Semiannual Report
June 30, 1998
Mid-Cap Equity Growth Fund
Dear Investor
After three years of stellar gains, the stock market began 1998 with a modest
sell-off, but recovered quickly and climbed steadily to finish the first half
near record territory. Larger-capitalization, blue chip growth companies
continued to lead the market, as they have since 1995, with the S&P 500 Stock
Index gaining 17.71%.
Performance Comparison
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Mid-Cap Equity
Growth Fund 17.31% 31.18%
S&P MidCap Index 8.64 27.15
Russell Midcap Growth Index 11.87 24.02
Lipper Mid Cap Fund Index 12.20 21.95
Small- and mid-cap companies participated in the market's advance, but posted
more modest gains. The Mid-Cap Equity Growth Fund performed relatively well
during the last 6- and 12-month periods, outperforming its two passive
benchmarks as well as a measure of other mid-cap funds, with gains of 17.31% and
31.18%, respectively.
Market Environment
The primary concern entering the year was the extent to which the Asian economic
crisis would affect the U.S. economy and stock market. What began in July 1997
as a currency crisis in Thailand quickly enveloped the rest of Asia. Currencies
and stock markets plunged, banks were closed, brokerages failed, and real estate
prices fell. That was only the first phase of the crisis-the financial collapse.
In 1998, we have begun to witness the economic and political consequences, and
they are severe, to say the least. Many of the region's economies are
collapsing, and depressions seem to be developing in some nations. Major
political changes are occurring in others, notably Indonesia and, perhaps,
Japan. In a perverse way, Asia's miseries have helped the U.S. stock market in
1998: the economic carnage has scared investment from Asia into the seemingly
safer U.S. market; and fears of exacerbating the Asian crisis and pushing an
already strong dollar even higher dissuaded the Federal Reserve from raising
domestic interest rates to brake a surging domestic economy. The crisis has hurt
earnings at many U.S. companies, however. The stock market's surge in the first
half of 1998 reflects a continuation of many of the conditions that have
contributed to a nearly ideal investment environment over the last several
years. Most important, the U.S. inflation rate continues to fall, driven by
falling prices for commodities ranging from crude oil to grain. Long-term
interest rates resumed their decline, reaching nearly 5.6% in June, down from
7.2% in the spring of 1997. Meanwhile, in Washington, both Republicans and
Democrats have converged in the middle of the political spectrum on most
economic issues, facilitated by the probability of a federal budget surplus this
year for the first time since 1969. The unemployment rate remains very low,
consumer confidence is at its highest level in 29 years, and the economy appears
robust. Investors continued to pour money into equity mutual funds.
Small- and mid-cap stocks lagged the broad market as investors continued to
gravitate toward blue chip companies. The merger boom continued, driven by a
perceived need for economies of scale and abetted by high public valuations for
many consolidators. Although the new issue market cooled noticeably, there was
frenzied speculative activity in many of the Internet stocks. While the Internet
has the potential to change the economic paradigm in some industries, valuations
have risen indiscriminately to astounding levels for many of these companies,
considering that most have very modest revenues and rapidly changing business
models.
Mid-Cap Stock Returns
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Russell Midcap Index 9.13% 25.00%
Russell Midcap Growth Index 11.87 24.02
Russell Midcap Value Index 7.17 25.75
Portfolio Review
Amid falling interest rates and concerns about businesses with significant
foreign exposure, it is not surprising that the financial and consumer stocks
were the best performing stock market sectors in 1998's first half. The fund's
largest contributor year-to-date was Capital One Financial, a leading credit
card issuer whose earnings greatly exceeded investor expectations. Other top
contributors included Galileo International, a leading centralized reservation
system provider, which benefited from high travel activity and a better
appreciation by investors of the company's strong business model; Outdoor
Systems, a consolidator in the outdoor advertising sector, which profited from a
torrid advertising environment and posted strong earnings gains; and Royal
Caribbean Cruises, a large cruise ship operator, which experienced strong demand
in addition to reaping the rewards of successfully integrating a significant
acquisition made in mid-1997.
The worst detractor for both the 6- and 12-month periods was Smith
International, an energy services company that had graced the top contributors
table several times over the last two years. As oil prices fell, energy stocks
were hit hard, and Smith International was not spared. We still regard the
company as well managed and a leader in its niches. Other significant detractors
included Gymboree, the children's apparel retailer, which experienced
operational woes; and Security Dynamics Technologies, a computer security
provider, which is in the midst of a product transition that has lowered
earnings expectations.
It is worth noting that the current merger boom has not entirely passed us by.
In the last six months, several of our holdings have been acquired or announced
they were being acquired, including United States Surgical, Culligan Water
Technologies, 360 Communications, Camco International, Weatherford Enterra, La
Quinta Inns, and R.P. Scherer. While the premiums we were paid varied, and only
two were top contributors, the combined effect was clearly a factor in our
recent results.
Your fund remains well diversified across industry sectors. We have made only
modest changes in the last six months, as shown in the accompanying table.
Sector Diversification
12/31/97 6/30/98
- --------------------------------------------------------------------------------
Financial 9% 11%
Health Care 12 15
Consumer 20 18
Technology 11 11
Business Services 29 31
Energy 5 4
Industrial 7 5
Basic Materials 2 1
Reserves 5 4
Investment Strategy and Outlook
One of the root causes of the Asian economic crisis was an apparent
overinvestment in productive capacity. With the setback in Asian economic
activity, worldwide supply exceeds demand in many industries. This is putting
downward pressure on product prices around the world. At this point, most
Americans have benefited from this phenomenon since it has served to dampen
inflation and interest rates at a point in the economic cycle when we would
normally expect them to be rising. In light of such good fortune-a strong
economy and falling inflation-the stock market has reacted very favorably.
However, even as consumers continue to spend freely, pressures emanating from
Asia are beginning to assert themselves: a deluge of cheaper Asian imports and a
decline in American exports to the region are causing the U.S. trade deficit to
balloon, and American manufacturers are beginning to see slowing demand for
their products. There is evidence that U.S. economic growth is ebbing, and this
could pressure corporate profits in the quarters ahead.
On an absolute basis, the stock market continues to trade in the upper reaches
of its historic valuation range, but low interest rates provide some support as
long as earnings growth continues. While small- and mid-cap stocks often lead
the stock market in the later stages of market and economic cycles, this has not
been the case this time. The market's leadership is concentrating in an
increasingly narrow group of large, blue chip companies-the New Nifty Fifty, as
some have called them. While these companies have grown their earnings nicely in
recent years, they now trade at valuations that are well in excess of small- and
mid-cap companies, even though many of the latter are expected to grow their
earnings significantly faster in the next few years. On a relative basis, small-
and mid-cap stocks are trading at historically low levels. We believe the
Mid-Cap Equity Growth Fund is well positioned to achieve attractive returns over
the long run.
Respectfully submitted,
Brian W.H. Berghuis
President and Chairman of the Investment Advisory Committee
July 17, 1998
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended June 30, 1998
TEN BEST CONTRIBUTORS
- ------------------------------------------------------------
Capital One Financial 19(cents)
Galileo International 12
Outdoor Systems 12
Affiliated Computer Services 11
Warnaco Group 11
Royal Caribbean Cruises 10
360 Communications** 10
Biogen 9
Fairfax Financial 9
United States Surgical 7
- ------------------------------------------------------------
Total 110(cents)
TEN WORST CONTRIBUTORS
- ------------------------------------------------------------
Smith International - 8(cents)
Gymboree 7
Security Dynamics Technologies 5
Dura Pharmaceuticals* 5
Berg Electronics* 4
AMRESCO* 4
Security Capital Group 3
Gilead Sciences 3
Cendant 3
Ikon Office Solutions** 3
- ------------------------------------------------------------
Total - 45
12 Months Ended June 30, 1998
TEN BEST CONTRIBUTORS
- ------------------------------------------------------------
Outdoor Systems 20(cents)
Capital One Financial* 20
Royal Caribbean Cruises 19
Galileo International* 13
360 Communications** 13
Cox Communications 11
Costco Companies 11
Kohl's 11
ACE Limited 10
Affiliated Computer Services 10
- ------------------------------------------------------------
Total 138(cents)
TEN WORST CONTRIBUTORS
- ------------------------------------------------------------
Smith International - 6(cents)
OEA** 5
Security Dynamics Technologies* 5
TVX Gold 5
Gymboree 5
Dura Pharmaceuticals* 5
Cambior 5
Vencor** 5
Berg Electronics* 4
AMRESCO* 3
- ------------------------------------------------------------
Total - 48
* Position added
** Position eliminated
T. Rowe Price Mid-Cap Equity Growth Fund
June 30, 1998
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/98
- ---------------------------------------------------------------
Warnaco Group 2.4%
Affiliated Computer Services 2.0
Galileo International 1.9
Capital One Financial 1.8
Royal Caribbean Cruises 1.7
U.S. Foodservice 1.7
Outdoor Systems 1.7
Biogen 1.7
Circuit City Stores 1.5
Premier Parks 1.5
Suiza Foods 1.4
Western Wireless 1.4
AutoZone 1.4
Danaher 1.4
Interim Services 1.3
Camco International 1.3
SunGard Data Systems 1.3
BE Aerospace 1.3
DST Systems 1.3
Corporate Express 1.3
Costco Companies 1.2
Covance 1.2
Sterling Commerce 1.2
PartnerRe Holdings 1.2
BJ's Wholesale Club 1.2
- ---------------------------------------------------------------
Total 37.3%
- ---------------------------------------------------------------
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. The index
return does not reflect expenses, which have been deducted from the fund's
return.
Mid-Cap Equity Growth Fund
Mid-Cap Equity Lipper MidCap
Growth Fund S&P Mid Cap Index Fund Index
7/31/96 10,000 10,000 10,000
6/30/97 12,291 13,228 12,286
6/30/98 16,124 16,819 14,983
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.
Mid-Cap Equity Growth Fund
Periods Ended 6/30/98
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
31.18% 28.33% 7/31/96
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase. Total
returns do not include charges imposed by your insurance company's separate
account. If these were included, performance would have been lower.
Financial Highlights
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
For a share outstanding throughout each period
----------------------------------------------
6 Months Year 7/31/96
Ended Ended Through
6/30/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 13.69 $ 11.59 $ 10.00
Investment activities
Net investment income (0.02) (0.01)* 0.02*
Net realized and
unrealized gain (loss) 2.39 2.14 1.59
Total from
investment activities 2.37 2.13 1.61
Distributions
Net investment income -- -- (0.02)
Net realized gain -- (0.03) --
Total distributions -- (0.03) (0.02)
NET ASSET VALUE
End of period $ 16.06 $ 13.69 $ 11.59
---------------------------------------
Ratios/Supplemental Data
Total return(C) 17.31% 18.39%* 16.10%*
Ratio of expenses to
average net assets 0.85%! 0.85%* 0.85%*!
Ratio of net investment
income to average
net assets (0.31)%! (0.12)%* 0.43%*!
Portfolio turnover rate 24.6% 41.0% 31.3%!
Net assets, end of period $ 116,692 $ 57,974 $ 14,367
(C) 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 0.85% voluntary expense limitation in
effect through 12/31/97.
! Annualized.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Mid-Cap Equity Growth Fund
June 30, 1998 (Unaudited)
Shares/Par Value
- ------------------------------------------------------------------------------
In thousands
COMMON STOCKS 95.3%
FINANCIAL 11.1%
Insurance 4.4%
ACE Limited 29,000 $ 1,131
Fairfax Financial (CAD) * 3,500 1,365
PartnerRe Holdings 28,000 1,428
Protective Life 33,000 1,211
5,135
Financial Services 6.7%
AMRESCO * 36,000 1,046
Capital One Financial 17,000 2,111
FINOVA Group 25,000 1,416
Franklin Resources 18,700 1,010
Heller Financial * 6,000 180
INMC Mortgage Holdings 43,000 978
Waddell & Reed (Class A) 46,000 1,101
7,842
Total Financial 12,977
HEALTH CARE 14.8%
Pharmaceuticals 3.6%
ALZA * 28,000 1,211
Dura Pharmaceuticals * 49,500 1,109
R.P. Scherer Industries * 9,500 842
Teva Pharmaceutical ADR 29,000 1,020
4,182
Biotechnology 4.6%
Agouron Pharmaceuticals * 13,500 410
Biogen * 40,500 1,985
Centocor * 31,500 1,143
Gilead Sciences * 35,000 1,122
MedImmune * 12,000 752
5,412
Medical Instruments and Devices 1.9%
Sybron International * 50,500 1,275
United States Surgical 21,500 981
2,256
Health Care Services 4.7%
Covance * 64,000 1,440
Omnicare 35,000 1,334
Quorum Health Group * 49,500 1,310
Total Renal Care Holdings * 39,500 1,363
5,447
Total Health Care 17,297
CONSUMER 18.2%
Soft Goods Retailers 1.4%
Gymboree * 30,500 $ 462
Kohl's * 22,500 1,167
1,629
Hard Goods Retailers 8.4%
AutoZone * 49,500 1,581
BJ's Wholesale Club * 35,000 1,422
Circuit City Stores 38,500 1,804
Costco Companies * 23,000 1,451
Fred Meyer * 29,500 1,254
General Nutrition * 37,000 1,154
Shopko Stores * 34,000 1,156
9,822
Consumer Non-Durables 2.4%
Warnaco Group (Class A) 65,500 2,780
2,780
Restaurants 1.1%
Outback Steakhouse * 34,000 1,325
1,325
Food and Beverages 1.4%
Suiza Foods * 27,000 1,612
1,612
Entertainment 3.2%
Premier Parks * 26,000 1,732
Royal Caribbean Cruises 25,500 2,027
3,759
Consumer Services 0.3%
Cendant * 13,500 282
282
Total Consumer 21,209
TECHNOLOGY 11.2%
Computer Software 3.8%
BMC Software * 20,500 1,066
The Learning Company * 12,400 367
Network Associates * 23,500 1,124
Security Dynamics Technologies * 29,500 532
Synopsys * 30,500 1,396
4,485
Semiconductors and Components 5.0%
Analog Devices * 47,000 1,155
Berg Electronics * 51,500 1,008
Maxim Integrated Products * 36,000 1,142
Microchip Technology * 29,000 $ 759
PMC-Sierra * 19,000 889
Xilinx * 27,000 919
5,872
Networking and Telecom Equipment 0.5%
Anixter International * 30,500 582
582
E-Commerce 1.9%
Checkfree Holdings * 25,200 742
Sterling Commerce * 29,500 1,431
2,173
Total Technology 13,112
BUSINESS SERVICES 29.9%
Telecom Services 6.0%
Comcast (Class A Special) 31,500 1,279
Cox Communications (Class A) * 24,500 1,187
Omnipoint * 56,000 1,286
Paging Network * 97,000 1,355
Vanguard Cellular (Class A) * 13,800 260
Western Wireless (Class A) * 80,000 1,593
6,960
Computer Services 7.8%
Acxiom * 10,600 265
Affiliated Computer Services
(Class A) * 59,500 2,291
DST Systems * 27,000 1,512
Galileo International 48,500 2,186
National Data 30,500 1,334
SunGard Data Systems * 40,500 1,554
9,142
Distribution 5.4%
Corporate Express * 115,500 1,462
Henry Schein * 29,000 1,332
MSC (Class A)* 41,500 1,183
Richfood Holdings 14,400 298
U.S. Foodservice * 57,000 1,998
6,273
Media and Advertising 4.5%
ADVO * 7,900 223
Catalina Marketing * 18,000 935
Jacor Communications * 20,000 1,181
Outdoor Systems * 71,000 $ 1,988
Univision Communications
(Class A)* 24,800 924
5,251
Real Estate Services 1.0%
Security Capital Group
(Class B) * 45,000 1,198
1,198
Environmental 0.9%
USA Waste Services * 21,500 1,061
1,061
Miscellaneous Business Services 4.3%
AccuStaff * 3,700 116
Interim Services * 49,000 1,574
NOVA * 27,600 987
Renaissance Worldwide * 49,500 1,078
Romac International * 17,600 537
Sodexho Marriott * 24,500 710
5,002
Total Business Services 34,887
ENERGY 3.6%
Exploration and Production 0.9%
Ocean Energy * 50,500 988
988
Energy Services 2.7%
Camco International 20,000 1,557
Cooper Cameron * 13,500 689
Smith International * 27,000 940
3,186
Total Energy 4,174
INDUSTRIAL 4.6%
Defense & Aerospace 1.3%
BE Aerospace * 53,000 1,554
1,554
Specialty Chemicals 0.9%
Great Lakes Chemical 25,000 986
986
Machinery 2.4%
Danaher 43,000 1,577
Teleflex 31,500 1,197
2,774
Total Industrial 5,314
BASIC MATERIALS 1.2%
Mining 1.2%
Battle Mountain Gold 119,500 $ 710
Cambior 49,500 291
TVX Gold * 121,500 372
Total Basic Materials 1,373
Miscellaneous Common Stocks 0.7% 846
Total Common Stocks (Cost $95,962) 111,189
SHORT-TERM INVESTMENTS 4.4%
Money Market Funds 4.4%
Government Reserve Investment Fund
5.48% # 5,123,303 5,123
Total Short-Term Investments
(Cost $5,123) 5,123
Total Investments in Securities
99.7% of Net Assets (Cost $101,085) $ 116,312
Other Assets Less Liabilities 380
NET ASSETS $ 116,692
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (134)
Accumulated net realized gain/loss -
net of distributions 4,520
Net unrealized gain (loss) 15,227
Paid-in-capital applicable to
7,264,476 shares of $0.0001
par value capital stock outstanding;
1,000,000,000 shares authorized 97,079
NET ASSETS $ 116,692
----------
NET ASSET VALUE PER SHARE $ 16.06
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend $ 118
Interest 116
Total income 234
Expenses
Investment management 259
Custody and accounting 55
Registration 12
Legal and audit 6
Shareholder servicing 4
Directors 3
Prospectus and shareholder reports 3
Miscellaneous 4
Reimbursed to manager 22
Total expenses 368
Net investment income (134)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 4,071
Change in net unrealized gain or loss on securities 9,370
Net realized and unrealized gain (loss) 13,441
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 13,307
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (134) $ (38)
Net realized gain (loss) 4,071 543
Change in net unrealized gain or loss 9,370 5,325
Increase (decrease) in
net assets from operations 13,307 5,830
Distributions to shareholders
Net realized gain -- (114)
Capital share transactions*
Shares sold 46,292 38,240
Distributions reinvested -- 100
Shares redeemed (881) (449)
Increase (decrease) in
net assets from capital
share transactions 45,411 37,891
Net Assets
Increase (decrease)
during period 58,718 43,607
Beginning of period 57,974 14,367
End of period $ 116,692 $ 57,974
---------------------------------
*Share information
Shares sold 3,090 3,023
Distributions reinvested -- 8
Shares redeemed (59) (37)
Increase (decrease)
in shares outstanding 3,031 2,994
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Mid-Cap Equity Growth Fund
June 30, 1998 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Institutional Equity Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Mid-Cap Equity Growth Fund (the
fund), a diversified, open-end management investment company, is the sole
portfolio established by the corporation and commenced operations on July 31,
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $63,130,000 and $20,650,000, respectively, for the six months ended
June 30, 1998.
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, 1998, the aggregate cost of investments for federal income tax and
financial reporting purposes was $101,085,000, and net unrealized gain
aggregated $15,227,000, of which $19,193,000 related to appreciated investments
and $3,966,000 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 management fee, of which
$52,000 was payable at June 30, 1998. The fee is computed daily and paid
monthly, and is equal to 0.60% of the fund's average daily net assets.
Under the terms of a previous investment management agreement, the manager was
required to bear any expenses through December 31, 1997, which would have cause
the fund's ratio of expenses to average net assets to exceed 0.85%. Thereafter,
through December 31, 1999, the fund is required to reimburse the manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the fund's ratio of
expenses to average net assets to exceed 0.85%. Pursuant to this agreement,
$22,000 of unaccrued 1996 expenses were repaid during the six months ended June
30, 1998.
Additionally, $94,000 of unaccrued fees and expenses are subject to
reimbursement through December 31, 1999.
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 $35,000 for the six months ended
June 30, 1998, of which $7,000 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, 1998, totaled
$115,000 and are reflected as interest income in the accompanying Statement of
Operations.
