Semiannual Report
Health
Sciences
Fund
June 30, 2000
T. Rowe Price
Report Highlights
Health Sciences Fund
o Strong overall gains among pharmaceuticals and biotechnology stocks powered
the health care sector.
o Pharmaceuticals and service companies declined as a percent of assets.
o The fund enjoyed a superb six-month gain that was superior to its
benchmarks.
o We increased holdings in high-potential biotechnology stocks, particularly
life sciences issues. o Pharmaceuticals and service companies declined as a
percent of assets.
o Results may slow in coming months, but long-term potential in the sector
remains bright.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
After a generally lackluster year in 1999, health care proved to be one of the
top-performing market segments in the first half of 2000. Several trends came
together to produce excellent results among pharmaceutical, biotech, and other
life sciences issues. Your fund stood to benefit from these trends and ended the
period with a strong gain.
Performance Comparison
--------------------------------------------------------------------------------
Periods Ended 6/30/00 6 Months 12 Months
---------------------------------------------------------------------------
Health Sciences Fund 35.40% 47.12%
S&P 500 -0.43 7.24
Lipper Health/Biotechnology
Fund Index 29.11 41.39
While the broad equity market, represented by the Standard & Poor's 500
Stock Index, was virtually flat during the six months ended June 30, 2000,
the funds in the Lipper Health/Biotechnology Fund Index soared more than
29%. Your fund advanced even more, finishing up 35.40%. That gain
contributed to a 47.12% 12-month total return, which also outpaced the
Lipper benchmark. The strong six-month advance is not surprising given the
sharp gains of the pharmaceutical and biotechnology indices: the AMEX
Pharmaceuticals Index rose 20.14%, and the AMEX Biotechnology Index soared
64.58%.
MARKET ENVIRONMENT
For investors, the first half of 2000 did not offer nearly the euphoria
that the latter half of 1999 did. Early on, the promising but speculative
technology and biotech stocks that dominated market performance last year
continued to do well. Then, however, the party received a shock. Concerned
by very strong year-end economic growth measures, the Federal Reserve
raised short-term interest rates three times in 2000 by a total of 100
basis points (or one percentage point). The federal funds target rate now
stands at a relatively lofty 6.5%. When interest rates rise, analysts often
say that the Fed is "taking away the punch bowl," and the analogy proved
apt. After about mid-March, investors abandoned speculative issues, leading
to a rapidly developing bear market for technology stocks. The downdraft
pulled in other sectors, with biotechnology, financials, and consumer
stocks all declining.
Losses were often severe, particularly among companies that could not turn
promise into profits. The survivors tended to be more "defensive" growth
stocks that offered reliable, if not necessarily spectacular, earnings
growth. Toward the end of May investors became more confident that the Fed
would slow its rate-hike campaign and moved back into areas they had
formerly shunned, particularly technology and biotech. They retained their
discriminating tastes, however, showing a strong preference for reasonably
valued stocks and companies with higher-quality balance sheets.
Pharmaceutical stocks were top performers through most of this period. Most
companies in this segment are known for reliable earnings, which made them
popular during the downdraft and even afterwards. The pipeline for new,
blockbuster drugs remains intact: Eli Lilly, in particular, is nearing
approval of a high-potential treatment for a deadly blood infection called
sepsis. The consummation of two very significant mergers-between Pfizer and
Warner-Lambert, now called Pfizer, and between Pharmacia & Upjohn and
Monsanto, now called Pharmacia-also won over investors who had been
skeptical last year.
The biotechnology sector benefited greatly from the excitement surrounding
the Human Genome Project, which offered a "first draft" of the human
genetic makeup in June.
Biotechnology stocks traveled a bumpier road, declining sharply in the
spring but overcoming those losses with strong gains at the beginning and
end of the period. The sector benefited greatly from the excitement
surrounding the Human Genome Project, which offered a "first draft" of the
human genetic makeup in June. This development was truly historic and will
open the door for remarkable advances over the next 10 to 20 years. On the
one hand, some of the marketOs interest may be premature, because itOs a
mistake to think that the project will lead to a great new drug in the next
year. On the other hand, improving fundamental factors have made these
companies increasingly attractive. Ten years ago there were very few
profitable companies in this industry. Recently, however, there has been a
steady increase in the number of profitable companies, in the new products
that are in late-stage clinical development, and in the products that have
actually been approved by the FDA.
Compared with pharmaceuticals and biotech, product and device stocks have
not received much attention, although a few companies in the sector
continue to offer innovative products and solid earnings potential. More
intriguing have been the life sciences stocks-firms that are manufacturing
the tools used by medical researchers. Numerous life sciences stocks posted
triple-digit returns during the period on heavy demand. Finally, health
care services remained a lackluster area. Despite strength in a few
particularly well-managed companies, the sector overall still suffers from
pricing and regulatory challenges and remains unattractive to investors.
PORTFOLIO REVIEW
At 50% of assets, biotechnology overtook pharmaceuticals to become the
largest allocation in the portfolio as of June 30. Strong relative
performance contributed to this expansion, as top-10 holdings MedImmune and
Genentech both enjoyed strong results. We have been very impressed with the
management teams and track records of both companies, and we believe their
earnings growth could exceed 30% for the next several years. A number of
smaller biotech holdings, such as Abgenix and Cephalon, also produced
standout gains. Cephalon has advanced on investor interest in its drug
Provigil, which is nearing approval and has been indicated as a possible
treatment for a broad variety of problems, from attention deficit disorder
to AlzheimerOs disease.
Sector Diversification
--------------------------------------------------------------------------------
12/31/99 6/30/00
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Pharmaceuticals 42% 34%
Health Care Services 13 4
Products and Devices 3 5
Biotechnology 36 50
Reserves 6 7
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Total 100% 100%
However, our commitment to biotech also reflects the addition of several
new life sciences issues. Waters, for example, produces mass spectrometers
used by scientists to analyze proteins and was the top contributor to
performance for the period. We also own PE Biosystems, which has a leading
market share in the DNA sequencing tools used by researchers in the Human
Genome Project. Smaller but equally compelling companies in this sector
included Affymetrix, which is pioneering so-called DNA chips or DNA arrays
for gene expression profiling, and Incyte Genomics, which is now the
leading provider of a gene sequence database. Life sciences holdings
accounted for 18% of fund assets at June 30.
We are conscious of the volatility that biotech stocks typically carry and
recognize that our growing stake could lead to some fluctuation in fund
performance. However, we cannot ignore the substantial innovation and
compelling new products that imbue the industry with remarkable growth
potential. Companies that introduce products that change the practice of
medicine can become extremely successful in a very short time. MedImmune is
a striking example. Since introducing Synagis for the treatment of a
respiratory virus two years ago, the companyOs market cap has risen from
$500 million to $12 billion. Our goal is to identify the companies most
able to profit from innovation while also reducing risk through ownership
of lower-growth stocks with more stable prices in other areas of the
portfolio.
Pharmaceuticals declined as a proportion of assets during the period. With
valuations relatively high in this segment, we attempted to focus our
investments on firms with the best business fundamentals, management, and
earnings potential. We added to our positions in Pfizer, Eli Lilly, and
Pharmacia, and therefore were well positioned for the strong runups they
enjoyed. Each is now among the seven largest fund holdings, with Pfizer
being the largest, and each was among the 10-best contributors to
performance. At the same time, we eliminated our holding in Bristol-Myers
Squibb, which suffered a setback when its highly anticipated hypertension
drug was shown to have potentially dangerous side effects. We also reduced
our position in Schering-Plough because of concern over market share
pressures on its successful allergy drug, Claritin.
Our holdings in health care services declined during the period. Although
we actively look for opportunities in this sector, most of its component
companies do not offer the growth potential and strong fundamentals we look
for. It is increasingly clear to us that value in the health care sector is
primarily generated by companies that offer compelling innovations, and few
services companies fall in that category. We eliminated CareInsite, Medical
Manager, and drugstore.com for these reasons. However, we held positions in
CIGNA and UnitedHealth Group, both of which are well-managed HMOs with
attractive valuations and growth rates. Both companies did very well during
the period. We also kept a fairly modest position in the products and
devices area, where the performance of our holdings was decidedly mixed.
Our principal change in this segment was to initiate a position in
Medtronic, which we consider to be the blue chip company in the
medical-device industry.
OUTLOOK
We expect the FedOs vigilance on interest rates to help sustain a positive
economic environment that should benefit corporate earnings in our
industry. The political environment bears watching, as the presidential
candidates tend to offer a lot of rhetoric about health care reform and
drug price controls in election years. However, we suspect that the bark
may be worse than the bite, and that sound policy decisions will win out
over drastic changes that would be very harmful to the pharmaceutical
industry. We would like to point out that the fundOs strong first-half
advance was extraordinary, and the market may have fully valued the top
stocks in the sector at this time. While near-term gains may be muted,
however, we remain highly confident in the long-term potential of the
health care industry.
Respectfully submitted,
John H. Laporte
President
Kris H. Jenner
Chairman of the Investment Advisory Committee
July 24, 2000
T. Rowe Price Health Sciences Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/00
Pfizer 10.5%
Genentech 5.8
Waters 5.6
Eli Lilly 5.3
QLT 4.6
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American Home Products 4.2
Pharmacia 4.2
MedImmune 4.0
PE Biosystems 3.8
IDEC Pharmaceuticals 3.0
---------------------------------------------------------------------------
UnitedHealth Group 2.9
Abgenix 2.5
Incyte Genomics 2.0
LJL Biosystems 1.9
Gilead Sciences 1.8
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NPS Pharmaceuticals 1.8
Baxter International 1.6
Cephalon 1.6
Affymetrix 1.5
Merck 1.4
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ALZA 1.1
Biogen 1.0
Shire Pharmaceuticals 0.9
Alkermes 0.9
CIGNA 0.9
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Total 74.8%
Note: Table excludes reserves.
T. Rowe Price Health Sciences Fund
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Portfolio Highlights
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CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended June 30, 2000
Ten Best Contributors
---------------------------------------------------------------------------
Waters 79(cents)
Warner-Lambert*** 47
Pfizer 39
Genentech 35
Eli Lilly 33
Inhale Therapeutic Systems 29
QLT 28
UnitedHealth Group 28
Alkermes 27
Pharmacia & Upjohn*** 25
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Total 370(cents)
Ten Worst Contributors
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Medical Manager** -35(cents)
PE Biosystems* 13
Bristol-Myers Squibb** 12
Incyte Genomics 12
Johnson & Johnson 7
Creative Biomolecules** 7
CareInsite** 6
Healtheon** 5
Guidant* 5
Celltech Group** 4
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Total -106(cents)
12 Months Ended June 30, 2000
---------------------------------------------------------------------------
Ten Best Contributors
---------------------------------------------------------------------------
Genentech* 100(cents)
Waters 77
MedImmune 67
Warner-Lambert*** 63
QLT 56
Amgen 49
Alkermes 40
Inhale Therapeutic Systems 39
Pfizer 34
NPS Pharmaceuticals* 34
---------------------------------------------------------------------------
Total 559(cents)
Ten Worst Contributors
---------------------------------------------------------------------------
Medical Manager** -35(cents)
Boston Scientific** 23
Total Renal Care Holdings** 22
Bristol-Myers Squibb** 19
Schering-Plough 19
Cardinal Health** 18
Centocor** 17
Aetna** 15
PE Biosystems* 13
Incyte Genomics* 10
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Total -191(cents)
* Position added
** Position eliminated
*** Acquired by another company
T. Rowe Price Health Sciences Fund
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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.
Health Sciences Fund
As of 6/30/00
S&P 500 Health Sciences
Index Fund
12/29/95 10.000 10.000
6/96 11.010 12.020
6/97 14.830 14.153
6/98 19.303 16.665
6/99 23.696 18.407
6/00 25.412 27.079
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.
Since Inception
Periods Ended 6/30/00 1 Year 3 Years Inception Date
--------------------------------------------------------------------------------
Health Sciences Fund 47.12% 24.15% 24.78% 12/29/95
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price Health Sciences Fund
--------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
6 Months Year 12/29/95
Ended Ended Through
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 15.93 $ 16.01 $ 13.66 $ 12.27 $ 10.00
Investment activities
Net investment
income (loss) (0.01) (0.04) (0.04) (0.03) (0.03)*
Net realized and
unrealized gain (loss) 5.65 1.22 3.05 2.39 2.70
Total from
investment activities 5.64 1.18 3.01 2.36 2.67
Distributions
Net realized gain -- (1.26) (0.66) (0.97) (0.40)
NET ASSET VALUE
End of period $ 21.57 $ 15.93 $ 16.01 $ 13.66 $ 12.27
----------------------------------------------------
Ratios/Supplemental Data
Total return (diamond) 35.40% 7.97% 22.37% 19.41% 26.75%*
Ratio of total expenses
to average net assets 1.02%! 1.11% 1.16% 1.18% 1.35%*
Ratio of net investment
income (loss) to average
net assets (0.17)%! (0.25)% (0.25)% (0.21)% (0.32)%*
Portfolio
turnover rate 162.5%! 81.9% 85.7% 104.4% 133.1%
Net assets,
end of period
(in thousands) $661,022 $302,510 $316,573 $271,351 $193,958
(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.
* Excludes expenses in excess of a 1.35% voluntary expense
limitation in effect through 12/31/97.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
Statement of Net Assets Shares Value
--------------------------------------------------------------------------------
In thousands
Common Stocks and Warrants 93.4%
SERVICES 4.4%
Payors 3.8%
CIGNA 61,000 $ 5,704
UnitedHealth Group 223,000 19,122
24,826
Distribution 0.6%
Lincare * 90,000 2,213
Omnicare 200,000 1,813
4,026
Total Services 28,852
PRODUCTS & DEVICES 4.5%
Implants 4.5%
Advanced Neuromodulation Systems * 325,500 5,473
Baxter International 150,000 10,547
Guidant * 110,000 5,445
Medtronic 90,000 4,483
Novoste * 66,400 4,050
Total Products & Devices 29,998
PHARMACEUTICALS 34.3%
U.S. Major - Pharmaceutical 26.7%
American Home Products 475,000 27,906
Eli Lilly 349,000 34,856
Johnson & Johnson 36,500 3,718
Merck 121,600 9,318
Pfizer 1,447,700 69,490
Pharmacia 535,000 27,653
Schering-Plough 70,000 3,535
176,476
Generic & Drug Delivery 7.6%
Alkermes * 131,800 6,207
ALZA * 120,000 7,095
Biovail * 90,700 5,028
Emisphere Technologies * 20,600 $ 878
Inhale Therapeutic Systems * 35,000 3,551
IVAX * 107,300 4,453
King Pharmaceuticals * 125,000 5,484
Medicis Pharmaceutical * 60,700 3,460
Noven Pharmaceuticals * 150,000 4,509
Shire Pharmaceuticals ADR * 120,500 6,259
Teva Pharmaceutical Industries ADR 65,000 3,606
50,530
Total Pharmaceuticals 227,006
BIOTECHNOLOGY 49.6%
U.S. Major - Biotechnology 28.1%
Abegenix * 137,400 16,466
Amgen * 50,000 3,514
Biogen * 100,000 6,447
Cephalon * 172,300 10,478
Genentech * 221,000 38,012
Gilead Sciences * 170,000 12,097
IDEC Pharmaceuticals * 170,100 19,949
Immunex * 58,500 2,894
MedImmune * 357,000 26,407
NPS Pharmaceuticals * 450,000 12,094
QLT * 390,000 30,286
Sepracor * 45,000 5,428
Trimeris * 25,700 1,798
185,870
Other Biotechnology 3.3%
Anesta * 218,500 5,428
Celltech Group (GBP) * 156,000 2,998
COR Therapeutics * 35,000 2,985
Cubist Pharmaceuticals * 60,000 2,957
Insmed * 714,290 2,411
Insmed Pharmaceuticals, Warrants,
5/31/05 + * (miscellaneous footnote) 250,048 281
Magainin Pharmaceuticals,
Warrants, 8/6/01 * 98,237 0
Neurocrine Biosciences * 13,300 471
Serologicals * 116,000 583
Triangle Pharmaceuticals * 209,000 $ 1,920
Visible Genetics * 30,000 1,352
21,386
Life Sciences 18.2%
Affymetrix * 60,000 9,906
Aurora Biosciences * 70,000 4,758
Incyte Genomics * 162,000 13,309
Invitrogen * 53,000 3,987
LJL Biosystems * 636,245 12,307
Nycomed Amersham (GBP) * 465,000 4,573
Packard BioScience * 200,700 3,406
PE Biosystems 385,800 25,414
Pharmacopeia * 84,733 3,919
Symyx Technologies * 15,200 649
Trega
Biosciences * + (miscellaneous footnote) 440,666 1,252
Waters * 295,000 36,820
120,300
Total Biotechnology 327,556
Total Miscellaneous Common Stocks 0.6% 4,203
Total Common Stocks and Warrants (Cost $455,371) 617,615
PREFERRED STOCK 0.2%
Doubletwist,
Series D * + (miscellaneous footnote) 846,804 1,274
Total Corporate Bonds (Cost $1,274) 1,274
OPTIONS WRITTEN (0.4%)
American Home Products,
Call, 7/22/00 @ $60.00 * (1,250) (276)
Eli Lilly, Call, 7/22/00 @ $90.00 * (1,500) (1,631)
Guidant, Call, 7/22/00 @ $50.00 * (600) (154)
Immunex, Call, 7/22/00 @ $50.00 * (500) (200)
Pharmacia, Call, 7/22/00 @ $50.00 * (1,750) (481)
Schering-Plough, Call, 7/22/00 @ $50.00 * (400) (53)
Total Options Written (Cost $(1,493)) (2,795)
SHORT-TERM INVESTMENTS 7.3%
Money Market Funds 7.3%
Reserve Investment Fund, 6.68% # 47,982,836 $ 47,983
Total Short-Term Investments (Cost $47,983) 47,983
Total Investments in Securities
100.5% of Net Assets (Cost $503,135) $ 664,077
Other Assets Less Liabilities (3,055)
NET ASSETS $ 661,022
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (416)
Accumulated net realized gain/loss -
net of distributions 40,640
Net unrealized gain (loss) 160,942
Paid-in-capital applicable to 30,638,355 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 459,856
NET ASSETS $ 661,022
----------
NET ASSET VALUE PER SHARE $ 21.57
----------
(miscellaneous footnote) Private Placement
# Seven-day yield
* Non-income producing
+ Securities contain some restrictions as to public
resale - total of such securities at period-end
amounts to 0.4% of net assets.
ADR American Depository Receipt
GBP British sterling
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
--------------------------------------------------------------------------------
Unaudited
Statement of Operations
--------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/00
Investment Income (Loss)
Income
Interest $ 1,051
Dividend 1,019
Total income 2,070
Expenses
Investment management 1,621
Shareholder servicing 703
Custody and accounting 57
Registration 57
Prospectus and shareholder reports 41
Legal and audit 8
Directors 4
Miscellaneous 5
Total expenses 2,496
Expenses paid indirectly (10)
Net expenses 2,486
Net investment income (loss) (416)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 31,062
Foreign currency transactions 1
Net realized gain (loss) 31,063
Change in net unrealized gain or loss
Securities 97,817
Written Options (1,302)
Net change in unrealized gain or loss 96,515
Net realized and unrealized gain (loss) 127,578
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 127,162
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
--------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/00 12/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (416) $ (755)
Net realized gain (loss) 31,063 23,334
Change in net unrealized gain or loss 96,515 (680)
Increase (decrease) in net
assets from operations 127,162 21,899
Distributions to shareholders
Net realized gain -- (22,309)
Capital share transactions *
Shares sold 360,229 103,079
Distributions reinvested -- 21,561
Shares redeemed (128,879) (138,293)
Increase (decrease) in net
assets from capital
share transactions 231,350 (13,653)
Net Assets
Increase (decrease) during period 358,512 (14,063)
Beginning of period 302,510 316,573
End of period $ 661,022 $ 302,510
-----------------------
*Share information
Shares sold 18,559 6,521
Distributions reinvested -- 1,457
Shares redeemed (6,915) (8,755)
Increase (decrease) in
shares outstanding 11,644 (777)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
Notes to Financial Statements
--------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Health Sciences Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on December 29, 1995. The fund
seeks long-term capital appreciation by investing primarily in the common
stocks of companies engaged in the research, development, production, or
distribution of products or services related to health care, medicine, or
the life sciences.
The accompanying financial statements are prepared in accordance with
generallyaccepted 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. In the absence of a last
sale price, written options are valued at the mean of the latest bid and
asked prices.
For purposes of determining the fundOs net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation - Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian and are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Options - Call and put options give the holder the right to purchase or
sell, respectively, a security at a specified price until a certain date.
Risks arise from possible illiquidity of the options market and from
movements in security values. Options are reflected in the accompanying
Statement of Net Assets at market value. Transactions in options written
and related premiums received during the period ended June 30, 2000, were
as follows:
---------------------------------------------------------------------------
Number of
Contracts Premiums
Outstanding at beginning of period -- $ --
Written 6,000 1,493,000
Outstanding at end of period 6,000 $1,493,000
Other - Purchases and sales of portfolio securities, other than short-term
securities, aggregated $573,364,000 and $369,128,000, respectively, for the
six months ended June 30, 2000.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$503,135,000. Net unrealized gain aggregated $160,942,000 at period-end, of
which $183,175,000 related to appreciated investments and $22,233,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $319,000 was payable at June 30, 2000. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.35% of average daily net assets and a group fee. The group fee is based
on the combined assets of certain mutual funds sponsored by the manager or
Rowe Price-Fleming International, Inc. (the group). The group fee rate
ranges from 0.48% for the first $1 billion of assets to 0.295% for assets
in excess of $120 billion. At June 30, 2000, and for the six months then
ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services,
Inc. is the fundOs transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc. provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $611,000 for the six months ended June 30, 2000, of which
$136,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the six months ended
June 30, 2000, totaled $1,051,000 and are reflected as interest income in
the accompanying Statement of Operations.
T. Rowe Price Shareholder Services
--------------------------------------------------------------------------------
Investment Services and Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 - Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person - Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking - Available on most fixed-income funds ($500 minimum).
Automatic Investing - From your bank account or paycheck.
Automatic Withdrawal - Scheduled, automatic redemptions.
Distribution Options - Reinvest all, some, or none of your distributions.
Automated 24-Hour Services - Including Tele*Access(registered trademark)
and the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments - Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates. **
INVESTMENT INFORMATION
Combined Statement - Overview of all your accounts with T. Rowe Price.
Shareholder Reports - Fund managers' reviews of their strategies and
results.
T. Rowe Price Report - Quarterly investment newsletter discussing markets
and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights - Educational reports on investment strategies and financial
markets.
Investment Guides - Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of
order.
T. Rowe Price Mutual Funds
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STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus, which contains complete information, including
fees and expenses. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site.
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price Invest With Cofidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F10-051 6/30/00
