Semiannual Report
Dividend
Growth
Fund
June 30, 1999
T. Rowe Price
Report Highlights
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Dividend Growth Fund
o The U.S. stock market extended its advance as equity investors focused on
the strong economy and largely ignored rising interest rates.
o Leadership rotated from a narrow group of growth stocks to cyclical stocks
and smaller-cap issues. Technology remained strong.
o The fund's return for the six months was modest and lagged benchmarks, as
the stocks we focus on did not participate fully in the rise.
o The consumer and financial sectors accounted for about 43% of fund assets
on June 30.
o We would not be surprised to see stock market gains moderate in the near
term, but we remain risk-conscious in seeking quality companies with
prospects for rising dividends.
Fellow Shareholders
Driven by the continued strong U.S. economy and largely ignoring a rise in
interest rates, stocks advanced strongly in the first half of 1999. The S&P 500
Stock Index rose an impressive 12.38%, following four consecutive years of
returns in excess of 20%. The fund made progress, but stocks of many companies
in which we invest continued to lag.
Performance Review
The market environment was mixed in relation to your fund's investment
focus, which is on companies that generate steady and sustainable earnings,
cash flow, and dividend growth.
During the six-month period, leadership moved from growth stocks to
cyclical, value-oriented stocks. First quarter returns were notable for the
continued strong performance of technology stocks, in particular the
explosive price increases of anything related to the Internet. As we moved
into the second quarter, the U.S. economy's remarkable strength and
brighter prospects for global growth gave investors the confidence to move
into cyclical companies, which took up the leadership baton.
Performance Comparison
Periods Ended 6/30/99 6 Months 12 Months
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Dividend Growth Fund 4.93% 10.20%
S&P 500 12.38 22.76
Lipper Growth & Income
Funds Average 10.93 14.48
Neither the first nor second quarter environment was overly friendly to our
strategy of seeking companies with increasing dividends, although the
change in market leadership in the second quarter was beneficial on
balance. The narrowness of the first quarter advance (high P/E, high-growth
stocks) made it difficult for your fund to keep pace, as most Internet
companies do not make a profit, much less pay a dividend. And in the second
quarter, many of the highly cyclical shares that drove market performance
do not have the consistency of growth in earnings and dividends that we
like to see in our investments. The fund's performance improved sharply in
the second quarter with a three-month return of 8.08% that exceeded the
7.05% rise of the S&P 500. While returns over the past year were somewhat
off the fund's long-term pace, we believe our strategy will continue to be
rewarding over time. From inception at year-end 1992 through June 30, 1999,
the fund's average annual return was 19.49%, as shown in the table on page
8, and three- and five-year average annual returns were even higher.
Our best performer was AlliedSignal, a well-managed, diversified industrial
company with a long track record of mid-teens earnings and dividend growth.
The company's pending merger with Honeywell will create an organization
with $25 billion in revenues and significant growth and cost reduction
opportunities. Hewlett-Packard was also a top contributor as business
fundamentals continue to demonstrate strength and the company pursues the
separation of its test and measurement business from its other businesses.
Other top contributors included Omnicom, the largest advertising and
marketing services company in the world, and Citigroup, a global financial
services giant.
Performance was hurt by a number of factors. Our Bermuda-based insurance
holdings, XL Capital, ACE Limited, and PartnerRe Holdings, were poor first
half performers as the industry's pricing environment remained difficult.
While disappointed with their performance, we like their attractive
valuations in an expensive market (price/earnings ratios of 10X to 11X) and
above-market yields, and there are signs of a bottoming in the
property/casualty and reinsurance pricing trends. Reduced earnings
expectations at Rentokil Group, a U.K.-based international services
company, hurt performance as did poor market sentiment for our one tobacco
holding, Philip Morris. REITs, which make up 10% of the portfolio, bounced
nicely from their lows in March but still lagged the market year to date.
We remain comfortable with our holdings given their share price levels at
or near net asset values and their robust cash flows and dividend growth.
Information on Year-End Distributions
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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 CHANGES
During the first half of the year we added a number of new companies to the
portfolio. We opportunistically boosted our exposure to the consumer sector
with the addition of quality growth companies including NIKE, Family Dollar
Stores, CVS, and Royal Caribbean Cruises. NIKE had declined from nearly $80
to $40 over an 18-month time period on weakness in its global footwear and
apparel businesses. We took a position when we believed the business was
bottoming, inventories around the world were declining, and its order flow
was beginning to improve. Family Dollar, a self-service discount retail
store chain with operations in 39 states, is growing earnings in excess of
20%, has increased its dividend for 22 consecutive years, and has a
debt-free balance sheet. We bought the stock when it sold off on concerns
over a competitor's performance. CVS and Royal Caribbean, companies in
industries we find attractive, were both purchased when their prices
dipped, creating a favorable risk/return trade-off.
Two portfolio additions during the first half, Raychem and Mercantile
Bancorporation, were acquired and generated almost immediate satisfaction.
Raychem, a diversified manufacturer of electronic components, had operating
troubles that caused its stock to fall. Its strong portfolio of assets was
soon recognized by Tyco International, which offered a nice premium for the
company. Mercantile Bancorporation, a regional bank based in St. Louis, was
added due to its attractive valuation and solid business prospects. We also
believed it could attract one of several aggressive acquirers in view of
its Midwest franchise. This, in fact, happened when Firstar, a rapidly
growing banking company based in Milwaukee, made a bid for Mercantile to
solidify its leading position in the nation's heartland. While we do not
invest in companies solely on the possibility of a takeover, our valuation
discipline often leads us to companies subsequently attractive to corporate
acquirers.
SECURITY DIVERSIFICATION
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Consumer 25
Financial 18
Business Services and Transportation 11
REITS 10
Utilities 6
Energy 6
Other 14
Reserves 10
Based on net assets as of 6/30/99.
Eliminations from the portfolio (apart from mergers or acquisitions) are
generally based upon deteriorating fundamentals or excessive valuation. We
ask ourselves every day if the reasons we bought a stock are still valid.
Three very good sales during the period included First Union, McKessonHBOC,
and Waste Management. Each company ran into problems following a merger or
acquisition, resulting in serious price declines. While the fund took a
small hit on First Union (although it declined further after the sale), we
sold McKesson and Waste Management early enough to avoid losses. The worst
situation was McKessonHBOC, where accounting irregularities surfaced at the
HBOC division following the merger with McKesson. In the case of First
Union and Waste Management, integrating an acquired company was a more
daunting task than their managements had anticipated, and earnings
expectations were lowered.
SUMMARY AND OUTLOOK
We would not be surprised to see more modest returns from market averages
for the balance of the year. The stock market advance in the first half of
1999 was unusual in that it came in the face of rising interest rates and
historically high valuations. We remain conscious of risk, and will
continue to seek quality companies with prospects for above- average
earnings and dividend growth. Over time, we believe these companies will
continue to earn rising share prices.
We would like to take this opportunity to introduce Tom Huber to you. Tom
has been a significant contributor to the fund's management team for
several years as a member of its Investment Advisory Committee. He has
agreed to take on an expanded role as executive vice president of the fund
and will focus on dividend growth companies. We're excited to have him
aboard and confident he will add real value to future performance.
Thank you for your continuing support.
Respectfully submitted,
William J. Stromberg
President and Chairman of the Investment Advisory Committee
Thomas J. Huber
Executive Vice President
July 23, 1999
T. Rowe Price Dividend Growth Fund
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Portfolio Highlights
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/99
Ten Largest Purchases
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Family Dollar Stores*
Raychem*
Amerada Hess
ServiceMaster
Mercantile Bancorporation*
Warner-Lambert*
NIKE*
Computer Associates
Cardinal Health*
Bank of New York
Ten Largest Sales
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First Union**
Waste Management**
Norfolk Southern**
McKessonHBOC**
Computer Associates**
Erie Indemnity**
SBC Communications
Rite Aid**
Anheuser-Busch**
Amerada Hess
* Position added
** Position eliminated
T. Rowe Price Dividend Growth Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/99
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Bristol-Myers Squibb 2.0%
Galileo International 2.0
Hewlett-Packard 1.9
AlliedSignal 1.8
Mobil 1.8
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Wells Fargo 1.7
Fannie Mae 1.6
BP Amoco 1.6
XL Capital 1.6
SBC Communications 1.5
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ProLogis Trust 1.5
ALLTEL 1.5
Waddell & Reed 1.4
Omnicom 1.4
Philip Morris 1.4
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Reckson Associates Realty 1.4
Citigroup 1.3
ACE Limited 1.2
Great Lakes Chemical 1.1
GTE 1.1
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American Home Products 1.1
Raychem 1.1
Johnson & Johnson 1.1
Mellon Bank 1.1
Royal Dutch Petroleum 1.1
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Total 36.3%
Note: Table excludes reserves.
T. Rowe Price Dividend Growth Fund
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Performance Comparison
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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.
DIVIDEND GROWTH FUND
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As of 6/30/99
S&P 500 Dividend Growth
Index Fund
12/30/92 10.000 10.000
6/93 10.414 11.001
6/94 10.560 11.680
6/95 13.313 13.952
6/96 16.775 17.410
6/97 22.595 23.216
6/98 29.411 28.860
6/99 36.104 31.803
Average Annual Compound Total Return
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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 3 Years 5 Years Inception Date
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Dividend Growth Fund 10.20% 22.24% 22.18% 19.49% 12/30/92
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 Dividend Growth Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $22.01 $20.13 $16.37 $13.81 $11.04 $11.48
Investment activities
Net investment
income 0.21 0.46 0.44 0.35 0.36* 0.35*
Net realized and
unrealized gain
(loss) 0.86 2.51 4.51 3.08 3.08 (0.11)
Total from
investment
activities 1.07 2.97 4.95 3.43 3.44 0.24
Distributions
Net investment
income (0.20) (0.46) (0.44) (0.36) (0.36) (0.34)
Net realized
gain (0.11) (0.63) (0.75) (0.51) (0.31) (0.34)
Total
distributions (0.31) (1.09) (1.19) (0.87) (0.67) (0.68)
NET ASSET VALUE
End of period $ 22.77 $ 22.01 $ 20.13 $ 16.37 $13.81 $ 11.04
-----------------------------------------------------------
Ratios/Supplemental Data
Total return# 4.93% 15.04% 30.77% 25.36% 31.75%* 2.16%
Ratio of total
expenses to
average net assets 0.78%! 0.77% 0.80% 1.10% 1.10%* 1.10%*
Ratio of net investment
income to average
net assets 1.93%! 2.26% 2.42% 2.53% 2.92%* 3.11%*
Portfolio
turnover rate 36.7%! 37.3% 39.1% 43.1% 56.1% 71.4%
Net assets,
end of period
(in millions) $ 1,333 $ 1,338 $ 747 $ 209 $ 85 $ 54
# 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 1.00% voluntary expense limitation in
effect through 12/31/94 and a 1.10% voluntary expense limitation in effect
through 12/31/96.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Unaudited June 30, 1999
Statement of Net Assets Shares/Par Value
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In thousands
Common Stocks 84.7%
FINANCIAL 17.5%
Bank and Trust 7.1%
Bank of America 150,000 $ 10,997
Bank of New York 390,000 14,308
Bank One 200,000 11,913
Huntington Bancshares 120,000 4,200
Mellon Bank 400,000 14,550
Mercantile Bancorporation 170,000 9,711
U.S. Bancorp 200,000 6,800
Wells Fargo 530,000 22,657
95,136
Insurance 4.1%
ACE Limited 550,000 15,537
Marsh & McLennan 50,000 3,775
PartnerRe Holdings 380,000 14,203
XL Capital (Class A) 370,000 20,905
54,420
Financial Services 6.3%
Associates First Capital (Class A) 300,000 13,294
Citigroup 375,000 17,813
Fannie Mae 320,000 21,880
Freddie Mac 210,000 12,180
Waddell & Reed Financial (Class A) 90,000 2,469
Waddell & Reed Financial (Class B) 615,000 16,605
84,241
Total Financial 233,797
UTILITIES 5.6%
Telephone Services 4.2%
ALLTEL 280,000 20,020
GTE 200,000 15,150
SBC Communications 350,000 20,300
55,470
Electric Utilities 1.4%
DQE 300,000 $ 12,037
Teco Energy 300,000 6,825
18,862
Total Utilities 74,332
CONSUMER NONDURABLES 17.2%
Cosmetics 0.5%
International Flavors & Fragrances 140,000 6,213
6,213
Beverages 0.9%
PepsiCo 320,000 12,380
12,380
Food Processing 1.9%
General Mills 70,000 5,626
McCormick 249,700 7,881
Sara Lee 500,000 11,344
24,851
Hospital Supplies/Hospital Management 0.9%
Abbott Laboratories 270,000 12,285
12,285
Pharmaceuticals 6.7%
American Home Products 260,000 14,950
Bristol-Myers Squibb 380,000 26,766
Johnson & Johnson 150,000 14,700
Merck 110,000 8,140
Pfizer 70,000 7,683
Schering-Plough 180,000 9,540
Warner-Lambert 120,000 8,325
90,104
Miscellaneous Consumer Products 5.9%
Colgate-Palmolive 70,000 6,913
Hasbro 330,000 9,219
Newell Rubbermaid 225,000 10,462
NIKE (Class B) 140,000 8,864
Philip Morris 450,000 18,084
Stanley Works 250,000 8,047
Sysco 180,000 $ 5,366
Tomkins (GBP) 2,500,000 10,837
Tomkins ADR 50,017 913
78,705
Health Care Services 0.4%
IMS Health 160,000 5,000
5,000
Total Consumer Nondurables 229,538
CONSUMER SERVICES 5.1%
General Merchandisers 1.7%
Dayton Hudson 10,000 650
Family Dollar Stores 490,000 11,760
Warnaco Group (Class A) 400,000 10,700
23,110
Specialty Merchandisers 1.6%
Albertson's 261,450 13,481
CVS 145,000 7,359
20,840
Entertainment and Leisure 0.9%
Carnival (Class A) 100,000 4,850
Disney 60,000 1,849
Royal Caribbean Cruises 130,000 5,687
12,386
Media and Communications 0.9%
Tribune 140,000 12,198
12,198
Total Consumer Services 68,534
CONSUMER CYCLICALS 11.9%
Automobiles and Related 0.4%
Genuine Parts 160,000 5,600
5,600
Building and Real Estate 9.8%
Archstone Communities Trust, REIT 550,000 12,066
Arden Realty, REIT 330,000 8,126
Chelsea GCA, REIT 220,000 8,167
Cousins Properties, REIT 250,000 8,453
Crescent Real Estate Equities, REIT 500,000 $ 11,875
Manufactured Home Communities, REIT 380,000 9,880
Nationwide Health Properties, REIT 240,000 4,575
Prologis Trust, REIT 1,000,000 20,250
Reckson Associates Realty (Series A), REIT 330,000 7,507
Reckson Associates Realty, REIT 450,000 10,575
Starwood Hotels & Resorts, REIT 380,000 11,614
Vornado Realty Trust, REIT 200,000 7,063
Weeks, REIT 330,000 10,065
130,216
Miscellaneous Consumer Durables 1.7%
Masco 470,000 13,571
Valspar 250,000 9,500
23,071
Total Consumer Cyclicals 158,887
TECHNOLOGY 4.9%
Electronic Components 0.7%
Analogic 200,000 6,219
Linear Technology 40,000 2,692
8,911
Electronic Systems 1.9%
Hewlett-Packard 250,000 25,125
25,125
Aerospace and Defense 2.3%
AlliedSignal 380,000 23,940
Raytheon (Class B) 100,000 7,038
30,978
Total Technology 65,014
CAPITAL EQUIPMENT 2.0%
Electrical Equipment 1.0%
GE 60,000 6,780
Hubbell (Class B) 140,000 6,353
13,133
Machinery 1.0%
Danaher 10,000 $ 581
Teleflex 300,000 13,031
13,612
Total Capital Equipment 26,745
BUSINESS SERVICES AND
TRANSPORTATION 10.6%
Computer Service and Software 3.4%
Automatic Data Processing 160,000 7,040
Galileo International 500,000 26,719
Networks Associates * 5,000,000 1,508
Reynolds & Reynolds 400,000 9,325
44,592
Distribution Services 1.3%
Cardinal Health 110,000 7,054
Richfood Holdings 600,000 10,575
17,629
Environmental 0.7%
Rentokil Group (GBP) 2,500,000 9,694
9,694
Transportation Services 0.8%
C.H. Robinson Worldwide 300,000 10,987
10,987
Miscellaneous Business Services 4.4%
Equifax 190,000 6,781
H&R Block 250,000 12,500
Omnicom 230,000 18,400
RPM 450,000 6,384
ServiceMaster 750,000 14,062
58,127
Total Business Services and Transportation 141,029
ENERGY 5.9%
Integrated Petroleum - Domestic 0.7%
Amerada Hess 160,000 9,520
9,520
Integrated Petroleum - International 5.2%
BP Amoco ADR 200,000 $ 21,700
Chevron 100,000 9,519
Mobil 240,000 23,760
Royal Dutch Petroleum ADR 240,000 14,460
69,439
Total Energy 78,959
PROCESS INDUSTRIES 2.9%
Specialty Chemicals 2.3%
Great Lakes Chemical 330,000 15,201
Raychem 400,000 14,800
30,001
Paper and Paper Products 0.6%
Kimberly-Clark 150,000 8,550
8,550
Total Process Industries 38,551
EDUCATION 0.3%
Education 0.3%
Wolters Kluwer (EUR) 80,000 3,183
Total Education 3,183
Total Miscellaneous Common Stocks 0.8% 10,187
Total Common Stocks (Cost $882,843) 1,128,756
Preferred Stocks 0.2%
Cleveland Electric (Series L),
$1.88 Adj 22,560 2,262
Cleveland Electric (Series R), 8.80% 320 342
Total Preferred Stocks (Cost $1,906) 2,604
Convertible Bonds 1.3%
Loews, Sub. Notes,
3.125%, 9/15/07 $10,000,000 8,043
Security Capital U. S. Realty, (144a),
2.50%, 5/22/03 12,000,000 9,232
Total Convertible Bonds (Cost $18,323) 17,275
U.S. Government Obligations 3.7%
U.S. Treasury Notes
5.375%, 2/15/01 7,000,000 $ 6,988
5.625%, 5/15/01 - 2/15/06 5,500,000 5,502
5.75%, 11/15/00 - 8/15/03 17,400,000 17,467
5.875%, 11/15/99 - 9/30/02 8,500,000 8,535
6.00%, 8/15/99 - 8/15/00 4,700,000 4,728
6.125%, 12/31/01 1,500,000 1,517
6.25%, 10/31/01 - 2/28/02 1,400,000 1,421
6.50%, 5/31/01 - 5/31/02 2,500,000 2,554
6.625%, 5/15/07 1,000,000 1,042
Total U.S. Government Obligations (Cost $49,511) 49,754
Short-Term Investments 10.1%
Money Market Funds 10.1%
Reserve Investment Fund, 5.05% # 134,389,313 134,389
Total Short-Term Investments (Cost $134,389) 134,389
Total Investments in Securities
100.0% of Net Assets (Cost $1,086,972) $1,332,778
Other Assets Less Liabilities 298
NET ASSETS $1,333,076
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Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 457
Accumulated net realized gain/loss -
net of distributions 25,077
Net unrealized gain (loss) 245,806
Paid-in-capital applicable to 58,544,936
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,061,736
NET ASSETS $1,333,076
----------
NET ASSET VALUE PER SHARE $ 22.77
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
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 0.7% of net assets.
EUR Euro
GBP British sterling
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Unaudited
Statement of Operations
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In thousands
6 Months
Ended
6/30/99
Investment Income
Income
Dividend $ 12,326
Interest 5,341
Total income 17,667
Expenses
Investment management 3,382
Shareholder servicing 1,440
Prospectus and shareholder reports 115
Custody and accounting 76
Registration 63
Legal and audit 6
Directors 5
Miscellaneous 8
Total expenses 5,095
Expenses paid indirectly (4)
Net expenses 5,091
Net investment income 12,576
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 24,725
Foreign currency transactions (10)
Net realized gain (loss) 24,715
Change in net unrealized gain or loss on securities 26,072
Net realized and unrealized gain (loss) 50,787
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 63,363
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth 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 $ 12,576 $ 23,756
Net realized gain (loss) 24,715 35,825
Change in net unrealized gain or loss 26,072 88,719
Increase (decrease) in net
assets from operations 63,363 148,300
Distributions to shareholders
Net investment income (11,873) (24,002)
Net realized gain (6,691) (34,922)
Decrease in net assets from distributions (18,564) (58,924)
Capital share transactions*
Shares sold 297,157 831,901
Distributions reinvested 17,525 55,832
Shares redeemed (364,132) (387,431)
Increase (decrease) in net
assets from capital
share transactions (49,450) 500,302
Net equalization -- 1,138
Net Assets
Increase (decrease) during period (4,651) 590,816
Beginning of period 1,337,727 746,911
End of period $ 1,333,076 $ 1,337,727
---------------------------------
*Share information
Shares sold 13,729 39,472
Distributions reinvested 805 2,625
Shares redeemed (16,756) (18,426)
Increase (decrease)
in shares outstanding (2,222) 23,671
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Unaudited June 30, 1999
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Dividend Growth 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 30, 1992.
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 Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
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, used to reduce the fund's custody charges. Effective January 1,
1999, the fund discontinued its practice of equalization. The results of
operations and net assets were not affected by this change.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $217,240,000 and $276,771,000, 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
$1,086,972,000. Net unrealized gain aggregated $245,806,000 at period-end,
of which $262,425,000 related to appreciated investments and $16,619,000 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 $561,000 was payable at June 30, 1999. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.20% 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 $1,154,000 for the six months ended June 30, 1999, of which
$249,000 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 $3,192,000 and are reflected as interest income in
the accompanying Statement of Operations.
During the six months ended June 30, 1999, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating
$1,038,000 with certain affiliates of the manager and paid commissions of
$1,000 related thereto.
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.
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal
for most Americans. We can help you meet your retirement needs, whether you
are starting an IRA or designing a retirement program for your employees.
T. Rowe Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations.
We provide recordkeeping, communications, and investment management
services, as well as a variety of educational materials, self-help planning
guides, and software tools to help you choose and implement a retirement
plan appropriate for you. For information or to request literature, call us
at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(registered trademark) From
T. Rowe Price
The T. Rowe Price 401(k) Century Plan(registered trademark)
(for small businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning AnalyzerTM CD-ROM or diskette $19.95. To
order, please call 1-800-541-5760. Also available on the Internet for
$9.95.
T. Rowe Price Variable Annuity AnalyzerTM CD-ROM or diskette, free. To
order, please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
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
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F58-051 6/30/99
