Semiannual Report
Financial
Services
Fund
June 30, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Financial Services Fund
o Stocks continued their strong advance in the first half, and financial
services shares joined the rally.
o The fund's return exceeded its Lipper benchmark for the past six months but
trailed the S&P 500 because of rising interest rates. Twelve-month
performance also surpassed the Lipper average.
o Several financial areas did well despite higher rates, including many of
our bank and securities company holdings.
o We added to core holdings and established new positions in companies with
attractive growth prospects.
o While a sustained rise in interest rates would hurt financial stocks, we
believe we can enhance returns through careful stock selection.
Fellow Shareholders
The U.S. stock market continued its strong upward trend in the first six months
of 1999, with all major market indices making new highs. Financial stocks and
your fund posted good returns for the period, but the group lagged behind the
S&P 500 primarily because of rising interest rates and concerns about higher
inflation. This pattern of trailing performance for the group continued from
last year following three consecutive years of sharply superior returns for
financial stocks.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Financial Services Fund 8.86% 5.32%
S&P 500 12.38 22.76
Lipper Financial Services
Funds Average 7.20 2.16
Your fund provided a solid 8.86% gain during the first half of the year,
and a much more modest gain of 5.32% for the last 12 months as financial
stocks were particularly hurt by last year's crises overseas. For both
periods, fund results surpassed the Lipper average for similar funds but
trailed the unmanaged Standard & Poor's 500 stock index. The S&P 500 again
benefited from strength in technology stocks. The stocks of industrial and
other cyclical companies, which are outside of the fund's investment realm,
also performed well in response to surprising strength in the domestic
economy and prospects for a recovery in emerging markets.
MARKET ENVIRONMENT
Many trends that were apparent in the second half of 1998 were reversed by
the end of the second quarter of 1999. Emerging market economies showed
signs of recovering. Commodity prices rebounded, and the U.S. manufacturing
sector came to life. Credit became more readily available as investors
returned to the fixed income markets and bond spreads (the difference
between yields of various securities) tightened. Against a more robust
economic backdrop, the stock market was volatile but continued to
appreciate. These factors collectively drove the yield on the 30-year
Treasury bond from just over 5% at the end of 1998 to around 6% on June 30,
1999. The Federal Reserve partly reversed the monetary easing implemented
in response to last fall's financial crisis by raising the fed funds target
rate a quarter-point to 5.00% on June 30.
Despite higher interest rates, the fundamental factors driving the earnings
of financial services companies remain intact. Commercial credit quality is
stable as evidenced by nonperforming assets that are at historically low
levels despite a modest increase in 1998. However small, we note that 1998
was the first annual increase in banks' nonperforming assets since 1990,
and we intend to monitor our investments closely for any signs of
deterioration in commercial credit. Consumer credit quality continues to
improve, driven by record low unemployment and a slowdown in the rate of
growth in personal bankruptcy filings. This trend could be aided by
bankruptcy reform legislation currently pending in Congress. Finally, U.S.
financial companies are participating in dramatic consolidation, which
should enhance efficiency and provide sufficient scale to support
investments in promising areas such as the Internet and e-commerce.
Sweeping financial services reform legislation, also pending in Congress,
could accelerate consolidation among banks, brokers, and insurance firms.
Information on Year-End Distributions
- --------------------------------------------------------------------------------
To help you with tax planning, we try to give you a good idea of the per-share
income and capital gain amounts our funds may distribute near year-end. In late
October, we will provide estimates of these amounts, which will be paid on
December 16, 1999, to shareholders of record on December 14. These preliminary
numbers will be included in The Price Report mailing to shareholders in late
October and will also be available on our Web site-www.troweprice.com.
We hope that these preliminary numbers will be useful to you in approximating
the income and capital gains taxes you may pay on distributions to taxable
accounts. If your fund distributed any capital gains earlier in 1999, you can
find the amounts on your statements and should include them in your tax planning
calculations. Please keep in mind that the numbers are not final and are likely
to be revised before the December 14 declaration and record date. As the fall
progresses, you may want to check our Web site for revisions.
If you would like information on tax matters relating to mutual funds, please
visit our Web site to download our Insights report, Tax Information for Mutual
Fund Investors, or call 1-800-225-5132 to request a copy.
PORTFOLIO REVIEW
As mentioned, financial stocks lagged slightly behind the broader market in
the first half, continuing a pattern established in 1998 after three
consecutive years of sharply better performance. As is often the case,
performance within financial sectors was not uniform, and a few sectors
performed well despite rising rates. Citigroup, your fund's largest
holding, produced exceptional returns for the six-month period reflecting
strength in many of its businesses, including credit cards, brokerage, and
investment banking. Citigroup's management continues to see additional
opportunities to cut costs and offer incremental products and services to
the firm's vast client base.
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------------
Specialty Financial Services 38
Bank and Trust 32
Insurance 24
Reserves 3
Computer Service and Software 1
Electrical Equipment 1
Conglomerates 1
Based on net assets as of 6/30/99.
Securities firms and money center banks fared extremely well as the capital
markets completed a recovery from last fall's turmoil. Morgan Stanley Dean
Witter and Goldman Sachs Group were standouts among our holdings. Both
companies benefited from healthier fixed income markets and their strong
positions in high-margin, high-growth areas such as equity underwriting for
technology companies and mergers and acquisitions advisory services.
Chase Manhattan and Bank of America generated attractive returns in the
banking sector. Chase continued its steady progress in building a
profitable investment banking franchise. Its role in Olivetti's takeover of
Telecom Italia is a tribute to the firm's strength in structuring and
financing complex transactions. Bank of America's management signaled its
confidence in last year's NationsBank/BankAmerica merger by announcing a
plan to buy back 130 million shares of company stock over the next two
years. On a negative note, First Union, which was eliminated from your fund
in March, encountered difficulties with its acquisitions of CoreStates and
The Money Store. While we continue to believe that First Union has solid
products and technology, its lead in these areas has slipped while
management focused on integrating expensive acquisitions. We have concerns
about First Union's inability to contain costs, and its continued
aggressive expansion.
Credit card companies including Capital One Financial and American Express
performed particularly well. Capital One continues to experience record
account growth and now boasts the lowest loss rate among all major credit
card issuers. Similarly, American Express enjoyed a strong first half,
aided by stable credit trends and healthy revenue growth from its American
Express Financial Advisors division. We recently added a third major credit
card issuer, MBNA, to our portfolio. MBNA is the third-largest credit card
issuer in the country following Bank One's First USA division and
Citigroup. At the time of our purchase, the stock had been underperforming
its peer group despite the company's improving fundamentals and consistent
20% earnings growth.
Two of our weaker stocks during the six-month period were Freddie Mac and
Fannie Mae, although over the past 12 months both stocks made good
contributions to fund results. While both companies have consistently
produced earnings and portfolio growth above our expectations, the
performance of the stocks has been disappointing lately due to political
concerns and rising interest rates. While neither of these factors should
be ignored, we feel both companies are adept at handling these issues and
that ultimately the stocks will reflect the companies' underlying
fundamentals.
Two investments linked to the Internet provided substantial contributions
to your fund's six-month performance. We participated in the IPO of
TheStreet.com, a Web-based provider of financial news and commentary, which
was extremely well received by the market. TeleBanc Financial, a leading
on-line bank, produced spectacular returns since we made our original
investment last summer. TeleBanc was eliminated from the portfolio after an
announcement that it was to be acquired by on-line brokerage firm E*TRADE
in the second quarter. The Internet has emerged as both an opportunity and
a threat for established financial services companies and has produced new
companies armed with powerful business models and attractive customer value
propositions. We will continue to look for investment opportunities in this
area.
While American International Group and Travelers Property Casualty made
strong showings among your fund's insurance holdings, the insurance sector
overall was a drag on performance. Fundamentals in the property and
casualty insurance area continued to be challenging thanks to overcapacity,
low volume growth, and resulting aggressive price competition. Fairfax
Financial, a Canadian property and casualty insurance holding company, was
hit especially hard by the weak pricing environment for reinsurance and by
higher interest rates. In addition, the company has been involved in
litigation over reinsurance contracts placed with a company Fairfax
acquired. Bermuda-based insurance firms ACE Limited and XL Capital also
languished. Despite the near-term challenges facing these well-managed
companies, they are increasingly becoming industry consolidators and have
the capacity to grow earnings in a challenging competitive environment,
thanks to lower operating costs and a lower tax burden.
STRATEGY
Our investment strategy remains the same: we focus on maintaining core
holdings as long as the fundamentals are strong and the valuations
reasonable. Consequently, much of the cash flow the fund received was
invested in existing holdings. Additions to Capital One Financial, Franklin
Resources, and Bank of New York were significant enough to be among our 10
largest purchases during the past six months.
We continued to establish new positions in companies with above-average
growth prospects, high returns on equity, and strong management teams.
During the first half of 1999, we bought stocks in several companies,
including MBNA and Goldman Sachs Group (both mentioned earlier); US Trust,
a high-net-worth asset manager and private banker with excellent growth
prospects; and Marsh & McLennan, a leader in insurance brokerage and asset
management. We also initiated a position in St. Louis-based Mercantile
Bancorporation, which is slated to be taken over by Firstar. We are
impressed with the track record of Firstar's management and anticipate
holding this investment as long as its prospects look bright.
OUTLOOK
Stock prices continue to look expensive by all conventional measures,
particularly when the outlook for slower growth in corporate earnings is
considered. This makes us cautious, as do the market's record-breaking
four-year gains. In addition, a sustained period of rising interest rates
would be especially damaging to the financial services sector.
However, we realize that the outlook for the general investment
environment, future company earnings, and above all careful selection of
stocks drive sound investing. Despite our caution, we believe the outlook
for financial services stocks and your fund is still favorable for several
reasons:
o Despite concerns about rising interest rates, economic data show
that inflation remains contained and productivity continues to
rise. As long as worker productivity increases, the economy can
grow without a corresponding increase in inflation. Moderate
growth with low inflation is an ideal environment for financial
services stocks.
o Earnings growth is still strong at many high-quality financial
companies, and the valuations of financial companies are
attractive relative to the market.
o Top-notch entrepreneurial management and sound business models
characterize fund holdings. Through careful containment of costs
and proper incentives, these companies have improved both their
ability to compete and the durability and predictability of
earnings.
o Many holdings generate significant free cash flow, which
management will likely use to repurchase shares or make
acquisitions that can enhance stock performance over time. This
could be particularly advantageous if a serious stock market
correction results in lower share prices for these companies or
for potential acquisitions.
While the stock market will not always go up, we believe we can enhance
returns and reduce risk over time by investing in financial companies that
can increase earnings growth regardless of the economic or interest rate
environment. As always, we try to buy these companies at reasonable stock
valuations.
We would like to take this opportunity to introduce Robert Sharps to you.
As a banking analyst and a key member of the fund's advisory committee, Rob
has been a significant contributor to the fund's management team. He has
agreed to take on an expanded role as executive vice president and to focus
more broadly on the fund's investments in all financial services companies.
We are confident Rob will continue to be instrumental in our efforts to
generate superior investment performance.
We appreciate your continued confidence and support.
Respectfully submitted,
Larry J. Puglia
President and Chairman of the Investment Advisory Committee
Robert W. Sharps
Executive Vice President
July 23, 1999
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
- --------------------------------------------------------------------------------
Percent of
Net Assets
6/30/99
Citigroup 6.8%
Bank of America 6.2
Bank of New York 4.3
Freddie Mac 4.1
Wells Fargo 4.0
- --------------------------------------------------------------------------------
Chase Manhattan 3.9
Associates First Capital 3.8
Bank One 3.8
Mellon Bank 3.4
Capital One Financial 3.3
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter 3.3
American Express 3.1
XL Capital 3.1
Fannie Mae 2.9
The CIT Group 2.6
- --------------------------------------------------------------------------------
State Street 2.5
ACE Limited 2.5
American International Group 2.3
American General 2.2
Mercantile Bancorporation 2.1
- --------------------------------------------------------------------------------
UNUM 1.9
Fairfax Financial 1.8
Mutual Risk Management 1.7
Hartford Financial Services Group 1.6
Marsh & McLennan 1.5
- --------------------------------------------------------------------------------
Total 78.7%
Note: Table excludes reserves.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/99
Ten Best Contributors
- --------------------------------------------------------------------------------
Citigroup 34(cents)
Bank of America 21
Morgan Stanley Dean Witter 19
Chase Manhattan 16
Capital One Financial 16
American Express 11
TheStreet.com** 10
Bank One 9
TeleBanc Financial** 9
State Street 8
- --------------------------------------------------------------------------------
Total 153(cents)
Ten Worst Contributors
- --------------------------------------------------------------------------------
Fairfax Financial -9(cents)
ACE Limited 9
First Union** 7
Freddie Mac 7
XL Capital 6
Bank of New York 5
Mutual Risk Management 5
The CIT Group 5
Protective Life 5
Fannie Mae 4
- --------------------------------------------------------------------------------
Total -62(cents)
12 Months Ended 6/30/99
Ten Best Contributors
- --------------------------------------------------------------------------------
TeleBanc Financial** 17(cents)
Capital One Financial 17
State Street* 16
Citigroup 15
Morgan Stanley Dean Witter 14
Chase Manhattan 13
Wells Fargo 11
Associates First Capital 11
Freddie Mac 11
TheStreet.com** 10
- --------------------------------------------------------------------------------
Total 135(cents)
Ten Worst Contributors
- --------------------------------------------------------------------------------
ACE Limited -13(cents)
Newcourt Credit Group** 11
XL Capital 11
Fairfax Financial 10
IndyMac Mortgage Holdings** 9
U.S. Bancorp 8
Delta Financial** 7
BankBoston** 7
SLM Holding** 7
First Sierra Financial** 6
- --------------------------------------------------------------------------------
Total -89(cents)
* Position added.
** Position eliminated.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
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. An index
return does not reflect expenses, which have been deducted from the fund's
return.
FINANCIAL SERVICES FUND
- --------------------------------------------------------------------------------
As of 6/30/99
S&P 500 Financial services
Stock Fund Fund
9/30/96 10,000 10,000
6/97 13,066 13,666
6/98 17,007 18,492
6/99 20,877 19,475
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 6/30/99 1 Year Inception Date
- --------------------------------------------------------------------------------
Financial Services Fund 5.32% 27.44% 9/30/96
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year 9/30/96
Ended Ended Through
6/30/99 12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 16.82 $ 15.56 $ 11.31 $ 10.00
Investment activities
Net investment income 0.04 0.16 0.10* 0.04*
Net realized and
unrealized gain (loss) 1.45 1.60 4.58 1.30
Total from
investment activities 1.49 1.76 4.68 1.34
Distributions
Net investment income -- (0.16) (0.10) (0.03)
Net realized gain -- (0.34) (0.33) --
Total distributions -- (0.50) (0.43) (0.03)
NET ASSET VALUE
End of period $ 18.31 $ 16.82 $ 15.56 $ 11.31
Ratios/Supplemental Data
Total return(diamond) 8.86% 11.55% 41.44%* 13.40%*
Ratio of total expenses to
average net assets 1.19%! 1.19% 1.25%* 1.25%*!
Ratio of net investment
income to average
net assets 0.42%! 0.94% 1.15%* 1.71%*!
Portfolio turnover rate 32.1%! 46.8% 46.0% 5.6%!
Net assets, end of period
(in thousands) $201,783 $224,277 $177,335 $ 30,047
(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 1.25% voluntary expense limitation
in effect through 12/31/98.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1999
Statement of Net Assets Shares Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 97.2%
FINANCIAL 91.9%
Bank and Trust 32.5%
Bank of America 170,000 $ 12,463
Bank of New York 239,000 8,768
Bank One 130,152 7,752
Chase Manhattan 90,000 7,796
Huntington Bancshares 15,000 525
Mellon Bank 186,000 6,766
Mercantile Bancorporation 75,000 4,284
State Street 60,000 5,123
TCF Financial 39,000 1,087
U.S. Bancorp 50,000 1,700
Washington Mutual 32,500 1,150
Wells Fargo 190,000 8,123
65,537
Insurance 22.7%
ACE Limited 180,000 5,085
American General 60,000 4,522
American International Group 40,500 4,741
Fairfax Financial (CAD) * 13,400 3,595
Hartford Financial
Services Group 56,000 3,266
Marsh & McLennan 40,000 3,020
Mutual Risk Management 100,000 3,337
Protective Life 82,000 2,706
Provident 50,000 2,000
Radian Group 15,000 732
Travelers Property
Casualty (Class A) 70,000 2,739
UNUM 70,400 3,854
XL Capital (Class A) 110,000 6,215
45,812
Financial Services 36.7%
Affiliated Managers Group * 40,000 1,208
American Express 48,500 6,311
Associates First
Capital (Class A) 175,000 7,755
Capital One Financial 120,000 6,682
Citigroup 290,586 $ 13,803
Fannie Mae 85,000 5,812
Financial Federal * 63,200 1,390
Franklin Resources 50,000 2,031
Freddie Mac 143,000 8,294
Goldman Sachs Group * 25,000 1,806
MBNA 45,000 1,378
Morgan Stanley Dean Witter 65,000 6,663
The CIT Group (Class A) 182,000 5,255
U.S. Trust 30,000 2,775
Waddell & Reed Financial
(Class A) 72,076 1,978
Waddell & Reed Financial
(Class B) 37,396 1,010
74,151
Total Financial 185,500
CAPITAL EQUIPMENT 1.2%
Electrical Equipment 1.2%
GE 21,000 2,373
Total Capital Equipment 2,373
MISCELLANEOUS 4.1%
Conglomerates 1.3%
Berkshire Hathaway (Class A) * 39 2,687
2,687
Other Miscellaneous Common Stocks 2.8% 5,578
Total Miscellaneous 8,265
Total Common Stocks (Cost $149,343) 196,138
Short-Term Investments 2.6%
Money Market Funds 2.6%
Reserve Investment Fund,
5.05% # 5,344,885 5,345
Total Short-Term Investments (Cost $5,345) 5,345
Total Investments in Securities
99.8% of Net Assets (Cost $154,688) $ 201,483
Other Assets Less Liabilities 300
NET ASSETS $ 201,783
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 429
Accumulated net realized gain/loss -
net of distributions 6,619
Net unrealized gain (loss) 46,795
Paid-in-capital applicable to 11,019,162
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 147,940
NET ASSETS $ 201,783
----------
NET ASSET VALUE PER SHARE $ 18.31
----------
# Seven-day yield
* Non-income producing
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/99
Investment Income
Income
Dividend $ 1,464
Interest 180
Total income 1,644
Expenses
Investment management 685
Shareholder servicing 404
Custody and accounting 48
Prospectus and shareholder reports 43
Registration 23
Legal and audit 6
Directors 4
Miscellaneous 2
Total expenses 1,215
Net investment income 429
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 7,682
Change in net unrealized gain or loss on securities 8,611
Net realized and unrealized gain (loss) 16,293
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 16,722
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 429 $ 2,136
Net realized gain (loss) 7,682 3,142
Change in net unrealized
gain or loss 8,611 11,007
Increase (decrease) in net
assets from operations 16,722 16,285
Distributions to shareholders
Net investment income -- (2,107)
Net realized gain -- (4,477)
Decrease in net assets
from distributions -- (6,584)
Capital share transactions*
Shares sold 36,182 171,412
Distributions reinvested -- 6,364
Shares redeemed (75,398) (140,535)
Increase (decrease) in net
assets from capital
share transactions (39,216) 37,241
Net Assets
Increase (decrease)
during period (22,494) 46,942
Beginning of period 224,277 177,335
End of period $ 201,783 $ 224,277
-----------------------
*Share information
Shares sold 2,071 10,282
Distributions reinvested -- 406
Shares redeemed (4,386) (8,752)
Increase (decrease) in
shares outstanding (2,315) 1,936
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Financial Services Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1999
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Financial Services 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 September 30, 1996.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter
market are valued at the mean of the latest bid and asked prices. Other
equity securities are valued at a price within the limits of the latest bid
and asked prices deemed by the Board of Directors, or by persons delegated
by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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.
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. Credits earned on
daily, uninvested cash balances at the custodian are used to reduce the
fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $32,157,000 and $72,111,000, respectively, for the
six months ended June 30, 1999.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$154,688,000. Net unrealized gain aggregated $46,795,000 at period-end, of
which $47,565,000 related to appreciated investments and $770,000 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 $109,000 was payable at June 30, 1999. 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 0.30% for assets in
excess of $80 billion. At June 30, 1999, 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 fund's 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 $361,000 for the six months ended June 30, 1999, of which
$82,000 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, 1999, totaled $180,000 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 January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
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
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. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! 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. 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 yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a brokerage account
or obtain information, call:
1-800-638-5660 toll free
Internet address:
www.troweprice.com
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.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
InvestWith Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F17-051 6/30/99
