Item 1. Report to Shareholders
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
NET ASSET VALUE
Beginning
of period $ 16.75 $ 18.84 $ 21.38 $ 16.12 $ 16.82 $ 15.56
Investment activities
Net investment
income (loss) 0.10 0.15 0.15 0.10 0.10 0.16
Net realized
and unrealized
gain (loss) 2.13 (2.05) (0.86) 5.80 0.15 1.60
Total from
investment
activities 2.23 (1.90) (0.71) 5.90 0.25 1.76
Distributions
Net investment
income - (0.13) (0.15) (0.09) (0.10) (0.16)
Net realized
gain - (0.06) (1.68) (0.55) (0.85) (0.34)
Total
distributions - (0.19) (1.83) (0.64) (0.95) (0.50)
NET ASSET VALUE
End of period $ 18.98 $ 16.75 $ 18.84 $ 21.38 $ 16.12 $ 16.82
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Ratios/Supplemental Data
Total return^ 13.31% (10.10)% (3.13)% 36.76% 1.70% 11.55%
Ratio of total
expenses to
average
net assets 1.01%! 1.00% 0.97% 1.00% 1.14% 1.19%
Ratio of net
investment income
(loss) to average
net assets 1.17%! 0.80% 0.69% 0.69% 0.50% 0.94%
Portfolio turnover
rate 60.8%! 49.7% 54.8% 32.5% 37.1% 46.8%
Net assets,
end of period
(in thousands) $297,920 $264,542 $308,635 $337,041 $159,031 $ 224,277
^ 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.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials (Unaudited) June 30, 2003
STATEMENT OF NET ASSETS Shares Value
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In thousands
COMMON STOCKS 97.4%
FINANCIALS 97.4%
Capital Markets 34.6%
Bank of New York 237,500 $ 6,828
Charles Schwab 494,000 4,984
Eaton Vance 112,000 3,539
Franklin Resources 303,000 11,838
Goldman Sachs Group 133,700 11,197
J.P. Morgan Chase 436,000 14,902
Legg Mason 67,000 4,352
Mellon Financial 420,000 11,655
Merrill Lynch 249,000 11,623
Morgan Stanley 165,500 7,075
Neuberger Berman 27,000 1,078
State Street 153,500 6,048
Waddell & Reed Financial, Class A 314,208 8,066
103,185
Commercial Banks 27.6%
Abbey National (GBP) 475,000 3,694
Bank of America 101,100 7,990
Boston Private Financial 147,000 3,099
Citizens Banking 58,000 1,553
Comerica 282,500 13,136
FleetBoston Financial 412,000 12,241
Huntington Bancshares 5,500 107
KeyCorp 121,000 3,058
Royal Bank of Scotland (GBP) 140,000 3,934
Synovus Financial 89,000 1,913
U.S. Bancorp 606,000 14,847
UCBH Holdings 82,000 2,352
Wachovia 318,000 12,707
Zions Bancorp 30,000 1,518
82,149
Consumer Finance 1.5%
American Express 38,000 1,589
SLM Corporation 75,300 2,949
4,538
Diversified Financial Services 7.7%
Citigroup 363,200 $ 15,545
Principal Financial Group 226,000 7,289
22,834
Insurance 24.3%
ACE Limited 30,500 1,046
AMBAC 95,200 6,307
American International Group 98,300 5,424
Berkshire Hathaway, Class A * 7 508
Hartford Financial Services Group 200,000 10,072
John Hancock Financial Services 65,000 1,997
Marsh & McLennan 180,400 9,213
Ohio Casualty * 462,000 6,089
Prudential Financial 194,400 6,542
SAFECO 153,000 5,398
St. Paul Companies 249,000 9,091
Travelers Property Casualty, Class A 557,633 8,866
XL Capital, Class A 21,000 1,743
72,296
Thrifts & Mortgage Finance 1.7%
Fannie Mae 23,800 1,605
Freddie Mac 7,500 381
Radian Group 83,500 3,060
5,046
Total Financials 290,048
Total Common Stocks (Cost $257,153) 290,048
SHORT-TERM INVESTMENTS 2.1%
Money Market Fund 2.1%
T. Rowe Price Reserve Investment Fund, 1.16% # 6,275,551 6,276
Total Short-Term Investments (Cost $6,276) 6,276
Value
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In thousands
Total Investments in Securities
99.5% of Net Assets (Cost $263,429) $ 296,324
Other Assets Less Liabilities 1,596
NET ASSETS $ 297,920
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Net Assets Consist of:
Undistributed net investment income (loss) $ 1,879
Undistributed net realized gain (loss) 3,054
Net unrealized gain (loss) 32,891
Paid-in-capital applicable to 15,693,534
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 260,096
NET ASSETS $ 297,920
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NET ASSET VALUE PER SHARE $ 18.98
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# Seven-day yield
* Non-income producing
GBP British pound
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials (Unaudited)
STATEMENT OF OPERATIONS
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In thousands
6 Months
Ended
6/30/03
Investment Income (Loss)
Income
Dividend $ 2,850
Income distributions from mutual funds 33
Total income 2,883
Expenses
Investment management 889
Shareholder servicing 354
Custody and accounting 48
Prospectus and shareholder reports 28
Registration 7
Legal and audit 6
Directors 3
Miscellaneous 2
Total expenses 1,337
Expenses paid indirectly (11)
Net expenses 1,326
Net investment income (loss) 1,557
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 540
Foreign currency transactions (2)
Net realized gain (loss) 538
Change in net unrealized gain (loss)
Securities 32,413
Other assets and liabilities
denominated in foreign currencies (4)
Change in net unrealized gain (loss) 32,409
Net realized and unrealized gain (loss) 32,947
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 34,504
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The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
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In thousands
6 Months Year
Ended Ended
6/30/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 1,557 $ 2,363
Net realized gain (loss) 538 4,749
Change in net unrealized gain (loss) 32,409 (40,667)
Increase (decrease) in net assets from operations 34,504 (33,555)
Distributions to shareholders
Net investment income - (2,052)
Net realized gain - (945)
Decrease in net assets from distributions - (2,997)
Capital share transactions *
Shares sold 31,939 86,767
Distributions reinvested - 2,838
Shares redeemed (33,065) (97,146)
Increase (decrease) in net assets from capital
share transactions (1,126) (7,541)
Net Assets
Increase (decrease) during period 33,378 (44,093)
Beginning of period 264,542 308,635
End of period $ 297,920 $ 264,542
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*Share information
Shares sold 1,843 4,771
Distributions reinvested - 167
Shares redeemed (1,946) (5,526)
Increase (decrease) in shares outstanding (103) (588)
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE FINANCIAL SERVICES FUND
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Certified Financials (Unaudited) June 30, 2003
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Financial Services Fund, Inc. (the fund) is registered under
the Investment Company Act of 1940 (the 1940 Act) as a diversified,
open-end management investment company and commenced operations on
September 30, 1996. The fund seeks long-term growth of capital and a modest
level of income.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America,
which require the use of estimates made by fund management.
Valuation
Investments are valued at the close of the New York Stock Exchange (NYSE),
normally 4 p.m. ET, each day that the NYSE is open for business. Equity
securities listed or regularly traded on a securities exchange or in the
over-the-counter market are valued at the last quoted sale price, or
official closing price for certain markets, at the time the valuations are
made. A security that 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 are
valued at the mean of the latest bid and ask prices for domestic securities
and the last quoted sale price for international securities.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Other investments and those 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.
Most foreign markets close before the NYSE. Developments that could affect
the values of securities that occur between the close of a foreign market
and the close of the NYSE normally will not be reflected in security
valuations. However, if such developments are so significant that they
will, in the judgment of the officers of the fund, clearly and materially
affect the value of securities, the previous closing prices may be adjusted
to reflect the fair value of the securities as of the close of the NYSE, 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, including investments, and liabilities denominated in foreign
currencies are translated into U.S. dollar values each day at the
prevailing exchange rate, using the mean of the bid and ask prices of such
currencies against U.S. dollars as quoted by a major bank. Purchases and
sales of securities, income, and expenses are translated into U.S. dollars
at the prevailing exchange rate on the date of the transaction. The effect
of changes in foreign currency exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and
losses.
Expenses Paid Indirectly
Certain security trades are directed to brokers who have agreed to rebate a
portion of the related commission to the fund to pay fund expenses.
Additionally, credits earned on temporarily uninvested cash balances at the
custodian are used to reduce the fund's custody charges. Total expenses in
the accompanying statement of operations are presented before reduction for
rebates and credits, which totaled $11,000 and $0, respectively, for the
six months ended June 30, 2003.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $79,624,000 and $81,498,000, respectively, for the
six months ended June 30, 2003.
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 to
shareholders all of its taxable income and gains. Federal income tax
regulations differ from generally accepted accounting principles;
therefore, distributions determined in accordance with tax regulations may
differ in amount or char-acter from net investment income and realized
gains for financial reporting purposes. Financial reporting records are
adjusted for permanent book/tax differences to reflect tax character.
Temporary differences are not adjusted. The amount and character of
tax-basis distributions and composition of net assets are finalized at
fiscal year-end; accordingly, tax-basis balances have not been determined
as of June 30, 2003.
At June 30, 2003, the cost of investments for federal income tax purposes
was $263,429,000. Net unrealized gain aggregated $32,891,000 at
period-end, of which $38,786,000 related to appreciated investments and
$5,895,000 related to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides
for an annual investment management fee, which is computed daily and paid
monthly. The fee consists of an individual fund fee, equal to 0.35% of the
fund's average daily net assets, and the fund's pro-rata share of a group
fee. The group fee is calculated based on the combined net assets of
certain mutual funds sponsored by Price Associates (the group) applied to a
graduated fee schedule, with rates ranging from 0.48% for the first $1
billion of assets to 0.295% for assets in excess of $120 billion. The
fund's portion of the group fee is determined by the ratio of its net
assets to those of the group. At June 30, 2003, the effective annual group
fee rate was 0.32%, and investment management fee payable totaled $165,000.
In addition, the fund has entered into service agreements with Price
Associates and two wholly owned subsidiaries of Price Associates
(collectively, Price). Price Associates computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.
provides shareholder and administrative services in its capacity as the
fund's transfer and dividend disbursing agent. T. Rowe Price Retirement
Plan Services, Inc. provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. Expenses incurred
pursuant to these service agreements totaled $266,000 for the six months
ended June 30, 2003, of which $51,000 was payable at period-end.
Additionally, the fund is one of several mutual funds in which certain
college savings plans managed by Price Associates may invest. As approved
by the fund's Board of Directors, shareholder servicing costs associated
with each college savings plan are borne by the fund in proportion to the
average daily value of its shares owned by the college savings plan. For
the six months ended June 30, 2003, the fund was charged $19,000 for
shareholder servicing costs related to the college savings plans, of which
$16,000 was for services provided by Price and $5,000 was payable at
period-end. At June 30, 2003, approximately 1.9% of the outstanding shares
of the fund were held by college savings plans.
The fund may invest in the T. Rowe Price Reserve Investment Fund and
T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by Price
Associates. The Reserve Funds are offered as cash management options only
to mutual funds, trusts, and other accounts managed by Price Associates
and/or 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, 2003, totaled $33,000.
Item 2. Code of Ethics.
Not required at this time.
Item 3. Audit Committee Financial Expert.
Not required at this time.
Item 4. Principal Accountant Fees and Services.
Not required at this time.
Item 5. Audit Committee of Listed Registrants.
Not required at this time.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not required at this time.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Financial Services Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date August 22, 2003