PAGE 1
Registration Nos.: 811-07749
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. ___ / /
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
___________________________________________________
(Exact Name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 410-547-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
_______________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering September 27, 1996
__________________
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
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/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
_________________________________________________________________
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate
Title of Securities Being Price Offering Amount of
Being Registered Registered Per Unit Price Registration
Fee
_________________________________________________________________
Capital Stock - Indefinite Varying prices $500
$.0001 par value Number calculated as set
per share forth in prospectus
_________________________________________________________________
The purpose of this Registration Statement is to register the
Registrant under the Investment Company Act of 1940, to register
the shares of the Registrant under the Securities Act of 1933 and
to declare pursuant to Section 24(f) of the Investment Company
Act of 1940 and Rule 24f-2 thereunder that an indefinite number
of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states the Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to Section 8(a) may determine.
SUBJECT TO COMPLETION
Information contained herein is subject to completion or
amendment. A Registration Statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell
PAGE 3
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
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CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ _________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial +
Information
Item 4. General Description of About the Fund; Fund,
Registrant Market, and Risk
Characteristics: What
to Expect;
Understanding Fund
Performance;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Pricing Shares and
Being Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and +
History
Item 13. Investment Objectives and Investment Objectives
Policies and Policies; Risk
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Factors; Investment
Program; Investment
Restrictions;
Investment Performance
Item 14. Management of the Registrant Management of Fund
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Investment Management
Other Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio
Transactions; Code of
Ethics
Item 18. Capital Stock and Other Dividends and
Securities Distributions; Capital
Stock
Item 19. Purchase, Redemption and Pricing of Securities;
Pricing of Securities Being Net Asset Value Per
Offered Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Fund
Item 22. Calculation of Yield Quotations +
of Money Market Funds
Item 23. Financial Statements +
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 6
The printed version of this prospectus appears in a dual column
format.
PAGE 7
Facts at a Glance
Investment Goal
To provide long-term capital appreciation, with current income a
secondary goal. As with any mutual fund, there is no guarantee
the fund will achieve its goal.
Strategy
To invest primarily in common stocks of financial services
companies, such as banks, insurance companies, and brokerage
firms, and in stocks of companies that derive substantial
revenues from selling products or services to such firms.
Risk/Reward
A stock fund with the potential to provide long-term capital
growth and a modest level of income. While a narrower investment
focus is ordinarily riskier than a broader one, the financial
services field has many well-established companies and income-
producing stocks, which may reduce volatility. The fund's share
price may decline, causing a loss.
Investor Profile
Individuals seeking long-term capital growth and some income
through increased exposure to financial services companies, who
can accept the risk of price declines inherent in common stock
investing. Appropriate for both regular and tax-deferred
accounts, such as IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price
Associates, Inc. ("T. Rowe Price") and its affiliates managed
over $87 billion for more than four million individual and
institutional investor accounts as of June 30, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
Financial Services Fund, Inc.
September 27, 1996
Prospectus
Contents
1
About the Fund
Transaction and Fund Expenses
Fund, Market, and Risk
Characteristics
2
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About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Fund
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
Discount Brokerage
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the fund, dated September 27, 1996,
has been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days.
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
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
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4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
Financial Services Fund
T. Rowe Price
Financial Services Fund, Inc.
September 27, 1996
A stock fund seeking long-term capital appreciation and modest
current income through investments in financial services
companies.
Invest With ConfidenceR
PAGE 10
1
About the Fund
Transaction and Fund Expenses
Like all T. Rowe Price funds, this fund is 100% no load.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses" shows that
you pay no sales charges. All the money you invest in the fund
goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" shows how much it would cost to operate
the fund for a year, based on estimated 1996 fiscal year expenses
(and any applicable expense limitations). These are costs you pay
indirectly, because they are deducted from the fund's total
assets before the daily share price is calculated and before
dividends and other distributions are made. In other words, you
will not see these expenses on your account statement.
For the fiscal period ending December 31, 1996, the fund is
expected to pay $_________ to T. Rowe Price Services, Inc. for
transfer and dividend disbursing functions and shareholder
services; and $___________ to T. Rowe Price for accounting
services.
Shareholder Transaction Expenses Annual Fund Expenses
Percentage of Average Net Assets
Sales charge "load" on purchases None Management fee (after
reduction) 0.__%a
Sales charge "load" on reinvested dividends None Marketing fees
(12b-1) None
Redemption fees None Total other (shareholder servicing,
custodial, auditing, etc.) 0.__%a
Exchange fees None
Total fund expenses (after reduction) ____%a
a To limit the fund's expenses during its initial period of
operations, T. Rowe Price has agreed to waive its fees and bear
any expenses through December 31, 1998, to the extent such fees
or expenses would cause the fund's ratio of expenses to average
net assets to exceed ____%. Fees waived or expenses paid or
assumed under this agreement are subject to reimbursement to T.
Rowe Price by the fund whenever the fund's expense ratio is below
the previously stated ratio; however, no reimbursement will be
made after December 31, 2000, or if it would result in the
expense ratio exceeding the ratio as previously stated. Without
this expense limitation, it is estimated that the fund's
management fee and total expense ratio for the first full year of
operation would be ____% and ____%. Any amounts reimbursed will
have the effect of increasing fees otherwise paid by the fund.
Organizational expenses will be charged to the fund over a period
not to exceed 60 months.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
PAGE 11
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
The fund's fee comprises a group fee, 0.33% as of March 31, 1996,
and an individual fund fee of (_____%).
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements and reports, disbursing dividends, and
providing custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
1 year 3 years
$__ $__
Table 2
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether this fund is appropriate for you, this
section takes a closer look at its investment objective and
approach.
What is the fund's objective?
The fund should not represent your complete investment program,
nor be used for short-term trading purposes.
The fund seeks long-term growth of capital and a modest level of
income.
What is the fund's investment program?
The fund will invest at least 65% of total assets in the common
stocks of companies engaged in the financial services industry
and in companies deriving substantial revenues from conducting
business with the industry. For purposes of selecting
investments, the fund's definition of financial services is broad
and includes (but is not limited to) the following types of
companies:
PAGE 12
o
Regional and money center banks;
o
Insurance;
o
Specialty finance;
o
Securities brokerage;
o
Asset management;
o
Government-sponsored agencies;
o
Thrifts and savings banks;
o
Diversified financial;
o
Foreign financial service;
o
Technology firms servicing the financial area.
Income is a consideration but it is only incidental to stock
selection. The fund will have no restrictions on the market
capitalization size (measured by total shares of stock
outstanding multiplied by the share price) of its holdings.
To take advantage of overseas opportunities, the fund is
permitted to invest up to 30% of its assets in foreign
securities. While common stocks will be the principal holdings,
the fund can also purchase other types of securities, such as
preferred stocks, convertible stocks and bonds, warrants, and
debt securities when considered consistent with its investment
objective and program. The portfolio manager may also employ a
variety of investment management practices, such as buying and
selling futures and options.
Why invest in financial services companies?
Value investors look for undervalued assets.
The stocks of companies operating in the financial services area
could provide significant appreciation potential over the long
term for several reasons, including:
o
Favorable demographics.
The largest consumers of financial services are those in the 45
to 64 age group, which is projected to grow significantly during
the next 20 years;
o
Consolidation.
Many financial services businesses, especially banking and
insurance, are now highly fragmented but are undergoing
consolidation, a trend that often presents investment
opportunities;
PAGE 13
o
Specialization.
This trend, which refers to the "unbundling" of financial
products to meet customer needs, provides profit opportunities
and expands the market for financial services providers;
o
Deregulation.
Government regulations that formerly prevented financial services
firms from diversifying significantly have been easing, enabling
efficient and innovative firms to seek opportunities in a wider
variety of financial services businesses;
o
Globalization.
U.S. financial firms are widely regarded as the most innovative
financial engineers in the world, and their services are
increasingly in global demand. At the same time, the increasing
globalization of the financial markets provides opportunities for
well-positioned foreign firms to expand their businesses both
domestically and beyond their borders.
How does the fund select stocks for the portfolio?
Growth investors look for companies with above-average earnings
gains.
Stock selection is based on fundamental, "bottom-up" analysis
that seeks to identify high-quality companies with good
appreciation prospects. The fund manager may use both growth and
value approaches to stock selection. In the growth area, the
manager will try to identify companies with capable management,
attractive business niches, sound financial and accounting
practices, and a demonstrated ability to grow revenues, earnings,
and cash flow consistently.
In looking for value stocks, the manager will seek out companies
whose current stock prices appear undervalued in terms of
earnings, projected cash flow, or asset value per share, and with
growth potential temporarily unrecognized by the market. In all
cases, the fund manager seeks to invest at opportune times and to
pay prices that increase a stock's potential for long-term gains.
What are some of the fund's potential risks?
The fund's share price will fluctuate; when you sell your shares,
you may lose money.
The fund will be less diversified than stock funds investing in a
broader range of industries and, therefore, could experience
significant volatility when trends are perceived as unfavorable
for financial services companies. For example, rising interest
rates may be viewed as a negative for certain companies in the
financial services area, although not all participants are
affected equally. Rapidly rising inflation may also be regarded
as a negative. In addition, government deregulation of these
industries may stall, which could limit the profit potential of
companies operating in various financial areas.
PAGE 14
To the extent that the fund invests in foreign companies, its
share price would be subject to the additional risk of
fluctuations in the foreign exchange value of the dollar.
Likewise, to the extent that the portfolio has substantial
exposure to small companies, it would be subject to the greater
price fluctuations typical of small-cap stocks.
Many companies doing business in this field can possess growth
characteristics, but the financial services area is not generally
perceived to be dynamic or aggressive, which could hurt fund
performance. Generally, a fund limited to one area of economic
activity represents greater potential risk than a more
diversified fund, although the nature of financial services
companies moderates this risk to some extent.
What are some of the fund's potential rewards?
The fund's investment program reflects the view of T. Rowe Price
that several trends in financial services offer opportunities for
significant long-term capital appreciation. For investors who
currently have a broad exposure to equities, the fund provides a
way to diversify into an area of the economy undergoing
substantial change as well as rapid growth in a number of fields,
such as asset management. To the extent that the portfolio
invests in stocks paying significant dividends, its total return
could provide some cushion against price declines.
What are some potential risks and rewards of investing in the
stock market?
Equity investors should have a long-term investment horizon and
be willing to wait out bear markets.
Common stocks in general offer a way to invest for long-term
growth of capital. As the U.S. economy has expanded, corporate
profits have grown and share prices have risen. However, economic
growth has been punctuated by periodic declines that can
negatively affect corporate earnings and stock prices. Share
prices of even the best managed, most profitable corporations can
decline for reasons unrelated to their performance, such as
swings in investor psychology or anticipated changes in interest
rates. In addition, significant trading by large institutional
investors can result in price fluctuations.
How can I decide if the fund is appropriate for me?
Consider your investment goals, your time horizon for achieving
them, and your tolerance for risk. If you seek capital growth
through a more narrowly focused fund and are willing to accept
the price swings that can affect financial services stocks, the
fund could be an appropriate part of your long-term investment
strategy.
Is there other information I need to review before making a
decision?
Be sure to review "Investment Policies and Practices" in Section
3, which discusses the following: Types of Portfolio Securities
(common and preferred stocks, convertible securities and
PAGE 15
warrants, foreign securities, financial services industry
concentration, hybrid instruments, and private placements); and
Types of Management Practices (cash position, borrowing money and
transferring assets, futures and options, managing foreign
currency risk, lending of portfolio securities, and portfolio
turnover).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a T.
Rowe Price equity fund.
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional and employer-
sponsored retirement accounts.
The share price (also called "net asset value" or NAV per share)
for the fund is calculated at 4 p.m. ET each day the New York
Stock Exchange is open for business. To calculate the NAV, the
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
Note:
The time at which transactions and shares are priced and the time
until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
Exception:
If for some reason we cannot accept your request to sell shares,
PAGE 16
we will contact you.
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Unless you select another option on your New Account Form,
dividend and capital gain distributions are reinvested in
additional fund shares in your account at the NAV on the business
date following the record date for the distribution. The
advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain
distributions on a rising number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
The fund declares and pays dividends (if any) annually.
o
All or part of the fund's dividends will be eligible for the 70%
deduction for dividends received by corporations.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If the fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
You need to be aware of the possible tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
PAGE 17
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
The following summary does not apply to retirement accounts, such
as IRAs, which are tax-deferred until you withdraw money from
them.
In January, you will be sent Form 1099-DIV indicating the tax
status of any dividend and capital gain distribution made to you.
This information will also be reported to the IRS. All
distributions made by the fund are taxable to you for the year in
which they were paid. The only exception is that distributions
declared during the last three months of the year and paid in
January are taxed as though they were paid by December 31. You
will be sent any additional information you need to determine
your taxes on fund distributions, such as the portion of your
dividend, if any, that may be exempt from state income taxes.
Short-term capital gain distributions are taxable as ordinary
income and long-term gain distributions are taxable at the
applicable long-term gain rate. The gain is long- or short-term
depending on how long the fund held the securities, not how long
you held shares in the fund. If you realize a loss on the sale or
exchange of fund shares held six months or less, your short-term
loss recognized is reclassified to long-term to the extent of any
long-term capital gain distribution received.
Gains and losses from the sale of foreign currencies and the
foreign currency gain or loss resulting from the sale of a
foreign debt security can increase or decrease the fund's
ordinary income dividend. Net foreign currency losses may result
in the fund's dividend being classified as a return of capital.
PAGE 18
If the fund pays nonrefundable taxes to foreign governments
during the year, the taxes will reduce the fund's dividends, but
will still be included in your taxable income. However, you may
be able to claim an offsetting credit or deduction on your tax
return for your portion of foreign taxes paid by the fund.
Tax effect of buying shares before a capital gain or dividend
distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, the fund will process your redemption but will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. (The 10-day hold does not
apply to the following: purchases paid for by bank wire;
cashier's, certified, or treasurer's checks; or automatic
purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. The
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
PAGE 19
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
regulatory agencies that the fund may be liable for any losses
that may result from acting on the instructions given. A
confirmation is sent promptly after the telephone transaction.
All conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to the fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
PAGE 20
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund account
with a different registration (name/ownership) from yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Fund
Organization and Management
How is the fund organized?
Shareholders benefit from T. Rowe Price's 59 years of investment
management experience.
The fund was incorporated in Maryland in 1996, and is a
"diversified, open-end investment company," or mutual fund.
Mutual funds pool money received from shareholders and invest it
to try to achieve specific objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in the fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
PAGE 21
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in order
to avoid unnecessary costs to fund shareholders, do not intend to
do so except when certain matters, such as a change in a fund's
fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the funds will send you proxy materials that explain the issues
to be decided and include a voting card for you to mail back.
Who runs the fund?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by the fund's portfolio
managers.
General Oversight.
The fund is governed by a Board of Directors that meets regularly
to review the fund's investments, performance, expenses, and
other business affairs. The Board elects the fund's officers.
The policy of the fund is that the majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
The fund has an Investment Advisory Committee composed of the
following members: _______________, Chairman,
__________________________. The committee chairman has day-to-day
responsibility for managing the portfolio and works with the
committee in developing and executing the fund's investment
program. Mr. _________________ has been chairman of the fund's
committee since its inception in 1996. Mr._______________ has
been managing investments since _____. He joined T. Rowe Price in
_____ and began managing investments in _____.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for
certain types of retirement plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a wholly owned subsidiary.
The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
In addition to the management fee, the fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
PAGE 22
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
The fund's portion of the group fee is determined by the ratio of
its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $57.3 billion at June 30, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the fund's annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
PAGE 23
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Investment Policies and Practices
This section takes a detailed look at some of the types of
securities the fund may hold in its portfolio and the various
kinds of investment practices that may be used in day-to-day
portfolio management. The fund's investment program is subject to
further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change the
fund's objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
The fund's holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
For instance, this fund is not permitted to invest more than 10%
of total assets in hybrid instruments. While these restrictions
provide a useful level of detail about the fund's investment
program, investors should not view them as an accurate gauge of
the potential risk of such investments. For example, in a given
period, a 5% investment in hybrid instruments could have
significantly more of an impact on the fund's share price than
its weighting in the portfolio. The net effect of a particular
investment depends on its volatility and the size of its overall
return in relation to the performance of all the fund's other
investments.
Changes in the fund's holdings, the fund's performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
PAGE 24
fund achieve its objective.
In seeking to meet its investment objective, the fund may invest
in any type of security or instrument (including certain
potentially high-risk derivatives) whose investment
characteristics are consistent with the fund's investment
program. The following pages describe the principal types of
portfolio securities and investment management practices of the
fund.
Fundamental policy:
The fund will not purchase a security if, as a result, with
respect to 75% of its total assets, more than 5% of its total
assets would be invested in securities of a single issuer or more
than 10% of the voting securities of the issuer would be held by
the fund.
Operating policy:
In accordance with SEC rules, the fund will not purchase the
security of any company which in its most recent fiscal year
derived more than 15% of its gross revenues from securities
related activities (defined by the SEC as activities as a broker,
dealer, underwriter or investment adviser) if immediately after
such purchase the fund:
o
would own more than 5% of any class of equity securities of the
company;
o
would own more than 10% of the outstanding principal amount of
the company's debt securities; or
o
would have invested more than 5% of its total assets in
securities of such company.
Common and Preferred Stocks.
Stocks represent shares of ownership in a company. Generally,
preferred stock has a specified dividend and ranks after bonds
and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After
other claims are satisfied, common stockholders participate in
company profits on a pro rata basis; profits may be paid out in
dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest
appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the fund
may purchase preferred stock where the issuer has omitted, or is
in danger of omitting, payment of its dividend. Such investments
would be made primarily for their capital appreciation potential.
Convertible Securities and Warrants.
The fund may invest in debt or preferred equity securities
convertible into or exchangeable for equity securities.
Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than
PAGE 25
nonconvertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which
they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are
options to buy a stated number of shares of common stock at a
specified price anytime during the life of the warrants
(generally, two or more years).
Foreign Securities.
The fund may invest in foreign securities. These include
nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the
U.S. (such as ADRs). Such investments increase a portfolio's
diversification and may enhance return, but they also involve
some special risks such as exposure to potentially adverse local
political and economic developments; nationalization and exchange
controls; potentially lower liquidity and higher volatility;
possible problems arising from accounting, disclosure,
settlement, and regulatory practices that differ from U.S.
standards; and the chance that fluctuations in foreign exchange
rates will decrease the investment's value (favorable changes can
increase its value). These risks are heightened for investments
in developing countries and there is no limit on the amount of
the fund's foreign investments which may be made in such
countries.
Operating policy:
The fund may invest up to 30% of its total assets (excluding
reserves) in foreign securities.
Financial Services Industry Concentration.
The fund will concentrate its investments in the financial
services industry as defined in this prospectus.
Fundamental policy:
As a matter of fundamental policy, the fund will concentrate
(invest more than 25% of its total assets) in the financial
services industry as defined in this prospectus.
Hybrid Instruments.
Hybrids can have volatile prices and limited liquidity and their
use by the fund may not be successful.
These instruments (a type of potentially high-risk derivative)
can combine the characteristics of securities, futures, and
options. For example, the principal amount, redemption, or
conversion terms of a security could be related to the market
price of some commodity, currency, or securities index. Such
securities may bear interest or pay dividends at below market (or
even relatively nominal) rates. Under certain conditions, the
redemption value of such an investment could be zero.
Operating policy:
The fund may invest up to 10% of its total assets in hybrid
instruments.
Private Placements.
PAGE 26
These securities are sold directly to a small number of
investors, usually institutions. Unlike public offerings, such
securities are not registered with the SEC. Although certain of
these securities may be readily sold, for example, under Rule
144A, others may be illiquid and their sale may involve
substantial delays and additional costs.
Operating policy:
The fund will not invest more than 15% of its net assets in
illiquid securities. As part of this limit, the fund will not
invest more than 10% in restricted securities, provided that
securities eligible for resale under Rule 144A are not subject to
the 10% limit.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
The fund will hold a certain portion of its assets in U.S. and
foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories,
maturing in one year or less. For temporary, defensive purposes,
the fund may invest without limitation in such securities. This
reserve position provides flexibility in meeting redemptions,
expenses, and the timing of new investments and serves as a
short-term defense during periods of unusual market volatility.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policies:
The fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
the fund's total assets. The fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Futures and Options.
Futures are used to manage risk; options give the investor the
option to buy or sell an asset at a predetermined price in the
future.
Futures (a type of potentially high-risk derivative) are often
used to manage or hedge risk, because they enable the investor to
buy or sell an asset in the future at an agreed upon price.
Options (another type of potentially high-risk derivative) give
the investor the right, but not the obligation, to buy or sell an
asset at a predetermined price in the future. The fund may buy
and sell futures and options contracts for any number of reasons,
including: to manage its exposure to changes in securities prices
PAGE 27
and foreign currencies; as an efficient means of adjusting its
overall exposure to certain markets; in an effort to enhance
income; and to protect the value of portfolio securities. The
fund may purchase, sell, or write call and put options on
securities, financial indices, and foreign currencies.
Futures contracts and options may not always be successful
hedges; their prices can be highly volatile. Using them could
lower the fund's total return, and the potential loss from the
use of futures can exceed the fund's initial exposure to such
contracts.
Operating policies:
Futures: Initial margin deposits and premiums on options used for
non-hedging purposes will not equal more than 5% of the fund's
net asset value. Options on securities: The total market value of
securities against which the fund has written call or put options
may not exceed 25% of its total assets. The fund will not commit
more than 5% of its total assets to premiums when purchasing call
or put options.
Managing Foreign Currency Risk.
Investors in foreign securities may "hedge" their exposure to
potentially unfavorable currency changes by purchasing a contract
to exchange one currency for another on some future date at a
specified exchange rate. In certain circumstances, a "proxy
currency" may be substituted for the currency in which the
investment is denominated, a strategy known as "proxy hedging."
Although foreign currency transactions will be used primarily to
protect the fund's foreign securities from adverse currency
movements relative to the dollar, they involve the risk that
anticipated currency movements will not occur and the fund's
total return could be reduced.
Lending of Portfolio Securities.
Like other mutual funds, the fund may lend securities to broker-
dealers, other institutions, or other persons to earn additional
income. The principal risk is the potential insolvency of the
broker-dealer or other borrower. In this event, the fund could
experience delays in recovering its securities and possibly
capital losses.
Fundamental policy:
The value of loaned securities may not exceed 33 1/3% of the
fund's total assets.
Portfolio Turnover.
The fund will not generally trade in securities for short-term
profits, but, when circumstances warrant, securities may be
purchased and sold without regard to the length of time held. A
high turnover rate may increase transaction costs and result in
additional taxable gains. The fund's portfolio turnover rate for
its initial period of operations is not expected to exceed 150%.
PAGE 28
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
T. Rowe Price Trust Company
1-800-492-7670
1-410-625-6585
Employer-Sponsored Retirement Plans and Institutional Accounts
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts.
For procedures regarding employer-sponsored retirement plans,
please call T. Rowe Price Trust Company or consult your plan
administrator. For institutional account procedures, please call
your designated account manager or service representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for retirement plans or gifts or transfers to minors (UGMA/UTMA)
accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
PAGE 2
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise
it will be returned) and send your check together with the New
Account Form to the address at left. We do not accept third
party checks, except for IRA Rollover checks that are properly
endorsed, to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received. Also, retirement plans cannot be opened by wire.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50
minimum for retirement plans, Automatic Asset Builder and gifts
of transfers to minors(UGMA/UTMA) accounts
PAGE 3
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise it
may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
PAGE 4
For Mailgram,
Express, Registered,
or Certified mail,
see addresses under
"Opening a New Account."
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Regular Mail
For nonretirement For employer-sponsored
and IRA accounts: retirement accounts:
T. Rowe Price T. Rowe Price Trust
Account Services Company
P.O. Box 89000 P.O. Box 89000
Baltimore, MD Baltimore, MD
21289-0220 21289-0300
Redemptions from employer-sponsored retirement accounts must be
in writing; please call T. Rowe Price Trust Company or your plan
administrator for instructions. IRA distributions may be
requested in writing or by telephone; please call Shareholder
Services to obtain an IRA Distribution Form or an IRA Shareholder
Services Form to authorize the telephone redemption service.
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
PAGE 5
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and institutions,
including large and small businesses: IRAs, SEP-IRAs, Keoghs
(profit sharing and money purchase pension), 401(k), and
403(b)(7). For information on IRAs, call Investor Services. For
information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
PAGE 6
Personal Computer. 24-hour service via dial-up modem provides
the same information as Tele*Access, but on a personal computer.
Please call Investor Services for an information guide.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more from
your bank account, or you can instruct your employer to send all
or a portion of your paycheck to the fund or funds you designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday
or a Monday which is a holiday, your order will be priced on
the second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
PAGE 7
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter
trades, access quotes, and review account information 24
hours a day, seven days a week. Any trades executed through
these programs save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports,
such as our Brokerage Insights series, S&P Market Month
Newsletter, and optional Stock Reports can help you better
evaluate economic trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
Investment Information
To help shareholders monitor their current investments and make
decisions that accurately reflect their financial goals, T. Rowe
Price offers a wide variety of information in addition to account
statements.
Shareholder Reports. Fund managers' reviews of their strategies
and results. If several members of a household own the same fund,
only one fund report is mailed to that address. To receive
additional copies, please call Shareholder Services or write to
us at 100 East Pratt Street, Baltimore, MD 21202.
The T. Rowe Price Report. A 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.
PAGE 8
Investment Guides. Asset Mix Worksheet, College Planning Kit,
Personal Strategy Planner, Retirees Financial Guide, and
Retirement Planning Kit.
PAGE 29
STATEMENT OF ADDITIONAL INFORMATION
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE VALUE FUND, INC.
and
INSTITUTIONAL EQUITY FUNDS, INC.
MID-CAP EQUITY GROWTH FUND
(collectively the "Funds" and individually the "Fund")
This Statement of Additional Information is not a
prospectus but should be read in conjunction with the appropriate
Fund prospectus dated May 1, 1996 (or September 27, 1996, for
Financial Services Fund), which may be obtained from T. Rowe
Price Investment Services, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202.
If you would like a prospectus for a Fund of which you are
not a shareholder, please call 1-800-638-5660. A prospectus with
more complete information, including management fees and expenses
will be sent to you. Please read it carefully.
The date of this Statement of Additional Information is May
1, 1996 (or September 27, 1996, for Financial Services Fund).
SAI-EQU 9-27-96
PAGE 30
TABLE OF CONTENTS
Page Page
Asset-Backed Securities . . Legal Counsel . . . . . .
Capital Stock . . . . . . . Lending of Portfolio
Custodian . . . . . . . . . Securities . . . . . . .
Code of Ethics . . . . . . Management of Funds . . .
Distributor for Fund . . . Mortgage-Related
Dividends and Securities . . . . . . .
Distributions . . . . . . Net Asset Value Per Share
Federal and State Registration Options . . . . . . . . .
of Shares . . . . . . . . Organization of the Fund
Foreign Currency Portfolio Management
Transactions . . . . . . . Practices . . . . . . .
Foreign Futures and Portfolio Transactions .
Options . . . . . . . . . Pricing of Securities . .
Foreign Securities . . . . Principal Holders of . .
Futures Contracts . . . . . Securities . . . . . . .
Hybrid Instruments . . . . Ratings of Corporate Debt
Independent Accountants . . Securities . . . . . . .
Illiquid or Restricted Repurchase Agreements . .
Securities . . . . . . . . Risk Factors . . . . . .
Investment Management Tax Status . . . . . . .
Services . . . . . . . . . Taxation of Foreign
Investment Objectives and Shareholders . . . . . .
Policies . . . . . . . . . Warrants . . . . . . . .
Investment Performance . . When-Issued Securities and
Investment Program . . . . and Forward Commitment
Investment Restrictions . . Contracts . . . . . . .
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies discussed in each
Fund's prospectus. The Funds will not make a material change in
their investment objectives without obtaining shareholder
approval. Unless otherwise specified, the investment programs
and restrictions of the Funds are not fundamental policies. Each
Fund's operating policies are subject to change by each Board of
Directors/Trustees without shareholder approval. However,
shareholders will be notified of a material change in an
operating policy. Each Fund's fundamental policies may not be
changed without the approval of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares are represented.
Throughout this Statement of Additional Information, "the
PAGE 31
Fund" is intended to refer to each Fund listed on the cover page,
unless otherwise indicated.
RISK FACTORS
General
Because of its investment policy, the Fund may or may not be
suitable or appropriate for all investors. The Fund is not a
money market fund and is not an appropriate investment for those
whose primary objective is principal stability. The Fund will
normally have substantially all (for the Balanced Fund 50-70% and
for the Capital Appreciation Fund at least 50%) of its assets in
equity securities (e.g., common stocks). This portion of the
Fund's assets will be subject to all of the risks of investing in
the stock market. There is risk in all investment. The value of
the portfolio securities of the Fund will fluctuate based upon
market conditions. Although the Fund seeks to reduce risk by
investing in a diversified portfolio, such diversification does
not eliminate all risk. There can, of course, be no assurance
that the Fund will achieve its investment objective. Reference
is also made to the sections entitled "Types of Securities" and
"Portfolio Management Practices" for discussions of the risks
associated with the investments and practices described therein
as they apply to the Fund.
Foreign Securities (All Funds other than Equity Index Fund)
The Fund may invest in U.S. dollar-denominated and non U.S.
dollar-denominated securities of foreign issuers.
Risk Factors of Foreign Investing
There are special risks in foreign investing. Many of the
risks are more pronounced for investments in developing or
emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe and the Middle East.
Although there is no universally accepted definition, a
developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a
per capita gross national product of less than $8,000.
Political and Economic Factors. Individual foreign
economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as
growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are
not as stable as in the United States. For example, in 1991, the
PAGE 32
existing government in Thailand was overthrown in a military
coup. In 1992, there were two military coup attempts in
Venezuela and in 1992 the President of Brazil was impeached. In
addition, significant external political risks currently affect
some foreign countries. Both Taiwan and China still claim
sovereignty of one another and there is a demilitarized border
between North and South Korea.
Governments in certain foreign countries continue to
participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of
securities and payment of dividends. The economies of many
foreign countries are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and
economic conditions of their trading partners. The enactment by
these trading partners of protectionist trade legislation could
have a significant adverse effect upon the securities markets of
such countries.
Currency Fluctuations. The Fund may invest in securities
denominated in various currencies. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Funds'
assets denominated in that currency. Such changes will also
affect the Funds' income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of
the Fund's securities denominated in that currency will rise.
When a given currency depreciates against the dollar (the dollar
strengthens) the value of the Funds' securities denominated in
that currency would be expected to decline.
Investment and Repatriation of Restrictions. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled in varying degrees. These
restrictions may limit at times and preclude investment in
certain of such countries and may increase the cost and expenses
of the Funds. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These
restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners,
and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Funds invest.
In addition, the repatriation of both investment income and
capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the
need for certain government consents. For example, capital
invested in Chile normally cannot be repatriated for one year.
PAGE 33
Market Characteristics. It is contemplated that most
foreign securities, other than Latin American securities, will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. Currently, it is anticipated
that many Latin American investments will be made through ADRs
traded in the United States. Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they
usually have substantially less volume than U.S. markets and the
Funds' portfolio securities may be less liquid and subject to
more rapid and erratic price movements than securities of
comparable U.S. companies. Equity securities may trade at
price/earnings multiples higher than comparable United States
securities and such levels may not be sustainable. Fixed
commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the
Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the United States. Moreover,
settlement practices for transactions in foreign markets may
differ from those in United States markets. Such differences may
include delays beyond periods customary in the United States and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to a Fund.
Investment Funds. The Fund may invest in investment funds
which have been authorized by the governments of certain
countries specifically to permit foreign investment in securities
of companies listed and traded on the stock exchanges in these
respective countries. If the Fund invest in such investment
funds, the Fund's shareholders will bear not only their
proportionate share of the expenses of the Fund (including
operating expenses and the fees of the investment manager), but
also will bear indirectly similar expenses of the underlying
investment funds. In addition, the securities of these
investment funds may trade at a premium over their net asset
value.
Information and Supervision. There is generally less
publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject
to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those
PAGE 34
applicable to United States companies. It also may be more
difficult to keep currently informed of corporate actions which
affect the prices of portfolio securities.
Taxes. The dividends and interest payable on certain of the
Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Funds' shareholders.
Other. With respect to certain foreign countries,
especially developing and emerging ones, there is the possibility
of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Funds, political or
social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
Eastern Europe and Russia. Changes occurring in Eastern
Europe and Russia today could have long-term potential
consequences. As restrictions fall, this could result in rising
standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment
in the countries of Eastern Europe and Russia is highly
speculative at this time. Political and economic reforms are too
recent to establish a definite trend away from centrally-planned
economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have
government exchange controls, currencies with no recognizable
market value relative to the established currencies of western
market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal
tradition which does not recognize rights in private property.
In addition, these countries may have national policies which
restrict investments in companies deemed sensitive to the
country's national interest. Further, the governments in such
countries may require governmental or quasi-governmental
authorities to act as custodian of the Fund's assets invested in
such countries and these authorities may not qualify as a foreign
custodian under the Investment Company Act of 1940 and exemptive
relief from such Act may be required. All of these
considerations are among the factors which could cause
significant risks and uncertainties to investment in Eastern
Europe and Russia. Each Fund will only invest in a company
located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk. To the extent
any securities issued by companies in Eastern Europe and Russia
are considered illiquid, each Fund will be required to include
PAGE 35
such securities within its 15% restriction on investing in
illiquid securities.
Latin America
Inflation. Most Latin American countries have experienced,
at one time or another, severe and persistent levels of
inflation, including, in some cases, hyperinflation. This has,
in turn, led to high interest rates, extreme measures by
governments to keep inflation in check and a generally
debilitating effect on economic growth. Although inflation in
many countries has lessened, there is no guarantee it will remain
at lower levels.
Political Instability. The political history of certain
Latin American countries has been characterized by political
uncertainty, intervention by the military in civilian and
economic spheres, and political corruption. Such developments,
if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization and removal of trade
barriers and result in significant disruption in securities
markets.
Foreign Currency. Certain Latin American countries may have
managed currencies which are maintained at artificial levels to
the U.S. dollar rather than at levels determined by the market.
This type of system can lead to sudden and large adjustments in
the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994 the value
of the Mexican peso lost more than one-third of its value
relative to the dollar. Certain Latin American countries also
may restrict the free conversion of their currency into foreign
currencies, including the U.S. dollar. There is no significant
foreign exchange market for certain currencies and it would, as a
result, be difficult for the Fund to engage in foreign currency
transactions designed to protect the value of the Fund's
interests in securities denominated in such currencies.
Sovereign Debt. A number of Latin American countries are
among the largest debtors of developing countries. There have
been moratoria on, and reschedulings of, repayment with respect
to these debts. Such events can restrict the flexibility of
these debtor nations in the international markets and result in
the imposition of onerous conditions on their economies.
INVESTMENT PROGRAM
Types of Securities
PAGE 36
Set forth below is additional information about certain of
the investments described in the Fund's prospectus.
Illiquid or Restricted Securities
Restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933 (the "1933 Act"). Where registration is required,
the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair
value as determined in accordance with procedures prescribed by
the Fund's Board of Directors/Trustees. If through the
appreciation of illiquid securities or the depreciation of liquid
securities, the Fund should be in a position where more than 15%
of the value of its net assets is invested in illiquid assets,
including restricted securities, the Fund will take appropriate
steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities
which, while privately placed, are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not
registered under the 1933 Act. T. Rowe Price under the
supervision of the Fund's Board of Directors/Trustees, will
consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing
no more than 15% of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, T. Rowe Price
will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A
security. In addition, T. Rowe Price could consider the (1)
frequency of trades and quotes, (2) number of dealers and
potential purchases, (3) dealer undertakings to make a market,
and (4) the nature of the security and of marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored, and if as a result of
changed conditions it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required
to assure that the Fund does not invest more than 15% of its net
assets in illiquid securities. Investing in Rule 144A securities
PAGE 37
could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Hybrid Instruments
Hybrid Instruments (a type of potentially high-risk
derivative) have been developed and combine the elements of
futures contracts or options with those of debt, preferred equity
or a depository instrument (hereinafter "Hybrid Instruments").
Generally, a Hybrid Instrument will be a debt security, preferred
stock, depository share, trust certificate, certificate of
deposit or other evidence of indebtedness on which a portion of
or all interest payments, and/or the principal or stated amount
payable at maturity, redemption or retirement, is determined by
reference to prices, changes in prices, or differences between
prices, of securities, currencies, intangibles, goods, articles
or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid
Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments
or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference
to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating
exposure to a particular market, or segment of a market, with the
objective of enhancing total return. For example, a Fund may
wish to take advantage of expected declines in interest rates in
several European countries, but avoid the transactions costs
associated with buying and currency-hedging the foreign bond
positions. One solution would be to purchase a U.S. dollar-
denominated Hybrid Instrument whose redemption price is linked to
the average three year interest rate in a designated group of
countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was
lower than a specified level, and payoffs of less than par if
rates were above the specified level. Furthermore, the Fund
could limit the downside risk of the security by establishing a
minimum redemption price so that the principal paid at maturity
could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this
arrangement, known as a structured security with an embedded put
option, would be to give the Fund the desired European bond
exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no
PAGE 38
guarantee that the strategy will be successful and the Fund could
lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the
Hybrid.
The risks of investing in Hybrid Instruments reflect a
combination of the risks of investing in securities, options,
futures and currencies. Thus, an investment in a Hybrid
Instrument may entail significant risks that are not associated
with a similar investment in a traditional debt instrument that
has a fixed principal amount, is denominated in U.S. dollars or
bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published
Benchmark. The risks of a particular Hybrid Instrument will, of
course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the
Benchmarks or the prices of Underlying Assets to which the
instrument is linked. Such risks generally depend upon factors
which are unrelated to the operations or credit quality of the
issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events,
the supply and demand for the Underlying Assets and interest rate
movements. In recent years, various Benchmarks and prices for
Underlying Assets have been highly volatile, and such volatility
may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for
a discussion of the risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry
greater market risks than traditional debt instruments.
Depending on the structure of the particular Hybrid Instrument,
changes in a Benchmark may be magnified by the terms of the
Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices
of the Hybrid Instrument and the Benchmark or Underlying Asset
may not move in the same direction or at the same time.
Hybrid Instruments may bear interest or pay preferred
dividends at below market (or even relatively nominal) rates.
Alternatively, Hybrid Instruments may bear interest at above
market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to
structure the Hybrid Instrument. Leverage risk occurs when the
Hybrid Instrument is structured so that a given change in a
Benchmark or Underlying Asset is multiplied to produce a greater
value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the
PAGE 39
instruments are often "customized" to meet the portfolio needs of
a particular investor, and therefore, the number of investors
that are willing and able to buy such instruments in the
secondary market may be smaller than that for more traditional
debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market
without the guarantee of a central clearing organization or in a
transaction between the Fund and the issuer of the Hybrid
Instrument, the creditworthiness of the counter party or issuer
of the Hybrid Instrument would be an additional risk factor which
the Fund would have to consider and monitor. Hybrid Instruments
also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which
regulates the offer and sale of securities by and to U.S.
persons, or any other governmental regulatory authority.
The various risks discussed above, particularly the market
risk of such instruments, may in turn cause significant
fluctuations in the net asset value of the Fund. Accordingly,
the Fund will limit its investments in Hybrid Instruments to 10%
of net assets. However, because of their volatility, it is
possible that the Fund's investment in Hybrid Instruments will
account for more than 10% of the Fund's return (positive or
negative).
Warrants
The Fund may acquire warrants. Warrants are pure
speculation in that they have no voting rights, pay no dividends
and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may
be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.
Debt Securities
Balanced, Blue Chip Growth, Capital Appreciation, Capital
Opportunity, Dividend Growth, Equity Income, Growth & Income,
Mid-Cap Value, New Era, OTC, Small-Cap Value, and Value Funds
Debt Obligations
Although a majority of the Fund's assets are invested in
PAGE 40
common stocks, the Fund may invest in convertible securities,
corporate debt securities and preferred stocks which hold the
prospect of contributing to the achievement of the Fund's
objectives. Yields on short, intermediate, and long-term
securities are dependent on a variety of factors, including the
general conditions of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the
credit quality and rating of the issue. Debt securities with
longer maturities tend to have higher yields and are generally
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower
yields. The market prices of debt securities usually vary,
depending upon available yields. An increase in interest rates
will generally reduce the value of portfolio investments, and a
decline in interest rates will generally increase the value of
portfolio investments. The ability of the Fund to achieve its
investment objective is also dependent on the continuing ability
of the issuers of the debt securities in which the Fund invests
to meet their obligations for the payment of interest and
principal when due. The Fund's investment program permits it to
purchase below investment grade securities. Since investors
generally perceive that there are greater risks associated with
investment in lower quality securities, the yields from such
securities normally exceed those obtainable from higher quality
securities. However, the principal value of lower-rated
securities generally will fluctuate more widely than higher
quality securities. Lower quality investments entail a higher
risk of default--that is, the nonpayment of interest and
principal by the issuer than higher quality investments. Such
securities are also subject to special risks, discussed below.
Although the Fund seeks to reduce risk by portfolio
diversification, credit analysis, and attention to trends in the
economy, industries and financial markets, such efforts will not
eliminate all risk. There can, of course, be no assurance that
the Fund will achieve its investment objective.
After purchase by the Fund, a debt security may cease to be
rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require a sale of such
security by the Fund. However, T. Rowe Price will consider such
event in its determination of whether the Fund should continue to
hold the security. To the extent that the ratings given by
Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus.
Special Risks of High Yield Investing
The Fund may invest in low quality bonds commonly referred
PAGE 41
to as "junk bonds." Junk bonds are regarded as predominantly
speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low
and lower-medium quality bonds involves greater investment risk,
to the extent the Fund invests in such bonds, achievement of its
investment objective will be more dependent on T. Rowe Price's
credit analysis than would be the case if the Fund was investing
in higher quality bonds. High yield bonds may be more
susceptible to real or perceived adverse economic conditions than
investment grade bonds. A projection of an economic downturn, or
higher interest rates, for example, could cause a decline in high
yield bond prices because the advent of such events could lessen
the ability of highly leverage issuers to make principal and
interest payments on their debt securities. In addition, the
secondary trading market for high yield bonds may be less liquid
than the market for higher grade bonds, which can adversely
affect the ability of a Fund to dispose of its portfolio
securities. Bonds for which there is only a "thin" market can be
more difficult to value inasmuch as objective pricing data may be
less available and judgment may play a greater role in the
valuation process.
Fixed income securities in which the Fund may invest
include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the
length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by
U.S. Government sponsored enterprises and federal agencies.
These include securities issued by the Federal National Mortgage
Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration,
Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business
Association, and the Tennessee Valley Authority. Some of these
securities are supported by the full faith and credit of the U.S.
Treasury; and the remainder are supported only by the credit of
the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates
of deposit are short-term obligations of commercial banks. A
bankers' acceptance is a time draft drawn on a commercial bank by
a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable
rates. The Fund may invest in U.S. banks, foreign branches of
PAGE 42
U.S. banks, U.S. branches of foreign banks, and foreign branches
of foreign banks.
Short-Term Corporate Debt Securities. Outstanding
nonconvertible corporate debt securities (e.g., bonds and
debentures) which have one year or less remaining to maturity.
Corporate notes may have fixed, variable, or floating rates.
Commercial Paper. Short-term promissory notes issued by
corporations primarily to finance short-term credit needs.
Certain notes may have floating or variable rates.
Foreign Government Securities. Issued or guaranteed by a
foreign government, province, instrumentality, political
subdivision or similar unit thereof.
Savings and Loan Obligations. Negotiable certificates of
deposit and other short-term debt obligations of savings and loan
associations.
Supranational Agencies. Securities of certain supranational
entities, such as the International Development Bank.
When-Issued Securities and Forward Commitment Contracts
The Fund may purchase securities on a "when-issued" or
delayed delivery basis ("When-Issueds") and may purchase
securities on a forward commitment basis ("Forwards"). Any or
all of the Fund's investments in debt securities may be in the
form of When-Issueds and Forwards. The price of such securities,
which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment take
place at a later date. Normally, the settlement date occurs
within 90 days of the purchase for When-Issueds, but may be
substantially longer for Forwards. During the period between
purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. The purchase of
these securities will result in a loss if their value declines
prior to the settlement date. This could occur, for example, if
interest rates increase prior to settlement. The longer the
period between purchase and settlement, the greater the risks
are. At the time the Fund makes the commitment to purchase these
securities, it will record the transaction and reflect the value
of the security in determining its net asset value. The Fund
will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value
to commitments for them during the time between the purchase and
the settlement. Therefore, the longer this period, the longer
the period during which alternative investment options are not
available to the Fund (to the extent of the securities used for
PAGE 43
cover). Such securities either will mature or, if necessary, be
sold on or before the settlement date.
To the extent the Fund remains fully or almost fully
invested (in securities with a remaining maturity or more than
one year) at the same time it purchases these securities, there
will be greater fluctuations in the Fund's net asset value than
if the Fund did not purchase them.
Balanced Fund
Mortgage-Related Securities
Mortgage-related securities in which the Fund may invest
include, but are not limited to, those described below.
Mortgage-Backed Securities. Mortgage-backed securities are
securities representing an interest in a pool of mortgages. The
mortgages may be of a variety of types, including adjustable
rate, conventional 30-year fixed rate, graduated payment, and 15-
year. Principal and interest payments made on the mortgages in
the underlying mortgage pool are passed through to the Fund. This
is in contrast to traditional bonds where principal is normally
paid back at maturity in a lump sum. Unscheduled prepayments of
principal shorten the securities' weighted average life and may
lower their total return. (When a mortgage in the underlying
mortgage pool is prepaid, an unscheduled principal prepayment is
passed through to the Fund. This principal is returned to the
Fund at par. As a result, if a mortgage security were trading at
a premium, its total return would be lowered by prepayments, and
if a mortgage security were trading at a discount, its total
return would be increased by prepayments.) The value of these
securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency that
issued them. In addition, the mortgage securities market in
general may be adversely affected by changes in governmental
regulation or tax policies.
U.S. Government Agency Mortgage-Backed Securities. These
are obligations issued or guaranteed by the United States
Government or one of its agencies or instrumentalities, such as
the Government National Mortgage Association ("Ginnie Mae" or
"GNMA"), the Federal National Mortgage Association ("Fannie Mae"
or "FNMA") the Federal Home Loan Mortgage Corporation ("Freddie
Mac" or "FHLMC"), and the Federal Agricultural Mortgage
Corporation ("Farmer Mac" or "FAMC"). FNMA, FHLMC, and FAMC
obligations are not backed by the full faith and credit of the
U.S. government as GNMA certificates are, but they are supported
by the instrumentality's right to borrow from the United States
Treasury. U.S. Government Agency Mortgage-Backed Certificates
PAGE 44
provide for the pass-through to investors of their pro-rata share
of monthly payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any
fees paid to the guarantor of such securities and the servicer of
the underlying mortgage loans. Each of GNMA, FNMA, FHLMC, and
FAMC guarantees timely distributions of interest to certificate
holders. GNMA and FNMA guarantee timely distributions of
scheduled principal. FHLMC has in the past guaranteed only the
ultimate collection of principal of the underlying mortgage loan;
however, FHLMC now issues Mortgage-Backed Securities (FHLMC Gold
PCs) which also guarantee timely payment of monthly principal
reductions.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned
corporate instrumentality of the United States within the
Department of Housing and Urban Development. The National
Housing Act of 1934, as amended (the "Housing Act"), authorizes
Ginnie Mae to guarantee the timely payment of the principal of
and interest on certificates that are based on and backed by a
pool of mortgage loans insured by the Federal Housing
Administration under the Housing Act, or Title V of the Housing
Act of 1949 ("FHA Loans"), or guaranteed by the Department of
Veterans Affairs under the Servicemen's Readjustment Act of 1944,
as amended ("VA Loans"), or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit
of the United States government is pledged to the payment of all
amounts that may be required to be paid under any guaranty. In
order to meet its obligations under such guaranty, Ginnie Mae is
authorized to borrow from the United States Treasury with no
limitations as to amount.
Fannie Mae Certificates. Fannie Mae is a federally
chartered and privately owned corporation organized and existing
under the Federal National Mortgage Association Charter Act of
1938. FNMA Certificates represent a pro-rata interest in a group
of mortgage loans purchased by Fannie Mae. FNMA guarantees the
timely payment of principal and interest on the securities it
issues. The obligations of FNMA are not backed by the full faith
and credit of the U.S. government.
Freddie Mac Certificates. Freddie Mac is a corporate
instrumentality of the United States created pursuant to the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act").
Freddie Mac Certificates represent a pro-rata interest in a group
of mortgage loans (a "Freddie Mac Certificate group") purchased
by Freddie Mac. Freddie Mac guarantees timely payment of
interest and principal on certain securities it issues and timely
payment of interest and eventual payment of principal on other
securities is issues. The obligations of Freddie Mac are
obligations solely of Freddie Mac and are not backed by the full
PAGE 45
faith and credit of the U.S. government.
Farmer Mac Certificates. The Federal Agricultural Mortgage
Corporation ("Farmer Mac") is a federally chartered
instrumentality of the United States established by Title VIII of
the Farm Credit Act of 1971, as amended ("Charter Act"). Farmer
Mac was chartered primarily to attract new capital for financing
of agricultural real estate by making a secondary market in
certain qualified agricultural real estate loans. Farmer Mac
provides guarantees of timely payment of principal and interest
on securities representing interests in, or obligations backed
by, pools of mortgages secured by first liens on agricultural
real estate ("Farmer Mac Certificates"). Similar to Fannie Mae
and Freddie Mac, Farmer Mac's Certificates are not supported by
the full faith and credit of the U.S. Government; rather, Farmer
Mac may borrow up from the U.S. Treasury to meet its guaranty
obligations.
As discussed above, prepayments on the underlying mortgages
and their effect upon the rate of return of a Mortgage-Backed
Security, is the principal investment risk for a purchaser of
such securities, like the Fund. Over time, any pool of mortgages
will experience prepayments due to a variety of factors,
including (1) sales of the underlying homes (including
foreclosures), (2) refinancings of the underlying mortgages, and
(3) increased amortization by the mortgagee. These factors, in
turn, depend upon general economic factors, such as level of
interest rates and economic growth. Thus, investors normally
expect prepayment rates to increase during periods of strong
economic growth or declining interest rates, and to decrease in
recessions and rising interest rate environments. Accordingly,
the life of the Mortgage-Backed Security is likely to be
substantially shorter than the stated maturity of the mortgages
in the underlying pool. Because of such variation in prepayment
rates, it is not possible to predict the life of a particular
Mortgage-Backed Security, but FHA statistics indicate that 25- to
30-year single family dwelling mortgages have an average life of
approximately 12 years. The majority of Ginnie Mae Certificates
are backed by mortgages of this type, and, accordingly, the
generally accepted practice treats Ginnie Mae Certificates as 30-
year securities which prepay full in the 12th year. FNMA and
Freddie Mac Certificates may have differing prepayment
characteristics.
Fixed Rate Mortgage-Backed Securities bear a stated "coupon
rate" which represents the effective mortgage rate at the time of
issuance, less certain fees to GNMA, FNMA and FHLMC for providing
the guarantee, and the issuer for assembling the pool and for
passing through monthly payments of interest and principal.
PAGE 46
Payments to holders of Mortgage-Backed Securities consist of
the monthly distributions of interest and principal less the
applicable fees. The actual yield to be earned by a holder of
Mortgage-Backed Securities is calculated by dividing interest
payments by the purchase price paid for the Mortgage-Backed
Securities (which may be at a premium or a discount from the face
value of the certificate).
Monthly distributions of interest, as contrasted to semi-
annual distributions which are common for other fixed interest
investments, have the effect of compounding and thereby raising
the effective annual yield earned on Mortgage-Backed Securities.
Because of the variation in the life of the pools of mortgages
which back various Mortgage-Backed Securities, and because it is
impossible to anticipate the rate of interest at which future
principal payments may be reinvested, the actual yield earned
from a portfolio of Mortgage-Backed Securities will differ
significantly from the yield estimated by using an assumption of
a certain life for each Mortgage-Backed Security included in such
a portfolio as described above.
U.S. Government Agency Multiclass Pass-Through Securities.
Unlike CMOs, U.S. Government Agency Multiclass Pass-Through
Securities, which include FNMA Guaranteed REMIC Pass-Through
Certificates and FHLMC Multi-Class Mortgage Participation
Certificates, are ownership interests in a pool of Mortgage
Assets. Unless the context indicates otherwise, all references
herein to CMOs include multiclass pass-through securities.
Multi-Class Residential Mortgage Securities. Such
securities represent interests in pools of mortgage loans to
residential home buyers made by commercial banks, savings and
loan associations or other financial institutions. Unlike GNMA,
FNMA and FHLMC securities, the payment of principal and interest
on Multi-Class Residential Mortgage Securities is not guaranteed
by the U.S. government or any of its agencies. Accordingly,
yields on Multi-Class Residential Mortgage Securities have been
historically higher than the yields on U.S. government mortgage
securities. However, the risk of loss due to default on such
instruments is higher since they are not guaranteed by the U.S.
Government or its agencies. Additionally, pools of such
securities may be divided into senior or subordinated segments.
Although subordinated mortgage securities may have a higher yield
than senior mortgage securities, the risk of loss of principal is
greater because losses on the underlying mortgage loans must be
borne by persons holding subordinated securities before those
holding senior mortgage securities.
Privately-Issued Mortgage-Backed Certificates. These are
pass-through certificates issued by non-governmental issuers.
PAGE 47
Pools of conventional residential mortgage loans created by such
issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or
indirect government guarantees of payment. Timely payment of
interest and principal of these pools is, however, generally
supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance
and guarantees are issued by government entities, private
insurance or the mortgage poolers. Such insurance and guarantees
and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security
meets the Fund's quality standards. The Fund may buy mortgage-
related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers,
the investment manager determines that the securities meet the
Fund's quality standards.
Collateralized Mortgage Obligations (CMOs)
CMOs are bonds that are collateralized by whole loan
mortgages or mortgage pass-through securities. The bonds issued
in a CMO deal are divided into groups, and each group of bonds is
referred to as a "tranche." Under the traditional CMO structure,
the cash flows generated by the mortgages or mortgage pass-
through securities in the collateral pool are used to first pay
interest and then pay principal to the CMO bondholders. The
bonds issued under a CMO structure are retired sequentially as
opposed to the pro rata return of principal found in traditional
pass-through obligations. Subject to the various provisions of
individual CMO issues, the cash flow generated by the underlying
collateral (to the extent it exceeds the amount required to pay
the stated interest) is used to retire the bonds. Under the CMO
structure, the repayment of principal among the different
tranches is prioritized in accordance with the terms of the
particular CMO issuance. The "fastest-pay" tranche of bonds, as
specified in the prospectus for the issuance, would initially
receive all principal payments. When that tranche of bonds is
retired, the next tranche, or tranches, in the sequence, as
specified in the prospectus, receive all of the principal
payments until they are retired. The sequential retirement of
bond groups continues until the last tranche, or group of bonds,
is retired. Accordingly, the CMO structure allows the issuer to
use cash flows of long maturity, monthly-pay collateral to
formulate securities with short, intermediate and long final
maturities and expected average lives.
In recent years, new types of CMO structures have evolved.
These include floating rate CMOs, planned amortization classes,
accrual bonds and CMO residuals. These newer structures affect
the amount and timing of principal and interest received by each
PAGE 48
tranche from the underlying collateral. Under certain of these
new structures, given classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages.
Therefore, depending on the type of CMOs in which the Fund
invests, the investment may be subject to a greater or lesser
risk of prepayment than other types of mortgage-related
securities.
The primary risk of any mortgage security is the uncertainty
of the timing of cash flows. For CMOs, the primary risk results
from the rate of prepayments on the underlying mortgages serving
as collateral. An increase or decrease in prepayment rates
(resulting from a decrease or increase in mortgage interest
rates) will affect the yield, average life and price of CMOs.
The prices of certain CMOs, depending on their structure and the
rate of prepayments, can be volatile. Some CMOs may also not be
as liquid as other securities.
Stripped Agency Mortgage-Backed Securities
Stripped Agency Mortgage-Backed securities represent
interests in a pool of mortgages, the cash flow of which has been
separated into its interest and principal components. "IOs"
(interest only securities) receive the interest portion of the
cash flow while "POs" (principal only securities) receive the
principal portion. Stripped Agency Mortgage-Backed Securities
may be issued by U.S. Government Agencies or by private issuers
similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates
rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of the other
mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared
to interest rates. Under the Internal Revenue Code of 1986, as
amended (the "Code"), POs may generate taxable income from the
current accrual of original issue discount, without a
corresponding distribution of cash to the Fund.
The cash flows and yields on IO and PO classes are extremely
sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For
example, a rapid or slow rate of principal payments may have a
material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, an investor
may fail to recoup fully its initial investment in an IO class of
a stripped mortgage-backed security, even if the IO class is
rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets
PAGE 49
experience slower than anticipated prepayments of principal, the
price on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security.
The staff of the Securities and Exchange Commission has
advised the Fund that it believes the Fund should treat IOs and
POs, other than government-issued IOs or POs backed by fixed rate
mortgages, as illiquid securities and, accordingly, limit its
investments in such securities, together with all other illiquid
securities, to 15% of the Fund's net assets. Under the Staff's
position, the determination of whether a particular
government-issued IO and PO backed by fixed rate mortgages may be
made on a case by case basis under guidelines and standards
established by the Fund's Board of Directors/Trustees. The
Fund's Board of Directors/Trustees has delegated to T. Rowe Price
the authority to determine the liquidity of these investments
based on the following guidelines: the type of issuer; type of
collateral, including age and prepayment characteristics; rate of
interest on coupon relative to current market rates and the
effect of the rate on the potential for prepayments; complexity
of the issue's structure, including the number of tranches; size
of the issue and the number of dealers who make a market in the
IO or PO. The Fund will treat non-government-issued IOs and POs
not backed by fixed or adjustable rate mortgages as illiquid
unless and until the Securities and Exchange Commission modifies
its position.
Asset-Backed Securities
The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated
from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support
provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of
principal payments received on the underlying assets which in
turn may be affected by a variety of economic and other factors.
As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be
more or less than the anticipated yield to maturity. Asset-
backed securities may be classified as pass-through certificates
or collateralized obligations.
Pass-through certificates are asset-backed securities which
represent an undivided fractional ownership interest in an
underlying pool of assets. Pass-through certificates usually
provide for payments of principal and interest received to be
passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool.
PAGE 50
Because pass-through certificates represent an ownership interest
in the underlying assets, the holders thereof bear directly the
risk of any defaults by the obligors on the underlying assets not
covered by any credit support. See "Types of Credit Support".
Asset-backed securities issued in the form of debt
instruments, also known as collateralized obligations, are
generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card
or automobile receivables. The assets collateralizing such
asset-backed securities are pledged to a trustee or custodian for
the benefit of the holders thereof. Such issuers generally hold
no assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments
on such asset-backed securities are obligations of the issuers,
in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support"), the issuing
entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
PORTFOLIO MANAGEMENT PRACTICES
Lending of Portfolio Securities
Securities loans are made to broker-dealers or institutional
investors or other persons, pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted under its investment program.
While the securities are being lent, the Fund will continue to
receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment
of the collateral or a fee from the borrower. The Fund has a
right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which
coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund will
not have the right to vote securities while they are being lent,
but it will call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms
deemed by T. Rowe Price to be of good standing and will not be
PAGE 51
made unless, in the judgment of T. Rowe Price, the consideration
to be earned from such loans would justify the risk.
Other Lending/Borrowing
Subject to approval by the Securities and Exchange
Commission and certain state regulatory agencies, the Fund may
make loans to, or borrow funds from, other mutual funds sponsored
or advised by T. Rowe Price or Rowe Price-Fleming International,
Inc. ("Price-Fleming") (collectively, "Price Funds"). The Fund
has no current intention of engaging in these practices at this
time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which
an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any
such dealer or bank will be on T. Rowe Price's approved list and
have a credit rating with respect to its short-term debt of at
least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by T. Rowe
Price. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus
specified interest. Repurchase agreements are generally for a
short period of time, often less than a week. Repurchase
agreements which do not provide for payment within seven days
will be treated as illiquid securities. The Fund will only enter
into repurchase agreements where (i) the underlying securities
are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly, (ii)
the market value of the underlying security, including interest
accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-
entry transfer to the account of the custodian or a bank acting
as agent. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack
of access to income during this period; and (c) expenses of
enforcing its rights.
Reverse Repurchase Agreements
Although the Fund has no current intention, in the
foreseeable future, of engaging in reverse repurchase agreements,
PAGE 52
the Fund reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Fund is
the seller of, rather than the investor in, securities, and
agrees to repurchase them at an agreed upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of the securities because it avoids
certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund,
subject to Investment Restriction (1). (See "Investment
Restrictions," page __.)
All Funds, Except Equity Index Fund
Options
Options are a type of potentially high-risk derivative.
Writing Covered Call Options
The Fund may write (sell) American or European style
"covered" call options and purchase options to close out options
previously written by a Fund. In writing covered call options,
the Fund expects to generate additional premium income which
should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved
in the option. Covered call options will generally be written on
securities or currencies which, in T. Rowe Price's opinion, are
not expected to have any major price increases or moves in the
near future but which, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the "right to
purchase" a security or currency at a specified price (the
exercise price) at expiration of the option (European style) or
at any time until a certain date (the expiration date) (American
style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the
writer effects a closing purchase transaction by repurchasing an
option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the
case of a call option, a writer is required to deposit in escrow
the underlying security or currency or other assets in accordance
with the rules of a clearing corporation.
The Fund will write only covered call options. This means
that the Fund will own the security or currency subject to the
PAGE 53
option or an option to purchase the same underlying security or
currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to the
fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may
be written will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objective.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, a Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the
underlying security or currency above the exercise price, but
conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over
when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any
time prior to the expiration of its obligation as a writer. If a
call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying
security or currency during the option period. If the call
option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security or currency. The Fund does
not consider a security or currency covered by a call to be
"pledged" as that term is used in the Fund's policy which limits
the pledging or mortgaging of its assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security or currency, the relationship of the exercise
price to such market price, the historical price volatility of
the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made,
T. Rowe Price, in determining whether a particular call option
should be written on a particular security or currency, will
consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This
liability will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which
PAGE 54
the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale,
the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of
the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Fund to write another call
option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund
desires to sell a particular security or currency from its
portfolio on which it has written a call option, or purchased a
put option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security or currency.
There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the
Fund cannot enter into such a transaction, it may be required to
hold a security or currency that it might otherwise have sold.
When the Fund writes a covered call option, it runs the risk of
not being able to participate in the appreciation of the
underlying securities or currencies above the exercise price, as
well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in
higher transaction costs. The Fund will pay transaction costs in
connection with the writing of options to close out previously
written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have
expiration dates of less than nine months from the date written.
The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities or
currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security or
currency from its portfolio. In such cases, additional costs may
be incurred.
The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by
PAGE 55
appreciation of the underlying security or currency owned by the
Fund.
In order to comply with the requirements of several states,
the Fund will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market
value of the Fund's net assets. Should these state laws change
or should the Fund obtain a waiver of its application, the Fund
reserves the right to increase this percentage. In calculating
the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and
puts on identical securities or currencies with identical
maturity dates.
Writing Covered Put Options
The Fund may write American or European style covered put
options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the
obligation to buy, the underlying security or currency at the
exercise price during the option period (American style) or at
the expiration of the option (European style). So long as the
obligation of the writer continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was
sold, requiring him to make payment of the exercise price against
delivery of the underlying security or currency. The operation
of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options.
The Fund would write put options only on a covered basis,
which means that the Fund would maintain in a segregated account
cash, U.S. government securities or other liquid high-grade debt
obligations in an amount not less than the exercise price or the
Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all
times while the put option is outstanding. (The rules of a
clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in
circumstances where T. Rowe Price wishes to purchase the
underlying security or currency for the Fund's portfolio at a
price lower than the current market price of the security or
currency. In such event the Fund would write a put option at an
exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the
Fund would also receive interest on debt securities or currencies
PAGE 56
maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods
of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security or currency
would decline below the exercise price less the premiums
received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it
does not own the specific securities or currencies which it may
be required to purchase in exercise of the put, cannot benefit
from appreciation, if any, with respect to such specific
securities or currencies.
In order to comply with the requirements of several states,
the Fund will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies
covering put or call options exceeds 25% of the market value of
the Fund's net assets. Should these state laws change or should
the Fund obtain a waiver of its application, the Fund reserves
the right to increase this percentage. In calculating the 25%
limit, the Fund will offset, against the value of assets covering
written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options
The Fund may purchase American or European style put
options. As the holder of a put option, the Fund has the right
to sell the underlying security or currency at the exercise price
at any time during the option period (American style) or at the
expiration of the option (European style). The Fund may enter
into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase
put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies.
An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security
or currency (a "protective put") owned by the Fund as a defensive
technique in order to protect against an anticipated decline in
the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in
order to protect unrealized appreciation of a security or
currency where T. Rowe Price deems it desirable to continue to
hold the security or currency because of tax considerations. The
premium paid for the put option and any transaction costs would
reduce any capital gain otherwise available for distribution when
PAGE 57
the security or currency is eventually sold.
The Fund may also purchase put options at a time when the
Fund does not own the underlying security or currency. By
purchasing put options on a security or currency it does not own,
the Fund seeks to benefit from a decline in the market price of
the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than
the exercise price during the life of the put option, the Fund
will lose its entire investment in the put option. In order for
the purchase of a put option to be profitable, the market price
of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale
transaction.
To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing put and call options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The premium paid
by the Fund when purchasing a put option will be recorded as an
asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale
price at the time at which the net asset value per share of the
Fund is computed (close of New York Stock Exchange), or, in the
absence of such sale, the latest bid price. This asset will be
terminated upon expiration of the option, the selling (writing)
of an identical option in a closing transaction, or the delivery
of the underlying security or currency upon the exercise of the
option.
Purchasing Call Options
The Fund may purchase American or European style call
options. As the holder of a call option, the Fund has the right
to purchase the underlying security or currency at the exercise
price at any time during the option period (American style) or at
the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may
purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its
current return. The Fund may also purchase call options in order
to acquire the underlying securities or currencies. Examples of
such uses of call options are provided below.
PAGE 58
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call
options enables the Fund to acquire the securities or currencies
at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities
or currencies directly. This technique may also be useful to the
Fund in purchasing a large block of securities or currencies that
would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the
premium paid for the option.
To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing call and put options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it
owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options
The Fund may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While
the Fund would look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer
option, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by
the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid
market while dealer options have none. Consequently, the Fund
will generally be able to realize the value of a dealer option it
has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the option.
PAGE 59
While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a
closing purchase transaction, it will not be able to liquidate
securities (or other assets) or currencies used as cover until
the option expires or is exercised. In the event of insolvency
of the contra party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in
material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the
option. This requirement may impair a Fund's ability to sell
portfolio securities or currencies at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased
dealer options and the assets used to secure the written dealer
options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that
the Fund may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to
the extent the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Accordingly, the Fund will
treat dealer options as subject to the Fund's limitation on
illiquid securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment
of such instrument accordingly.
Equity Index Fund
The only option activity the Fund currently may engage in is
the purchase of S&P 500 call options. Such activity is subject
to the same risks described above under "Purchasing Call
Options". The Fund reserves the right to engage in other options
activity, however.
All Funds
Futures Contracts
Futures contracts are a type of potentially high-risk
derivative.
PAGE 60
Transactions in Futures
The Fund may enter into futures contracts including stock
index, interest rate and currency futures ("futures or futures
contracts"). The New Era Fund may also enter into futures on
commodities related to the types of companies in which it
invests, such as oil and gold futures. The Equity Index Fund may
only enter into stock index futures, such as the S&P 500 stock
index, to provide an efficient means of maintaining liquidity
while being invested in the market, to facilitate trading or to
reduce transaction costs. It will not use futures for hedging
purposes. Otherwise the nature of such futures and the
regulatory limitations and risks to which they are subject are
the same as those described below.
Stock index futures contracts may be used to provide a hedge
for a portion of the Fund's portfolio, as a cash management tool,
or as an efficient way for T. Rowe Price to implement either an
increase or decrease in portfolio market exposure in response to
changing market conditions. The Fund may purchase or sell
futures contracts with respect to any stock index. Nevertheless,
to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose
movements will have a significant correlation with movements in
the prices of the Fund's portfolio securities.
Interest rate or currency futures contracts may be used as a
hedge against changes in prevailing levels of interest rates or
currency exchange rates in order to establish more definitely the
effective return on securities or currencies held or intended to
be acquired by the Fund. In this regard, the Fund could sell
interest rate or currency futures as an offset against the effect
of expected increases in interest rates or currency exchange
rates and purchase such futures as an offset against the effect
of expected declines in interest rates or currency exchange
rates.
The Fund will enter into futures contracts which are traded
on national or foreign futures exchanges, and are standardized as
to maturity date and underlying financial instrument. Futures
exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the CFTC. Futures are traded in
London, at the London International Financial Futures Exchange,
in Paris, at the MATIF, and in Tokyo, at the Tokyo Stock
Exchange. Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced
purposes, futures contracts offer an effective and relatively low
cost means of implementing the Fund's objectives in these areas.
Regulatory Limitations
PAGE 61
The Fund will engage in futures contracts and options
thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.
The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
qualify as bona fide hedging under applicable CFTC rules, the sum
of the amounts of initial margin deposits and premiums paid on
those positions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded
on a commodities exchange will be considered "related options".
This policy may be modified by the Board of Directors/Trustees
without a shareholder vote and does not limit the percentage of
the Fund's assets at risk to 5%.
In accordance with the rules of the State of California, the
Fund may have to apply the above 5% test without excluding the
value of initial margin and premiums paid for bona fide hedging
positions.
The Fund's use of futures contracts will not result in
leverage. Therefore, to the extent necessary, in instances
involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, U.S.
government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover the
position, or alternative cover (such as owning an offsetting
position) will be employed. Assets used as cover or held in an
identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced
with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could
impede portfolio management or the fund's ability to meet
redemption requests or other current obligations.
If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Fund
would comply with such new restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party
PAGE 62
and purchase by another party of a specified amount of a specific
financial instrument (e.g., units of a stock index) for a
specified price, date, time and place designated at the time the
contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred
to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.
Unlike when the Fund purchases or sells a security, no price
would be paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a futures contract,
and to maintain the Fund's open positions in futures contracts,
the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
PAGE 63
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the futures
contract.
For example, the Standard & Poor's 500 Stock Index is
composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index,
and the Index fluctuates with changes in the market values of
those common stocks. In the case of the S&P 500 Index, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
Index were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stock making up the index will take place.
Instead, settlement in cash occurs. Over the life of the
contract, the gain or loss realized by the Fund will equal the
difference between the purchase (or sale) price of the contract
and the price at which the contract is terminated. For example,
if the Fund enters into a futures contract to buy 500 units of
the S&P 500 Index at a specified future date at a contract price
of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund
enters into a futures contract to sell 500 units of the stock
index at a specified future date at a contract price of $150 and
the S&P 500 Index is at $152 on that future date, the Fund will
lose $1,000 (500 units x loss of $2).
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts
are volatile and are influenced, among other things, by actual
and anticipated changes in the market and interest rates, which
in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
PAGE 64
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
to close a futures contract, and in the event of adverse price
PAGE 65
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, market or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts
as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures
contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. T. Rowe Price
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging
purposes is also subject to T. Rowe Price's ability to correctly
predict movements in the direction of the market. It is possible
that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the
futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a
certain degree, T. Rowe Price believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
PAGE 66
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by T.
Rowe Price might not result in a successful hedging transaction
over a very short time period.
Options on Futures Contracts
The Fund may purchase and sell options on the same types of
futures in which it may invest.
Options (another type of potentially high-risk derivative)
on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell
the futures contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by the delivery
of the accumulated balance in the writer's futures margin account
which represents the amount by which the market price of the
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the futures contract. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a
loss of the premium paid.
PAGE 67
As an alternative to writing or purchasing call and put
options on stock index futures, the Fund may write or purchase
call and put options on stock indices. Such options would be
used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of
the Fund and other T. Rowe Price Funds. Such aggregated orders
would be allocated among the Funds and the other T. Rowe Price
Funds in a fair and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders.
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in
futures or options transactions other than those described above,
it reserves the right to do so. Such futures and options trading
PAGE 68
might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options
Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the
National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the
exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or
foreign options transaction occurs. For these reasons, when the
Fund trades foreign futures or foreign options contracts, it may
not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations and the rules
of the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In
particular, funds received from the Fund for foreign futures or
foreign options transactions may not be provided the same
protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any
foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance
in the foreign exchange rate between the time the Fund's order is
placed and the time it is liquidated, offset or exercised.
All Funds, Except Equity Index Fund
Foreign Currency Transactions
A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are charged at any stage for trades.
The Fund may enter into forward contracts for a variety of
purposes in connection with the management of the foreign
PAGE 69
securities portion of its portfolio. The Fund's use of such
contracts would include, but not be limited to, the following:
First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency
involved in the underlying security transactions, the Fund will
be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.
Second, when T. Rowe Price believes that one currency may
experience a substantial movement against another currency,
including the U.S. dollar, it may enter into a forward contract
to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively,
where appropriate, the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly
uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, T. Rowe Price believes that
it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of
the Fund will be served.
The Fund may enter into forward contacts for any other
purpose consistent with the Fund's investment objective and
program. However, the Fund will not enter into a forward
contract, or maintain exposure to any such contract(s), if the
PAGE 70
amount of foreign currency required to be delivered thereunder
would exceed the Fund's holdings of liquid, high-grade debt
securities and currency available for cover of the forward
contract(s). In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the
portfolio security and make delivery of the foreign currency, or
it may retain the security and either extend the maturity of the
forward contract (by "rolling" that contract forward) or may
initiate a new forward contract.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange
contracts will generally be limited to the transactions described
above. However, the Fund reserves the right to enter into
forward foreign currency contracts for different purposes and
under different circumstances. Of course, the Fund is not
required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless
deemed appropriate by T. Rowe Price. It also should be realized
that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange at a
future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any
potential gain which might result from an increase in the value
of that currency.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
PAGE 71
charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts
The Fund may enter into certain option, futures, and forward
foreign exchange contracts, including options and futures on
currencies, which will be treated as Section 1256 contracts or
straddles.
Transactions which are considered Section 1256 contracts
will be considered to have been closed at the end of the Fund's
fiscal year and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses from the normal
closing or settlement of such transactions will be characterized
as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument.
The Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed
the transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts,
including options and futures on currencies, which offset a
foreign dollar denominated bond or currency position may be
considered straddles for tax purposes, in which case a loss on
any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding
period of the securities or currencies comprising the straddle
will be deemed not to begin until the straddle is terminated.
For securities offsetting a purchased put, this adjustment of the
holding period may increase the gain from sales of securities
held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an
equity security will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on
securities, excluding certain "qualified covered call" options on
equity securities, may be long-term capital loss, if the security
covering the option was held for more than twelve months prior to
the writing of the option.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
PAGE 72
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward
exchange contracts on currencies is qualifying income for
purposes of the 90% requirement. In addition, gains realized on
the sale or other disposition of securities, including option,
futures or foreign forward exchange contracts on securities or
securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Fund's
annual gross income. In order to avoid realizing excessive gains
on securities or currencies held less than three months, the Fund
may be required to defer the closing out of option, futures or
foreign forward exchange contracts) beyond the time when it would
otherwise be advantageous to do so. It is anticipated that
unrealized gains on Section 1256 option, futures and foreign
forward exchange contracts, which have been open for less than
three months as of the end of the Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes
of the 30% test.
INVESTMENT RESTRICTIONS
Fundamental policies may not be changed without the approval
of the lesser of (1) 67% of the Fund's shares present at a
meeting of shareholders if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (2) more
than 50% of the Fund's outstanding shares. Other restrictions in
the form of operating policies are subject to change by the
Fund's Board of Directors/Trustees without shareholder approval.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated
unless an excess over the percentage occurs immediately after,
and is caused by, an acquisition of securities or assets of, or
borrowings by, the Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money except that the Fund may
(i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse
repurchase agreements and make other investments
or engage in other transactions, which may involve
a borrowing, in a manner consistent with the
Fund's investment objective and program, provided
that the combination of (i) and (ii) shall not
PAGE 73
exceed 33 1/3% of the value of the Fund's total
assets (including the amount borrowed) less
liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in
accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other
persons to the extent permitted by applicable law;
(2) Commodities. Purchase or sell physical
commodities; except that it may enter into futures
contracts and options thereon;
(3) (a) Industry Concentration (All Funds, except
Health Sciences and Financial Services
Funds). Purchase the securities of any
issuer if, as a result, more than 25% of the
value of the Fund's total assets would be
invested in the securities of issuers having
their principal business activities in the
same industry;
(b) Industry Concentration (Health Sciences and
Financial Services Funds). Purchase the
securities of any issuer if, as a result,
more than 25% of the value of the Fund's
total assets would be invested in the
securities of issuers having their principal
business activities in the same industry;
provided, however, that (i) the Health
Sciences Fund will invest more than 25% of
its total assets in the health sciences
industry as defined in the Fund's prospectus;
and (ii) the Financial Services Fund will
invest more than 25% of its total assets in
the financial services industry as defined in
the Fund's prospectus.
(4) Loans. Make loans, although the Fund may (i) lend
portfolio securities and participate in an
interfund lending program with other Price Funds
provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets;
(ii) purchase money market securities and enter
into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt
securities and purchase debt;
PAGE 74
(5) Percent Limit on Assets Invested in Any One Issuer
(All Funds, except Capital Opportunity). Purchase
a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the
value of the Fund's total assets would be invested
in the securities of a single issuer, except
securities issued or guaranteed by the U.S.
Government or any of its agencies or
instrumentalities;
(6) Percent Limit on Share Ownership of Any One Issuer
(All Funds, except Capital Opportunity). Purchase
a security if, as a result, with respect to 75% of
the value of the Fund's total assets, more than
10% of the outstanding voting securities of any
issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
(7) Real Estate. Purchase or sell real estate
including limited partnership interests therein,
unless acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Fund from investing in securities
or other instruments backed by real estate or in
securities of companies engaged in the real estate
business);
(8) Senior Securities. Issue senior securities except
in compliance with the Investment Company Act of
1940; or
(9) Underwriting. Underwrite securities issued by
other persons, except to the extent that the Fund
may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in
connection with the purchase and sale of its
portfolio securities in the ordinary course of
pursuing its investment program.
NOTES
The following notes should be read in connection with
the above-described fundamental policies. The notes are
not fundamental policies.
With respect to investment restrictions (1) and (4), the
Fund will not borrow from or lend to any other Price
Fund unless each Fund applies for and receives an
exemptive order from the SEC or the SEC issues rules
PAGE 75
permitting such transactions. The Fund has no current
intention of engaging in any such activity and there is
no assurance the SEC would grant any order requested by
the Fund or promulgate any rules allowing the
transactions.
With respect to investment restriction (2), the Fund
does not consider currency contracts or hybrid
investments to be commodities.
For purposes of investment restriction (3), U.S., state
or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industries are determined by reference to the
classifications of industries set forth in the Fund's
semi-annual and annual reports.
For purposes of investment restriction (4), the Fund
will consider the acquisition of a debt security to
include the execution of a note or other evidence of an
extension of credit with a term of more than nine
months.
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing. The Fund will not purchase
additional securities when money borrowed
exceeds 5% of its total assets;
(2) Control of Portfolio Companies. Invest in
companies for the purpose of exercising
management or control;
(3) Futures Contracts. Purchase a futures contract
or an option thereon if, with respect to
positions in futures or options on futures which
do not represent bona fide hedging, the
aggregate initial margin and premiums on such
options would exceed 5% of the Fund's net asset
value;
(4) Illiquid Securities. Purchase illiquid
securities and securities of unseasoned issuers
if, as a result, more than 15% of its net assets
would be invested in such securities, provided
that the Fund will not invest more than 10% of
its net assets in restricted securities provided
that securities eligible for resale under Rule
PAGE 76
144A, are not subject to the 10% limit;
(5) Investment Companies. Purchase securities of
open-end or closed-end investment companies
except in compliance with the Investment Company
Act of 1940 and applicable state law. Duplicate
fees may result from such purchases;
(6) Margin. Purchase securities on margin, except
(i) for use of short-term credit necessary for
clearance of purchases of portfolio securities
and (ii) it may make margin deposits in
connection with futures contracts or other
permissible investments;
(7) Mortgaging. Mortgage, pledge, hypothecate or,
in any manner, transfer any security owned by
the Fund as security for indebtedness except as
may be necessary in connection with permissible
borrowings or investments and then such
mortgaging, pledging or hypothecating may not
exceed 33 1/3% of the Fund's total assets at the
time of borrowing or investment;
(8) Oil and Gas Programs. Purchase participations
or other direct interests in or enter into
leases with respect to, oil, gas, or other
mineral exploration or development programs;
(9) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to
the extent permitted by the prospectus and
Statement of Additional Information;
(10) Ownership of Portfolio Securities by Officers
and Directors/Trustees. Purchase or retain the
securities of any issuer if those officers and
directors of the Fund, and of its investment
manager, who each owns beneficially more than
.5% of the outstanding securities of such
issuer, together own beneficially more than 5%
of such securities;
(11) Short Sales. Effect short sales of securities;
(12) Unseasoned Issuers. Purchase a security (other
than obligations issued or guaranteed by the
U.S., any foreign, state or local government,
their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's
PAGE 77
total assets would be invested in the securities
of issuers which at the time of purchase had
been in operation for less than three years (for
this purpose, the period of operation of any
issuer shall include the period of operation of
any predecessor or unconditional guarantor of
such issuer). This restriction does not apply
to securities of pooled investment vehicles or
mortgage or asset-backed securities;
(13) Warrants. Invest in warrants if, as a result
thereof, more than 2% of the value of the net
assets of the Fund would be invested in warrants
which are not listed on the New York Stock
Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of
the value of the net assets of the Fund would be
invested in warrants whether or not so listed.
For purposes of these percentage limitations,
the warrants will be valued at the lower of cost
or market and warrants acquired by the Fund in
units or attached to securities may be deemed to
be without value; or
(14) Percent Limit on Share Ownership of Any One
Issuer. (Capital Opportunity Fund) Purchase a
security if, as a result, more than 10% of the
outstanding voting securities of any issuer
would be held by the Fund (other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities).
Blue Chip Growth, Capital Opportunity, Financial Services,
Health Sciences, Mid-Cap Value, and Value Funds
Notwithstanding anything in the above fundamental and
operating restrictions to the contrary, the Fund may invest all
of its assets in a single investment company or a series thereof
in connection with a "master-feeder" arrangement. Such an
investment would be made where the Fund (a "Feeder"), and one or
more other Funds with the same investment objective and program
as the Fund, sought to accomplish its investment objective and
program by investing all of its assets in the shares of another
investment company (the "Master"). The Master would, in turn,
have the same investment objective and program as the Fund. The
Fund would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make
investments in portfolio companies on behalf of a number of
Feeder funds. In the event that the Fund exercises its right to
convert to a Master Fund/Feeder Fund structure, it will do so in
PAGE 78
compliance with the Guidelines for Registration of a Master
Fund/Feeder Fund as established by the North American Securities
Administrators Association, Inc. ("NASAA").
MANAGEMENT OF FUNDS
The officers and directors of the Fund are listed below.
Unless otherwise noted, the address of each is 100 East Pratt
Street, Baltimore, Maryland 21202. Except as indicated, each has
been an employee of T. Rowe Price for more than five years. In
the list below, the Fund's directors who are considered
"interested persons" of T. Rowe Price as defined under
Section 2(a)(19) of the Investment Company Act of 1940 are noted
with an asterisk (*). These directors are referred to as inside
directors by virtue of their officership, directorship, and/or
employment with T. Rowe Price.
All Funds
Independent Directors/Trustees
DONALD W. DICK, JR., Principal, Overseas Partners, Inc., a
financial investment firm; formerly (6/65-3/89) Director and Vice
President-Consumer Products Division, McCormick & Company, Inc.,
international food processors; Director, Waverly, Inc.,
Baltimore, Maryland; Address: 111 Pavonia Avenue, Suite 334,
Jersey City, New Jersey 07310
DAVID K. FAGIN, Chairman, Chief Executive Officer and Director,
Golden Star Resources, Ltd.; formerly (1986-7/91) President,
Chief Operating Officer and Director, Homestake Mining Company;
Address: One Norwest Center, 1700 Lincoln Street, Suite 1950,
Denver, Colorado 80203
HANNE M. MERRIMAN, Retail business consultant; formerly President
and Chief Operating Officer (1991-92), Nan Duskin, Inc., a
women's specialty store, Director (1984-1990) and Chairman (1989-
90) Federal Reserve Bank of Richmond, and President and Chief
Executive Officer (1988-89), Honeybee, Inc., a division of
Spiegel, Inc.; Director, Central Illinois Public Service Company,
CIPSCO Incorporated, The Rouse Company, State Farm Mutual
Automobile Insurance Company and USAir Group, Inc.
HUBERT D. VOS, President, Stonington Capital Corporation, a
private investment company; Address: 1231 State Street, Suite
247, Santa Barbara, California 93190-0409
PAUL M. WYTHES, Founding General Partner, Sutter Hill Ventures, a
venture capital limited partnership, providing equity capital to
young high technology companies throughout the United States;
Director, Teltone Corporation, Interventional Technologies Inc.
and Stuart Medical, Inc.; Address: 755 Page Mill Road, Suite
A200, Palo Alto, California 94304
PAGE 79
Officers
HENRY H. HOPKINS, Vice President--Managing Director, T. Rowe
Price; Vice President and Director, T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, Rowe Price-Fleming International,
Inc. and T. Rowe Price Retirement Plan Services, Inc.
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
PATRICIA S. BUTCHER, Assistant Secretary--Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
J. JEFFREY LANG, Assistant Vice President--Assistant Vice
President, T. Rowe Price
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
Balanced Fund
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Investment Services, Inc; President and Trust Officer, T. Rowe
Price Trust Company; Director, Rowe Price-Fleming International,
Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Chairman of the
Board, Price-Fleming; Managing Director, T. Rowe Price; Vice
President and Director, T. Rowe Price Trust Company; Chartered
Financial Analyst; Chartered Investment Counselor
RICHARD T. WHITNEY, President--Vice President of T. Rowe Price
and T. Rowe Price Trust Company; Chartered Financial Analyst
STEPHEN W. BOESEL, Vice President--Managing Director, T. Rowe
Price
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
JAMES A. C. KENNEDY III, Vice President--Managing Director of T.
Rowe Price; Chartered Financial Analyst
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price;
formerly portfolio manager, Geewax Terker and Company
PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price;
Vice President of Rowe Price-Fleming International, Inc. and T.
Rowe Price Trust Company
MARK J. VASELKIV, Vice President--Vice President, T. Rowe Price
Blue Chip Growth Fund
PAGE 80
LARRY J. PUGLIA, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
*THOMAS H. BROADUS, JR., Executive Vice President--Managing
Director, T. Rowe Price; Chartered Financial Analyst and
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Director--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
BRIAN W. H. BERGHUIS, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
STEPHANIE C. CLANCY, Vice President--Assistant Vice President, T.
Rowe Price
JOHN D. GILLSEPIE, Vice President--Vice President, T. Rowe Price
THOMAS J. HUBER, Vice President--Employee, T. Rowe Price
WILLIAM J. STROMBERG, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
Capital Appreciation Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Chief
Executive Officer and Managing Director, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Retirement
Plan Services, Inc. and T. Rowe Price Trust Company; Chartered
Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, Director--Managing Director and Chief Financial
Officer, T. Rowe Price; Vice President and Director, Rowe
Price-Fleming International, Inc.
RICHARD P. HOWARD, President--Vice President of T. Rowe Price;
Chartered Financial Analyst
ARTHUR B. CECIL III, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
CHARLES A. MORRIS, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
CHARLES M. OBER, Vice President--Vice President, T. Rowe Price,
Chartered Financial Analyst
Capital Opportunity Fund
PAGE 81
*JOHN H. LAPORTE, JR., President and Director--Managing Director,
T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
JOHN F. WAKEMAN, Executive Vice President--Vice President, T.
Rowe Price
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
BRIAN W. H. BERGHUIS, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
STEPHANIE C. CLANCY, Vice President--Assistant Vice President, T.
Rowe Price
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
Dividend Growth Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Director--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
WILLIAM J. STROMBERG, President--Vice President, T. Rowe Price
BRIAN C. ROGERS, Executive Vice President--Managing Director, T.
Rowe Price; Chartered Financial Analyst
ARTHUR B. CECIL III, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
STEPHANIE C. CLANCY, Assistant Vice President--Assistant Vice
President, T. Rowe Price
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
DANIEL M. THERIAULT, Vice President--Vice President, T. Rowe
Price, Chartered Financial Analyst; formerly Securities Analyst,
John A. Levin & Co.
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price;
formerly (9/89-7/90) attended Carnegie Mellon Graduate School of
Industrial Administration
Equity Income Fund
PAGE 82
*THOMAS H. BROADUS, JR., Vice President and Trustee--Managing
Director, T. Rowe Price; Chartered Financial Analyst and
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Trustee--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
BRIAN C. ROGERS, President--Managing Director, T. Rowe Price;
Chartered Financial Analyst
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
RICHARD P. HOWARD, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
WILLIAM J. STROMBERG, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
DANIEL THERIAULT, Vice President--Vice President, T. Rowe Price,
Chartered Financial Analyst; formerly Securities Analyst, John A.
Levin & Co.
MARK J. VASELKIV, Vice President--Vice President, T. Rowe Price
Equity Index Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Director--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
RICHARD T. WHITNEY, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
KRISTEN D. FARROW, Executive Vice President--Assistant Vice
President, T. Rowe Price
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price
WENDY R. DIFFENBAUGH, Assistant Vice President--Assistant Vice
President, T. Rowe Price
Financial Services Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
PAGE 83
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Chairman of the Board--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
DANIEL THERIAULT, President--Vice President, T. Rowe Price,
Chartered Financial Analyst; formerly Securities Analyst, John A.
Levin & Co.
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
JOHN D. GILLESPIE, Vice President--Vice President, T. Rowe Price
ROBERT J. MARCOTTE, Vice President--Vice President, T. Rowe Price
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
ANNA DOPKIN, Assistant Vice President--Employee, T. Rowe Price
Growth & Income Fund
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Investment Services, Inc; President and Trust Officer, T. Rowe
Price Trust Company; Director, Rowe Price-Fleming International,
Inc. and Rhone-Poulenc Rorer, Inc.
*STEPHEN W. BOESEL, President and Director--Vice President, T.
Rowe Price
*M. DAVID TESTA, Director--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
ARTHUR B. CECIL III, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
GREGORY A. MCCRICKARD, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
MARK J. VASELKIV, Vice President--Vice President, T. Rowe Price
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price
Growth Stock Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
PAGE 84
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Chairman of the Board--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
JOHN D. GILLESPIE, President--Vice President, T. Rowe Price
JAMES A. C. KENNEDY III, Vice President--Managing Director, T.
Rowe Price; Chartered Financial Analyst
JOSEPH KLEIN III, Vice President--Vice President, T. Rowe
Price;Chartered Financial Analyst
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
JAMES D. PREY III, Vice President--Vice President, T. Rowe Price
ROBERT W. SMITH, Vice President--Vice President, T. Rowe Price;
formerly (1987-1992) Investment Analyst, Massachusetts Financial
Services, Inc.; Boston, Massachusetts
DANIEL THERIAULT, Vice President--Vice President, T. Rowe Price,
Chartered Financial Analyst; formerly Securities Analyst, John A.
Levin & Co.
CAROL G. BARTHA, Assistant Vice President--Employee, T. Rowe
Price
RANDI E. KITT, Assistant Vice President--Employee, T. Rowe Price
Health Sciences Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
M. DAVID TESTA, Chairman of the Board, Price-Fleming; Managing
Director, T. Rowe Price; Vice President and Director, T. Rowe
Price Trust Company; Chartered Financial Analyst, Chartered
Investment Counselor
*JOHN H. LAPORTE, JR., Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
JOSEPH KLEIN III, Executive Vice President--Vice President, T.
Rowe Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
CHARLES PEPIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly (1990-1992) Corporate Finance Analyst, Piper
Jaffray Inc.
JAMES D. PREY III, Vice President--Vice President, T. Rowe Price
ANDREW BHAK, Assistant Vice President--Employee,T. Rowe Price;
PAGE 85
formerly (1990-1995) Senior Healthcare Analyst, United States
General Accounting Office
Mid-Cap Equity Growth Fund
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Investment Services, Inc.; President and Trust Officer, T. Rowe
Price Trust Company; Director, Rowe Price-Fleming International,
Inc. and Rhone-Poulenc Rorer, Inc.
*JAMES A. C. KENNEDY III, Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
*JOHN H. LAPORTE JR., Director--Managing Director, T. Rowe Price;
Chartered Financial Analyst
*M. DAVID TESTA, Director and President--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
BRIAN W.H. BERGHUIS, Executive Vice President--Vice President, T.
Rowe Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
THOMAS J. HUBER, Vice President--Employee, T. Rowe Price
JOSEPH KLEIN III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
ROBERT J. MARCOTTE, Vice President--Vice President, T. Rowe Price
CHARLES A. MORRIS, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
STEVEN B. ROORDA, Vice President--Vice President, T. Rowe Price
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
Mid-Cap Growth Fund
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Investment Services, Inc; President and Trust Officer, T. Rowe
Price Trust Company; Director, Rowe Price-Fleming International,
Inc. and Rhone-Poulenc Rorer, Inc.
*JAMES A. C. KENNEDY III, Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
*JOHN H. LAPORTE, JR., Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
BRIAN W. H. BERGHUIS, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
THOMAS J. HUBER, Vice President--Employee, T. Rowe Price
PAGE 86
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
JOSEPH KLEIN III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
ROBERT J. MARCOTTE, Vice President--Vice President, T. Rowe Price
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
STEVEN B. ROORDA, Vice President--Vice President, T. Rowe Price
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
Mid-Cap Value Fund
*M. DAVID TESTA, Director and President--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
GREGORY A. McCRICKARD, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
PRESTON G. ATHEY, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
HUGH M. EVANS III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
MARCY L. FISHER, Vice President--Vice President, T. Rowe Price
JAMES A. C. KENNEDY III, Vice President--Managing Director, T.
Rowe Price; Chartered Financial Analyst
BRIAN C. ROGERS, Vice President--Managing Director, T. Rowe
Price; Chartered Financial Analyst
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price
New America Growth Fund
*JOHN H. LAPORTE, JR., President and Trustee--Managing Director
of T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
BRIAN W. H. BERGHUIS, Executive Vice President--Vice President,
T. Rowe Price; Chartered Financial Analyst
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
CHARLES PEPIN, Vice President--Employee, T. Rowe Price
PAGE 87
STEVEN B. ROORDA, Vice President--Vice President, T. Rowe Price
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
JOHN WAKEMAN, Vice President--Vice President, T. Rowe Price
New Era Fund
*GEORGE J. COLLINS, Director--President, Managing Director, and
Chief Executive Officer, T. Rowe Price; Director, Rowe
Price-Fleming International, Inc., T. Rowe Price Trust Company,
and T. Rowe Price Retirement Plan Services, Inc.; Chartered
Investment Counselor
*CARTER O. HOFFMAN, Director--Managing Director, T. Rowe Price;
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, President and Director--Managing Director and
Chief Financial Officer, T. Rowe Price; Vice President and
Director, Rowe Price-Fleming International, Inc.
CHARLES M. OBER, Executive Vice President--Vice President, T.
Rowe Price; Chartered Financial Analyst
STEPHEN W. BOESEL, Vice President--Vice President, T. Rowe Price
HUGH M. EVANS III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
RICHARD P. HOWARD, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
JAMES A. C. KENNEDY III, Vice President--Managing Director, T.
Rowe Price; Chartered Financial Analyst
DAVID M. LEE, Vice President--Employee, T. Rowe Price
ROBERT J. MARCOTTE, Vice President--Vice President, T. Rowe Price
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price
New Horizons Fund
*JOHN H. LAPORTE, President and Director--Managing Director of T.
Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Director--Chairman of the Board, Price-Fleming;
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
PAGE 88
PRESTON G. ATHEY, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
BRIAN W. H. BERGHUIS, Vice President--Vice President of T. Rowe
Price; Chartered Financial Analyst
LISE J. BUYER, Vice President--Vice President, T. Rowe Price;
formerly (4/91-4/92) PC Analyst, Cowen & Co., and (2/90-4/92) PC
Analyst, Needham & Co.; Chartered Financial Analyst
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Vice President, T. Rowe Price
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
JILL L. HAUSER, Vice President--Vice President, T. Rowe Price
THOMAS J. HUBER, Vice President--Employee, T. Rowe Price
JOSEPH KLEIN III, Vice President--Vice President, T. Rowe
Price;Chartered Financial Analyst
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
CHARLES PEPIN, Vice President--Assistant Vice President, T. Rowe
Price
STEVEN B. ROORDA, Vice President--Vice President, T. Rowe Price
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
FRANCIES W. HAWKS, Assistant Vice President--Assistant Vice
President of T. Rowe Price
OTC Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director
of T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
GREGORY A. McCRICKARD, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
LISE J. BUYER, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
HUGH M. EVANS III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JAMES A. C. KENNEDY III, Vice President--Managing Director of T.
Rowe Price; Chartered Financial Analyst
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe
PAGE 89
Price; Chartered Financial Analyst
Science & Technology Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director,
T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
CHARLES A. MORRIS, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe
Price; formerly financial analyst, Rausher Pierce Refsnes
LISE J. BUYER, Vice President--Vice President, T. Rowe Price;
formerly (4/91-4/92) PC Analyst, Cowen & Co., and (2/90-4/92) PC
Analyst Needham & Co.; Chartered Financial Analyst
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Vice President, T. Rowe Price
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
JILL L. HAUSER, Vice President--Vice President, T. Rowe Price
JOSEPH KLEIN III, Vice President--Vice President, T. Rowe
Price;Chartered Financial Analyst
JAMES D. PREY III, Vice President--Vice President, T. Rowe Price
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
Small-Cap Value Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director
of T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, Director--Managing Director and Chief Financial
Officer, T. Rowe Price; Vice President and Director, Rowe
Price-Fleming International, Inc.
PRESTON G. ATHEY, President--Vice President, T. Rowe Price;
Chartered Financial Analyst
HUGH M. EVANS III, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
ROBERT J. MARCOTTE, Vice President--Employee, T. Rowe Price
GREGORY A. MCCRICKARD, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
DANIEL M. THERIAULT, Vice President--Vice President, T. Rowe
PAGE 90
Price, Chartered Financial Analyst; formerly Securities Analyst,
John A. Levin & Co.
FRANCIES W. HAWKS, Assistant Vice President--Assistant Vice
President of T. Rowe Price
Value Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc; President and Trust Officer, T.
Rowe Price Trust Company; Director, Rowe Price-Fleming
International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Chairman of the
Board, Price-Fleming; Managing Director, T. Rowe Price; Vice
President and Director, T. Rowe Price Trust Company; Chartered
Financial Analyst; Chartered Investment Counselor
BRIAN C. ROGERS, President--Managing Director, T. Rowe Price;
Chartered Financial Analyst
STEPHEN W. BOESEL, Vice President--Vice President, T. Rowe Price
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
STEPHANIE C. CLANCY, Vice President--Assistant Vice President, T.
Rowe Price
RICHARD P. HOWARD, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
NATHANIEL S. LEVY, Vice President--Vice President, T. Rowe Price
ROBERT W. SMITH, Vice President--Vice President, T. Rowe Price;
formerly (1987-1992) Investment Analyst, Massachusetts Financial
Services, Inc., Boston, Massachusetts
DANIEL M. THERIAULT, Vice President--Vice President, T. Rowe
Price, Chartered Financial Analyst; formerly Securities Analyst,
John A. Levin & Co.
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price
COMPENSATION TABLE
The Funds do not pay pension or retirement benefits to its
officers or directors/trustees. Also, any director/trustee of a
Fund who is an officer or employee of T. Rowe Price does not
receive any remuneration from a Fund.
_________________________________________________________________
Total Compensation
Aggregate from Fund and
Name of Compensation Fund Complex
Person, from Paid to
Position Fund(a) Directors(b)
_________________________________________________________________
Balanced Fund
PAGE 91
Donald W. Dick, Jr., $1,677 $70,083
Director
David K. Fagin, 1,677 57,833
Director
Hanne M. Merriman, 1,677 57,833
Director
Hubert D. Vos, 1,677 57,833
Director
Paul M. Wythes, 1,677 57,833
Director
_________________________________________________________________
Blue Chip Growth Fund
Donald W. Dick, Jr., $790 $70,083
Director
David K. Fagin, 790 57,833
Director
Hanne M. Merriman, 790 57,833
Director
Hubert D. Vos, 790 57,833
Director
Paul M. Wythes, 790 57,833
Director
_________________________________________________________________
Capital Appreciation Fund
Donald W. Dick, Jr., $2,256 $70,083
Director
David K. Fagin, 2,256 57,833
Director
Hanne M. Merriman, 2,256 57,833
Director
Hubert D. Vos, 2,256 57,833
Director
Paul M. Wythes, 2,256 57,833
Director
_________________________________________________________________
Capital Opportunity Fund (c)
PAGE 92
Donald W. Dick, Jr., $692 $70,083
Director
David K. Fagin, 692 57,833
Director
Hanne M. Merriman, 692 57,833
Director
Hubert D. Vos, 692 57,833
Director
Paul M. Wythes, 692 57,833
Director
_________________________________________________________________
Dividend Growth Fund
Donald W. Dick, Jr., $762 $70,083
Director
David K. Fagin, 762 57,833
Director
Hanne M. Merriman, 762 57,833
Director
Hubert D. Vos, 762 57,833
Director
Paul M. Wythes, 762 57,833
Director
_________________________________________________________________
Equity Income Fund
Donald W. Dick, Jr., $5,644 $70,083
Trustee
David K. Fagin, 5,644 57,833
Trustee
Hanne M. Merriman, 5,644 57,833
Trustee
Hubert D. Vos, 5,644 57,833
Trustee
Paul M. Wythes, 5,644 57,833
Trustee
_________________________________________________________________
Growth & Income Fund
PAGE 93
Donald W. Dick, Jr., $3,575 $70,083
Director
David K. Fagin, 3,575 57,833
Director
Hanne M. Merriman, 3,575 57,833
Director
Hubert D. Vos, 3,575 57,833
Director
Paul M. Wythes, 3,575 57,833
Director
_________________________________________________________________
Growth Stock Fund
Donald W. Dick, Jr., $5,215 $70,083
Director
David K. Fagin, 5,215 57,833
Director
Hanne M. Merriman, 5,215 57,833
Director
Hubert D. Vos, 5,215 57,833
Director
Paul M. Wythes, 5,215 57,833
Director
_________________________________________________________________
Equity Index Fund
Donald W. Dick, Jr., $1,344 $70,083
Director
David K. Fagin, 1,344 57,833
Director
Hanne M. Merriman, 1,344 57,833
Director
Hubert D. Vos, 1,344 57,833
Director
Paul M. Wythes, 1,344 57,833
Director
_________________________________________________________________
Mid-Cap Growth Fund
PAGE 94
Donald W. Dick, Jr., $933 $70,083
Director
David K. Fagin, 933 57,833
Director
Hanne M. Merriman, 933 57,833
Director
Hubert D. Vos, 933 57,833
Director
Paul M. Wythes, 933 57,833
Director
_________________________________________________________________
New America Growth Fund
Donald W. Dick, Jr., $2,288 $70,083
Trustee
David K. Fagin, 2,288 57,833
Trustee
Hanne M. Merriman, 2,288 57,833
Trustee
Hubert D. Vos, 2,288 57,833
Trustee
Paul M. Wythes, 2,288 57,833
Trustee
_________________________________________________________________
New Era Fund
Donald W. Dick, Jr., $2,840 $70,083
Director
David K. Fagin, 2,840 57,833
Director
Hanne M. Merriman, 2,840 57,833
Director
Hubert D. Vos, 2,840 57,833
Director
Paul M. Wythes, 2,840 57,833
Director
_________________________________________________________________
New Horizons Fund
PAGE 95
Donald W. Dick, Jr., $4,685 $70,083
Director
David K. Fagin, 4,685 57,833
Director
Hanne M. Merriman, 4,685 57,833
Director
Hubert D. Vos, 4,685 57,833
Director
Paul M. Wythes, 4,685 57,833
Director
_________________________________________________________________
OTC Fund
Donald W. Dick, Jr., $1,208 $70,083
Director
David K. Fagin, 1,208 57,833
Director
Hanne M. Merriman, 1,208 57,833
Director
Hubert D. Vos, 1,208 57,833
Director
Paul M. Wythes, 1,208 57,833
Director
_________________________________________________________________
Science & Technology Fund
Donald W. Dick, Jr., $3,639 $70,083
Director
David K. Fagin, 3,639 57,833
Director
Hanne M. Merriman, 3,639 57,833
Director
Hubert D. Vos, 3,639 57,833
Director
Paul M. Wythes, 3,639 57,833
Director
_________________________________________________________________
PAGE 96
Small-Cap Value Fund
Donald W. Dick, Jr., $1,893 $70,083
Director
David K. Fagin, 1,893 57,833
Director
Hanne M. Merriman, 1,893 57,833
Director
Hubert D. Vos, 1,893 57,833
Director
Paul M. Wythes, 1,893 57,833
Director
_________________________________________________________________
Value Fund
Donald W. Dick, Jr., $726 $70,083
Director
David K. Fagin, 726 57,833
Director
Hanne M. Merriman, 726 57,833
Director
Hubert D. Vos, 726 57,833
Director
Paul M. Wythes, 726 57,833
Director
(a) Amounts in this Column are for the period January 1, 1995
through December 31, 1995.
(b) Amounts in this column are for calendar year 1995. The T.
Rowe Price complex included 72 funds as of December 31,
1995.
(c) Includes estimated future payments.
All Funds
The Fund's Executive Committee, consisting of the Fund's
interested directors/trustees, has been authorized by its
respective Board of Directors/Trustees to exercise all powers of
the Board to manage the Fund in the intervals between meetings of
the Board, except the powers prohibited by statute from being
PAGE 97
delegated.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors
of the Fund, as a group, owned less than 1% of the outstanding
shares of the Fund.
As of June 30, 1996, the following shareholders beneficially
owned more than 5% of the outstanding shares of the Growth Stock,
New Era, New Horizons and Growth & Income Funds, respectively:
Pirateline & Co., FBO Spectrum Growth Fund Acct., Attn.: Mark
White, State Street Bank & Trust Co., 1776 Heritage Drive - 4W,
North Quincy, Massachusetts 02171-2197; Capital Appreciation,
Mid-Cap Growth, New Era, Small-Cap Value and Science & Technology
Funds, respectively: Charles Schwab & Co. Inc., Reinvest.
Account, Attn.: Mutual Fund Dept., 101 Montgomery Street, San
Francisco, California 94104-4122; OTC Fund: Sigler & Co. of
Smithsonian Inst., Wellington Trust Co., RD7 9866-77, Attn.:
Jasmine Felix, 4 New York Plaza, 4th Floor, New York, New York
10004-2413; Equity Index Fund: T. Rowe Price RPS Inc., co, S.
California Gas Co., Plan #104815, New Business Group #50, P.O.
Box 17215, Baltimore, MD 21203-7215.
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement, T. Rowe Price provides the
Fund with discretionary investment services. Specifically, T.
Rowe Price is responsible for supervising and directing the
investments of the Fund in accordance with the Fund's investment
objectives, program, and restrictions as provided in its
prospectus and this Statement of Additional Information. T. Rowe
Price is also responsible for effecting all security transactions
on behalf of the Fund, including the negotiation of commissions
and the allocation of principal business and portfolio brokerage.
In addition to these services, T. Rowe Price provides the Fund
with certain corporate administrative services, including:
maintaining the Fund's corporate existence and corporate records;
registering and qualifying Fund shares under federal and state
laws; monitoring the financial, accounting, and administrative
functions of the Fund; maintaining liaison with the agents
employed by the Fund such as the Fund's custodian and transfer
agent; assisting the Fund in the coordination of such agents'
activities; and permitting T. Rowe Price's employees to serve as
officers, directors, and committee members of the Fund without
cost to the Fund.
PAGE 98
The Management Agreement also provides that T. Rowe Price,
its directors, officers, employees, and certain other persons
performing specific functions for the Fund will only be liable to
the Fund for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.
All Funds, Except Equity Index and Mid-Cap Equity Growth Funds
Management Fee
The Fund pays T. Rowe Price a fee ("Fee") which consists of
two components: a Group Management Fee ("Group Fee") and an
Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to T.
Rowe Price on the first business day of the next succeeding
calendar month and is calculated as described below.
The monthly Group Fee ("Monthly Group Fee") is the sum of
the daily Group Fee accruals ("Daily Group Fee Accruals") for
each month. The Daily Group Fee Accrual for any particular day
is computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of the Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Next $16 billion
0.305% Thereafter
For the purpose of calculating the Group Fee, the Price
Funds include all the mutual funds distributed by T. Rowe Price
Investment Services, Inc., (excluding T. Rowe Price Equity Index
Fund and T. Rowe Price Spectrum Fund, Inc. and any institutional
PAGE 99
or private label mutual funds). For the purpose of calculating
the Daily Price Funds' Group Fee Accrual for any particular day,
the net assets of each Price Fund are determined in accordance
with the Fund's prospectus as of the close of business on the
previous business day on which the Fund was open for business.
The monthly Fund Fee ("Monthly Fund Fee") is the sum of the
daily Fund Fee accruals ("Daily Fund Fee Accruals") for each
month. The Daily Fund Fee Accrual for any particular day is
computed by multiplying the fraction of one (1) over the number
of calendar days in the year by the individual Fund Fee Rate and
multiplying this product by the net assets of the Fund for that
day, as determined in accordance with the Fund's prospectus as of
the close of business on the previous business day on which the
Fund was open for business. The individual fund fees for each
Fund are listed in the chart below:
Individual Fund Fees
Balanced Fund 0.15%
Blue Chip Growth Fund 0.30%
Capital Appreciation Fund 0.30%*
Capital Opportunity Fund 0.45%
Dividend Growth Fund 0.20%
Equity Income Fund 0.25%
Equity Index Fund 0.20%
Financial Services Fund _.__%
Growth & Income Fund 0.25%
Growth Stock Fund 0.25%
Health Sciences Fund 0.35%
Mid-Cap Growth Fund 0.35%
Mid-Cap Value Fund 0.35%
New America Growth Fund 0.35%
New Era Fund 0.25%
New Horizons Fund 0.35%
OTC Fund 0.45%
Science & Technology Fund 0.35%
Small-Cap Value Fund 0.35%
Value Fund 0.35%
*Subject to Performance Adjustment (please see page __).
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by each Fund, during the last three
years:
Fund 1995 1994 1993
Balanced $2,778,000 $1,969,227 $ 1,169,038
Blue Chip Growth 534,000 76,000 **
PAGE 100
Capital Appreciation 4,940,000 4,161,612 2,740,545
Capital Opportunity 134,000 ** *
Dividend Growth 357,000 107,000 **
Equity Income 24,358,000 17,847,000 15,155,000
Equity Index 498,000 156,349 **
Growth & Income 8,195,000 5,984,000 5,209,000
Growth Stock 14,222,000 11,981,872 11,117,706
Health Sciences * * *
Mid-Cap Growth 1,234,000 545,000 153,000
New America Growth 5,554,000 4,395,000 3,989,000
New Era 6,218,000 5,272,000 4,366,000
New Horizons 15,035,000 11,402,554 10,367,727
OTC 1,897,000 1,534,235 1,547,061
Science & Technology 11,393,000 4,467,208 2,841,791
Small-Cap Value 4,262,000 3,047,508 2,963,580
Value 19,000 ** *
* Prior to commencement of operations.
** Due to each Fund's expense limitation in effect at that time,
no management fees were paid by the Funds to T. Rowe Price.
Limitation on Fund Expenses
The Management Agreement between the Fund and T. Rowe Price
provides that the Fund will bear all expenses of its operations
not specifically assumed by T. Rowe Price. However, in
compliance with certain state regulations, T. Rowe Price will
reimburse the Fund for certain expenses which in any year exceed
the limits prescribed by any state in which the Fund's shares are
qualified for sale. Presently, the most restrictive expense
ratio limitation imposed by any state is 2.5% of the first $30
million of the Fund's average daily net assets, 2% of the next
$70 million of the Fund's assets, and 1.5% of net assets in
excess of $100 million. Reimbursement by the Fund to T. Rowe
Price of any expenses paid or assumed under a state expense
limitation may not be made more than two years after the end of
the fiscal year in which the expenses were paid or assumed.
Balanced, Blue Chip Growth, Capital Opportunity, Dividend
Growth, Equity Index, Financial Services, Health Sciences, Mid-
Cap Equity Growth, Mid-Cap Growth, Mid-Cap Value, and Value
Funds
The following chart sets forth expense ratio limitations and
the periods for which they are effective. For each, T. Rowe
Price has agreed to bear any Fund expenses which would cause the
Fund's ratio of expenses to average net assets to exceed the
indicated percentage limitations. The expenses borne by T. Rowe
Price are subject to reimbursement by the Fund through the
indicated reimbursement date, provided no reimbursement will be
PAGE 101
made if it would result in the Fund's expense ratio exceeding its
applicable limitation.
Expense
Limitation Ratio Reimbursement
Fund Period Limitation Date
_______ ____________ ___________ _____________
Balanced January 1, 1993- 1.00% December 31, 1996
December 31, 1994
Blue Chip
Growth(a) January 1, 1995- 1.25% December 31, 1998
December 31, 1996
Capital
Opportunity November 29, 1994- 1.35% December 31, 1998
December 31, 1996
Dividend
Growth(b) January 1, 1995- 1.10% December 31, 1998
December 31, 1996
Equity Index(c) January 1, 1996- 0.40% December 31, 1999
December 31, 1997
Financial
Services September 27, 1996- ____% December 31, 1999
December 31, 1997
Health Sciences December 28, 1995- 1.35% December 31, 1999
December 31, 1997
Mid-Cap Equity
Growth August 1, 1996- 0.85% December 31, 1999
December 31, 1997
Mid-Cap Growth January 1, 1994- 1.25% December 31, 1997
December 31, 1995
Mid-Cap Value June 27, 1996- 1.25% December 31, 1999
December 31, 1997
Value September 29,1994- 1.10% December 31, 1998
December 31, 1996
(a) The Blue Chip Growth Fund previously operated under a 1.25%
limitation that expired December 31, 1994. The reimbursement
period for this limitation extends through December 31, 1996.
(b) The Dividend Growth Fund previously operated under a 1.00%
limitation that expired December 31, 1994. The reimbursement
period for this limitation extends through December 31, 1996.
(c) The Equity Index Fund previously operated under a 0.45%
limitation that expired December 31, 1995. The reimbursement
period for this limitation extends through December 31, 1997.
Each of the above-referenced Fund's Management Agreement also
provides that one or more additional expense limitation periods
(of the same or different time periods) may be implemented after
the expiration of the current expense limitation, and that with
PAGE 102
respect to any such additional limitation period, the Fund may
reimburse T. Rowe Price, provided the reimbursement does not
result in the Fund's aggregate expenses exceeding the additional
expense limitation.
Pursuant to the Balanced Fund's past expense limitation,
$280,000 of unaccrued 1993 management fees were repaid by the
Fund for the year ended December 31, 1995.
Pursuant to the Blue Chip Growth Fund's current expense
limitation, $1,000 of management fees were not accrued by the
Fund for the year ended December 31, 1995. Pursuant to the
previous expense limitation, $213,000 of management fees and
expenses remains subject to reimbursement through December 31,
1996.
Pursuant to the Dividend Growth Fund's current expense
limitation, $5,000 of management fees were not accrued by the
Fund for the year ended December 31, 1995. Pursuant to the
previous expense limitation, $380,000 of management fees and
expenses remains subject to reimbursement through December 31,
1996.
Pursuant to the Equity Index Fund's current expense
limitation, $181,000 of management fees for the year ended
December 31, 1995 and $264,000 of 1994 management fees were not
accrued by the fund. Additionally, $651,000 of unaccrued fees
and expenses related to a previous expense limitation are subject
to reimbursement through December 31, 1995.
Pursuant to Mid-Cap Growth Fund's current and past expense
limitation, $235,000 of management fees and expense were repaid
by the Fund for the year ended December 31, 1995. Additionally,
$58,000 of unaccrued management fees and expenses are subject to
reimbursement through December 31, 1997.
Pursuant to Capital Opportunity Fund's current expense
limitation, $149,000 of management fees were not accrued by the
fund for the year ended December 31, 1995. Additionally, $8,000
of unaccrued 1994 fees and expenses are subject to reimbursement
through December 31, 1998.
Pursuant to the Value Fund's current expense limitation,
$157,000 of management fees were not accrued by the fund for the
year ended December 31, 1995. Additionally, $45,000 of unaccrued
194 fees and expenses are subject to reimbursement through
December 31, 1998.
Capital Appreciation Fund
PAGE 103
Management Fee
The Fund pays T. Rowe Price a fee ("Fee") which consists of
three components: a Group Management Fee ("Group Fee"), an
Individual Fund Fee ("Fund Fee") and a performance fee adjustment
("Performance Fee Adjustment") based on the performance of the
Fund relative to the Standard & Poor's 500 Stock Index (the
"Index"). The Fee is paid monthly to T. Rowe Price on the first
business day of the next succeeding calendar month and is
calculated as described below. The performance adjustment for
the year ended December 31, 1995, decreased management fees by
$20,000.
The Monthly Group Fee and Monthly Fund Fee are combined (the
"Combined Fee") and are subject to a Performance Fee Adjustment,
depending on the total return investment performance of the Fund
relative to the total return performance of the Standard & Poor's
500 Stock Composite Index (the "Index") during the previous
thirty-six (36) months. The Performance Fee Adjustment is
computed as of the end of each month and if an adjustment
results, is added to, or subtracted from the Combined Fee. No
Performance Fee Adjustment is made to the Combined Fee unless the
investment performance ("Investment Performance") of the Fund
(stated as a percent) exceeds, or is exceeded by, the investment
record ("Investment Record") of the Index (stated as a percent)
by at least one full point. (The difference between the
Investment Performance and Investment Record will be referred to
as the Investment Performance Differential.) The Performance Fee
Adjustment for any month is calculated by multiplying the rate of
the Performance Fee Adjustment ("Performance Fee Adjustment") (as
determined below) achieved for the 36-month period, times the
average daily net assets of the Fund for such 36-month period and
dividing the product by 12. The Performance Fee Adjustment Rate
is calculated by multiplying the Investment Performance
Differential (rounded downward to the nearest full point) times a
factor of .02%. Regardless of the Investment Performance
Differential, the Performance Fee Adjustment Rate shall not
exceed .30%. the same period.
Example
For example, if the Investment Performance Differential
was 11.6, it would be rounded to 11. The Investment
Performance Differential of 11 would be multiplied by
.02% to arrive at the Performance Fee Adjustment Rate
of .22%. The .22% Performance Fee Adjustment Rate
would be multiplied by the fraction of 1/12 and that
product would be multiplied by the Fund's average daily
net assets for the 36-month period to arrive at the
PAGE 104
Performance Fee Adjustment.
The computation of the Investment Performance of the Fund
and the Investment Record of the Index will be made in accordance
with Rule 205-1 under the Investment Advisers Act of 1940 or any
other applicable rule as, from time to time, may be adopted or
amended. These terms are currently defined as follows:
The Investment Performance of the Fund is the sum of: (i)
the change in the Fund's net asset value per share during the
period; (ii) the value of the Fund's cash distributions per share
having an exdividend date occurring within the period; and (iii)
the per share amount of any capital gains taxes paid or accrued
during such period by the Fund for undistributed, realized long-
term capital gains.
The Investment Record of the Index is the sum of: (i) the
change in the level of the Index during the period; and (ii) the
value, computed consistently with the Index, of cash
distributions having an exdividend date occurring within the
period made by companies whose securities comprise the Index.
Management Fee
Equity Index Fund
The Fund pays T. Rowe Price an annual investment management
fee in monthly installments of .20% of the average daily net
asset value of the Fund. Due to the effect of the Fund's expense
limitation, for the year ended December 31, 1993, the Fund did
not pay T. Rowe Price an investment management fee.
Mid-Cap Equity Growth Fund
The Fund pays T. Rowe Price an annual investment management
fee in monthly installments of 0.60% of the average daily net
asset value of the Fund.
Equity Income, Growth & Income, Growth Stock, New Era, and New
Horizons Funds
T. Rowe Price Spectrum Fund, Inc.
The Fund is a party to a Special Servicing Agreement
("Agreement") between and among T. Rowe Price Spectrum Fund, Inc.
("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc.
and various other T. Rowe Price funds which, along with the Fund,
are funds in which Spectrum Fund invests (collectively all such
funds "Underlying Price Funds").
PAGE 105
The Agreement provides that, if the Board of
Directors/Trustees of any Underlying Price Fund determines that
such Underlying Fund's share of the aggregate expenses of
Spectrum Fund is less than the estimated savings to the
Underlying Price Fund from the operation of Spectrum Fund, the
Underlying Price Fund will bear those expenses in proportion to
the average daily value of its shares owned by Spectrum Fund,
provided further that no Underlying Price Fund will bear such
expenses in excess of the estimated savings to it. Such savings
are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been
invested directly in the Underlying Price Funds and the resulting
reduction in shareholder servicing costs. Although such cost
savings are not certain, the estimated savings to the Underlying
Price Funds generated by the operation of Spectrum Fund are
expected to be sufficient to offset most, if not all, of the
expenses incurred by Spectrum Fund.
All Funds
DISTRIBUTOR FOR FUND
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a wholly-
owned subsidiary of T. Rowe Price, serves as the Fund's
distributor. Investment Services is registered as a broker-
dealer under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. The
offering of the Fund's shares is continuous.
Investment Services is located at the same address as the
Fund and T. Rowe Price -- 100 East Pratt Street, Baltimore,
Maryland 21202.
Investment Services serves as distributor to the Fund
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that the Fund will pay all fees and expenses in
connection with: registering and qualifying its shares under the
various state "blue sky" laws; preparing, setting in type,
printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services
will pay all fees and expenses in connection with: printing and
distributing prospectuses and reports for use in offering and
selling Fund shares; preparing, setting in type, printing, and
mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and
PAGE 106
expenses specifically assumed by the Fund. Investment Services'
expenses are paid by T. Rowe Price.
Investment Services acts as the agent of the Fund in
connection with the sale of its shares in all states in which the
shares are qualified and in which Investment Services is
qualified as a broker-dealer. Under the Underwriting Agreement,
Investment Services accepts orders for Fund shares at net asset
value. No sales charges are paid by investors or the Fund.
All Funds
CUSTODIAN
State Street Bank and Trust Company is the custodian for the
Fund's securities and cash, but it does not participate in the
Fund's investment decisions. Portfolio securities purchased in
the U.S. are maintained in the custody of the Bank and may be
entered into the Federal Reserve Book Entry System, or the
security depository system of the Depository Trust Corporation.
The Fund (other than Equity Index Fund) has entered into a
Custodian Agreement with The Chase Manhattan Bank, N.A., London,
pursuant to which portfolio securities which are purchased
outside the United States are maintained in the custody of
various foreign branches of The Chase Manhattan Bank and such
other custodians, including foreign banks and foreign securities
depositories as are approved by the Fund's Board of
Directors/Trustees in accordance with regulations under the
Investment Company Act of 1940. State Street Bank's main office
is at 225 Franklin Street, Boston, Massachusetts 02110. The
address for The Chase Manhattan Bank, N.A., London is Woolgate
House, Coleman Street, London, EC2P 2HD, England.
CODE OF ETHICS
The Fund's investment adviser (T. Rowe Price) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in personal securities transactions.
Transactions must be executed within three business days of their
clearance. In addition, all employees must report their personal
securities transactions within ten days of their execution.
Employees will not be permitted to effect transactions in a
security: If there are pending client orders in the security; the
security has been purchased or sold by a client within seven
calendar days; the security is being considered for purchase for
a client; a change has occurred in T. Rowe Price's rating of the
security within seven calendar days prior to the date of the
proposed transaction; or the security is subject to internal
trading restrictions. In addition, employees are prohibited from
PAGE 107
profiting from short-term trading (e.g., purchases and sales
involving the same security within 60 days). Any material
violation of the Code of Ethics is reported to the Board of the
Fund. The Board also reviews the administration of the Code of
Ethics on an annual basis.
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio
securities on behalf of the Fund are made by T. Rowe Price. T.
Rowe Price is also responsible for implementing these decisions,
including the negotiation of commissions and the allocation of
portfolio brokerage and principal business.
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities,
it is T. Rowe Price's policy to obtain quality execution at the
most favorable prices through responsible brokers and dealers
and, in the case of agency transactions, at competitive
commission rates. However, under certain conditions, the Fund may
pay higher brokerage commissions in return for brokerage and
research services. As a general practice, over-the-counter
orders are executed with market-makers. In selecting among
market-makers, T. Rowe Price generally seeks to select those it
believes to be actively and effectively trading the security
being purchased or sold. In selecting broker-dealers to execute
the Fund's portfolio transactions, consideration is given to such
factors as the price of the security, the rate of the commission,
the size and difficulty of the order, the reliability, integrity,
financial condition, general execution and operational
capabilities of competing brokers and dealers, and brokerage and
research services provided by them. It is not the policy of T.
Rowe Price to seek the lowest available commission rate where it
is believed that a broker or dealer charging a higher commission
rate would offer greater reliability or provide better price or
execution.
Fixed Income Securities
Fixed income securities are generally purchased from the
issuer or a primary market-maker acting as principal for the
securities on a net basis, with no brokerage commission being
paid by the client although the price usually includes an
undisclosed compensation. Transactions placed through dealers
PAGE 108
serving as primary market-makers reflect the spread between the
bid and asked prices. Securities may also be purchased from
underwriters at prices which include underwriting fees.
With respect to equity and fixed income securities, T. Rowe
Price may effect principal transactions on behalf of the Fund
with a broker or dealer who furnishes brokerage and/or research
services, designate any such broker or dealer to receive selling
concessions, discounts or other allowances, or otherwise deal
with any such broker or dealer in connection with the acquisition
of securities in underwritings. T. Rowe Price may receive
research services in connection with brokerage transactions,
including designations in fixed price offerings.
How Evaluations are Made of the Overall Reasonableness of
Brokerage Commissions Paid
On a continuing basis, T. Rowe Price seeks to determine what
levels of commission rates are reasonable in the marketplace for
transactions executed on behalf of the Fund. In evaluating the
reasonableness of commission rates, T. Rowe Price considers: (a)
historical commission rates, both before and since rates have
been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c)
rates quoted by brokers and dealers; (d) the size of a particular
transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular
transaction in terms of both execution and settlement; (f) the
level and type of business done with a particular firm over a
period of time; and (g) the extent to which the broker or dealer
has capital at risk in the transaction.
Description of Research Services Received from Brokers and
Dealers
T. Rowe Price receives a wide range of research services
from brokers and dealers. These services include information on
the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law
interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement
analysis, performance analysis and analysis of corporate
responsibility issues. These services provide both domestic and
international perspective. Research services are received
primarily in the form of written reports, computer generated
services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form
of meetings arranged with corporate and industry spokespersons,
economists, academicians and government representatives. In some
PAGE 109
cases, research services are generated by third parties but are
provided to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays
cash for certain research services received from external
sources. T. Rowe Price also allocates brokerage for research
services which are available for cash. While receipt of research
services from brokerage firms has not reduced T. Rowe Price's
normal research activities, the expenses of T. Rowe Price could
be materially increased if it attempted to generate such
additional information through its own staff. To the extent that
research services of value are provided by brokers or dealers, T.
Rowe Price may be relieved of expenses which it might otherwise
bear.
T. Rowe Price has a policy of not allocating brokerage
business in return for products or services other than brokerage
or research services. In accordance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
Price may from time to time receive services and products which
serve both research and non-research functions. In such event,
T. Rowe Price makes a good faith determination of the anticipated
research and non-research use of the product or service and
allocates brokerage only with respect to the research component.
Commissions to Brokers who Furnish Research Services
Certain brokers and dealers who provide quality brokerage
and execution services also furnish research services to T. Rowe
Price. With regard to the payment of brokerage commissions, T.
Rowe Price has adopted a brokerage allocation policy embodying
the concepts of Section 28(e) of the Securities Exchange Act of
1934, which permits an investment adviser to cause an account to
pay commission rates in excess of those another broker or dealer
would have charged for effecting the same transaction, if the
adviser determines in good faith that the commission paid is
reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of
either the particular transaction involved or the overall
responsibilities of the adviser with respect to the accounts over
which it exercises investment discretion. Accordingly, while T.
Rowe Price cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect
the value of their research services, T. Rowe Price would expect
PAGE 110
to assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular
broker. T. Rowe Price may receive research, as defined in
Section 28(e), in connection with selling concessions and
designations in fixed price offerings in which the Funds
participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific
amount of business to any broker or dealer over any specific time
period. Historically, the majority of brokerage placement has
been determined by the needs of a specific transaction such as
market-making, availability of a buyer or seller of a particular
security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for
that portion of its discretionary client brokerage business where
special needs do not exist, or where the business may be
allocated among several brokers or dealers which are able to meet
the needs of the transaction.
Each year, T. Rowe Price assesses the contribution of the
brokerage and research services provided by brokers or dealers,
and attempts to allocate a portion of its brokerage business in
response to these assessments. Research analysts, counselors,
various investment committees, and the Trading Department each
seek to evaluate the brokerage and research services they receive
from brokers or dealers and make judgments as to the level of
business which would recognize such services. In addition,
brokers or dealers sometimes suggest a level of business they
would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any
firm may be less than the suggested allocations but can, and
often does, exceed the suggestions, because the total business is
allocated on the basis of all the considerations described above.
In no case is a broker or dealer excluded from receiving business
from T. Rowe Price because it has not been identified as
providing research services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently
applied to all its fully discretionary accounts, which represent
a substantial majority of all assets under management. Research
services furnished by brokers or dealers through which T. Rowe
Price effects securities transactions may be used in servicing
all accounts (including non-Fund accounts) managed by T. Rowe
Price. Conversely, research services received from brokers or
dealers which execute transactions for the Fund are not
necessarily used by T. Rowe Price exclusively in connection with
PAGE 111
the management of the Fund.
From time to time, orders for clients may be placed through
a computerized transaction network.
The Fund does not allocate business to any broker-dealer on
the basis of its sales of the Fund's shares. However, this does
not mean that broker-dealers who purchase Fund shares for their
clients will not receive business from the Fund.
Some of T. Rowe Price's other clients have investment
objectives and programs similar to those of the Fund. T. Rowe
Price may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
of those securities. It is T. Rowe Price's policy not to favor
one client over another in making recommendations or in placing
orders. T. Rowe Price frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. T. Rowe
Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if,
as a result of such purchases, 10% or more of the outstanding
common stock of such company would be held by its clients in the
aggregate.
Trade Allocation Policies
T. Rowe Price has developed written trade allocation
guidelines for its Equity, Municipal, and Taxable Fixed Income
Trading Desks. Generally, when the amount of securities
available in a public offering or the secondary market is
insufficient to satisfy the volume or price requirements for the
participating client portfolios, the guidelines require a pro
rata allocation based upon the amounts initially requested by
each portfolio manager. In allocating trades made on combined
basis, the Trading Desks seek to achieve the same net unit price
of the securities for each participating client. Because a pro
rata allocation may not always adequately accommodate all facts
and circumstances, the guidelines provide for exceptions to
allocate trades on an adjusted, pro rata basis. Examples of
where adjustments may be made include: (i) reallocations to
recognize the efforts of a portfolio manager in negotiating a
PAGE 112
transaction or a private placement; (ii) reallocations to
eliminate deminimis positions; (iii) priority for accounts with
specialized investment policies and objectives; and (iv)
reallocations in light of a participating portfolio's
characteristics (e.g., industry or issuer concentration,
duration, and credit exposure).
To the extent possible, T. Rowe Price intends to recapture
solicitation fees paid in connection with tender offers through
T. Rowe Price Investment Services, Inc., the Fund's distributor.
At the present time, T. Rowe Price does not recapture commissions
or underwriting discounts or selling group concessions in
connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate
elimination of all or a portion of the selling-group concession
or underwriting discount when purchasing tax-exempt municipal
securities on behalf of its clients in underwritten offerings.
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between
the Fund and T. Rowe Price, T. Rowe Price is responsible not only
for making decisions with respect to the purchase and sale of the
Fund's portfolio securities, but also for implementing these
decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business. It is
expected that T. Rowe Price may place orders for the Fund's
portfolio transactions with broker-dealers through the same
trading desk T. Rowe Price uses for portfolio transactions in
domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities
are located. These brokers and dealers may include certain
affiliates of Robert Fleming Holdings Limited ("Robert Fleming
Holdings") and Jardine Fleming Group Limited ("JFG"), persons
indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary,
owns 25% of the common stock of Rowe Price-Fleming International,
Inc. ("RPFI"), an investment adviser registered under the
Investment Advisers Act of 1940. Fifty percent of the common
stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by
Jardine Fleming Holdings Limited, a subsidiary of JFG. JFG is
50% owned by Robert Fleming Holdings and 50% owned by Jardine
Matheson Holdings Limited. Orders for the Fund's portfolio
transactions placed with affiliates of Robert Fleming Holdings
and JFG will result in commissions being received by such
affiliates.
The Board of Directors/Trustees of the Fund has authorized
T. Rowe Price to utilize certain affiliates of Robert Fleming and
PAGE 113
JFG in the capacity of broker in connection with the execution of
the Fund's portfolio transactions. These affiliates include, but
are not limited to, Jardine Fleming Securities Limited ("JFS"), a
wholly-owned subsidiary of JFG, Robert Fleming & Co. Limited
("RF&Co."), Jardine Fleming Australia Securities Limited, and
Robert Fleming, Inc. (a New York brokerage firm). Other
affiliates of Robert Fleming Holding and JFG also may be used.
Although it does not believe that the Fund's use of these brokers
would be subject to Section 17(e) of the Investment Company Act
of 1940, the Board of Directors/Trustees of the Fund has agreed
that the procedures set forth in Rule 17e-1 under that Act will
be followed when using such brokers.
Other
For the years 1995, 1994, and 1993, the total brokerage
commissions paid by each Fund, including the discounts received
by securities dealers in connection with underwritings, and the
percentage of these commissions paid to firms which provided
research, statistical, or other services to T. Rowe Price in
connection with the management of each Fund, or, in some cases,
to each Fund, was as shown below.
1995 1994 1993
Fund Commissions % Commissions % Commissions %
Balanced $392,293.25 14.8% $258,006 18.1% $91,678 46.1%
Blue Chip
Growth 420,930.75 10.3% 219,539 11.9% 177,317 10%
Capital
Apprec-
iation 1,922,697.14 32.4% 828,822 67.4% 1,141,732 45.28%
Capital
Oppor-
tunity 528,726.58 24.6% 7,857 7.2% * *
Dividend
Growth 373,297.65 9.6% 294,479 15.9% 282,409 22%
Equity
Income 4,193,326.16 43.2%4,511,187 48.4% 4,660,406 42.12%
Growth &
Income 1,431,193.83 44.7%2,550,364 23.7% 2,814,544 26.9%
Growth
Stock 4,769,565.10 42.6%4,002,616 51.6% 3,983,572 40.4%
Equity
Index 98,198.06 0.1% 21,198 3.27% 20,978 8.6%
Mid-Cap
Growth 924,702.44 16.5% 349,991 30.8% 441,166 18.9%
New America
Growth 3,605,674.73 16.1%1,646,550 23.7% 2,345,540 17.6%
PAGE 114
New Era 1,259,196.48 42.7%1,863,739 35.8% 1,758,270 28.03%
New
Horizons 8,729,848.09 9.1%5,246,463 10.0% 7,336,582 8.2%
OTC 873,954.17 7.5% 584,525 4.6% 776,333 6.68%
Science &
Tech-
nology 4,766,170.90 18.5%1,272,479 45.4% 2,186,853 23.97%
Small-Cap
Value 1,321,168.10 14.4% 512,452 26.28% 995,993 11.4%
Value 270,118.81 32.3% 30,478 14.9% * *
* Prior to commencement of operations.
On December 31, 1995, the Equity Index Fund held common
stock of the following regular brokers or dealers of the Fund:
Bankers Trust New York, Citicorp, Merrill Lynch, J.P. Morgan,
Chemical Bank, and Household International respectively, with a
value of $493,000, $2,722,000, $860,000, $1,438,000, $1,413,000,
and 549,000 respectively. The fund also held commercial paper of
Chemical Bank with a value of $4,922,000. In 1995, Bankers Trust
New York, Citicorp, Merrill Lynch, J.P. Morgan, Chemical Bank,
and Household International were among the Fund's regular brokers
or dealers as defined in Rule 10b-1 under the Investment Company
Act of 1940.
On December 31, 1995, the Growth & Income Fund held common
stocks of the following regular broker dealers of the Fund: Bear
Stearns and Household International, respectively, with a value
of $11,092,000, and $19,551,000 respectively. The Fund also held
commercial paper of Morgan Stanley with a value of $10,003,000.
In 1995, Bear Stearns, Household International, and Morgan
Stanley were among the Fund's regular brokers or dealers as
defined in Rule 10b-1 under the Investment Company Act of 1940.
On December 31, 1995, the Small-Cap Value Fund held
commercial paper of Morgan Stanley Group with a value of
$7,002,000. In 1995, the Morgan Stanley Group was among the
Fund's regular brokers or dealers as defined in Rule 10b-1 under
the Investment Company Act of 1940.
On December 31, 1995, the Dividend Growth Fund held
commercial paper of Morgan Stanley Group with a value of
$1,000,000. In 1995, the Morgan Stanley Group was among the
Fund's regular brokers or dealers as defined in Rule 10b-1 under
the Investment Company Act of 1940.
On December 31, 1995, the Capital Appreciation Fund held
commercial paper of Morgan Stanley Group with a value of
$10,003,000. In 1995, the Morgan Stanley Group was among the
Fund's regular brokers or dealers as defined in Rule 10b-1 under
PAGE 115
the Investment Company Act of 1940.
On December 31, 1995, the OTC Fund held commercial paper of
Morgan Stanley Group with a value of $2,001,000. In 1995, the
Morgan Stanley Group was among the Fund's regular brokers or
dealers as defined in Rule 10b-1 under the Investment Company Act
of 1940.
On December 31, 1995, the Equity Income Fund held common
stock of the following regular broker dealers of the Fund:
Bankers Trust, Chemical Bank, and J.P. Morgan, respectively, with
a value of $26,600,000, $35,250,000, and $60,187,000,
respectively. The Fund also held commercial paper of GMAC and
the Morgan Stanley Group, with a value of $7,002,000 and
$31,455,000. In 1995, Bankers Trust, Chemical Bank, J.P. Morgan,
GMAC, and Morgan Stanley Group were among the Fund's regular
brokers or dealers as defined in Rule 10b-1 under the Investment
Company Act of 1940.
On December 31, 1995, the Balanced Fund held common stock of
J.P. Morgan with a value of $$1,605,000. The Fund also held bond
of Lehman Brothers Holding with a value of $1,679,000. The Fund
also held commercial paper of Morgan Stanley Group with a value
of $5,006,000. In 1995, J.P. Morgan, Lehman Brothers Holding,
and the Morgan Stanley Group were among the Fund's regular
brokers or dealers as defined in Rule 10b-1 under the Investment
Company Act of 1940.
The portfolio turnover rate for each Fund for the years
ended 1995, 1994, and 1993, was as follows:
Fund 1995 1994 1993
Balanced 12.6% 33.3% 8.7%
Blue Chip Growth 38.1% 75.0% 89.0%*
Capital Appreciation 47.0% 43.6% 39.4%
Capital Opportunity 136.9% 134.5% **
Dividend Growth 56.1% 71.4% 51.2%*
Equity Income 21.4% 36.3% 31.2%
Equity Index 1.3% 1.3% 0.8%
Growth & Income 26.2% 25.6% 22.4%
Growth Stock 42.5% 54.0% 35.3%
Mid-Cap Growth 57.5% 48.7% 62.4%
New America Growth 56.2% 31.0% 43.7%
New Era 22.7% 24.7% 24.7%
New Horizons 55.9% 44.3% 49.4%
OTC 57.8% 41.9% 40.8%
Science & Technology 130.3% 113.3% 163.4%
Small-Cap Value 18.1% 21.4% 11.8%
Value 89.7% 30.8% **
PAGE 116
* Annualized.
** Prior to commencement of operations.
All Funds
PRICING OF SECURITIES
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/Trustees, 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. Short-term debt securities
are valued at their cost in local currency which, when combined
with accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at 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/Trustees.
All Funds
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is
equal to the Fund's net asset value per share or share price.
The Fund determines its net asset value per share by subtracting
the Fund's liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
PAGE 117
share of the Fund is normally calculated as of the close of
trading on the New York Stock Exchange ("NYSE") every day the
NYSE is open for trading. The NYSE is closed on the following
days: New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Determination of net asset value (and the offering, sale
redemption and repurchase of shares) for the Fund may be
suspended at times (a) during which the NYSE is closed, other
than customary weekend and holiday closings, (b) during which
trading on the NYSE is restricted, (c) during which an emergency
exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or (d) during which a governmental body having
jurisdiction over the Fund may by order permit such a suspension
for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) shall
govern as to whether the conditions prescribed in (b), (c), or
(d) exist.
DIVIDENDS AND DISTRIBUTIONS
Unless you elect otherwise, the Fund's annual dividend and
capital gain distribution, if any, and final quarterly dividend
(Balanced, Dividend Growth, Equity Income, Equity Index, Growth &
Income, Mid-Cap Value, and Value Funds) will be reinvested on the
reinvestment date using the NAV per share of that date. The
reinvestment date normally precedes the payment date by about 10
days although the exact timing is subject to change.
TAX STATUS
The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
A portion of the dividends paid by the Fund may be eligible
for the dividends-received deduction for corporate shareholders.
For tax purposes, it does not make any difference whether
dividends and capital gain distributions are paid in cash or in
additional shares. The Fund must declare dividends by December
31 of each year equal to at least 98% of ordinary income (as of
December 31) and capital gains (as of October 31) in order to
avoid a federal excise tax and distribute within 12 months 100%
of ordinary income and capital gains as of December 31 to avoid
PAGE 118
federal income tax.
At the time of your purchase, the Fund's net asset value may
reflect undistributed capital gains or net unrealized
appreciation of securities held by the Fund. A subsequent
distribution to you of such amounts, although constituting a
return of your investment, would be taxable. For federal income
tax purposes, the Fund is permitted to carry forward its net
realized capital losses, if any, for eight years and realize net
capital gains up to the amount of such losses without being
required to pay taxes on, or distribute such gains. On May 31,
1996, the books of each Fund indicated that each Fund's aggregate
net assets included undistributed net income, net realized
capital gains or losses, and unrealized appreciation or
depreciation which are listed below.
Net Realized
Undistributed Capital Gain Unrealized
Fund Net Income (Losses) Appreciation
Balanced $ 5,856,092 $ 3,418,929 $ 108,556,381
Blue Chip Growth 727,291 2,416,011 38,219,596
Capital Appreciation 19,175,104 24,768,803 126,975,401
Corporate Income 514,142 5,071,347 12,573,056
Dividend Growth 436,991 2,443,087 17,650,011
Equity Income 37,316,812 212,460,674 1,184,882,324
Equity Index 2,489,377 4,344,628 135,928,747
Growth & Income 7,714,749 (5,007,829) 555,255,786
Growth Stock 11,899,896 166,339,268 998,486,985
Health Sciences 94,929 1,359,505 6,220,589
Mid-Cap Growth 1,326,786 15,260,763 91,861,917
New America Growth 1,019,189 67,313,302 439,684,965
New Era 8,116,864 36,715,806 406,625,235
New Horizons (290,152) 237,545,335 1,357,295,617
OTC 724,007 19,327,056 95,713,425
Science & Technology (4,196,605) 213,757,615 570,232,791
Small-Cap Value 5,874,709 20,928,242 280,480,854
Value 797,218 4,196,179 8,763,898
If, in any taxable year, the Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income, if any, without deduction for dividends or other
distributions to shareholders; and (ii) the Fund's distributions
to the extent made out of the Fund's current or accumulated
earnings and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been
considered capital gain dividends).
Taxation of Foreign Shareholders
PAGE 119
The Code provides that dividends from net income will be
subject to U.S. tax. For shareholders who are not engaged in a
business in the U.S., this tax would be imposed at the rate of
30% upon the gross amount of the dividends in the absence of a
Tax Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized
by the Fund are not subject to tax unless the foreign shareholder
is a nonresident alien individual who was physically present in
the U.S. during the tax year for more than 182 days.
All Funds, Except Equity Index Fund
To the extent the Fund invests in foreign securities, the
following would apply:
Passive Foreign Investment Companies
The Fund may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies. Capital gains on the sale of such holdings will be
deemed to be ordinary income regardless of how long the Fund
holds its investment. In addition to bearing their proportionate
share of the funds expenses (management fees and operating
expenses) shareholders will also indirectly bear similar expenses
of such funds. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and
capital gains earned from these investments, regardless of
whether such income and gains were distributed to shareholders.
In accordance with tax regulations, the Fund intends to
treat these securities as sold on the last day of the Fund's
fiscal year and recognize any gains for tax purposes at that
time; losses will not be recognized. Such gains will be
considered ordinary income which the Fund will be required to
distribute even though it has not sold the security and received
cash to pay such distributions.
Foreign Currency Gains and Losses
Foreign currency gains and losses, including the portion of
gain or loss on the sale of debt securities attributable to
foreign exchange rate fluctuations, are taxable as ordinary
income. If the net effect of these transactions is a gain, the
ordinary income dividend paid by the Fund will be increased. If
the result is a loss, the income dividend paid by the Fund will
be decreased, or to the extent such dividend has already been
paid, it may be classified as a return of capital. Adjustments
to reflect these gains and losses will be made at the end of the
Fund's taxable year.
PAGE 120
All Funds
INVESTMENT PERFORMANCE
Total Return Performance
The Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in the Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in the Fund and the ending value of that
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of the Fund.
Each average annual compound rate of return is derived from the
cumulative performance of the Fund over the time period
specified. The annual compound rate of return for the Fund over
any other period of time will vary from the average.
Cumulative Performance Percentage Change
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
12/31/95 12/31/95 12/31/95 12/31/95
S&P 500 37.58% 115.45% 299.44%
Dow Jones
Industrial Avg. 36.89 124.35 360.22
CPI 2.54 14.72 40.44
Balanced Fund 24.88 82.15 205.43% 24,937.29%
(12/31/39)
Lipper Balanced
Fund Index 24.61 83.16 202.55 N/A
Lehman Brothers
Aggregate Index 18.47 57.27 150.80 N/A
Salomon Brothers Broad
Investment Grade Index 18.53 57.89 150.71 N/A
Blue Chip Growth Fund 37.90 N/A N/A 58.92
(6/30/93)
Capital Appreciation
Fund 22.57 95.66 N/A 226.24
(6/30/86)
Lipper Capital Appreciation
Funds Average 30.34 45.73 245.70 172.65
Capital Opportunity
PAGE 121
Fund 41.93 N/A N/A 69.46
(11/30/94)
Lipper Capital Appreciation
Average 28.65 N/A N/A 38.26
Lipper Capital Appreciation
Index 29.00 N/A N/A 39.25
Nasdaq Composite 34.78 N/A N/A 46.79
Dividend Growth Fund 31.75 N/A N/A 60.72
(12/30/92)
Equity Income Fund 33.35 128.89 306.48 347.12
(10/31/85)
Lipper Equity Income
Fund Average 30.17 45.15 210.81 239.34
Equity Index Fund 37.16 109.97 N/A 110.63
(3/30/90)
Lehman Brothers
Aggregate Index 18.47 57.27 150.80 72.74
Salomon Brothers Broad
Investment Grade Index 18.53 57.89 150.71 73.56
Growth & Income Fund 30.92 124.00 207.20 412.96
(12/21/82)
Lipper Growth and Income
Fund Index 31.00 108.65 246.88 471.04*
Growth Stock Fund 30.97 116.53 248.26 13,868.67
(4/11/50)
Mid-Cap Growth Fund 40.95 N/A N/A 122.24
(6/30/92)
Russell 2000 28.44 159.31 192.17 77.25
S&P 400 Mid-Cap Index 30.95 141.68 327.69 67.02
NASDAQ Composite 39.92 181.44 223.80 86.68
Lipper Growth
Fund Index 32.09 112.50 248.99 62.41
Lipper Growth Fund
Category Average 30.79 42.99 251.83 59.98
New America Growth Fund 44.31 179.21 316.34 393.36
(9/30/85)
Lipper Growth
Fund Index 32.09 112.50 248.99 303.65
New Era Fund 20.76 71.56 193.36 1,348.54
(1/20/69)
Lipper Natural Resources
Funds Average 18.80 43.85 137.57 N/A
PAGE 122
New Horizons Fund 55.44 220.37 285.89 5,649.07
(6/3/60)
OTC Fund 33.85 150.40 176.36 19,254.21
(6/1/56)
Science & Technology
Fund 55.53 325.59 N/A 439.33
(9/30/87)
Lipper Science and
Technology Index 36.84 189.98 N/A 181.19
Russell 2000 28.44 159.31 192.17 114.97
Small-Cap Value Fund 29.29 154.96 N/A 156.93
(6/30/88)
Russell 2000 28.44 159.31 192.17 138.76
NASDAQ Composite 39.92 181.44 223.80 166.59
Lipper Small Company
Growth Funds Average 31.54 52.31 271.46 188.53
Value Fund 35.39 N/A N/A 58.82
(9/30/94)
Lipper Growth & Income
Average 27.73 N/A N/A 36.00
S&P 500 Index 32.10 N/A N/A 44.94
*Since 12/31/82
Average Annual Compound Rates of Return
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
12/31/95 12/31/95 12/31/95 12/31/95
S&P 500 37.58% 16.59 14.85%
Dow Jones
Industrial Avg. 36.89 17.54 16.49
CPI 2.54 2.79 3.45
Balanced Fund 24.88 12.74 11.81 10.37
(12/31/39)
Lipper Balanced
Fund Index 24.61 12.87 11.71 N/A
Lehman Brothers
Aggregate Index 18.47 9.48 9.63 N/A
Salomon Brothers Broad
Investment Grade Index 18.53 9.56 9.71 N/A
Blue Chip Growth Fund 37.90 N/A N/A 20.33
(6/30/93)
Capital Appreciation
Fund 22.57 14.37 N/A 13.25
PAGE 123
(6/30/86)
Lipper Capital Appreciation
Funds Average 30.34 16.97 12.31 10.34
Capital Opportunity
Fund 41.93 N/A N/A 48.65
(11/30/94)
Lipper Capital Appreciation
Average 28.65 N/A N/A 27.33
Lipper Capital Appreciation
Index 29.00 N/A N/A 28.19
Nasdaq Composite 34.78 N/A N/A 33.44
Dividend Growth Fund 31.75 N/A N/A 17.14
(12/30/92)
Equity Income Fund 33.35 18.01 15.05 15.87
(10/31/85)
Lipper Equity Income
Fund Average 30.17 15.04 11.67 12.42
Equity Index Fund 37.16 15.99 N/A 13.81
(3/30/90)
Lehman Brothers
Aggregate Index 18.47 9.48 9.63 9.97
Salomon Brothers Broad
Investment Grade Index 18.53 9.56 9.71 10.06
Growth & Income Fund 30.92 17.50 11.88 13.37
(12/21/82)
Lipper Growth and Income
Fund Index 31.00 15.85 13.24 14.34*
Growth Stock Fund 30.97 16.71 13.29 11.41
(4/11/50)
Mid-Cap Growth Fund 40.95 N/A N/A 25.61
(6/30/92)
Russell 2000 28.44 20.99 11.32 17.75
S&P 400 Mid-Cap Index 30.95 19.30 15.64 15.77
NASDAQ 39.92 22.99 12.47 19.51
Lipper Growth
Fund Index 32.09 16.27 13.31 14.86
Lipper Growth Fund
Category Average 30.79 16.01 12.94 14.11
New America Growth Fund 44.31 22.80 15.33 16.85
(9/30/85)
Lipper Growth
Fund Index 32.09 16.27 13.31 14.58
New Era Fund 20.76 11.40 11.36 10.43
PAGE 124
(1/20/69)
Lipper Natural Resources
Funds Average 18.80 8.41 8.74 N/A
New Horizons Fund 55.44 26.22 14.46 12.06
(6/3/60)
OTC Fund 33.85 20.15 10.70 14.23
(6/1/56)
Science & Technology
Fund 55.53 33.60 N/A 22.66
(9/30/87)
Lipper Science and
Technology Index 36.84 23.73 N/A 13.35
Russell 2000 28.44 20.99 11.32 9.72
Small-Cap Value Fund 29.29 20.59 N/A 13.40
(6/30/88)
Russell 2000 28.44 20.99 11.32 12.30
NASDAQ Composite 39.92 22.99 12.47 13.96
Lipper Small Company
Growth Funds Average 31.54 20.78 13.62 14.69
Value Fund 35.39 N/A N/A 36.20
(9/30/94)
Lipper Growth & Income
Average 27.73 N/A N/A 22.72
S&P 500 Index 32.10 N/A N/A 28.13
*Since 12/31/82
Outside Sources of Information
From time to time, in reports and promotions literature:
(1) the Fund's total return performance or P/E ratio may be
compared to any one or combination of the following: (i) the
Standard & Poor's 500 Stock Index so that you may compare the
Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the stock
market in general; (ii) other groups of mutual funds, including
T. Rowe Price Funds, tracked by: (A) Lipper Analytical Services,
a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives, and assets; (B)
Morningstar, Inc., another widely used independent research firm
which rates mutual funds by overall performance, investment
objective and assets; or (C) other financial or business
publications, such as Business Week, Money Magazine, Forbes and
Barron's, which provide similar information; (iii) indices of
stocks comparable to those in which the Fund invests; (2) the
Consumer Price Index (measure for inflation) may be used to
assess the real rate of return from an investment in the Fund;
PAGE 125
(3) other government statistics such as GNP, and net import and
export figures derived from governmental publications, e.g., The
Survey of Current Business, may be used to illustrate investment
attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates;
(4) various financial, economic and market statistics developed
by brokers, dealers and other persons may be used to illustrate
aspects of the Fund's performance; (5) the effect of tax-deferred
compounding on the Fund's investment returns, or on returns in
general, may be illustrated by graphs, charts, etc. where such
graphs or charts would compare, at various points in time, the
return from an investment in the Fund (or returns in general) on
a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on
a taxable basis; and (6) the sectors or industries in which the
Fund invests may be compared to relevant indices or surveys
(e.g., S&P Industry Surveys) in order to evaluate the Fund's
historical performance or current or potential value with respect
to the particular industry or sector. In connection with (5)
above, information derived from the following chart may be used:
IRA Versus Taxable Return
Assuming 9% annual rate of return, $2,000 annual
contribution and 28% tax bracket.
Year Taxable Tax Deferred
10 $ 28,700 $ 33,100
15 51,400 64,000
20 82,500 111,500
25 125,100 184,600
30 183,300 297,200
IRAs
An IRA is a long-term investment whose objective is to
accumulate personal savings for retirement. Due to the long-term
nature of the investment, even slight differences in performance
will result in significantly different assets at retirement.
Mutual funds, with their diversity of choice, can be used for IRA
investments. Generally, individuals may need to adjust their
underlying IRA investments as their time to retirement and
tolerance for risk changes.
The Balanced Fund may also compare its performance or yield
to a variety of fixed income investments (e.g., repos, CDs,
Treasury bills) and other measures of performance set forth in
financial publications maintained by persons such as the Donoghue
PAGE 126
Organization, Merrill Lynch, Pierce Fenner & Smith, Inc., Salomon
Brothers, Inc. etc.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of Funds
and may help investors achieve various long-term investment
goals, such as investing money for retirement, saving for a down
payment on a home, or paying college costs. To explain how the
Fund could be used to assist investors in planning for these
goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc.
and/or T. Rowe Price Investment Services, Inc. may be made
available. These currently include: the Asset Mix Worksheet
which is designed to show shareholders how to reduce their
investment risk by developing a diversified investment plan; the
College Planning Guide which discusses various aspects of
financial planning to meet college expenses and assists parents
in projecting the costs of a college education for their
children; the Retirement Planning Kit (also available in a PC
version) includes a detailed workbook to determine how much money
you may need for retirement and suggests how you might invest to
achieve your objectives; and the Retirees Financial Guide which
includes a detailed workbook to determine how much money you can
afford to spend and still preserve your purchasing power and
suggests how you might invest to reach your goal; Tax
Considerations for Investors discusses the tax advantages of
annuities and municipal bonds and how to access whether they are
suitable for your portfolio, reviews pros and cons of placing
assets in a gift to minors account and summarizes the benefits
and types of tax-deferred retirement plans currently available;
the Personal Strategy Planner simplifies investment decision
making by helping investors define personal financial goals,
established length of time the investor intends to invest,
determine risk "comfort zone" and select a diversified investment
mix; and the How to Choose a Bond Fund guide which discusses how
to choose an appropriate bond fund for your portfolio. From time
to time, other worksheets and guides may be made available as
well. Of course, an investment in the Fund cannot guarantee that
such goals will be met.
To assist investors in understanding the different returns
and risk characteristics of various investments, the
aforementioned guides will include presentation of historical
returns of various investments using published indices. An
example of this is shown below.
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/95
PAGE 127
50 years 20 years 10 years 5 years
Small-Company Stocks 13.8% 19.6% 11.9% 24.5%
Large-Company Stocks 11.9 14.6 14.8 16.6
Foreign Stocks N/A 15.1 13.9 9.7
Long-Term Corporate Bonds 5.7 10.5 11.2 12.1
Intermediate-Term U.S.
Gov't. Bonds 5.9 9.7 9.1 8.8
Treasury Bills 4.8 7.3 5.5 4.3
U.S. Inflation 4.4 5.2 3.5 2.8
Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.
Also included will be various portfolios demonstrating how
these historical indices would have performed in various
combinations over a specified time period in terms of return. An
example of this is shown below.
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/95 $10,000
Investment
After Period
________________ __________________ ____________
Nominal Real BestWorst
Portfolio Growth IncomeSafety ReturnReturn** YearYear
I. Low
Risk 40% 40% 20% 11.8% 6.5% 24.9% 0.1% $ 92,675
II. Moderate
Risk 60% 30% 10% 13.1% 7.9% 29.1% -1.8%$116,826
PAGE 128
III. High
Risk 80% 20% 0% 14.3% 9.1% 33.4% -5.2%$145,611
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1995 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far
East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond
Index from 1976-95 and 30-day Treasury bills from January
1976 through December 1995). Past performance does not
guarantee future results. Figures include changes in
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.2% for the 20-year period ended
12/31/95.
Insights
From time to time, Insights, a T. Rowe Price publication of
reports on specific investment topics and strategies, may be
included in the Fund's fulfillment kit. Such reports may include
information concerning: calculating taxable gains and losses on
mutual fund transactions, coping with stock market volatility,
benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds,
growth stock investing, conservative stock investing, value
investing, investing in small companies, tax-free investing,
fixed income investing, investing in mortgage-backed securities,
as well as other topics and strategies.
Other Publications
From time to time, in newsletters and other publications
issued by T. Rowe Price Investment Services, Inc., T. Rowe Price
mutual fund portfolio managers may discuss economic, financial
and political developments in the U.S. and abroad and how these
conditions have affected or may affect securities prices or the
Fund; individual securities within the Fund's portfolio; and
their philosophy regarding the selection of individual stocks,
including why specific stocks have been added, removed or
excluded from the Fund's portfolio.
Growing income from rising dividends
Chart 1
PAGE 129
A line graph titled "Growing income from rising dividends" which
depicts hypothetical income and yield on a original investment of
$10,000 in a stock currently yielding 3% and whose dividends grow
8% a year. The chart shows a range of yields from 0% to 15% and
income from $0 to $1,500, for five year periods from zero to 20.
The yield and income for each of the periods are approximately as
listed below.
5 Years 10 Years 15 Years 20 Years
Yield 4% 6% 9% 14%
Income $400 $600 $900 $1,400
Chart depicts hypothetical income and yield on an original
investment of $10,000 in a stock currently yielding 3% and whose
dividends grow 8% a year.
Example is for illustrative purposes only and is not indicative
of an investment in any T. Rowe Price fund.
New Horizons, OTC and Small-Cap Value Funds
PERFORMANCE OF LARGE VS. SMALL COMPANY
STOCKS FOLLOWING RECESSIONS
(Total Return For 12 Months After Recession)
Chart 2
Bar graph appears here comparing large and small company
stocks during eight post-recession periods.
Large Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
________________________________________________________________
36% 38% 13% 11% 28% 14% 26% 11%
_________________________________________________________________
Small Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
_________________________________________________________________
51% 53% 18% 12% 58% 45% 44% 28%
_________________________________________________________________
PAGE 130
Source: T. Rowe Price Associates, Inc.
Data supplied by Ibbotson Associates
The average price-earnings (p/e) ratio of the T. Rowe Price
New Horizons Fund is a valuation measure widely used by the
investment community with respect to small company stocks, and,
in the opinion of T. Rowe Price, has been a good indicator of
future small-cap stock performance. The following chart is
intended to show the history of the average (unweighted) p/e
ratio of the New Horizons Fund's portfolio companies compared
with the p/e ratio of the Standard & Poor's 500 Index. Of
course, the portfolio of the OTC and Small-Cap Value Funds will
differ from the portfolio of the New Horizons Fund. Earnings per
share are estimated by T. Rowe Price for each quarter end.
T. ROWE PRICE NEW HORIZONS FUND, INC.
P/E Ratio of Fund's Portfolio Securities
Relative To The S & P "500" P/E Ratio
(12 Months Forward) March 31, 1996
Chart 3
This is a one line chart that shows the p/e ratio of the New
Horizons Fund relative to the p/e ratio of the S&P 500 Stock
Index. The ratio between the two p/e's is depicted quarterly
from 3/61 to 3/31/96.
The horizontal axis is divided into two year periods. The
vertical axis indicates the relative p/e ratio with 0.5, 1,
1.5, 2 and 2.5 indicated by horizontal lines. The ratio at
3/61 is approximately 2, is at the lowest point in the first
quarter of 1977 at approximately 0.95, is at the highest
point near the end of 1983 at approximately 2.2, and is at
1.48 on March 31, 1996.
Source: T. Rowe Price Associates, Inc.
No-Load Versus Load and 12b-1 Funds
Unlike the T. Rowe Price funds, many mutual funds charge
sales fees to investors or use fund assets to finance
distribution activities. These fees are in addition to the
normal advisory fees and expenses charged by all mutual funds.
There are several types of fees charged which vary in magnitude
and which may often be used in combination. A sales charge (or
"load") can be charged at the time the fund is purchased
(front-end load) or at the time of redemption (back-end load).
Front-end loads are charged on the total amount invested.
Back-end loads or "redemption fees" are charged either on the
amount originally invested or on the amount redeemed. 12b-1
PAGE 131
plans allow for the payment of marketing and sales expenses from
fund assets. These expenses are usually computed daily as a
fixed percentage of assets.
The Fund is a no-load fund which imposes no sales charges or
12b-1 fees. No-load funds are generally sold directly to the
public without the use of commissioned sales representatives.
This means that 100% of your purchase is invested for you.
Redemptions in Kind
In the unlikely event a shareholder were to receive an in
kind redemption of portfolio securities of the Fund, brokerage
fees could be incurred by the shareholder in a subsequent sale of
such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of Fund shares for
securities or assets other than cash will be limited to (1) bona
fide reorganizations; (2) statutory mergers; or (3) other
acquisitions of portfolio securities that: (a) meet the
investment objective and policies of the Fund; (b) are acquired
for investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international exchange or market; and (d) are not illiquid.
Balanced Fund
On August 31, 1992, the T. Rowe Price Balanced Fund acquired
substantially all of the assets of the Axe-Houghton Fund B, a
series of Axe-Houghton Funds, Inc. As a result of this
acquisition, the Securities & Exchange Commission requires that
the historical performance information of the Balanced Fund be
based on the performance of Fund B. Therefore, all performance
information of the Balanced Fund prior to September 1, 1992,
reflects the performance of Fund B and investment managers other
than T. Rowe Price. Performance information after August 31,
1992, reflects the combined assets of the Balanced Fund and Fund
B.
All Funds, Except Capital Appreciation, Equity Income and New
America Growth Funds
CAPITAL STOCK
The Fund's Charter authorizes the Board of Directors to
classify and reclassify any and all shares which are then
unissued, including unissued shares of capital stock into any
PAGE 132
number of classes or series, each class or series consisting of
such number of shares and having such designations, such powers,
preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board subject to the
Investment Company Act and other applicable law. The shares of
any such additional classes or series might therefore differ from
the shares of the present class and series of capital stock and
from each other as to preferences, conversions or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the
capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease
the aggregate number of shares of stock or the number of shares
of stock of any class or series that the Fund has authorized to
issue without shareholder approval.
Except to the extent that the Fund's Board of Directors
might provide by resolution that holders of shares of a
particular class are entitled to vote as a class on specified
matters presented for a vote of the holders of all shares
entitled to vote on such matters, there would be no right of
class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Charter contains no
provision entitling the holders of the present class of capital
stock to a vote as a class on any matter. Accordingly, the
preferences, rights, and other characteristics attaching to any
class of shares, including the present class of capital stock,
might be altered or eliminated, or the class might be combined
with another class or classes, by action approved by the vote of
the holders of a majority of all the shares of all classes
entitled to be voted on the proposal, without any additional
right to vote as a class by the holders of the capital stock or
of another affected class or classes.
Shareholders are entitled to one vote for each full share
held (and fractional votes for fractional shares held) and will
vote in the election of or removal of directors (to the extent
hereinafter provided) and on other matters submitted to the vote
of shareholders. There will normally be no meetings of
shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding
office have been elected by shareholders, at which time the
directors then in office will call a shareholders' meeting for
the election of directors. Except as set forth above, the
directors shall continue to hold office and may appoint successor
directors. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in the election of
directors can, if they choose to do so, elect all the directors
of the Fund, in which event the holders of the remaining shares
PAGE 133
will be unable to elect any person as a director. As set forth
in the By-Laws of the Fund, a special meeting of shareholders of
the Fund shall be called by the Secretary of the Fund on the
written request of shareholders entitled to cast at least 10% of
all the votes of the Fund entitled to be cast at such meeting.
Shareholders requesting such a meeting must pay to the Fund the
reasonably estimated costs of preparing and mailing the notice of
the meeting. The Fund, however, will otherwise assist the
shareholders seeking to hold the special meeting in communicating
to the other shareholders of the Fund to the extent required by
Section 16(c) of the Investment Company Act of 1940.
Capital Appreciation, Equity Income and New America Growth Funds
ORGANIZATION OF THE FUND
For tax and business reasons, the Funds' were organized as
Massachusetts Business Trusts (1985 for the Equity Income and New
America Growth Funds and 1986 for the Capital Appreciation Fund),
and are registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as diversified, open-end
investment companies, commonly known as "mutual funds."
The Declaration of Trust permits the Board of Trustees to
issue an unlimited number of full and fractional shares of a
single class. The Declaration of Trust also provides that the
Board of Trustees may issue additional series or classes of
shares. Each share represents an equal proportionate beneficial
interest in the Fund. In the event of the liquidation of the
Fund, each share is entitled to a pro rata share of the net
assets of the Fund.
Shareholders are entitled to one vote for each full share
held (and fractional votes for fractional shares held) and will
vote in the election of or removal of trustees (to the extent
hereinafter provided) and on other matters submitted to the vote
of shareholders. There will normally be no meetings of
shareholders for the purpose of electing trustees unless and
until such time as less than a majority of the trustees holding
office have been elected by shareholders, at which time the
trustees then in office will call a shareholders' meeting for the
election of trustees. Pursuant to Section 16(c) of the
Investment Company Act of 1940, holders of record of not less
than two-thirds of the outstanding shares of the Fund may remove
a trustee by a vote cast in person or by proxy at a meeting
called for that purpose. Except as set forth above, the trustees
shall continue to hold office and may appoint successor trustees.
Voting rights are not cumulative, so that the holders of more
than 50% of the shares voting in the election of trustees can, if
they choose to do so, elect all the trustees of the Trust, in
PAGE 134
which event the holders of the remaining shares will be unable to
elect any person as a trustee. No amendments may be made to the
Declaration of Trust without the affirmative vote of a majority
of the outstanding shares of the Trust.
Shares have no preemptive or conversion rights; the right of
redemption and the privilege of exchange are described in the
prospectus. Shares are fully paid and nonassessable, except as
set forth below. The Trust may be terminated (i) upon the sale
of its assets to another diversified, open-end management
investment company, if approved by the vote of the holders of
two-thirds of the outstanding shares of the Trust, or (ii) upon
liquidation and distribution of the assets of the Trust, if
approved by the vote of the holders of a majority of the
outstanding shares of the Trust. If not so terminated, the Trust
will continue indefinitely.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Fund or a Trustee. The Declaration of Trust provides for
indemnification from Fund property for all losses and expenses of
any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations,
a possibility which T. Rowe Price believes is remote. Upon
payment of any liability incurred by the Fund, the shareholders
of the Fund paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way so as
to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of such Fund.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the
Securities Act of 1933, and the Fund or its shares are registered
under the laws of all states which require registration, as well
as the District of Columbia and Puerto Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, LLP, whose address is
919 Third Avenue, New York, New York 10022, is legal counsel to
PAGE 135
the Funds.
INDEPENDENT ACCOUNTANTS
Financial Services Fund
______________________, Baltimore, Marylnad 21202, are
independent accountants to the Fund.
Blue Chip Growth, Dividend Growth, Equity Income, Growth &
Income, Mid-Cap Equity Growth, Mid-Cap Growth, Mid-Cap Value, New
America Growth, and New Era Funds
Price Waterhouse LLP, 7 St. Paul Street, Suite 1700,
Baltimore, Maryland 21202, are independent accountants to the
Fund.
Balanced, Capital Appreciation, Capital Opportunity, Growth
Stock, Equity Index Fund, Health Sciences, New Horizons, OTC,
Science & Technology, and Small-Cap Value, and Value Funds
Coopers & Lybrand L.L.P., 217 East Redwood Street,
Baltimore, Maryland 21202, are independent accountants to the
Fund.
The financial statements for Health Sciences, Mid-Cap Equity
Growth, and Mid-Cap Value Funds are attached hereto. The
financial statements of the other funds for the year ended
December 31, 1995, and the report of independent accountants are
included in the Fund's Annual Report for the year ended December
31, 1995. A copy of the Annual Report accompanies this Statement
of Additional Information. The following financial statements
and the report of independent accountants appearing in the Annual
Report for the year ended December 31, 1995, are incorporated
into this Statement of Additional Information by reference:
ANNUAL REPORT REFERENCES:
CAPITAL EQUITY EQUITY GROWTH &
APPRECIATION INCOME INDEX INCOME
____________ ________ ______ ________
Report of Independent
Accountants 15 15 19 15
Statement of Net Assets,
December 31, 1995 7-10 6-10 8-13 6-9
Statement of Operations,
year ended
PAGE 136
December 31, 1995 11 11 14 10
Statement of Changes in
Net Assets, years ended
December 31, 1995 and
December 31, 1994 12 12 15 11
Notes to Financial
Statements,
December 31, 1995 13-14 12-14 16-17 12-13
Financial Highlights 14 14 18 14
NEW
GROWTH AMERICA NEW
STOCK GROWTH ERA OTC
__________ ____________ _______ ______
Report of Independent
Accountants 18 14 15 16
Statement of Net Assets,
December 31, 1995 8-12 7-8 7-9 7-10
Statement of Operations,
year ended
December 31, 1995 13 9 10 11
Statement of Changes in
Net Assets, years ended
December 31, 1995 and
December 31, 1994 14 10 11 12
Notes to Financial
Statements,
December 31, 1995 15-16 11-12 12-13 13-14
Financial Highlights 17 13 14 15
MID-CAP
BALANCED GROWTH
_________ ________
Report of Independent
Accountants 21 15
Statement of Net Assets,
December 31, 1995 6-15 7-9
Statement of Operations,
year ended
December 31, 1995 16 10
Statement of Changes in
Net Assets, years ended
December 31, 1995 and
December 31, 1994 17 11
Notes to Financial
Statements,
December 31, 1995 18-19 12-13
Financial Highlights 20 14
PAGE 137
SCIENCE
NEW & SMALL-CAP
HORIZONS TECHNOLOGY VALUE
__________ __________ ________
Report of Independent
Accountants 19 15 17
Portfolio of Investments,
December 31, 1995 8-12 8-9 6-10
Statement of Assets and
Liabilities,
December 31, 1995 13 9 11
Statement of Operations,
year ended
December 31, 1995 14 10 12
Statement of Changes
in Net Assets, years ended
December 31, 1995 and
December 31, 1994 15 11 13
Notes to Financial
Statements, December 31, 1995 16-17 12-13 14-15
Financial Highlights 18 14 16
BLUE CHIP
GROWTH
___________
Report of Independent Accountants 15
Statement of Net Assets, December 31, 1995 7-9
Statement of Operations, year ended December 31, 1995 10
Statement of Changes in Net Assets, years
ended December 31, 1995 and December 31, 1994 11
Notes to Financial Statements, December 31, 1995 12-13
Financial Highlights 14
DIVIDEND
GROWTH
____________
Report of Independent Accountants 15
Statement of Net Assets, December 31, 1995 6-9
Statement of Operations, year ended December 31, 1995 10
Statement of Changes in Net Assets, years
ended December 31, 1995 and December 31, 1994 11
Notes to Financial Statements, December 31, 1995 12-13
Financial Highlights 14
VALUE
_______
PAGE 138
Report of Independent Accountants 13
Statement of Net Assets, December 31, 1995 5-7
Statement of Operations, year ended December 31, 1995 8
Statement of Changes in Net Assets, periods ended
December 31, 1995 and September 30, 1994
(Commencement of Operations) to December 31, 1994 9
Notes to Financial Statements, December 31, 1995 10-11
Financial Highlights 12
CAPITAL
OPPORTUNITY
_____________
Report of Independent Accountants 13
Statement of Net Assets, December 31, 1995 6-7
Statement of Operations, year ended December 30, 1995 8
Statement of Changes in Net Assets, periods ended
December 31, 1995 and November 30, 1994
(Commencement of Operations) to December 31, 1994 9
Notes to Financial Statements, December 31, 1995 10-11
Financial Highlights 12
SEMI-ANNUAL REPORT REFERENCES:
HEALTH
SCIENCES
_____________
Report of Independent Accountants (unaudited) __
Statement of Net Assets, June 30, 1996 (unaudited) ____
Statement of Operations, year ended
June 30, 1996 (unaudited) _
Statement of Changes in Net Assets, periods ended
June 30, 1996 and December 29, 1995
(Commencement of Operations) to
June 30, 1996 (unaudited) _
Notes to Financial Statements, June 30, 1996
(unaudited) _____
Financial Highlights (unaudited) __
PAGE 139
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 18, 1995
Assets
Receivable for Fund shares sold $100,000
Deferred organizational expenses 50,995
________
Total assets 150,995
Liabilities
Amount due Manager 46,995
Accrued expenses 4,000
________
Total liabilities 50,995
________
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 10,000 shares
outstanding $100,000
_________
_________
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
T. Rowe Price Health Sciences Fund, Inc. (the "Corporation")
was organized on October 20, 1995, as a Maryland corporation and
is registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The
Corporation has had no operations other than those matters
related to organization and registration as an investment
company, the registration of shares for sale under the Securities
Act of 1933, and the sale of 10,000 shares of the T. Rowe Price
Health Sciences Fund at $10.00 per share on December 18, 1995 to
T. Rowe Price Associates, Inc. via share exchange from a T. Rowe
Price money-market mutual fund. The exchange was settled in the
ordinary course of business on December 19, 1995 with the
transfer of $100,000 cash. The Corporation has entered into an
investment management agreement with T. Rowe Price Associates,
Inc. (the Manager) which is described in the Statement of
Additional Information under the heading "Investment Management
Services."
Organizational expenses for the Corporation in the amount of
$50,995 have been accrued at December 18, 1995, and will be
PAGE 140
amortized on a straight-line basis over a period not to exceed
sixty months. The Manager has agreed to advance certain
organizational expenses incurred by the Corporation and will be
reimbursed for such expenses approximately six months after the
commencement of the Corporation's operations.
The Manager has also agreed that in the event any of its
initial shares are redeemed during the 60-month amortization
period of the deferred organizational expenses, proceeds from a
redemption of the shares representing the initial capital will be
reduced by a pro rata portion of any unamortized organizational
expenses.
PAGE 141
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
T. Rowe Price Health Sciences Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of the T. Rowe Price Health Sciences Fund, Inc. (the
"Fund")as of December 18, 1995. This financial statement is the
responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
presents fairly, in all material respects, the financial position
of T. Rowe Price Health Sciences Fund, Inc. as of December 18,
1995, in conformity with generally accepted accounting
principles.
/s/Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND, L.L.P.
Baltimore, Maryland
December 19, 1995
PAGE 142
T. ROWE PRICE MID-CAP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 20, 1996
Assets
Receivable for Fund shares sold $100,000
Deferred organizational expenses 77,378
________
Total assets 177,378
Liabilities
Amount due Manager 75,855
Accrued expenses 1,523
________
Total liabilities 77,378
________
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 10,000 shares
outstanding $100,000
_________
_________
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
T. Rowe Price Mid-Cap Value Fund, Inc. (the "Corporation")
was organized on April 23, 1996, as a Maryland corporation and is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The
Corporation has had no operations other than those matters
related to organization and registration as an investment
company, the registration of shares for sale under the Securities
Act of 1933, and the sale of 10,000 shares of the T. Rowe Price
Mid-Cap Value Fund at $10.00 per share on June 20, 1996 to T.
Rowe Price Associates, Inc. via share exchange from a T. Rowe
Price money-market mutual fund. The exchange was settled in the
ordinary course of business on June 21, 1996 with the transfer of
$100,000 cash. The Corporation has entered into an investment
management agreement with T. Rowe Price Associates, Inc. (the
Manager) which is described in the Statement of Additional
Information under the heading "Investment Management Services."
Organizational expenses for the Corporation in the amount of
$77,378 have been accrued at June 20, 1996, and will be amortized
on a straight-line basis over a period not to exceed sixty
PAGE 143
months. The Manager has agreed to advance certain organizational
expenses incurred by the Corporation and will be reimbursed for
such expenses approximately six months after the commencement of
the Corporation's operations.
The Manager has also agreed that in the event any of its
initial shares are redeemed during the 60-month amortization
period of the deferred organizational expenses, proceeds from a
redemption of the shares representing the initial capital will be
reduced by a pro rata portion of any unamortized organizational
expenses.
PAGE 144
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
T. Rowe Price Mid-Cap Value Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the
financial position of T. Rowe Price Mid-Cap Value Fund, Inc. (the
"Fund") at June 20, 1996, in accordance with generally accepted
accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to
express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 21, 1996
PAGE 145
MID-CAP EQUITY GROWTH FUND, A SERIES OF
INSTITUTIONAL EQUITY FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JULY 23, 1996
Assets
Receivable for Fund shares sold $100,000
Deferred organizational expenses 2,320
________
Total assets 102,320
Liabilities
Amount due Manager 1,570
Accrued expenses 750
________
Total liabilities 2,320
________
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 10,000 shares
outstanding $100,000
_________
_________
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
Mid-Cap Equity Growth Fund, a separate series of
Instutitional Equity Funds, Inc. (the "Corporation") was
organized on April 23, 1996, as a Maryland corporation and is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The
Corporation has had no operations other than those matters
related to organization and registration as an investment
company, the registration of shares for sale under the Securities
Act of 1933, and the sale of 10,000 shares of the Mid-Cap Equity
Growth Fund at $10.00 per share on July 23, 1996 to T. Rowe Price
Associates, Inc. via share exchange from a T. Rowe Price money-
market mutual fund. The exchange was settled in the ordinary
course of business on July 24, 1996 with the transfer of $100,000
cash. The Corporation has entered into an investment management
agreement with T. Rowe Price Associates, Inc. (the Manager) which
is described in the Statement of Additional Information under the
PAGE 146
heading "Investment Management Services."
Organizational expenses for the Corporation in the amount of
$2,320 have been accrued at July 23, 1996, and will be amortized
on a straight-line basis over a period not to exceed sixty
months. The Manager has agreed to advance certain organizational
expenses incurred by the Corporation and will be reimbursed for
such expenses approximately six months after the commencement of
the Corporation's operations.
The Manager has also agreed that in the event any of its
initial shares are redeemed during the 60-month amortization
period of the deferred organizational expenses, proceeds from a
redemption of the shares representing the initial capital will be
reduced by a pro rata portion of any unamortized organizational
expenses.
PAGE 147
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Mid-Cap Equity Growth Fund, a separate portfolio of
Institutional Domestic Equity Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the
financial position of Mid-Cap Equity Growth Fund (the "Fund") at
July 23, 1996, in accordance with generally accepted accounting
principles. This financial statement is the responsibility of
the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
July 24, 1996
PAGE 148
RATINGS OF CORPORATE DEBT SECURITIES
Moody's Investors Services, Inc. (Moody's)
Aaa-Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge."
Aa-Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A-Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Baa-Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterize
bonds in this class.
B-Bonds rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with
respect to principal or interest.
Ca-Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked short-comings.
C-Lowest-rated; extremely poor prospects of ever attaining
investment standing.
Standard & Poor's Corporation (S&P)
AAA-This is the highest rating assigned by Standard & Poor's
PAGE 149
to a debt obligation and indicates an extremely strong capacity
to pay principal and interest.
AA-Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A-Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB-Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, C, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
D-In default.
Fitch Investors Service, Inc.
AAA-High grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The prime feature of a "AAA" bond is the showing of earnings
several times or many times interest requirements for such
stability of applicable interest that safety is beyond reasonable
question whenever changes occur in conditions. Other features
may enter, such as a wide margin of protection through
collateral, security or direct lien on specific property.
Sinking funds or voluntary reduction of debt by call or purchase
or often factors, while guarantee or assumption by parties other
than the original debtor may influence their rating.
AA-Of safety virtually beyond question and readily salable.
Their merits are not greatly unlike those of "AAA" class but a
bond so rated may be junior though of strong lien, or the margin
of safety is less strikingly broad. The issue may be the
PAGE 150
obligation of a small company, strongly secured, but influenced
as to rating by the lesser financial power of the enterprise and
more local type of market.
PAGE 151
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements. A Statement of Assets and Liabilities
of Registrant as of _____________, 1996, appears in the
Statement of Additional Information. Such Statement has
been examined by ____________________, independent
accountants, and has been included in the Statement of
Additional Information in reliance on the report of such
accountants appearing in the Statement of Additional
Information given upon their authority as experts in
auditing and account.+ All other financial statements,
schedules and historical information have been omitted as
the subject matter is not required, not present, or not
present in amounts sufficient to require submission.
(b) Exhibits.
(1) Articles of Incorporation of Registrant, dated July
25, 1996
(2) By-Laws of Registrant
(3) Inapplicable
(4) See Article SIXTH, Capital Stock, subparagraphs
(b)-(g) of the Articles of Incorporation and Article
II, Shareholders, in its entirety, and Article VIII,
Capital Stock, in its entirety, of the Bylaws
electronically filed as exhibits to this
Registration Statement.
(5) Investment Management Agreement between Registrant,
and T. Rowe Price Associates, Inc. (to be filed by
amendment)
(6) Underwriting Agreement between Registrant, and T.
Rowe Price Investment Services, Inc. (to be filed by
amendment)
(7) Inapplicable
+Omitted from Registration Statement as initially filed
since Registrant has no assets or liabilities and has never
had any assets or liabilities. Registrant proposes to raise
its minimum capital through an initial private offering
of shares at $_____ per share.
PAGE 152
(8)(a) Custodian Agreement between T. Rowe Price Funds and
State Street Bank and Trust Company, dated September
28, 1987, as amended to June 24, 1988, October 19,
1988, February 22, 1989, July 19, 1989, September
15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990,
July 18, 1990, October 15, 1990, February 13, 1991,
March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28,
1993, April 22, 1993 September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994,
September 21, 1994, November 1, 1994, November 2,
1994, January 25, 1995, September 20, 1995, November
1, 1995, December 11, 1995, April 24, 1996, and
August 2, 1996 (to be filed by amendment)
(8)(b) Global Custody Agreement between The Chase Manhattan
Bank, N.A., and T. Rowe Price Funds, dated January
3, 1994, as amended April 18, 1994, August 15, 1994,
November 28, 1994, May 31, 1995, November 1, 1995,
and July 31, 1996 (to be filed by amendment)
(9)(a) Transfer Agency and Service Agreement between T.
Rowe Price Services, Inc. and T. Rowe Price Funds
dated January 1, 1996, as amended to August 2, 1996
(to be filed by amendment)
(9)(b) Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services
dated January 1, 1996, as amended to August 2, 1996
(to be filed by amendment)
(9)(c) Agreement between T. Rowe Price Retirement Plan
Services, Inc. and the Taxable funds, dated January
1, 1996, as amended to August 2, 1996 (to be filed
by amendment)
(10) Opinion of Counsel, dated August 2, 1996
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
PAGE 153
(16) Inapplicable
(17) Financial Data Schedule as of August 5, 1996
(18) Inapplicable
(19) Other Exhibits:
Power of Attorney of T. Rowe Price Financial
Services Fund, Inc. (to be filed by amendment)
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None.
Item 26. Number of Holders of Securities
As of August 5, 1996, there were zero shareholders in
the T. Rowe Price Financial Services Fund, Inc.
Item 27. Indemnification
The Registrant maintains comprehensive Errors and Omissions and
Officers and Directors insurance policies written by the Evanston
Insurance Company, The Chubb Group and ICI Mutual. These
policies provide coverage for the named insureds, which include
T. Rowe Price Associates, Inc. ("Manager"), Rowe Price-Fleming
International, Inc. ("Price-Fleming"), T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust
Company, T. Rowe Price Stable Asset Management, Inc., RPF
International Bond Fund and forty-four other investment
companies, namely, T. Rowe Price Growth Stock Fund, Inc., T. Rowe
Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc.,
T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve
Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe
Price Tax-Exempt Money Fund, Inc., T. Rowe Price International
Funds, Inc., T. Rowe Price Growth & Income Fund,Inc., T. Rowe
Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price Mid-
Cap Growth Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc.,
T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free High
Yield Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe
Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price
Capital Appreciation Fund, T. Rowe Price State Tax-Free Income
Trust, T. Rowe Price California Tax-Free Income Trust, T. Rowe
Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap
Value Fund, Inc., Institutional International Funds, Inc., T.
Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust,
Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced
PAGE 154
Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc.,
T. Rowe Price OTC Fund, Inc., T. Rowe Price Tax-Free Insured
Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund,
Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price
Summit Funds, Inc., T. Rowe Price Summit Municipal Funds, Inc.,
T. Rowe Price Equity Series, Inc., T. Rowe Price International
Series, Inc., T. Rowe Price Fixed Income Series, Inc., T. Rowe
Price Personal Strategy Funds, Inc., T. Rowe Price Value Fund,
Inc., T. Rowe Price Capital Opportunity Fund, Inc., T. Rowe Price
Corporate Income Fund, Inc., T. Rowe Price Health Sciences Fund,
Inc., T. Rowe Price Mid-Cap Value Fund, Inc., and Institutional
Equity Funds, Inc. The Registrant and the forty-four investment
companies listed above, with the exception of Institutional
International Funds, Inc. and Institutional Equity Funds, Inc.,
will be collectively referred to as the Price Funds. The
investment manager for the Price Funds and Institutional Equity
Funds, Inc., excluding T. Rowe Price International Funds, Inc.
and T. Rowe Price International Series, Inc., is the Manager.
Price-Fleming is the manager to T. Rowe Price International
Funds, Inc., T. Rowe Price International Series, Inc. and
Institutional International Funds, Inc. and is 50% owned by TRP
Finance, Inc., a wholly-owned subsidiary of the Manager, 25%
owned by Copthall Overseas Limited, a wholly-owned subsidiary of
Robert Fleming Holdings Limited, and 25% owned by Jardine Fleming
International Holdings Limited. In addition to the corporate
insureds, the policies also cover the officers, directors, and
employees of each of the named insureds. The premium is
allocated among the named corporate insureds in accordance with
the provisions of Rule l7d-1(d)(7) under the Investment Company
Act of 1940.
General. The Charter of the Corporation provides that
to the fullest extent permitted by Maryland or federal law,
no director of officer of the Corporation shall be
personally liable to the Corporation or the holders of
Shares for money damages and each director and officer shall
be indemnified by the Corporation; provided, however, that
nothing herein shall be deemed to protect any director or
officer of the Corporation against any liability to the
Corporation of the holders of Shares to which such director
or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or
her office.
Article X, Section 10.01 of the Registrant's By-Laws
provides as follows:
Section 10.01. Indemnification and Payment of Expenses
in Advance: The Corporation shall indemnify any individual
PAGE 155
("Indemnitee") who is a present or former director, officer,
employee, or agent of the Corporation, or who is or has been
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, who,
by reason of his position was, is, or is threatened to be
made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter collectively
referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses
(including attorneys' fees) incurred by such Indemnitee in
connection with any Proceeding, to the fullest extent that
such indemnification may be lawful under Maryland law. The
Corporation shall pay any reasonable expenses so incurred by
such Indemnitee in defending a Proceeding in advance of the
final disposition thereof to the fullest extent that such
advance payment may be lawful under Maryland law. Subject
to any applicable limitations and requirements set forth in
the Corporation's Articles of Incorporation and in these
By-Laws, any payment of indemnification or advance of
expenses shall be made in accordance with the procedures set
forth in Maryland law.
Notwithstanding the foregoing, nothing herein shall
protect or purport to protect any Indemnitee against any
liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office ("Disabling Conduct").
Anything in this Article X to the contrary
notwithstanding, no indemnification shall be made by the
Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court
or other body before whom the Proceeding was
brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a
reasonable determination, based upon a review of
the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, which determination
shall be made by:
(i) the vote of a majority of a quorum of
directors who are neither "interested
persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company
PAGE 156
Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Anything in this Article X to the contrary notwithstanding,
any advance of expenses by the Corporation to any Indemnitee
shall be made only upon the undertaking by such Indemnitee
to repay the advance unless it is ultimately determined that
such Indemnitee is entitled to indemnification as above
provided, and only if one of the following conditions is
met:
(a) the Indemnitee provides a security for his
undertaking; or
(b) the Corporation shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review of
readily available facts, that there is reason to
believe that the Indemnitee will ultimately be
found entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of directors who are
neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of
the Investment Company Act, nor parties to
the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Section 10.02 of the Registrant's By-Laws provides as
follows:
Section 10.02. Insurance of Officers, Directors,
Employees and Agents: To the fullest extent permitted by
applicable Maryland law and by Section 17(h) of the
Investment Company Act, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or
agent of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted
against him and incurred by him in or arising out of his
position, whether or not the Corporation would have the
power to indemnify him against such liability.
PAGE 157
Insofar as indemnification for liability under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
Rowe Price-Fleming International, Inc. ("Price-Fleming"), a
Maryland corporation, is a corporate joint venture 50% owned by
TRP Finance, Inc., a wholly-owned subsidiary of the Manager.
Price-Fleming was organized in 1979 to provide investment counsel
service with respect to foreign securities for institutional
investors in the United States. In addition to managing private
counsel client accounts, Price-Fleming also sponsors registered
investment companies which invest in foreign securities, serves
as general partner of RPFI International Partners, Limited
Partnership, and provides investment advice to the T. Rowe Price
Trust Company, trustee of the International Common Trust Fund.
T. Rowe Price Investment Services, Inc. ("Investment Services"),
a wholly-owned subsidiary of the Manager, is a Maryland
corporation organized in 1980 for the purpose of acting as the
principal underwriter and distributor for the Price Funds.
Investment Services is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. In 1984, Investment
Services expanded its activities to include a discount brokerage
service.
TRP Distribution, Inc., a wholly-owned subsidiary of Investment
Services, is a Maryland corporation organized in 1991. It was
organized for and engages in the sale of certain investment
related products prepared by Investment Services.
PAGE 158
T. Rowe Price Associates Foundation, Inc., was organized in 1981
for the purpose of making charitable contributions to religious,
charitable, scientific, literary and educational organizations.
The Foundation (which is not a subsidiary of the Manager) is
funded solely by contributions from the Manager and income from
investments.
T. Rowe Price Services, Inc. ("Price Services"), a wholly-owned
subsidiary of the Manager, is a Maryland corporation organized in
1982 and is registered as a transfer agent under the Securities
Exchange Act of 1934. Price Services provides transfer agent,
dividend disbursing, and certain other services, including
shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a
wholly-owned subsidiary of the Manager, was incorporated in
Maryland in 1991 and is registered as a transfer agent under the
Securities Exchange Act of 1934. RPS provides administrative,
recordkeeping, and subaccounting services to administrators of
employee benefit plans.
T. Rowe Price Trust Company ("Trust Company"), a wholly-owned
subsidiary of the Manager, is a Maryland-chartered limited
purpose trust company, organized in 1983 for the purpose of
providing fiduciary services. The Trust Company serves as
trustee/custodian for employee benefit plans, individual
retirement accounts and common trust funds and as
trustee/investment agent for two trusts.
T. Rowe Price Threshold Fund Associates, Inc., a wholly-owned
subsidiary of the Manager, is a Maryland corporation organized in
1994 and serves as the general partner of T. Rowe Price Threshold
Fund III, L.P., a Delaware limited partnership established in
1994.
T. Rowe Price Threshold Fund II, L.P., a Delaware limited
partnership, was organized in 1986 by the Manager, and invests in
private financings of small companies with high growth potential;
the Manager is the General Partner of the partnership.
T. Rowe Price Threshold Fund III, L.P., a Delaware limited
partnership was organized in 1994 by the Manager, and invests in
private financings of small companies with high growth potential;
T. Rowe Price Threshold Fund Associates, Inc. is the General
Partner of this partnership.
RPFI International Partners, L.P., is a Delaware limited
partnership organized in 1985 for the purpose of investing in a
diversified group of small and medium-sized non-U.S. companies.
Price-Fleming is the general partner of this partnership, and
PAGE 159
certain institutional investors, including advisory clients of
Price-Fleming, are its limited partners.
T. Rowe Price Real Estate Group, Inc. ("Real Estate Group"), is a
Maryland corporation and a wholly-owned subsidiary of the Manager
established in 1986 to provide real estate services.
Subsidiaries of Real Estate Group are: T. Rowe Price Realty
Income Fund I Management, Inc., a Maryland corporation (General
Partner of T. Rowe Price Realty Income Fund I, A No-Load Limited
Partnership), T. Rowe Price Realty Income Fund II Management,
Inc., a Maryland corporation (General Partner of T. Rowe Price
Realty Income Fund II, America's Sales-Commission-Free Real
Estate Limited Partnership), T. Rowe Price Realty Income Fund III
Management, Inc., a Maryland corporation (General Partner of T.
Rowe Price Realty Income Fund III, America's
Sales-Commission-Free Real Estate Limited Partnership, and T.
Rowe Price Realty Income Fund IV Management, Inc., a Maryland
corporation (General Partner of T. Rowe Price Realty Income Fund
IV, America's Sales-Commission-Free Real Estate Limited
Partnership). Real Estate Group serves as investment manager to
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment, established in 1989 as a Maryland
corporation which qualifies as a REIT.
T. Rowe Price Stable Asset Management, Inc. ("Stable Asset
Management") is a Maryland corporation organized in 1988 as a
wholly-owned subsidiary of the Manager. Stable Asset Management,
which is registered as an investment adviser under the Investment
Advisers Act of 1940, specializes in the management of investment
portfolios which seek stable and consistent investment returns
through the use of guaranteed investment contracts, bank
investment contracts, structured investment contracts, and
short-term fixed-income securities.
T. Rowe Price Recovery Fund Associates, Inc., a Maryland
corporation, is a wholly-owned subsidiary of the Manager
organized in 1988 for the purpose of serving as the General
Partner of T. Rowe Price Recovery Fund, L.P., a Delaware limited
partnership which invests in financially distressed companies.
T. Rowe Price (Canada), Inc. ("TRP Canada") is a Maryland
corporation organized in 1988 as a wholly-owned subsidiary of the
Manager. This entity is registered as an investment adviser
under the Investment Advisers Act of 1940, and as a non-Canadian
Adviser under the Securities Act (Ontario). TRP Canada provides
certain services to the RPF International Bond Fund, a trust
(whose shares are sold in Canada), and Price-Fleming serves as
investment adviser to TRP Canada.
T. Rowe Price Insurance Agency, Inc., is a wholly-owned
PAGE 160
subsidiary of T. Rowe Price Associates, Inc. organized in
Maryland in 1994 and licensed to do business in several states to
act primarily as an insurance agency in connection with the sale
of the Price Funds' variable annuity products.
TRP Management, Inc., is a Maryland corporation wholly-owned by
T. Rowe Price Associates, Inc. which was originally organized in
1990 as T. Rowe Price Industrial Advantage Fund I Management,
Inc. In 1993, the name was changed to TRP Management, Inc. The
subsidiary, in conjunction with CUNA Mutual Insurance Society and
CUNA Service Group, Inc., established a Maryland limited
liability company known as CMC--T. Rowe Price Management LLC.
This company sponsored a family of no-load mutual funds available
to members of credit unions in the United States ("CUNA Funds").
The CUNA Funds received an order from the SEC which withdrew
their registration under the Investment Company Act of 1940.
Since 1983, the Manager has organized several distinct Maryland
limited partnerships, which are informally called the Pratt
Street Ventures partnerships, for the purpose of acquiring
interests in growth-oriented businesses.
Tower Venture, Inc., a wholly-owned subsidiary of the Manager, is
a Maryland corporation organized in 1989 for the purpose of
serving as a general partner of 100 East Pratt St., L.P., a
Maryland limited partnership whose limited partners also include
the Manager. The purpose of the partnership is to further
develop and improve the property at 100 East Pratt Street, the
site of the Manager's headquarters, through the construction of
additional office, retail and parking space.
TRP Suburban, Inc. is a Maryland corporation organized in 1990 as
a wholly-owned subsidiary of the Manager. TRP Suburban has
entered into agreements with McDonogh School and
CMANE-McDonogh-Rowe Limited Partnership to construct an office
building in Owings Mills, Maryland, which houses the Manager's
transfer agent, plan administrative services, retirement plan
services and operations support functions.
TRP Suburban Second, Inc., a wholly-owned Maryland subsidiary of
T. Rowe Price Associates, Inc., was incorporated in 1995 to
primarily engage in the development and ownership of real
property located in Owings Mills, Maryland.
TRP Finance, Inc., a wholly-owned subsidiary of the Manager, is a
Delaware corporation organized in 1990 to manage certain passive
corporate investments and other intangible assets.
T. Rowe Price Strategic Partners Fund, L.P. is a Delaware limited
partnership organized in 1990 for the purpose of investing in
PAGE 161
small public and private companies seeking capital for expansion
or undergoing a restructuring of ownership. The general partner
of the Fund is T. Rowe Price Strategic Partners, L.P.,
("Strategic Partners"), a Delaware limited partnership whose
general partner is T. Rowe Price Strategic Partners Associates,
Inc., a Maryland corporation which is a wholly-owned subsidiary
of the Manager. Strategic Partners also serves as the general
partner of T. Rowe Price Strategic Partners Fund II, L.P., a
Delaware limited partnership established in 1992.
Listed below are the directors of the Manager who have other
substantial businesses, professions, vocations, or employment
aside from that of Director of the Manager:
JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is
President of U.S. Monitor Corporation, a provider of public
response systems. Mr. Halbkat's address is: P.O. Box 23109,
Hilton Head Island, South Carolina 29925.
RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is a
limited partner of The Goldman Sachs Group, L.P. Mr. Menschel's
address is 85 Broad Street, 2nd Floor, New York, New York 10004.
JOHN W. ROSENBLUM, Director of the Manager. Mr. Rosenblum is the
Tayloe Murphy Professor, The Darden Graduate School of Business
Administration, University of Virginia, and a director of:
Chesapeake Corporation, a manufacturer of paper products, Cadmus
Communications Corp., a provider of printing and communication
services; Comdial Corporation, a manufacturer of telephone
systems for businesses; and Cone Mills Corporation, a textiles
producer. Mr. Rosenblum's address is: P.O. Box 6550,
Charlottesville, Virginia 22906.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland is
Chairman of Lowe's Companies, Inc., a retailer of specialty home
supplies and a Director of Hannaford Bros., Co., a food retailer.
Mr. Strickland's address is 604 Two Piedmont Plaza Building,
Winston-Salem, North Carolina 27104.
PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a
Consultant to Cyprus Amax Minerals Company, Englewood, Colorado.
Mr. Walsh's address is: 200 East 66th Street, Apt. A-1005, New
York, New York 10021.
ANNE MARIE WHITTEMORE, Director of the Manager. Mrs. Whittemore
is a partner of the law firm of McGuire, Woods, Battle & Boothe
and is a director of Owens & Minor, Inc.; USF&G Corporation; and
the James River Corporation. Mrs. Whittemore's address is One
James Center, Richmond, Virginia 23219.
PAGE 162
With the exception of Messrs. Halbkat, Menschel, Rosenblum,
Strickland, Walsh, and Mrs. Whittemore, all of the directors of
the Manager are employees of the Manager.
George J. Collins, who is Chief Executive Officer, President, and
a Managing Director of the Manager, is a Director of
Price-Fleming.
George A. Roche, who is Chief Financial Officer and a Managing
Director of the Manager, is a Vice President and a Director of
Price-Fleming.
Carter O. Hoffman, who is a Managing Director of the Manager, is
also a Director of TRP Finance, Inc.
M. David Testa, who is a Managing Director of the Manager, is
Chairman of the Board of Price-Fleming.
Henry H. Hopkins, Charles P. Smith, and Peter Van Dyke, who are
Managing Directors of the Manager, are Vice Presidents of
Price-Fleming.
Robert P. Campbell, Roger L. Fiery, III, Robert C. Howe, Veena A.
Kutler, Heather R. Landon, Nancy M. Morris, George A. Murnaghan,
Robert W. Smith, William F. Wendler, II, and Edward A. Wiese, who
are Vice Presidents of the Manager, are Vice Presidents of
Price-Fleming.
Michael J. Conelius, who is an Assistant Vice President of the
Manager, is a Vice President of Price-Fleming.
R. Aran Gordon, an employee of the Manager, is a Vice President
of Price-Fleming.
Kimberly A. Haker, an employee of the Manager, is Assistant Vice
President and Controller of Price-Fleming.
Todd J. Henry, an employee of the Manager, is a Vice President of
Price-Fleming.
Kathleen G. Polk, an employee of the Manager, is a Vice President
of Price-Fleming.
Alvin M. Younger, Jr., who is a Managing Director and the
Secretary and Treasurer of the Manager, is Secretary and
Treasurer of Price-Fleming.
Nolan L. North, who is a Vice President and Assistant Treasurer
of the Manager, is Assistant Treasurer of Price-Fleming.
PAGE 163
Leah P. Holmes, who is an Assistant Vice President of the
Manager, is a Vice President of Price-Fleming.
Barbara A. Van Horn, who is Assistant Secretary of the Manager,
is Assistant Secretary of Price-Fleming.
Certain directors and officers of the Manager are also officers
and/or directors of one or more of the Price Funds and/or one or
more of the affiliated entities listed herein.
See also "Management of Fund," in Registrant's Statement of
Additional Information.
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is
Investment Services. Investment Services acts as the principal
underwriter for the other seventy-two Price Funds. Investment
Services is a wholly-owned subsidiary of the Manager is
registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities
Dealers, Inc. Investment Services has been formed for the limited
purpose of distributing the shares of the Price Funds and will
not engage in the general securities business. Since the Price
Funds are sold on a no-load basis, Investment Services will not
receive any commission or other compensation for acting as
principal underwriter.
(b) The address of each of the directors and officers of
Investment Services listed below is 100 East Pratt Street,
Baltimore, Maryland 21202.
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James Sellers Riepe Chairman of the Board Vice President
and Director and Director
Edward C. Bernard President None
Henry Holt Hopkins Vice President and Vice President
Director
Charles E. Vieth Vice President and None
Director
Mark E. Rayford Director None
Patricia M. Archer Vice President None
Joseph C. Bonasorte Vice President None
Darrell N. Braman Vice President None
Meredith C. Callanan Vice President None
Laura H. Chasney Vice President None
PAGE 164
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Forrest R. Foss Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
James Link Vice President None
David L. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice Albert Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven Ellis Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Pamela D. Preston Vice President None
Lucy Beth Robins Vice President None
John Richard Rockwell Vice President None
Kenneth J. Rutherford Vice President None
Monica R. Tucker Vice President None
William F. Wendler, II Vice President None
Terri L. Westren Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and None
Treasurer
Mark S. Finn Controller None
Richard J. Barna Assistant Vice President None
Catherine L. Berkenkemper Assistant Vice President None
Ronae M. Brock Assistant Vice President None
Brenda E. Buhler Assistant Vice President None
Patricia S. Butcher Assistant Vice President Assistant
Secretary
Renee M. Christoff Assistant Vice President None
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Douglas E. Harrison Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Kathleen Hussey Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
Mark J. Mitchell Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
PAGE 165
Kristin E. Seeberger Assistant Vice President None
Arthur J. Silber Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive
any compensation with respect to its activities as underwriter
for the Price Funds since the Price Funds are sold on a no-load
basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be
maintained by T. Rowe Price Financial Services Fund, Inc.
under Section 31(a) of the Investment Company Act of 1940
and the rules thereunder will be maintained by T. Rowe Price
Financial Services Fund, Inc., at its offices at 100 East
Pratt Street, Baltimore, Maryland 21202. Transfer agent,
dividend disbursing, and shareholder service activities are
performed by T. Rowe Price Services, Inc., at 100 East Pratt
Street, Baltimore, Maryland 21202. Custodian activities for
T. Rowe Price Financial Services Fund, Inc. are performed at
State Street Bank and Trust Company's Service Center (State
Street South), 1776 Heritage Drive, Quincy, Massachusetts
02171.
Item 31. Management Services.
The Registrant is not a party to any management-related
service contract, other than as set forth in the Prospectus.
Item 32. Undertakings.
(a) The undersigned Registrant hereby undertakes to file an
amendment to the Registration Statement with certified
financial statements showing the initial capital
received before accepting subscriptions from any
persons in excess of 25 if it raises its initial
capital pursuant to Section 14(a)(3) of the 1940 Act.
(b) The Fund will file, within four to six months from the
effective date of its registration statement, a
post-effective amendment using financial statements
which need not be certified.
(c) If requested to do so by the holders of at least 10% of
all votes entitled to be cast, the Registrant will call
a meeting of shareholders for the purpose of voting on
PAGE 166
the question of removal of a director or directors and
will assist in communications with other shareholders
to the extent required by Section 16(c).
(d) Each series of the Registrant agrees to furnish, upon
request and without charge, a copy of its latest Annual
Report to each person to whom as prospectus is
delivered.
PAGE 167
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, this 5th
day of August, 1996.
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
By: /s/Daniel M. Theriault
Daniel M. Theriault
President
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
_________ ______ _____
/s/Daniel M. Theriault
Daniel M. Theriault President
(Principal
Executive Officer) August 5, 1996
/s/Carmen F. Deyesu
Carmen F. Deyesu Treasurer
(Principal Financial
Officer) August 5, 1996
/s/Donald W. Dick, Jr.
Donald W. Dick, Jr. Director August 5, 1996
/s/David K. Fagin
David K. Fagin Director August 5, 1996
/s/Hanne M. Merriman
Hanne M. Merriman Director August 5, 1996
/s/James S. Riepe
James S. Riepe Director August 5, 1996
PAGE 168
/s/M. David Testa
M. David Testa Director August 5, 1996
/s/Hubert D. Vos
Hubert D. Vos Director August 5, 1996
/s/Paul M. Wythes
Paul M. Wythes Director August 5, 1996
PAGE 1
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Henry H. Hopkins, whose address
is 100 East Pratt Street, Baltimore, Maryland 21202, being at
least eighteen years of age, acting as incorporator, does hereby
form a corporation under the General Laws of the State of
Maryland.
SECOND: (a) The name of the corporation (which is
hereinafter called the "Corporation") is:
T. Rowe Price Financial Services Fund, Inc.
(b) The Corporation acknowledges that it is adopting its
corporate name through permission of T. Rowe Price Associates,
Inc., a Maryland corporation (hereinafter referred to as "Price
Associates"), and acknowledges that Price Associates has the sole
and exclusive right to use or license the use of the name "T.
Rowe Price" in commerce. The Corporation agrees that if at any
time and for any cause, the investment adviser or distributor of
the Corporation ceases to be Price Associates or an affiliate of
Price Associates, the Corporation shall at the written request of
Price Associates take all requisite action to amend its charter
to eliminate the name "T. Rowe Price" from the Corporation's
corporate name and from the designations of its shares of capital
stock. The Corporation further acknowledges that Price
Associates reserves the right to grant the non-exclusive right to
use the name "T. Rowe Price" to any other corporation, including
other investment companies, whether now in existence or hereafter
created.
THIRD: (a) The purposes for which the Corporation is
formed and the business and objects to be carried on and promoted
by it are:
(1) To engage generally in the business of investing,
reinvesting, owning, holding or trading in securities, as
defined in the Investment Company Act of 1940, as from time
to time amended (hereinafter referred to as the "Investment
Company Act"), as an investment company classified under the
Investment Company Act as a management company.
(2) To engage in any one or more businesses or
transactions, or to acquireall or any portion of any entity
PAGE 2
engaged in any one or more businesses or transactions, which
the Board of Directors may from time to time authorize or
approve, whether or not related to the business described
elsewhere in this Article or to any other business at the
time or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be
in no way limited or restricted by reference to, or inference
from, the terms of any other clause of this or any other Article
of the charter of the Corporation, and each shall be regarded as
independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of
Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is:
100 East Pratt Street
Baltimore, Maryland 21202
FIFTH: The name and address of the resident agent of the
Corporation in this State are:
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
Said resident agent is a citizen of the State of Maryland,
and actually resides therein.
SIXTH: (a) The total number of shares of stock of all
classes and series which the Corporation initially has authority
to issue is One Billion (1,000,000,000) shares of capital stock
(par value $.0001 per share), amounting in aggregate par value to
One Hundred Thousand Dollars ($100,000). All of such shares are
initially classified as "Common Stock" of the "Financial
Services" series. The Board of Directors may classify and
reclassify any unissued shares of capital stock (whether or not
such shares have been previously classified or reclassified) by
setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(b) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and
conditions of redemption of theshares of Common Stock classified
PAGE 3
as the "Financial Services" series and any additional series of
Common Stock of the Corporation (unless provided otherwise by the
Board of Directors with respect to any such additional series at
the time it is established and designated):
(1) Assets Belonging to Series. All consideration
received by the Corporation from the issue or sale of shares
of a particular series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
investment or reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to that series for
all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings,
profits and proceeds, together with any General Items
allocated to that series as provided in the following
sentence, are herein referred to collectively as "assets
belonging to" that series. In the event that there are any
assets, income, earnings, profits or proceeds which are not
readily identifiable as belonging to any particular series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General Items
so allocated to a particular series shall belong to that
series. Each such allocation by the Board of Directors
shall be conclusive and binding for all purposes.
(2) Liabilities of Series. The assets belonging to
each particular series shall be charged with the liabilities
of the Corporation in respect of that series and all
expenses, costs, charges and reserves attributable to that
series, and any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily
identifiable as pertaining to any particular series, shall
be allocated and charged by or under the supervision of the
Board of Directors to and among any one or more of the
series established and designated from time to time in such
manner and on such basis as the Board of Directors, in its
sole discretion, deems fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so
charged to a series are herein referred to collectively as
"liabilities of" that series. Each allocation of
liabilities, expenses, costs, charges and reserves by or
under the supervision of the Board of Directors shall be
conclusive and binding for all purposes.
PAGE 4
(3) Dividends and Distributions. Dividends and capital
gains distributions on shares of a particular series may be paid
with such frequency, in such form and in such amount as the Board
of Directors may determine by resolution adopted from time to
time, or pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities of
that series. All dividends on shares of a particular series
shall be paid only out of the income belonging to that series and
all capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to that
series. All dividends and distributions on shares of a
particular series shall be distributed pro rata to the holders of
that series in proportion to the number of shares of that series
held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that
in connection with any dividend or distribution program or
procedure, the Board of Directors may determine that no dividend
or distribution shall be payable on shares as to which the
shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of
Directors under such program or procedure.
Dividends and distributions may be paid in cash,
property or additional shares of the same or another series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
shareholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the
shareholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the series thereof, and all
shares of all series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any series is
required by the Investment Company Act or by the Maryland
General Corporation Law, such requirement as to a separate
vote by that series shall apply in lieu of Single Class
Voting; (ii) in the event that the separate vote requirement
referred to in (i) above applies with respect to one or more
series, then, subject to (iii) below, the shares of all
other series shall vote as a single class; and (iii) as to
any matter which does not affect the interest of a
particular series, including liquidation of another series
as described in subsection (7) below, only the holders of
shares of the one or more affected series shall be entitled
to vote.
PAGE 5
(5) Redemption by Shareholders. Each holder of shares
of a particular series shall have the right at such times as
may be permitted by the Corporation to require the
Corporation to redeem all or any part of his shares of that
series, at a redemption price per share equal to the net
asset value per share of that series next determined after
the shares are properly tendered for redemption, less such
redemption fee or sales charge, if any, as may be
established by the Board of Directors in its sole
discretion. Payment of the redemption price shall be in
cash; provided, however, that if the Board of Directors
determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or
undesirable, the Corporation may, to the extent and in the
manner permitted by the Investment Company Act, make payment
wholly or partly in securities or other assets belonging to
the series of which the shares being redeemed are a part, at
the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Corporation may
postpone payment of the redemption price and may suspend the
right of the holders of shares of any series to require the
Corporation to redeem shares of that series during any
period or at any time when and to the extent permissible
under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors
may cause the Corporation to redeem at net asset value the
shares of any series from a holder (i) if the Board of
Directors of the Corporation determines in its sole
discretion that failure to so redeem such shares may have
materially adverse consequences to the holders of shares of
the Corporation or any series, or (ii) upon such other
conditions with respect to the maintenance of shareholder
accounts of a minimum amount as may from time to time be
established by the Board of Directors in its sole
discretion.
(7) Liquidation. In the event of the liquidation of a
particular series, the shareholders of the series that is
being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess
of the assets belonging to that series over the liabilities
of that series. The holders of shares of any particular
series shall not be entitled thereby to any distribution
upon liquidation of any other series. The assets so
distributable to the shareholders of any particular series
shall be distributed among such shareholders in proportion
to the number of shares of that series held by them and
recorded on the books of the Corporation. The liquidation
of any particular series in which there are shares then
outstanding
PAGE 6
may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that
series, as defined in the Investment Company Act, and
without the vote of the holders of shares of any other
series. The liquidation of a particular series may be
accomplished, in whole or in part, by the transfer of assets
of such series to another series or by the exchange of
shares of such series for the shares of another series.
(8) Net Asset Value Per Share. The net asset value
per share of any series shall be the quotient obtained by
dividing the value of the net assets of that series (being
the value of the assets belonging to that series less the
liabilities of that series) by the total number of shares of
that series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with
generally accepted accounting principles and the Investment
Company Act. Subject to the applicable provisions of the
Investment Company Act, the Board of Directors, in its sole
discretion, may prescribe and shall set forth in the By-Laws
of the Corporation or in a duly adopted resolution of the
Board of Directors such bases and times for determining the
value of the assets belonging to, and the net asset value
per share of outstanding shares of, each series, or the net
income attributable to such shares, as the Board of
Directors deems necessary or desirable. The Board of
Directors shall have full discretion, to the extent not
inconsistent with the Maryland General Corporation Law and
the Investment Company Act, to determine which items shall
be treated as income and which items as capital and whether
any item of expense shall be charged to income or capital.
Each such determination and allocation shall be conclusive
and binding for all purposes.
The Board of Directors may determine to maintain the
net asset value per share of any series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act
for the continuing declaration of income attributable to
that series as dividends and for the handling of any losses
attributable to that series. Such procedures may provide
that in the event of any loss, each shareholder shall be
deemed to have contributed to the capital of the Corporation
attributable to that series his pro rata portion of the
total number of shares required to be canceled in order to
permit the net asset value per share of that series to be
maintained, after reflecting such loss, at the designated
constant dollar amount. Each shareholder of the Corporation
shall be deemed to have agreed, by his investment in any
series with respect to which the Board of Directors shall
have adopted any such procedure, to
PAGE 7
make the contribution referred to in the preceding sentence
in the event of any such loss.
(9) Equality. All shares of each particular series
shall represent an equal proportionate interest in the
assets belonging to that series (subject to the liabilities
of that series), and each share of any particular series
shall be equal to each other share of that series. The
Board of Directors may from time to time divide or combine
the shares of any particular series into a greater or lesser
number of shares of that series without thereby changing the
proportionate interest in the assets belonging to that
series or in any way affecting the rights of holders of
shares of any other series.
(10) Conversion or Exchange Rights. Subject to
compliance with the requirements of the Investment Company
Act, the Board of Directors shall have the authority to
provide that holders of shares of any series shall have the
right to convert or exchange said shares into shares of one
or more other classes or series of shares in accordance with
such requirements and procedures as may be established by
the Board of Directors.
(c) The shares of Common Stock of the Corporation, or of
any series of Common Stock of the Corporation to the extent such
Common Stock is divided into series, may be further subdivided
into classes (which may, for convenience of reference be referred
to a term other than "class"). Unless otherwise provided in the
Articles Supplementary establishing such classes, all such
shares, or all shares of a series of Common Stock in a series,
shall have identical voting, dividend, and liquidation rights.
Shares of the classes shall also be subject to such front-end
sales loads, contingent deferred sales charges, expenses
(including, without limitation, distribution expenses under a
Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other arrangement,
however designated), conversion rights, and class voting rights
as shall be consistent with Maryland law, the Investment Company
Act of 1940, and the rules and regulations of the National
Association of Securities Dealers and shall be contained in
Articles Supplementary establishing such classes.
(d) For the purposes hereof and of any articles
supplementary to the charter providing for the classification or
reclassification of any shares of capital stock or of any other
charter document of the Corporation (unless otherwise provided in
any such articles or document), any class or series of stock of
the Corporation shall be deemed to rank:
PAGE 8
(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class
or series shall be entitled to the receipt of dividends or
of amounts distributable on liquidation, dissolution or
winding up, as the case may be, in preference or priority to
holders of such other class or series;
(2) on a parity with another class or series either as
to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation price per share thereof be different from those
of such others, if the holders of such class or series of
stock shall be entitled to receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective
dividend rates or redemption or liquidation prices, without
preference or priority over the holders of such other class
or series; and
(3) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders
of such class or series shall be subject or subordinate to
the rights of the holders of such other class or series in
respect of the receipt of dividends or the amounts
distributable upon liquidation, dissolution or winding up,
as the case may be.
(e) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end management investment
company under the Investment Company Act, the Board of Directors
shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the
number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has
authority to issue.
(f) The Corporation may issue and sell fractions of shares
of capital stock having pro rata all the rights of full shares,
including, without limitation, the right to vote and to receive
dividends, and wherever the words "share" or "shares" are used in
the charter or By-Laws of the Corporation, they shall be deemed
to include fractions of shares, where the context does not
clearly indicate that only full shares are intended.
(g) The Corporation shall not be obligated to issue
certificates representing shares of any class or series of
capital stock. At the time of issue or transfer of shares
without certificates, the Corporation shall provide the
shareholder with such information as may be required under the
Maryland General Corporation Law.
SEVENTH: The number of directors of the Corporation shall
PAGE 9
initially be one (1), which number may be increased or decreased
pursuant to the By-Laws of the Corporation, but shall never be
less than the minimum number permitted by the General Laws of the
State of Maryland now or hereafter in force. James S. Riepe
shall serve as director until the first annual meeting and until
his successor is elected and qualified.
EIGHTH: (a) The following provisions are hereby adopted
for the purpose of defining, limiting, and regulating the powers
of the Corporation and of the directors and shareholders:
(1) The Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of its
stock of any class or series, whether now or hereafter
authorized, or securities convertible into shares of its
stock of any class or series, whether now or hereafter
authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action
by the shareholders.
(2) No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall
have any preemptive right to subscribe for or purchase any
stock or any other securities of the Corporation other than
such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and
upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which
the Board of Directors may determine to offer for
subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any
class, series or type of stock or other securities at the
time outstanding to the exclusion of the holders of any or
all other classes, series or types of stock or other
securities at the time outstanding.
(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole
discretion to determine from time to time in accordance with
sound accounting practice or other reasonable valuation
methods what constitutes annual or other net profits,
earnings, surplus, or net assets in excess of capital; to
determine that retained earnings or surplus shall remain in
the hands of the Corporation; to set apart out of any funds
of the Corporation such reserve or reserves in such amount
or amounts and for such proper purpose or purposes as it
shall determine and to abolish any such reserve or any part
thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus
or any other funds or amounts legally available therefor, at
such times and to the shareholders of record on such dates
as it
PAGE 10
may, from time to time, determine; and to determine whether
and to what extent and at what times and places and under
what conditions and regulations the books, accounts and
documents of the Corporation, or any of them, shall be open
to the inspection of shareholders, except as otherwise
provided by statute or by the By-Laws, and, except as so
provided, no shareholder shall have any right to inspect any
book, account or document of the Corporation unless
authorized so to do by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a
majority of the total number of shares of all classes and
series of capital stock or of the total number of shares of
any class or series of capital stock entitled to vote as a
separate class, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a
majority of the total number of shares of all classes and
series outstanding and entitled to vote thereon, or of the
class or series entitled to vote thereon as a separate
class, as the case may be, except as otherwise provided in
the charter of the Corporation.
(5) The Corporation shall indemnify (i) its directors
and officers, whether serving the Corporation or at its
request any other entity, to the full extent required or
permitted by the General Laws of the State of Maryland now
or hereafter in force, including the advance of expenses
under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as
shall be authorized by the Board of Directors or the By-Laws
and as permitted by law. Nothing contained herein shall be
construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct
of his office. The foregoing rights of indemnification
shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered
to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or
such further indemnification arrangements as may be
permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit
or eliminate the right of indemnification provided hereunder
with respect to acts or omissions occurring prior to such
amendment or repeal.
PAGE 11
(6) To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and
the Investment Company Act, no director or officer of the
Corporation shall be personally liable to the Corporation or
its shareholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment of the
charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such
amendment or repeal.
(7) The Corporation reserves the right from time to
time to make any amendments of its charter which may now or
hereafter be authorized by law, including any amendments
changing the terms or contract rights, as expressly set
forth in its charter, of any of its outstanding stock by
classification, reclassification or otherwise.
(b) The enumeration and definition of particular powers of
the Board of Directors included in the foregoing shall in no way
be limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of the
charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General
Laws of the State of Maryland now or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation, acknowledging the same to be my act, on this 25th
day of July, 1996.
Witness:
/s/Patricia S. Butcher /s/Henry H. Hopkins
Patricia S. Butcher Henry H. Hopkins
PAGE 1
BY-LAWS
OF
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
PAGE 2
TABLE OF CONTENTS
Page
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND
SEAL . . . . . . . . . . . . . . . . . . . 1
1.01. Name . . . . . . . . . . . . . . . . . . . 1
1.02. Principal Office . . . . . . . . . . . . . 1
1.03. Seal . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS . . . . . . . . . . . . . . . 1
2.01. Annual Meetings . . . . . . . . . . . . . . 1
2.02. Special Meetings . . . . . . . . . . . . . 2
2.03. Place of Meetings . . . . . . . . . . . . . 2
2.04. Notice of Meetings . . . . . . . . . . . . 2
2.05. Voting - in General . . . . . . . . . . . . 2
2.06. Shareholders Entitled to Vote . . . . . . . 3
2.07. Voting - Proxies . . . . . . . . . . . . . 3
2.08. Quorum . . . . . . . . . . . . . . . . . . 3
2.09. Absence of Quorum . . . . . . . . . . . . . 3
2.10. Stock Ledger and List of Shareholders . . . 4
2.11. Informal Action by Shareholders . . . . . . 4
ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . 4
3.01. Number and Term of Office . . . . . . . . . 4
3.02. Qualification of Directors . . . . . . . . 4
3.03. Election of Directors . . . . . . . . . . . 5
3.04. Removal of Directors . . . . . . . . . . . 5
3.05. Vacancies and Newly Created Directorships . 5
3.06. General Powers . . . . . . . . . . . . . . 5
3.07. Power to Issue and Sell Stock . . . . . . . 6
3.08. Power to Declare Dividends . . . . . . . . 6
3.09. Annual and Regular Meetings . . . . . . . . 6
3.10. Special Meetings . . . . . . . . . . . . . 6
3.11. Notice . . . . . . . . . . . . . . . . . . 7
3.12. Waiver of Notice . . . . . . . . . . . . . 7
3.13. Quorum and Voting . . . . . . . . . . . . . 7
3.14. Conference Telephone . . . . . . . . . . . 7
3.15. Compensation . . . . . . . . . . . . . . . 7
3.16. Action without a Meeting . . . . . . . . . 7
3.17. Director Emeritus . . . . . . . . . . . . . 7
PAGE 3
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES . 8
4.01. How Constituted . . . . . . . . . . . . . . 8
4.02. Powers of the Executive Committee . . . . . 8
4.03. Other Committees of the Board of Directors 8
4.04. Proceedings, Quorum and Manner of Acting . 8
4.05. Other Committees . . . . . . . . . . . . . 8
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . 9
5.01. General . . . . . . . . . . . . . . . . . . 9
5.02. Election, Term of Office and Qualifications 9
5.03. Resignation . . . . . . . . . . . . . . . . 9
5.04. Removal . . . . . . . . . . . . . . . . . . 9
5.05. Vacancies and Newly Created Offices . . . . 9
5.06. Chairman of the Board . . . . . . . . . . . 9
5.07. President . . . . . . . . . . . . . . . . . 10
5.08. Vice President . . . . . . . . . . . . . . 10
5.09. Treasurer and Assistant Treasurers . . . . 10
5.10. Secretary and Assistant Secretaries . . . . 10
5.11. Subordinate Officers . . . . . . . . . . . 11
5.12. Remuneration . . . . . . . . . . . . . . . 11
5.13. Surety Bond . . . . . . . . . . . . . . . . 11
ARTICLE VI. CUSTODY OF SECURITIES AND CASH . . . . . . 11
6.01. Employment of a Custodian . . . . . . . . . 11
6.02. Central Certificate Service . . . . . . . . 12
6.03. Cash Assets . . . . . . . . . . . . . . . . 12
6.04. Free Cash Accounts . . . . . . . . . . . . 12
6.05. Action Upon Termination of Custodian
Agreement . . . . . . . . . . . . . . . . . 12
6.06. Other Arrangements . . . . . . . . . . . . 12
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF
SECURITIES . . . . . . . . . . . . . . . . 13
7.01. Execution of Instruments . . . . . . . . . 13
7.02. Voting of Securities . . . . . . . . . . . 13
ARTICLE VIII. CAPITAL STOCK . . . . . . . . . . . . . . . 13
8.01. Ownership of Shares . . . . . . . . . . . . 13
8.02. Transfer of Capital Stock . . . . . . . . . 13
8.03. Transfer Agents and Registrars . . . . . . 14
8.04. Transfer Regulations . . . . . . . . . . . 14
8.05. Fixing of Record Date . . . . . . . . . . . 14
PAGE 4
ARTICLE IX. FISCAL YEAR, ACCOUNTANT . . . . . . . . . . 14
9.01. Fiscal Year . . . . . . . . . . . . . . . . 14
9.02. Accountant . . . . . . . . . . . . . . . . 14
ARTICLE X. INDEMNIFICATION AND INSURANCE . . . . . . . 15
10.01. Indemnification and Payment of Expenses
in Advance . . . . . . . . . . . . . . . . 15
10.02. Insurance of Officers, Directors,
Employees and Agents . . . . . . . . . . . 16
10.03. Amendment . . . . . . . . . . . . . . . . . 16
ARTICLE XI. AMENDMENTS . . . . . . . . . . . . . . . . 17
11.01. General . . . . . . . . . . . . . . . . . . 17
11.02. By Shareholders Only . . . . . . . . . . . 17
ARTICLE XII. MISCELLANEOUS . . . . . . . . . . . . . . . 17
12.01 Use of the Term "Annual Meeting" . . . . . 17
PAGE 5
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
(A Maryland Corporation)
BY-LAWS
ARTICLE I
NAME OF CORPORATION,
LOCATION OF OFFICES AND SEAL
Section 1.01. Name: The name of the Corporation is T. ROWE
PRICE FINANCIAL SERVICES FUND, INC.
Section 1.02. Principal Office: The principal office of
the Corporation in the State of Maryland shall be located in the
City of Baltimore. The Corporation may, in addition, establish
and maintain such other offices and places of business, within
or outside the State of Maryland, as the Board of Directors may
from time to time determine. [MGCL, Sections 2-103(4),
2-108(a)(1)]*
Section 1.03. Seal: The corporate seal of the Corporation
shall be circular in form, and shall bear the name of the
Corporation, the year of its incorporation, and the words
"Corporate Seal, Maryland." The form of the seal shall be
subject to alteration by the Board of Directors and the seal may
be used by causing it or a facsimile to be impressed or affixed
or printed or otherwise reproduced. In lieu of affixing the
corporate seal to any document it shall be sufficient to meet the
requirements of any law, rule, or regulation relating to a
corporate seal to affix the word "(Seal)" adjacent to the
signature of the authorized officer of the Corporation. Any
officer or Director of the Corporation shall have authority to
affix the corporate seal of the Corporation to any document
requiring the same. [MGCL, Sections 1-304(b), 2-103(3)]
ARTICLE II
SHAREHOLDERS
Section 2.01. Annual Meetings: The Corporation shall not
be required to hold an annual meeting of its shareholders in any
year unless the Investment Company Act of 1940 requires an
election of directors by shareholders. In the event that the
Corporation shall be so required to hold an annual meeting, such
meeting shall be held at a date and time set by the Board of
Directors, which date shall be no later than 120 days after the
occurrence of the event requiring the meeting.
_________________________
PAGE 6
* Bracketed citations are to the General Corporation Law of
the State of Maryland ("MGCL") or to the United States
Investment Company Act of 1940, as amended (the "Investment
Company Act"), or to Rules of the United States Securities
and Exchange Commission thereunder ("SEC Rules"). The
citations are inserted for reference only and do not
constitute a part of the By-Laws.
Any shareholders' meeting held in accordance with the preceding
sentence shall for all purposes constitute the annual meeting of
shareholders for the fiscal year of the corporation in which the
meeting is held. At any such meeting, the shareholders shall
elect directors to hold the offices of any directors who have
held office for more than one year or who have been elected by
the Board of Directors to fill vacancies which result from any
cause. Except as the Articles of Incorporation or statute
provides otherwise, Directors may transact any business within
the powers of the Corporation as may properly come before the
meeting. Any business of the Corporation may be transacted at
the annual meeting without being specially designated in the
notice, except such business as is specifically required by
statute to be stated in the notice. [MGCL, Section 2-501]
Section 2.02. Special Meetings: Special meetings of the
shareholders may be called at any time by the Chairman of the
Board, the President, any Vice President, or by the Board of
Directors. Special meetings of the shareholders shall be called
by the Secretary on the written request of shareholders entitled
to cast at least ten (10) percent of all the votes entitled to be
cast at such meeting, provided that (a) such request shall state
the purpose or purposes of the meeting and the matters proposed
to be acted on, and (b) the shareholders requesting the meeting
shall have paid to the Corporation the reasonably estimated cost
of preparing and mailing the notice thereof, which the Secretary
shall determine and specify to such shareholders. Unless
requested by shareholders entitled to cast a majority of all the
votes entitled to be cast at the meeting, a special meeting need
not be called to consider any matter which is substantially the
same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve (12) months. [MGCL,
Section 2-502]
Section 2.03. Place of Meetings: All shareholders'
meetings shall be held at such place within the United States as
may be fixed from time to time by the Board of Directors. [MGCL,
Section 2-503]
Section 2.04. Notice of Meetings: Not less than ten (10)
days, nor more than ninety (90) days before each shareholders'
meeting, the Secretary or an Assistant Secretary of the
Corporation shall give to each shareholder entitled to vote at
the meeting, and each other shareholder entitled to notice of the
meeting, written notice stating (1) the time and place of the
meeting, and (2) the purpose or purposes of the meeting if the
meeting is a
PAGE 7
special meeting or if notice of the purpose is required by
statute to be given. Such notice shall be personally delivered
to the shareholder, or left at his residence or usual place of
business, or mailed to him at his address as it appears on the
records of the Corporation. Notice shall be deemed to be given
when deposited in the United States mail addressed to the
shareholders as aforesaid. No notice of a shareholders' meeting
need be given to any shareholder who shall sign a written waiver
of such notice, whether before or after the meeting, which is
filed with the records of shareholders' meetings, or to any
shareholder who is present at the meeting in person or by proxy.
Notice of adjournment of a shareholders' meeting to another time
or place need not be given if such time and place are announced
at the meeting, unless the adjournment is for more than one
hundred twenty (120) days after the original record date.
Irregularities in the notice of any meeting to, or the nonreceipt
of any such notice by, any of the stockholders shall not
invalidate any action otherwise properly taken by or at any such
meeting. [MGCL, Sections 2-504, 2-511(d)]
Section 2.05. Voting - In General: Except as otherwise
specifically provided in the Articles of Incorporation or these
By-Laws, or as required by provisions of the Investment Company
Act with respect to the vote of a series, if any, of the
Corporation, at every shareholders' meeting, each shareholder
shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and held by such
shareholder, except that no shares held by the Corporation shall
be entitled to a vote. Fractional shares shall be entitled to
fractional votes. Except as otherwise specifically provided in
the Articles of Incorporation, or these By-Laws, or as required
by provisions of the Investment Company Act, a majority of all
the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the
meeting. The vote upon any question shall be by ballot whenever
requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by
the meeting. [MGCL, Sections 2-214(a)(i), 2-506(a)(2), 2-507(a),
2-509(b)]
At any meeting at which there is an election of Directors,
the Chairman of the meeting may, and upon the request of the
holders of ten (10) percent of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall
first subscribe an oath or affirmation to execute faithfully the
duties of inspectors at such election with strict impartiality
and according to the best of their ability, and shall, after the
election, make a certificate of the result of the vote taken. No
candidate for the office of Director shall be appointed as an
inspector.
Section 2.06. Shareholders Entitled to Vote: If, pursuant
to Section 8.05 hereof, a record date has been fixed for the
determination of shareholders entitled to notice of or to vote at
any shareholders' meeting, each shareholder of the Corporation
shall be entitled to vote in person or by proxy, each share or
PAGE 8
fraction of a share of stock outstanding in his name on the books
of the Corporation on such record date. If no record date has
been fixed for the determination of shareholders, the record date
for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of
business on the day on which notice of the meeting is mailed or
the 30th day before the meeting, whichever is the closer date to
the meeting, or, if notice is waived by all shareholders, at the
close of business on the tenth (10th) day next preceding the date
of the meeting. [MGCL, Sections 2-507, 2-511]
Section 2.07. Voting - Proxies: The right to vote by proxy
shall exist only if the instrument authorizing such proxy to act
shall have been executed in writing by the shareholder himself,
or by his attorney thereunto duly authorized in writing. No
proxy shall be valid more than eleven (11) months after its date
unless it provides for a longer period. All proxies shall be
delivered to the Secretary of the Corporation or to the person
acting as Secretary of the meeting before being voted, who shall
decide all questions concerning qualification of voters, the
validity of proxies, and the acceptance or rejection of votes.
If inspectors of election have been appointed by the chairman of
the meeting, such inspectors shall decide all such questions. A
proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a shareholder
shall be deemed valid unless challenged at or prior to its
exercise. [MGCL, Section 2-507(b)]
Section 2.08. Quorum: The presence at any shareholders'
meeting, in person or by proxy, of shareholders entitled to cast
a majority of the votes entitled to be cast at the meeting shall
constitute a quorum. [MGCL, Section 2-506(a)]
Section 2.09. Absence of Quorum: In the absence of a
quorum, the holders of a majority of shares entitled to vote at
the meeting and present thereat in person or by proxy, or, if no
shareholder entitled to vote is present in person or by proxy,
any officer present who is entitled to preside at or act as
Secretary of such meeting, may adjourn the meeting sine die or
from time to time. Any business that might have been transacted
at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.10. Stock Ledger and List of Shareholders: It
shall be the duty of the Secretary or Assistant Secretary of the
Corporation to cause an original or duplicate stock ledger to be
maintained at the office of the Corporation's transfer agent,
containing the names and addresses of all shareholders and the
number of shares of each class held by each shareholder. Such
stock ledger may be in written form, orany other form capable of
PAGE 9
being converted into written form within a reasonable time for
visual inspection. Any one or more persons, who together are and
for at least six (6) months have been shareholders of record of
at least five percent (5%) of the outstanding capital stock of
the Corporation, may submit (unless the Corporation at the time
of the request maintains a duplicate stock ledger at its
principal office) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the
shareholders of the Corporation. Within twenty (20) days after
such a request, there shall be prepared and filed at the
Corporation's principal office a list, verified under oath by an
officer of the Corporation or by its stock transfer agent or
registrar, which sets forth the name and address of each
shareholder and the number of shares of each class which the
shareholder holds. [MGCL, Sections 2-209, 2-513]
Section 2.11. Informal Action By Shareholders: Any action
required or permitted to be taken at a meeting of shareholders
may be taken without a meeting if the following are filed with
the records of shareholders' meetings:
(a) A unanimous written consent which sets forth the
action and is signed by each shareholder entitled
to vote on the matter; and
(b) A written waiver of any right to dissent signed by
each shareholder entitled to notice of the
meeting, but not entitled to vote at it. [MGCL,
Section 2-505]
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of
Directors shall consist of one (1) Director, which number may be
increased by a resolution of a majority of the entire Board of
Directors, provided that the number of Directors shall not be
more than fifteen (15) nor less than the lesser of (i) three (3)
or (ii) the number of shareholders of the Corporation. Each
Director (whenever elected) shall hold office until the next
annual meeting of shareholders and until his successor is elected
and qualifies or until his earlier death, resignation, or
removal. [MGCL, Sections 2-402, 2-404, 2-405]
Section 3.02. Qualification of Directors: No member of the
Board of Directors need be a shareholder of the Corporation, but
at least one member of the Board of Directors shall be a person
who is not an interested person (as such term is defined in the
Investment Company Act) of the investment adviser of the
Corporation, nor an officer or employee of the Corporation.
[MGCL, Section 2-403; Investment Company Act, Section 10(d)]
PAGE 10
Section 3.03. Election of Directors: Until the first
annual meeting of shareholders, or until successors are duly
elected and qualified, the Board of Directors shall consist of
the persons named as such in the Articles of Incorporation.
Thereafter, except as otherwise provided in Sections 3.04 and
3.05 hereof, at each annual meeting, the shareholders shall elect
Directors to hold office until the next annual meeting and/or
until their successors are elected and qualify. In the event
that Directors are not elected at an annual shareholders'
meeting, then Directors may be elected at a special shareholders'
meeting. Directors shall be elected by vote of the holders of a
plurality of the shares present in person or by proxy and
entitled to vote. [MGCL, Section 2-404]
Section 3.04. Removal of Directors: At any meeting of
shareholders, duly called and at which a quorum is present, the
shareholders may, by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any
Director or Directors from office, either with or without cause,
and may elect a successor or successors to fill any resulting
vacancies for the unexpired terms of removed Directors. [MGCL,
Sections 2-406, 2-407]
Section 3.05. Vacancies and Newly Created Directorships:
If any vacancies occur in the Board of Directors by reason of
resignation, removal or otherwise, or if the authorized number of
Directors is increased, the Directors then in office shall
continue to act, and such vacancies (if not previously filled by
the shareholders) may be filled by a majority of the Directors
then in office, whether or not sufficient to constitute a quorum,
provided that, immediately after filling such vacancy, at least
two-thirds of the Directors then holding office shall have been
elected to such office by the shareholders of the Corporation.
In the event that at any time, other than the time preceding the
first meeting of shareholders, less than a majority of the
Directors of the Corporation holding office at that time were so
elected by the shareholders, a meeting of the shareholders shall
be held promptly and in any event within sixty (60) days for the
purpose of electing Directors to fill any existing vacancies in
the Board of Directors unless the Securities and Exchange
Commission shall by order extend such period. Except as provided
in Section 3.04 hereof, a Director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of shareholders or until his successor is
elected and qualifies. [MGCL, Section 2-407; Investment Company
Act, Section 16(a)]
Section 3.06. General Powers:
(a) The property, business, and affairs of the
Corporation shall be managed under the direction of the Board of
Directors which may exercise all the powers of the Corporation
except such as are by law, by the Articles of Incorporation, or
by these By-Laws conferred upon or reserved to the shareholders
of the Corporation. [MGCL, Section 2-401]
PAGE 11
(b) All acts done by any meeting of the Directors or
by any person acting as a Director, so long as his successor
shall not have been duly elected or appointed, shall,
notwithstanding that it be afterwards discovered that there was
some defect in the election of the Directors or such person
acting as a Director or that they or any of them were
disqualified, be as valid as if the Directors or such person, as
the case may be, had been duly elected and were or was qualified
to be Directors or a Director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The Board of
Directors may from time to time authorize by resolution the
issuance and sale of any of the Corporation's authorized shares
to such persons as the Board of Directors shall deem advisable
and such resolution shall set the minimum price or value of
consideration for the stock or a formula for its determination,
and shall include a fair description of any consideration other
than money and a statement of the actual value of such
consideration as determined by the Board of Directors or a
statement that the Board of Directors has determined that the
actual value is or will be not less than a certain sum. [MGCL,
Section 2-203]
Section 3.08. Power to Declare Dividends:
(a) The Board of Directors, from time to time as it
may deem advisable, may declare and the Corporation pay
dividends, in cash, property, or shares of the Corporation
available for dividends out of any source available for
dividends, to the shareholders according to their respective
rights and interests. [MGCL, Section 2-309]
(b) The Board of Directors shall cause to be
accompanied by a written statement any dividend payment wholly or
partly from any source other than the Corporation's accumulated
undistributed net income (determined in accordance with good
accounting practice and the rules and regulations of the
Securities and Exchange Commission then in effect) not including
profits or losses realized upon the sale of securities or other
properties. Such statement shall adequately disclose the source
or sources of such payment and the basis of calculation and shall
be otherwise in such form as the Securities and Exchange
Commission may prescribe. [Investment Company Act, Section 19;
SEC Rule 19a-1; MGCL, Section 2-309(c)]
(c) Notwithstanding the above provisions of this
Section 3.08, the Board of Directors may at any time declare and
distribute pro rata among the shareholders a stock dividend out
of the Corporation's authorized but unissued shares of stock,
including any shares previously purchased by the Corporation,
provided that such dividend shall not be distributed in shares of
any class with respect to any shares of a different class. The
shares so distributed shall be issued at the par value thereof,
and there shall be transferred to stated capital, at the time
such dividend is paid, an amount of surplus equal to the
aggregate par value of the shares issued as a dividend and there
may be transferred from
PAGE 12
earned surplus to capital surplus such additional amount as the
Board of Directors may determine. [MGCL, Section 2-309]
Section 3.09. Annual and Regular Meetings: The annual
meeting of the Board of Directors for choosing officers and
transacting other proper business shall be held after the annual
shareholders' meeting at such time and place as may be specified
in the notice of such meeting of the Board of Directors or, in
the absence of such annual shareholders' meeting, at such time
and place as the Board of Directors may provide. The Board of
Directors from time to time may provide by resolution for the
holding of regular meetings and fix their time and place (within
or outside the State of Maryland). [MGCL, Section 2-409(a)]
Section 3.10. Special Meetings: Special meetings of the
Board of Directors shall be held whenever called by the Chairman
of the Board, the President (or, in the absence or disability of
the President, by any Vice President), the Treasurer, or two or
more Directors, at the time and place (within or outside the
State of Maryland) specified in the respective notices or waivers
of notice of such meetings.
Section 3.11. Notice: Notice of annual, regular, and
special meetings shall be in writing, stating the time and place,
and shall be mailed to each Director at his residence or regular
place of business or caused to be delivered to him personally or
to be transmitted to him by telegraph, cable, or wireless at
least two (2) days before the day on which the meeting is to be
held. Except as otherwise required by the By-Laws or the
Investment Company Act, such notice need not include a statement
of the business to be transacted at, or the purpose of, the
meeting. [MGCL, Section 2-409(b)]
Section 3.12. Waiver of Notice: No notice of any meeting
need be given to any Director who is present at the meeting or to
any Director who signs a waiver of the notice of the meeting
(which waiver shall be filed with the records of the meeting),
whether before or after the meeting. [MGCL, Section 2-409(c)]
Section 3.13. Quorum and Voting: At all meetings of the
Board of Directors the presence of one-third of the total number
of Directors authorized, but not less than two (2) Directors if
there are at least two directors, shall constitute a quorum. In
the absence of a quorum, a majority of the Directors present may
adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the Directors present at a
meeting at which a quorum is present shall be the action of the
Board of Directors unless the concurrence of a greater proportion
is required for such action by law, by the Articles of
Incorporation or by these By-Laws. [MGCL, Section 2-408]
Section 3.14. Conference Telephone: Members of the Board
of Directors or of any committee designated by the Board, may
PAGE 13
participate in a meeting of the Board or of such committee by
means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear
each other at the same time, and participation by such means
shall constitute presence in person at such meeting. [MGCL,
Section 2-409(d)]
Section 3.15. Compensation: Each Director may receive such
remuneration for his services as shall be fixed from time to time
by resolution of the Board of Directors.
Section 3.16. Action Without a Meeting: Except as
otherwise provided under the Investment Company Act, any action
required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting
if a unanimous written consent which sets forth the action is
signed by all members of the Board or of such committee and such
written consent is filed with the minutes of proceedings of the
Board or committee. [MGCL, Section 2-408(c)]
Section 3.17. Director Emeritus: Upon the retirement of a
Director of the Corporation, the Board of Directors may designate
such retired Director as a Director Emeritus. The position of
Director Emeritus shall be honorary only and shall not confer
upon such Director Emeritus any responsibility, or voting
authority, whatsoever with respect to the Corporation. A
Director Emeritus may, but shall not be required to, attend the
meetings of the Board of Directors and receive materials normally
provided Directors relating to the Corporation. The Board of
Directors may establish such compensation as it may deem
appropriate under the circumstances to be paid by the Corporation
to a Director Emeritus.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by
the Board of Directors, the Board may appoint from among its
members one or more committees, including an Executive Committee,
each consisting of at least two (2) Directors. Each member of a
committee shall hold office during the pleasure of the Board.
[MGCL, Section 2-411]
Section 4.02. Powers of the Executive Committee: Unless
otherwise provided by resolution of the Board of Directors, the
Executive Committee, in the intervals between meetings of the
Board of Directors, shall have and may exercise all of the powers
of the Board of Directors to manage the business and affairs of
the Corporation except the power to:
(a) Declare dividends or distributions on stock;
PAGE 14
(b) Issue stock other than as provided in Section
2-411(b) of Corporations and Associations Article
of the Annotated Code of Maryland;
(c) Recommend to the shareholders any action which
requires shareholder approval;
(d) Amend the By-Laws; or
(e) Approve any merger or share exchange which does
not require shareholder approval.
[MGCL, Section 2-411(a)]
Section 4.03. Other Committees of the Board of Directors:
To the extent provided by resolution of the Board, other
committees shall have and may exercise any of the powers that may
lawfully be granted to the Executive Committee. [MGCL, Section
2-411(a)]
Section 4.04. Proceedings, Quorum, and Manner of Acting:
In the absence of appropriate resolution of the Board of
Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum shall
not be less than two (2) Directors. In the absence of any member
of any such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Directors to act in the place of such
absent member. [MGCL, Section 2-411(c)]
Section 4.05. Other Committees: The Board of Directors may
appoint other committees, each consisting of one or more persons
who need not be Directors. Each such committee shall have such
powers and perform such duties as may be assigned to it from time
to time by the Board of Directors, but shall not exercise any
power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
PAGE 15
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation
shall be a President, one or more Vice Presidents (one or more of
whom may be designated Executive Vice President), a Secretary,
and a Treasurer, and may include one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 5.11 hereof. The
Board of Directors may elect, but shall not be required to elect,
a Chairman of the Board. [MGCL, Section 2-412]
Section 5.02. Election, Term of Office and Qualifications:
The officers of the Corporation (except those appointed pursuant
to Section 5.11 hereof) shall be elected by the Board of
Directors at its first meeting and thereafter at each annual
meeting of the Board. If any officer or officers are not elected
at any such meeting, such officer or officers may be elected at
any subsequent regular or special meeting of the Board. Except
as provided in Sections 5.03, 5.04, and 5.05 hereof, each officer
elected by the Board of Directors shall hold office until the
next annual meeting of the Board of Directors and until his
successor shall have been chosen and qualified. Any person may
hold two or more offices of the Corporation, except that neither
the Chairman of the Board, nor the President, may hold the office
of Vice President, but no person shall execute, acknowledge, or
verify any instrument in more than one capacity if such
instrument is required by law, the Articles of Incorporation, or
these By-Laws to be executed, acknowledged, or verified by two or
more officers. The Chairman of the Board shall be selected from
among the Directors of the Corporation and may hold such office
only so long as he continues to be a Director. No other officer
need be a Director. [MGCL, Sections 2-412, 2-413 and 2-415]
Section 5.03. Resignation: Any officer may resign his
office at any time by delivering a written resignation to the
Board of Directors, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from
office by the Board of Directors whenever in the judgment of the
Board of Directors the best interests of the Corporation will be
served thereby. [MGCL, Section 2-413(c)]
Section 5.05. Vacancies and Newly Created Offices: If any
vacancy shall occur in any office by reason of death,
resignation, removal, disqualification or other cause, or if any
new office shall be created, such vacancies or newly created
offices may be filled by the Board of Directors at any meeting
or, in the case of
PAGE 16
any office created pursuant to Section 5.11 hereof, by any
officer upon whom such power shall have been conferred by the
Board of Directors. [MGCL, Section 2-413(d)]
Section 5.06. Chairman of the Board: Unless otherwise
provided by resolution of the Board of Directors, the Chairman of
the Board, if there be such an officer, shall be the chief
executive and operating officer of the Corporation, shall preside
at all shareholders' meetings, and at all meetings of the Board
of Directors. He shall be ex officio a member of all standing
committees of the Board of Directors. Subject to the supervision
of the Board of Directors, he shall have general charge of the
business, affairs, property, and operation of the Corporation and
its officers, employees, and agents. He may sign (unless the
President or a Vice President shall have signed) certificates
representing stock of the Corporation authorized for issuance by
the Board of Directors and shall have such other powers and
perform such other duties as may be assigned to him from time to
time by the Board of Directors.
Section 5.07. President: Unless otherwise provided by
resolution of the Board of Directors, the President shall, at the
request of or in the absence or disability of the Chairman of the
Board, or if no Chairman of the Board has been chosen, he shall
preside at all shareholders' meetings and at all meetings of the
Board of Directors and shall in general exercise the powers and
perform the duties of the Chairman of the Board. He may sign
(unless the Chairman or a Vice President shall have signed)
certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. Except as the Board of
Directors may otherwise order, he may sign in the name and on
behalf of the Corporation all deeds, bonds, contracts, or
agreements. He shall exercise such other powers and perform such
other duties as from time to time may be assigned to him by the
Board of Directors.
Section 5.08. Vice President: The Board of Directors
shall, from time to time, designate and elect one or more Vice
Presidents (one or more of whom may be designated Executive Vice
President) who shall have such powers and perform such duties as
from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or
disability of the President, the Vice President (or, if there are
two or more Vice Presidents, the Vice President in order of
seniority of tenure in such office or in such other order as the
Board of Directors may determine) may perform all the duties of
the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any
Vice President may sign (unless the Chairman, the President, or
another Vice President shall have signed) certificates
representing stock of the Corporation authorized for issuance by
the Board of Directors.
PAGE 17
Section 5.09. Treasurer and Assistant Treasurers: The
Treasurer shall be the principal financial and accounting officer
of the Corporation and shall have general charge of the finances
and books of account of the Corporation. Except as otherwise
provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of
the performance by the custodian of its duties with respect
thereto. He may countersign (unless an Assistant Treasurer or
Secretary or Assistant Secretary shall have countersigned)
certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. He shall render to the Board
of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his
transactions as Treasurer; and as soon as possible after the
close of each fiscal year he shall make and submit to the Board
of Directors a like report for such fiscal year. He shall cause
to be prepared annually a full and correct statement of the
affairs of the Corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year,
which shall be submitted at the annual meeting of shareholders
and filed within twenty (20) days thereafter at the principal
office of the Corporation. He shall perform all the acts
incidental to the office of the Treasurer, subject to the control
of the Board of Directors. Any Assistant Treasurer may perform
such duties of the Treasurer as the Treasurer or the Board of
Directors may assign, and, in the absence of the Treasurer, he
may perform all the duties of the Treasurer.
Section 5.10. Secretary and Assistant Secretaries: The
Secretary shall attend to the giving and serving of all notices
of the Corporation and shall record all proceedings of the
meetings of the shareholders and Directors in one or more books
to be kept for that purpose. He shall keep in safe custody the
seal of the Corporation and shall have charge of the records of
the Corporation, including the stock books and such other books
and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be
kept, all of which shall at all reasonable times be open to
inspection by any Director. He shall countersign (unless the
Treasurer, an Assistant Treasurer or an Assistant Secretary shall
have countersigned) certificates representing stock of the
Corporation authorized for issuance by the Board of Directors.
He shall perform such other duties as appertain to his office or
as may be required by the Board of Directors. Any Assistant
Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the
absence of the Secretary, he may perform all the duties of the
Secretary.
Section 5.11. Subordinate Officers: The Board of Directors
from time to time may appoint such other officers or agents as it
PAGE 18
may deem advisable, each of whom shall have such title, hold
office for such period, have such authority and perform such
duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers
or agents the power to appoint any such subordinate officers or
agents and to prescribe their respective rights, terms of office,
authorities, and duties. Any officer or agent appointed in
accordance with the provisions of this Section 5.11 may be
removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Board of
Directors. [MGCL, Section 2-412(b)]
Section 5.12. Remuneration: The salaries or other
compensation of the officers of the Corporation shall be fixed
from time to time by resolution of the Board of Directors, except
that the Board of Directors may by resolution delegate to any
person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in
accordance with the provisions of Section 5.11 hereof.
Section 5.13. Surety Bond: The Board of Directors may
require any officer or agent of the Corporation to execute a bond
(including, without limitation, any bond required by the
Investment Company Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder) to the
Corporation in such sum and with such surety or sureties as the
Board of Directors may determine, conditioned upon the faithful
performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting for any of
the Corporation's property, funds or securities that may come
into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES AND CASH
Section 6.01. Employment of a Custodian: The Corporation
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
funds, securities, and similar investments owned by the
Corporation. The Custodian shall be a bank having an aggregate
capital, surplus, and undivided profits of not less than
$10,000,000. Subject to such rules, regulations, and orders as
the Securities and Exchange Commission may adopt as necessary or
appropriate for the protection of investors, the Corporation's
Custodian may deposit all or a part of the securities owned by
the Corporation in a sub-custodian or sub-custodians situated
within or without the United States. The Custodian shall be
appointed and its remuneration fixed by the Board of Directors.
[Investment Company Act, Section 17(f)]
Section 6.02. Central Certificate Service: Subject to such
rules, regulations, and orders as the Securities and Exchange
PAGE 19
Commission may adopt as necessary or appropriate for the
protection of investors, the Corporation's Custodian may deposit
all or any part of the securities owned by the Corporation in a
system for the central handling of securities established by a
national securities exchange or national securities association
registered with the Commission under the Securities Exchange Act
of 1934, or such other person as may be permitted by the
Commission, pursuant to which system all securities of any
particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged
by bookkeeping entry without physical delivery of such
securities. [Investment Company Act, Section 17(f)]
Section 6.03. Cash Assets: The cash proceeds from the sale
of securities and similar investments and other cash assets of
the Corporation shall be kept in the custody of a bank or banks
appointed pursuant to Section 6.01 hereof, or in accordance with
such rules and regulations or orders as the Securities and
Exchange Commission may from time to time prescribe for the
protection of investors, except that the Corporation may maintain
a checking account or accounts in a bank or banks, each having an
aggregate capital, surplus, and undivided profits of not less
than $10,000,000, provided that the balance of such account or
the aggregate balances of such accounts shall at no time exceed
the amount of the fidelity bond, maintained pursuant to the
requirements of the Investment Company Act and rules and
regulations thereunder, covering the officers or employees
authorized to draw on such account or accounts. [Investment
Company Act, Section 17(f)]
Section 6.04. Free Cash Accounts: The Corporation may,
upon resolution of its Board of Directors, maintain a petty cash
account free of the foregoing requirements of this Article VI in
an amount not to exceed $500, provided that such account is
operated under the imprest system and is maintained subject to
adequate controls approved by the Board of Directors over
disbursements and reimbursements including, but not limited to,
fidelity bond coverage for persons having access to such funds.
[Investment Company Act, Rule 17f-3]
Section 6.05. Action Upon Termination of Custodian
Agreement: Upon resignation of a custodian of the Corporation or
inability of a custodian to continue to serve, the Board of
Directors shall promptly appoint a successor custodian, but in
the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special meeting of
the shareholders to determine whether the Corporation shall
function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding
shares of stock of the Corporation, the custodian shall deliver
and pay over all property of the Corporation held by it as
specified in such vote.
PAGE 20
Section 6.06. Other Arrangements: The Corporation may make
such other arrangements for the custody of its assets (including
deposit arrangements) as may be required by any applicable law,
rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. Execution of Instruments: All deeds,
documents, transfers, contracts, agreements, requisitions or
orders, promissory notes, assignments, endorsements, checks and
drafts for the payment of money by the Corporation, and other
instruments requiring execution by the Corporation shall be
signed by the Chairman, the President, a Vice President, or the
Treasurer, or as the Board of Directors may otherwise, from time
to time, authorize. Any such authorization may be general or
confined to specific instances.
Section 7.02. Voting of Securities: Unless otherwise
ordered by the Board of Directors, the Chairman, the President,
or any Vice President shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any
meeting of shareholders of any company in which the Corporation
may hold stock. At any such meeting such officer shall possess
and may exercise (in person or by proxy) any and all rights,
powers, and privileges incident to the ownership of such stock.
The Board of Directors may by resolution from time to time confer
like powers upon any other person or persons. [MGCL, Section
2-509]
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Ownership of Shares:
(a) Certificates certifying the ownership of shares
will not be issued for shares purchased or otherwise acquired.
The ownership of shares, full or fractional, shall be recorded on
the books of the Corporation or its agent. The record books of
the Corporation as kept by the Corporation or its agent, as the
case may be, shall be conclusive as to the number of shares held
from time to time by each such shareholder.
PAGE 21
Section 8.02. Transfer of Capital Stock:
(a) Shares of stock of the Corporation shall be
transferable only upon the books of the Corporation kept for such
purpose.
(b) The Corporation shall be entitled to treat the
holder of record of any share of stock as the absolute owner
thereof for all purposes, and accordingly shall not be bound to
recognize any legal, equitable, or other claim or interest in
such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise
expressly provided by the statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The Board of
Directors may, from time to time, appoint or remove transfer
agents and registrars of transfers of shares of stock of the
Corporation, and it may appoint the same person as both transfer
agent and registrar.
Section 8.04. Transfer Regulations: The shares of stock of
the Corporation may be freely transferred, and the Board of
Directors may, from time to time, adopt lawful rules and
regulations with reference to the method of transfer of the
shares of stock of the Corporation.
Section 8.05. Fixing of Record Date: The Board of
Directors may fix in advance a date as a record date for the
determination of the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof,
or to express consent to corporate action in writing without a
meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of
stock, or for any other proper purpose, provided that such record
date shall be a date not more than sixty (60) days nor, in the
case of a meeting of shareholders, less than ten (10) days prior
to the date on which the particular action, requiring such
determination of shareholders, is to be taken. In such case,
only such shareholders as shall be shareholders of record on the
record date so fixed shall be entitled to such notice of, and to
vote at, such meeting or adjournment, or to give such consent, or
to receive payment of such dividend or other distribution, or to
receive such allotment of rights, or to exercise such rights, or
to take other action, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any
such record date. A meeting of shareholders convened on the date
for which it was called may be adjourned from time to time
without notice to a date not more than one hundred twenty (120)
days after the original record date. [MGCL, Section 2-511]
PAGE 22
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year: The fiscal year of the
Corporation shall be the twelve (12) calendar months beginning on
the 1st day of January in each year and ending on the last day of
the following December, or such other period of twelve (12)
calendar months as the Board of Directors may by resolution
prescribe.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent public
accountant or firm of independent public accountants for each
series of the Corporation to examine the accounts of the
Corporation with respect to such series and to sign and certify
financial statements filed by the Corporation with respect to
such series. The certificates and reports of the accountant(s)
shall be addressed both to the Board of Directors and to the
shareholders. The Corporation may employ a different accountant
with respect to each series.
(b) A majority of the members of the Board of
Directors who are not interested persons (as such term is defined
in the Investment Company Act) of the Corporation shall select
the accountant for each series, by vote cast in person, at any
meeting held within such period of time as may be allowed under
the Investment Company Act. Such selection shall be submitted
for ratification or rejection at the next succeeding annual
shareholders' meeting for such series. If such meeting shall
reject such selection, the accountant for such series shall be
selected by majority vote of the Corporation's outstanding voting
securities of such series, either at the meeting at which the
rejection occurred or at a subsequent meeting of shareholders for
such series called for the purpose.
(c) Any vacancy occurring between annual meetings, due
to the death or resignation of the accountant of a series, may be
filled by the vote of a majority of those members of the Board of
Directors who are not interested persons (as so defined) of the
Corporation, cast in person at a meeting called for the purpose
of voting on such action.
(d) The employment of the accountant of a series shall
be conditioned upon the right of such series of the Corporation
by vote of a majority of the outstanding voting securities of
such series at any meeting called for the purpose to terminate
such employment forthwith without any penalty. [Investment
Company Act, Section 32(a)]
PAGE 23
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. Indemnification and Payment of Expenses in
Advance: The Corporation shall indemnify any individual
("Indemnitee") who is a present or former director, officer,
employee, or agent of the Corporation, or who is or has been
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, who, by reason of his
position was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against
any judgments, penalties, fines, settlements, and reasonable
expenses (including attorneys' fees) incurred by such Indemnitee
in connection with any Proceeding, to the fullest extent that
such indemnification may be lawful under Maryland law. The
Corporation shall pay any reasonable expenses so incurred by such
Indemnitee in defending a Proceeding in advance of the final
disposition thereof to the fullest extent that such advance
payment may be lawful under Maryland law. Subject to any
applicable limitations and requirements set forth in the
Corporation's Articles of Incorporation and in these By-Laws, any
payment of indemnification or advance of expenses shall be made
in accordance with the procedures set forth in Maryland law.
Notwithstanding the foregoing, nothing herein shall protect
or purport to protect any Indemnitee against any liability to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office ("Disabling
Conduct").
Anything in this Article X to the contrary notwithstanding,
no indemnification shall be made by the Corporation to any
Indemnitee unless:
(a) there is a final decision on the merits by a court
or other body before whom the Proceeding was
brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a
reasonable determination, based upon a review of
the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, which determination
shall be made by:
PAGE 24
(i) the vote of a majority of a quorum of directors
who are neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of the
Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Anything in this Article X to the contrary notwithstanding,
any advance of expenses by the Corporation to any Indemnitee
shall be made only upon the undertaking by such Indemnitee to
repay the advance unless it is ultimately determined that such
Indemnitee is entitled to indemnification as above provided, and
only if one of the following conditions is met:
(a) the Indemnitee provides a security for his
undertaking; or
(b) the Corporation shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that
the Indemnitee will ultimately be found entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of directors who are
neither "interested persons" of the Corporation as
defined in Section 2(a)(19) of the Investment
Company Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.02. Insurance of Officers, Directors, Employees
and Agents: To the fullest extent permitted by applicable
Maryland law and by Section 17(h) of the Investment Company Act,
as from time to time amended, the Corporation may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation, or who
is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against
any liability asserted against him and incurred by him in or
arising out of his position, whether or not the Corporation would
have the power to indemnify him against such liability. [MGCL,
Section 2-418(k)]
Section 10.03. Amendment: No amendment, alteration or
repeal of this Article or the adoption, alteration or amendment
of any other provision of the Articles of Incorporation or By-
Laws inconsistent with this Article shall adversely affect any
right or protection of any person under this Article with respect
to any act or failure to act which occurred prior to such
amendment, alteration, repeal or adoption.
PAGE 25
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02
hereof, all By-Laws of the Corporation, whether adopted by the
Board of Directors or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be made, by
the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of
stock of the Corporation entitled to vote, at any annual or
special meeting the notice or waiver of notice of which
shall have specified or summarized the proposed amendment,
alteration, repeal, or new By-Law; or
(b) the Directors present at any regular or special
meeting at which a quorum is present if the notice or waiver
of notice thereof or material sent to the Directors in
connection therewith on or prior to the last date for the
giving of such notice under these By-Laws shall have
specified or summarized the proposed amendment, alteration,
repeal, or new By-Law.
Section 11.02. By Shareholders Only:
(a) No amendment of any section of these By-Laws shall be
made except by the shareholders of the Corporation if the
shareholders shall have provided in the By-Laws that such section
may not be amended, altered, or repealed except by the
shareholders.
(b) From and after the issue of any shares of the Capital
Stock of the Corporation, no amendment of this Article XI shall
be made except by the shareholders of the Corporation.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Use of the Term "Annual Meeting:" The use of
the term "annual meeting" in these By-Laws shall not be construed
as implying a requirement that a shareholder meeting be held
annually.
PAGE 1
August 2, 1996
T. Rowe Price Financial Services Fund, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dear Sirs:
In connection with the proposed registration of an
indefinite number of shares of Capital Stock of your Company, I
have examined certified copies of your company's Articles of
Incorporation dated July 25, 1996, and the By-Laws of your
Company as presently in effect.
I am of the opinion that:
(i) your Company is a corporation duly organized and
existing under the laws of Maryland; and
(ii) each of such authorized shares of Capital Stock of
your Company, upon payment in full of the price fixed
by the Board of Directors of your Company, will be
legally and validly issued and will be fully paid and
non-assessable.
I hereby consent to the use of this opinion as an exhibit to
the Company's Registration Statement on Form N-1A to be filed
with the Securities and Exchange Commission for the registration
under the Securities Act of 1933 of an indefinite number of
shares of Capital Stock of your Company.
Sincerely,
/s/Henry H. Hopkins
Henry H. Hopkins
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