0001206774-17-000459.txt : 201702170001206774-17-000459.hdr.sgml : 2017021720170217141713ACCESSION NUMBER:0001206774-17-000459CONFORMED SUBMISSION TYPE:N-CSRPUBLIC DOCUMENT COUNT:35CONFORMED PERIOD OF REPORT:20161231FILED AS OF DATE:20170217DATE AS OF CHANGE:20170217EFFECTIVENESS DATE:20170217

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:T. Rowe Price Equity Series, Inc.CENTRAL INDEX KEY:0000918294IRS NUMBER:000000000STATE OF INCORPORATION:MDFISCAL YEAR END:1231

FILING VALUES:FORM TYPE:N-CSRSEC ACT:1940 ActSEC FILE NUMBER:811-07143FILM NUMBER:17620891

BUSINESS ADDRESS:STREET 1:100 EAST PRATT STREETCITY:BALTIMORESTATE:MDZIP:21202BUSINESS PHONE:410-345-2000

MAIL ADDRESS:STREET 1:100 EAST PRATT STREETCITY:BALTIMORESTATE:MDZIP:21202

FORMER COMPANY:FORMER CONFORMED NAME:PRICE T ROWE EQUITY SERIES INCDATE OF NAME CHANGE:19940131

0000918294S000002083T. Rowe Price Health Sciences Portfolio

C000005448T. Rowe Price Health Sciences Portfolio

C000005449T. Rowe Price Health Sciences Portfolio-II

N-CSR1arhsp_ncsr.htmCERTIFIED SHAREHOLDER REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OFREGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act File Number:811-07143

T. Rowe Price Equity Series, Inc. (Exact name of registrant as specified in charter) 100 East Pratt Street, Baltimore, MD 21202 (Address of principal executive offices) David Oestreicher 100 East Pratt Street, Baltimore, MD 21202 (Name and address of agent for service)

Registrants telephone number, including areacode: (410) 345-2000


Date of fiscal year end: December31


Date of reporting period: December 31,2016

Item 1. Report toShareholders

Health Sciences Portfolio December 31, 2016
Highlights

Following a multiyear stretch of sector outperformance, health care stocks declined in 2016 and significantly underperformed the broad equity market.
The Health Sciences Portfolio returned -10.48% for the year and underperformed the Lipper benchmark.
Biotechnology and pharmaceuticals stocks, two of the largest segments in the health care universe, posted steep losses for the year.
We remain focused on positioning the portfolio around several core themesinnovative therapies, products that produce material medical benefits, and businesses that provide cost-effective solutions.

The views and opinions in this report werecurrent as of December 31, 2016. They are not guarantees of performance orinvestment results and should not be taken as investment advice. Investmentdecisions reflect a variety of factors, and the managers reserve the right tochange their views about individual stocks, sectors, and the markets at anytime. As a result, the views expressed should not be relied upon as a forecastof the funds future investment intent. The report is certified under theSarbanes-Oxley Act, which requires mutual funds and other public companies toaffirm that, to the best of their knowledge, the information in their financialreports is fairly and accurately stated in all material respects.

Managers Letter
T. Rowe Price Health Sciences Portfolio

Dear Investor

We are never happy to report negativeresults. We will not sugarcoat the fact that it was a bad year for the stocks inour investment universe, but after five consecutive calendar years of generatingmarket-beating returns, we were not surprised to see some digestion of thosegains in 2016. We remain optimistic about the long-term prospects for healthcare stocks and have taken advantage of the recent volatility in the sector byadding to high-quality companies at what we think are attractiveprices.

Performance Comparison

The Health Sciences Portfolio declined forthe year ended December 31, 2016. As shown in the Performance Comparison table,the portfolios -10.48% return marginally trailed the -9.72% result for theLipper Variable Annuity Underlying Health/Biotechnology Funds Average, while thebroad market, as measured by the S&P 500 Index, advanced almost 12%.(Returns for the PortfolioII Class varied slightly, reflecting its differentfee structure.) Stock selection hurt our relative returns versus the Lipper peergroup, while industry allocation decisionsspecifically our underweight tobiotechnology and an overweight to the services segmentcontributed to relativeperformance.

The Health Sciences Portfolioslonger-term performance remains solid. As shown in the Average Annual CompoundTotal Return table on page 7, your portfolio delivered better than a 14% 10-yearaverage annual gain, while the average annual gain for the past five years was21.36%. Lipper ranked the Health Sciences Portfolio best in its universe ofvariable annuity underlying health/biotechnology funds for the 10-year periodended December 31, 2016. (Based on cumulative total return, Lipper ranked theHealth Sciences Portfolio 10 of 22, 3 of 22, 4 of 22, and 1 of 21 portfolios forthe 1-, 3-, 5-, and 10-year periods ended December 31, 2016, respectively.Past performance cannot guarantee futureresults.)

Market Environment

Health care stocks were volatile anddeclined for the year. After a steep first-quarter sell-off, the sector clawedback some of the losses in the second and third quarters only to retreat againin the fourth quarter. Political rhetoric on drug pricing, a number ofdisappointing new product launches, and a lack of positive clinical catalystscontributed to the sectors poor performance. Biotech stocks briefly ralliedafter the Republican sweep in the November elections but pulled back asuncertainty surrounding the new administrations health care policies grew.

For the year, health care was theworst-performing sector in the broad market as measured by the S&P 500Index. Within the Lipper Health/Biotechnology Funds Index, biotechnology stocks,which account for nearly 44% of the benchmark, declined more than 22%.Pharmaceuticals, a 17% allocation in the index, declined about 17%. The bestsegment in health care for the year was products and device manufacturers, whichadvanced a bit more than 11% and represents about 21% of the benchmark. Thesmaller services (14%) and life sciences (3%) segments posted modest gains ofless than 2%.

We keep an eye on our overall industryallocations and maintain broad diversification. However, we believe that stockselection, over the long haul, will have far more bearing than allocationdecisions on generating outperformance. The portfolio is significantlyoverweight in the services industry and underweight in the biotechnology andproducts and devices segmentsa direct result of our bottom-up stock selectionprocess rather than a thematic investing strategy. That being said, ourallocation decisions contributed more to the portfolios relative performancethan stock selection in 2016.

Portfolio Review

Holdings in the services industrygenerated the best absolute and relative performance in 2016. Our overweightallocation and stock selection benefited our comparison with the benchmark.Within the payors segment, UnitedHealthGroup, Aetna, and Humana were top contributors. Thesethree stocks are among our highest-conviction holdings as shown in theTwenty-Five Largest Holdings table on page 5. (Please refer to the portfolio ofinvestments for a complete list of holdings and the amount each represents inthe portfolio.)

UnitedHealth Group has been a longtimeholding and generated strong results. It is our largest portfolio holding,representing about 5.3% of assets at the end of the period, and gained more than38% in 2016. The company continued to deliver excellent results in the face ofhigh expectations, thanks to the strength of its Optum business unit. Shares ofthis managed care company benefited from President Trumps election victory asinvestors anticipated the likely repeal of the Affordable Care Act (ACA),potential corporate tax reform, the longer-term opportunity of Medicare reform,and the elimination of single-payor risk.

Aetna posted solid gains in the first halfof the year due to expectations of regulatory approval of its merger withHumana. While Aetnas shares declined in the third quarter after the JusticeDepartment sued to block the proposed merger, it was one of the diversifiedmanaged care companies that rallied after the U.S. presidential election,benefiting from the reduced threat of a single-payor system and on prospects forindustry-friendly reforms to the ACA and Medicare under a Republican-controlledlegislature.

Managed care provider WellCare Health Plans wasanother stellar gainer in the services segment. Its shares rallied more than 75%as the company made strides in turning around its business by improving marginsand revenue growth and implementing cost controls on concerns about risingmedical costs. In November, the company expanded its business into MedicareAdvantage, an area that could benefit from a more favorable policy outlook underthe new administration, through its $800 million acquisition of New York-basedUniversal American. The $10 per share offer represented a 34% premium to the recentprice.

Our outperformance in biotech wasprimarily driven by our underweight allocation to the group, which was theworst-performing health care industry for the year. As noted earlier, thesegment d