, of
which $12,832,000 related to appreciated investments and $2,533,000 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 $84,000 was payable at December 31, 1998. The fee,
computed daily and paid monthly, is equal to 0.90% 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 $115,000 and are reflected as interest income
in the accompanying Statement of Operations.
During the year ended December 31, 1998, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating $2,000
with certain affiliates of the manager and paid commissions of $18 related
thereto.
Report of Independent Accountants
To the Board of Directors of T. Rowe Price Equity Series, Inc. and
Shareholders of Personal Strategy Balanced 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 Personal Strategy Balanced Portfolio (one of the 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
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
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 $44,000 from short-term capital gains, and
o $2,814,000 from long-term capital gains, subject to the 20%
rate gains category.
For corporate shareholders, $447,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
- --------------------------------------------------------------------------------
Invest With 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
TRP 655 (12/98) K15-053 12/31/98
