Semiannual Report
June 30, 1999
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Mid-Cap Equity Growth Fund
Dear Investor
The U.S. stock market continued its long, upward climb in the first half of
1999. Large-company stocks, as measured by the S&P 500, continued to lead the
market, gaining 12.38% compared with 6.87% for the S&P MidCap Index. However,
this result masked a strong resurgence by small- and mid-cap stocks starting in
April.
Performance Comparison
Periods Ended 6/30/99 6 Months 12 Months
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Mid-Cap Equity
Growth Fund 11.73% 15.67%
S&P MidCap Index 6.87 17.18
Russell Midcap Growth Index 14.19 20.31
Lipper Mid Cap Fund Index 11.90 13.61
After a 21.45% gain in 1998, the Mid-Cap Equity Growth Fund rose a solid
11.73% in the first half of 1999, as shown in the table. This result
exceeded the return of the S&P MidCap Index, but lagged the Russell Midcap
Growth Index and, by a slight margin, the Lipper Mid Cap Fund Index. For
the 12-month period, the fund rose 15.67%, a good return in absolute terms
but a mixed result against the various benchmarks.
MARKET ENVIRONMENT
The U.S. economy continued its robust growth in the first half, driven by
exuberant consumer spending. Unemployment hovered close to 30-year lows;
consumer confidence measures were at record highs; and the savings rate
dipped below zero for the first time, meaning that Americans were actually
disinvesting. Asian economies began to strengthen somewhat, and energy
prices rebounded sharply from their lows of last December. Since weak Asian
demand and low energy prices have been two of the key underpinnings of the
disinflationary environment of the last couple of years, investors sold
bonds, causing interest rates to rise from about 5% at year-end to about 6%
at the end of June. The Federal Reserve, in an effort to preempt the first
hints of inflation, nudged up short-term interest rates on June 30, the
first such increase in two years. While markets are often affected by
events in Washington, the impeachment process effectively paralyzed the
political agenda for the last year.
The stock market's first-half rally came in spite of rising interest rates.
Sentiment remained ebullient, especially toward technology stocks-and
Internet stocks in particular. Technology stocks gained over 30% in the
first half, and have now more than doubled from their lows of October 1998.
The Internet sector rose about 50% in the first half, although these stocks
had a volatile second quarter that ended with a slight overall decline. The
quarterly lows for many of these stocks were less than half of their highs
for the quarter. This was a speculative market, and the best-performing
stocks tended to be those with slim prospects of earnings or cash flows in
the intermediate future.
Beyond the Internet, the big story of the first half may have been the
resurgence of small- and mid-cap stocks after more than five years of
large-cap hegemony. While large-caps continued their outperformance in the
first quarter, the market's leadership changed abruptly in April, and
small-caps, mid-caps, and cyclicals outperformed in the second quarter. It
is not yet certain whether the small- and mid-cap move was simply a
technical bounce from the lowest relative valuations in 40 years, reached
in March, or an inflection point at which investors began to recognize the
attractiveness of these sectors.
PORTFOLIO REVIEW
Given the magnitude of the technology rally, it is not surprising that
technology stocks represented four of the top 10 contributors to the fund's
performance in the first half, even though our technology positions tend to
be smaller than the average position in the fund. We do this to reduce
specific stock risk and dampen the portfolio's volatility. The top
technology contributors in the half included SCI Systems, a leading
electronic manufacturing outsourcing company that we bought at depressed
prices this spring, and Xilinx, a leading specialty semiconductor company
that is benefiting from strong demand and a new product cycle.
Two other top contributors to performance for both the 6- and 12-month
periods were companies that are benefiting from the use of technology. The
best performer was Western Wireless, a leading rural cellular service
provider in the mountain states, which is posting strong subscriber growth.
It recently spun out to its shareholders a subsidiary, VoiceStream
Wireless, an urban wireless company that we believe has a chance to
leverage its regional operation to become a much more valuable national
wireless provider. The fund's second best contributor for six months (and
third best for 12 months) was long-time holding Circuit City Stores, a
leading consumer electronics retailer. The stock nearly doubled in the
first half as investors realized that the company was beginning to benefit
from a huge new wave of products such as digital televisions, digital video
disc players, and digital camcorders.
The worst detractor to first half performance was Network Associates, a
network security software company that fell well short of earnings
expectations after stumbling badly integrating several acquisitions. We
eliminated the stock. The second worst performer in the period was
Omnicare, a provider of pharmaceuticals and related services to nursing
homes. The company recently announced disappointing earnings related to
changes in Medicare reimbursement policies. Investor sentiment toward the
health care services sector is extremely negative (note that four of our 10
worst performers this year are in this segment). The basic issue is that
everyone favors more and better health care, but no one wants to pay for
it. The federal government, as the largest payer, is squeezing the revenues
of many of these companies. Nevertheless, we believe that valuations in
this sector are overly depressed, and that the stocks of the better
companies, like Omnicare, will recover and perform well over time.
As we noted in previous reports, the merger boom in Corporate America
continues to have an effect on the fund at the margin. In the last six
months, another half dozen or so of our holdings have been acquired or
announced they were being acquired, including Alza, General Nutrition,
Omnipoint, Saville Systems, Outdoor Systems, and Richfood Holdings. While
we never invest in a company simply because we think it might be an
acquisition candidate, our valuation discipline tends to lead us to
companies that are attractive to corporate acquirers.
The fund remains well diversified across industry sectors. We sold some of
our technology holdings as the sector appreciated. Significant new holdings
since our last report include Republic Services Group, a solid waste
company, Ingram Micro, a leading electronics distributor, and NOVA, a
credit card processor.
INVESTMENT STRATEGY AND OUTLOOK
Sector Diversification
12/31/98 6/30/99
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Financial 11% 10%
Health Care 12 13
Consumer 21 20
Technology 16 13
Business Services 31 32
Energy 2 3
Industrial 4 5
Reserves 3 4
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Total 100% 100%
Though the Mid-Cap Equity Growth Fund's first half performance was roughly
in line with its various benchmarks, this was not as strong a period as
many others in the fund's history. This is primarily attributable to our
lack of emphasis on technology and telecommunications, particularly the
high-flying Internet and telecommunications companies where we view
valuations as problematic. While we have benefited somewhat from
Internet-related investments, we find ourselves increasingly on the
sidelines because valuations appear high. Although we feel a bit like
wallflowers at a boisterous party, in the past we have found that
maintaining valuation discipline under similar circumstances has been
rewarded in the long run.
We have stated before that we view the Internet as one of the great
technological advances of the modern age. In rapid fashion, the Internet is
transforming paradigms across industries just as profoundly as the changes
triggered by the development of national transportation and communications
networks and the introduction of electricity in the late nineteenth
century. Many industries and companies will experience great leaps in
efficiency that will change business processes, alter pricing structures,
and upset the status quo. Nevertheless, a speculative frenzy has developed
in our capital markets, where the normal market discipline of demanding
profitability, or at least a roadmap to positive cash flow, has not applied
to Internet companies. The current collective wisdom advocates massive
spending to build first mover advantages and gain category dominance. While
this sounds impressive, profitability must follow within a reasonable time
frame, or else we will find that significant companies have been built on
business models lacking long-term viability. This might be analogous to
building a house without a foundation.
Some of the current Internet favorites may prove to be the blue chip
companies of the new century. However, many will flounder and even
disappear. The current beneficent environment for Internet stocks will
likely end long before we have to sort out the winners from the losers.
However, the longer the current speculation persists, the more Internet
spending will affect non-Internet companies, positively and negatively. For
instance, while the broadcasting industry is benefiting mightily from
Internet advertising, bookstores are suffering from slower growth as
Internet retailers garner incremental share, albeit at prices that do not
appear to be viable in the long run.
Moving beyond the Internet, we believe that earnings growth remains the key
driver to continued small- and mid-cap outperformance relative to larger
companies. The fact of the matter is that large U.S. companies have grown
their earnings at a faster rate than small- and mid-caps over the last few
years. This is a direct outgrowth, in our opinion, of a revolution in
American corporate management philosophy that emphasizes efficiency, return
on investment, and shareholder value. Large-company earnings have grown
much faster than sales over this period, and the key question is, How long
can this last? At some point, the higher internal growth of small- and
mid-cap companies will be recognized, probably as large-cap earnings
momentum begins to slow. Even though mid-cap stocks have recovered slightly
from their record-low relative valuations in April, we believe they remain
compelling in comparison with large-caps. We continue to believe that the
Mid-Cap Equity Growth Fund remains well positioned to achieve attractive
returns over time.
On a final note, we are delighted to report that John Wakeman has been
named executive vice president of the fund. John has been an integral part
of the portfolio management team since the fund's inception, and this
appointment recognizes his substantial contribution and role.
Respectfully submitted,
Brian W.H. Berghuis
President and
Chairman of the Investment Advisory Committee
John F. Wakeman
Executive Vice President
July 19, 1999
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/99
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Circuit City Stores 2.6%
Affiliated Computer Services 2.1
Galileo International 1.9
Republic Services 1.9
Waddell & Reed Financial 1.7
Warnaco Group 1.7
SCI Systems 1.7
NOVA 1.7
Western Wireless 1.7
Jones Apparel Group 1.6
Outdoor Systems 1.5
Analog Devices 1.5
Whole Foods Market 1.5
Suiza Foods 1.5
BJ Services 1.5
VoiceStream Wireless 1.5
U.S. Foodservice 1.4
Royal Caribbean Cruises 1.4
Xilinx 1.4
BJ's Wholesale Club 1.4
Premier Parks 1.4
PMC-Sierra 1.3
Synopsys 1.3
SunGard Data Systems 1.3
Family Dollar Stores 1.3
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Total 39.8%
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Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
6 Months Ended June 30, 1999
TEN BEST CONTRIBUTORS
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Western Wireless 34(cents)
Circuit City Stores 23
Xilinx 14
SCI Systems * 14
BJ Services 13
PMC-Sierra 13
Smith International 13
Univision Communications 13
Jones Apparel Group 11
Analog Devices 11
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Total 159(cents)
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TEN WORST CONTRIBUTORS
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Network Associates ** - 16
Omnicare 14
Romac International 13
AmeriSource Health * 6
Total Renal Care Holdings 6
MSC 6
Henry Schein 6
Allied Waste Industries ** 6
Suiza Foods 6
NOVA 5
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Total - 84
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12 Months Ended June 30, 1999
TEN BEST CONTRIBUTORS
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Western Wireless 36(cents)
Xilinx 26
Circuit City Stores 25
Biogen 24
PMC-Sierra 18
Analog Devices 18
Univision Communications 16
Gilead Sciences 15
Maxim Integrated Products 14
SCI Systems * 14
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Total 206(cents)
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TEN WORST CONTRIBUTORS
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Omnicare - 16
Warnaco Group 13
Paging Network ** 13
Romac International 12
Corporate Express ** 11
Quorum Health Group ** 11
Security Capital Group ** 10
Renaissance Worldwide ** 10
MSC 10
Total Renal Care Holdings 9
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Total - 115
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* Position added
** Position eliminated
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.
Line Chart-Mid-Cap Equity Growth Fund
MCE S&P Lipper
7/31/96 10000 10000 10000
6/97 12291 13228 12286
6/98 16124 16819 14983
6/99 18652 19709 17022
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 6/30/99
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
15.67% 23.84% 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.
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
6/30/99 12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 16.28 $ 13.69 $ 11.59 $ 10.00
Investment activities
Net investment income (0.02) (0.04) (0.01)* 0.02*
Net realized and
unrealized gain (loss) 1.93 2.94 2.14 1.59
Total from
investment activities 1.91 2.90 2.13 1.61
Distributions
Net investment income -- -- -- (0.02)
Net realized gain -- (.31) (0.03) --
Total distributions -- (.31) (0.03) (0.02)
NET ASSET VALUE
End of period $ 18.19 $ 16.28 $ 13.69 $ 11.59
Ratios/Supplemental Data
Total return(diamond) 11.73% 21.45% 18.39%* 16.10%*
Ratio of total expenses to
average net assets 0.74%! 0.85% 0.85%* 0.85%*!
Ratio of net
investment income
to average net assets (0.28)%! (0.35)% (0.12)%* 0.43%*!
Portfolio turnover rate 55.5%! 52.8% 41.0% 31.3%!
Net assets,
end of period
(in thousands) $225,828 $131,575 $ 57,974 $ 14,367
(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 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, 1999 (Unaudited)
Shares Value
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In thousands
Common Stocks 96.1%
FINANCIAL 9.8%
Bank and Trust 0.9%
North Fork Bancorporation 90,500 $ 1,929
1,929
Insurance 4.0%
ACE Limited 41,000 1,158
E.W. Blanch 14,300 975
Fairfax Financial (CAD) * 4,500 1,207
MGIC Investment 37,000 1,799
Protective Life 57,500 1,898
Radian Group 41,000 2,001
9,038
Financial Services 4.9%
Capital One Financial 45,000 2,506
Heller Financial 82,000 2,281
The CIT Group (Class A) 83,500 2,411
Waddell & Reed Financial
(Class A) 106,000 2,908
Waddell & Reed Financial
(Class B) 37,500 1,013
11,119
Total Financial 22,086
HEALTH CARE 12.9%
Pharmaceuticals 2.6%
ALZA * 49,500 2,518
Shire Pharmaceuticals ADR * 21,600 559
Teva Pharmaceutical
Industries ADR 55,000 2,716
5,793
Medical Instruments and Devices 2 1%
Millipore 27,000 1,095
Sybron International * 94,500 2,605
Waters * 20,000 1,062
4,762
Health Care Services 4.5%
Covance * 89,000 2,130
HCR Manor Care * 66,000 1,596
Omnicare 175,500 2,216
Total Renal Care Holdings * 123,500 1,922
Wellpoint Health Networks * 28,000 2,377
10,241
Biotechnology 3.7%
Biogen * 39,000 $ 2,509
Centocor * 22,000 1,027
Gilead Sciences * 50,000 2,609
MedImmune * 26,000 1,766
Sepracor * 4,300 349
8,260
Total Health Care 29,056
CONSUMER 20.6%
Soft Goods Retailers 1.7%
Family Dollar Stores 118,000 2,832
Saks * 35,000 1,011
3,843
Hard Goods Retailers 9.3%
AutoZone * 55,000 1,657
BJ's Wholesale Club * 104,000 3,126
Borders Group * 74,000 1,170
Circuit City Stores 63,000 5,859
Costco Companies * 24,500 1,961
General Nutrition * 14,800 345
Kroger * 44,000 1,229
Shopko Stores * 61,600 2,233
Whole Foods Market * 70,000 3,362
20,942
Consumer Non-Durables 4.0%
Boyds Collection Limited * 85,000 1,471
Jones Apparel Group * 105,500 3,620
Warnaco Group (Class A) 146,500 3,919
9,010
Restaurants 1.2%
Outback Steakhouse * 71,500 2,804
2,804
Food and Beverages 1.5%
Suiza Foods * 79,500 3,329
3,329
Entertainment 2.9%
Mirage Resorts * 15,800 265
Premier Parks * 83,500 3,068
Royal Caribbean Cruises 73,000 3,194
6,527
Total Consumer 46,455
TECHNOLOGY 12.8%
Computer Software 3.6%
BMC Software * 27,500 $ 1,484
Citrix Systems * 12,000 676
Intuit * 15,000 1,353
Parametric Technology * 121,000 1,682
Synopsys * 53,500 2,951
8,146
Peripherals 0.8%
Molex (Class A) 54,300 1,722
1,722
Semiconductors and Components 5.8%
Analog Devices * 67,000 3,363
KLA-Tencor * 19,000 1,232
Maxim Integrated Products * 35,500 2,361
PMC-Sierra * 51,500 3,037
Xilinx * 55,000 3,150
13,143
E-Commerce 0.4%
Sterling Commerce * 27,500 1,004
1,004
Computer Hardware/Peripherals 2.2%
Sanmina * 13,500 1,024
SCI Systems * 82,500 3,919
4,943
Total Technology 28,958
BUSINESS SERVICES 31.6%
Telecom Services 4.9%
Crown Castle International * 54,500 1,133
Omnipoint * 66,000 1,908
Rogers Communications * 52,000 842
Voicestream Wireless * 115,800 3,297
Western Wireless 142,500 3,852
11,032
Computer Services 11.0%
Acxiom * 81,000 2,022
Affiliated Computer Services
(Class A) * 93,000 4,708
Ceridian * 53,000 1,732
Concord EFS * 16,500 699
DST Systems * 8,000 503
Galileo International 79,500 4,248
National Data 57,500 2,458
NOVA * 155,500 $ 3,888
Saville Systems ADR * 120,500 1,751
SunGard Data Systems * 85,000 2,933
24,942
Distribution 5.2%
AmeriSource Health * 90,500 2,308
Henry Schein * 56,000 1,776
Ingram Micro * 93,000 2,394
MSC * 71,500 733
Richfood Holdings 69,000 1,216
U.S. Foodservice * 76,500 3,261
11,688
Media and Advertising 3.4%
Catalina Marketing * 22,000 2,024
Clear Channel Communications * 11,000 759
Outdoor Systems * 92,500 3,376
Univision Communications * 23,000 1,518
7,677
Environmental 1.8%
Republic Services (Class A) * 170,000 4,207
4,207
Miscellaneous Business Services 5 1%
CIBER * 126,000 2,410
Gartner Group (Class A) * 92,700 1,900
Interim Services * 100,000 2,063
Robert Half International * 39,500 1,027
Romac International * 117,000 1,035
Sodexho Marriott Services * 38,900 746
Viad 74,000 2,289
11,470
Transportation 0.2%
C.H. Robinson Worldwide 12,200 447
447
Total Business Services 71,463
ENERGY 3.1%
Energy Services 3.1%
BJ Services * 112,500 3,312
Ocean Energy * 106,700 1,027
Smith International * 60,500 2,628
Total Energy 6,967
INDUSTRIAL 5.3%
Defense & Aerospace 0.6%
BE Aerospace * 72,000 $ 1,348
1,348
Specialty Chemicals 0.7%
Great Lakes Chemical 35,500 1,635
1,635
Machinery 4.0%
Danaher 44,000 2,558
Pentair 42,500 1,944
Teleflex 50,500 2,194
United Rentals * 79,500 2,345
9,041
Total Industrial 12,024
Total Common Stocks (Cost $175,325) 217,009
SHORT-TERM INVESTMENTS 4.7%
Government Reserve Investment Fund
4.77% # 10,663,384 10,663
Total Short Term Investments
(Cost $10,663) 10,663
Total Investments in Securities
100.8% of Net Assets (Cost $185,988) $227,672
Other Assets Less Liabilities (1,844)
NET ASSETS $225,828
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $(223)
Accumulated net realized gain/loss -
net of distributions 4,185
Net unrealized gain (loss) 41,684
Paid-in-capital applicable to 12,412,230
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 180,182
NET ASSETS $225,828
----------
NET ASSET VALUE PER SHARE $18.19
----------
# 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
6/30/99
Investment Income
Income
Dividend $ 227
Interest 183
Total income 410
Expenses
Investment management 544
Custody and accounting 57
Registration 12
Legal and audit 6
Shareholder servicing 5
Prospectus and shareholder reports 4
Directors 3
Miscellaneous 2
Total expenses 633
Net investment income (223)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 4,230
Change in net unrealized gain or loss on securities 18,437
Net realized and unrealized gain (loss) 22,667
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 22,444
----------
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
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ (223) $ (338)
Net realized gain (loss) 4,230 1,824
Change in net unrealized gain or loss 18,437 17,390
Increase (decrease) in net asset
from operations 22,444 18,876
Distributions to shareholders
Net realized gain -- (2,366)
Capital share transactions*
Shares sold 83,178 61,424
Distributions reinvested -- 2,191
Shares redeemed (11,369) (6,524)
Increase (decrease) in net
assets from capital
share transactions 71,809 57,091
Net Assets
Increase (decrease) during period 94,253 73,601
Beginning of period 131,575 57,974
End of period $ 225,828 $ 131,575
*Share information
Shares sold 5,017 4,141
Distributions reinvested -- 150
Shares redeemed (688) (442)
Increase (decrease)
in shares outstanding 4,329 3,849
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, 1999 (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. 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 $113,258,000 and $46,288,000, 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
$185,988,000. Net unrealized gain aggregated $41,683,000 at period-end, of
which $50,139,000 related to appreciated investments and $8,455,000 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 $98,000 was payable at June 30, 1999. The fee is computed
daily and paid monthly, and is equal to 0.60% of the fund's average daily
net assets.
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 $37,000 for the six months ended June 30, 1999, 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, 1999, totaled $183,000 and are
reflected as interest income in the accompanying Statement of Operations.
