Registration No.:811-08371
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 REAL ESTATE 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 410-345-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
_______________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering October 30, 1997
__________________
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)
/ / 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 Amount of
Title of Securities Being Price Offering Registration
Being Registered Registered Per Unit Price Fee
_________________________________________________________________
Capital Stock - Indefinite Varying prices Not
$.0001 par value Number calculated as set Required
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 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.
T. ROWE PRICE REAL ESTATE FUND, INC.
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
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 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>
PROSPECTUS
October 31, 1997
T. Rowe Price
Real Estate Fund
A fund seeking capital appreciation and current income through investments in
companies engaged in real estate.
Ram Logo
<PAGE>
FACTS AT A GLANCE
Real Estate Fund
Investment Goal
To provide long-term capital appreciation and current income.
As with any mutual fund, there is no guarantee the fund will achieve its goal.
Strategy
To invest primarily in the stocks of companies involved in the real estate
business, such as REITs and operating, development, management, and financing
companies.
Risk/Reward
The potential to provide long-term capital growth and current income. While a
narrower investment focus is usually riskier than a broader one, stocks of real
estate companies provide a means of diversifying an investment portfolio. The
fund's share price may fall, causing a loss.
Investor Profile
Individuals seeking long-term growth and current income through exposure to
real estate companies, who can accept the greater risk of price declines
inherent in a narrowly focused fund. Appropriate for both regular and
tax-deferred accounts, such as IRAs.
Fees and Charges
100% no load. Shares purchased and held for less than six months are subject to
a 1% redemption fee, paid to the fund. No fees or charges to buy shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone exchange among T.
Rowe Price funds.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc. ("T. Rowe Price") and its affiliates managed approximately $117 billion
for more than five million individual and institutional investor accounts as of
June 30, 1997.
This prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
fund, dated October 31, 1997, 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.
<PAGE>
T. Rowe Price Real Estate Fund, Inc.
Prospectus
October 31, 1997
<TABLE>
CONTENTS
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUND
Transaction and Fund Expenses 2
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Fund, Market, and Risk Characteristics 3
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2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving Sale Proceeds 8
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Distributions and Taxes 10
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Transaction Procedures and Special Requirements 12
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3 MORE ABOUT THE FUND
Organization and Management 15
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Understanding Performance Information 17
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Investment Policies and Practices 18
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4 INVESTING WITH T. ROWE PRICE
Account Requirements and Transaction Information 26
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Opening a New Account 26
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Purchasing Additional Shares 28
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Exchanging and Redeeming 28
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Shareholder Services 30
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Discount Brokerage 32
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Investment Information 33
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</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
ABOUT THE FUND
1
TRANSACTION AND FUND EXPENSES
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o 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.
Shareholder Transaction Expenses in Table 1 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 provides an estimate of how
much it will cost to operate the fund for a year, based on projected 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.
<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C> <C>
Shareholder Transaction Annual Fund Expenses Percentage of Fiscal
Expenses (after reduction) Average Net Assets
Sales charge "load" on purchases None Management fee ___%/b/
Sales charge "load" on reinvested
distributions None Marketing fees (12b-1) None
Redemption fees (on shares held 1% Total other (shareholder
less than one year) /a/ servicing, custodial, auditing, etc.) ___%/b/
Exchange fees None Total fund expenses ____%/b/
- --------------------------------------------------------------------------------------------------------------
</TABLE>
a Please see contingent Redemption Fee under Pricing Shares and receiving Sale
Proceeds for additional information.
b In the interest of limiting the expenses of the fund during its initial period
of operations, T. Rowe Price has agreed to waive fees and bear any expenses
through December 31, 1999, which 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 ____%; however, no reimbursement
will be made after December 31, 2001, or if it would result in the expense
ratio exceeding ____%. Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund. Without this expense limitation,
it is estimated that the fund's management fee, other expenses, and total
expense ratio would be ____%, ____%, and ____%, respectively. 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 small accounts, when applicable
(see Small Account Fee under Transaction Procedures and Special Requirements).
The main types of expenses, which all mutual funds may charge against fund
assets, are:
. A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.32% as of August 31, 1997,
and an individual fund fee of ____%.
<PAGE>
ABOUT THE FUND 3
. "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.
. 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.
. 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:
<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C>
Hypothetical Fund Expenses
1 year 3 years
$ ____ $ ____
- ------------------------------------------------------------
</TABLE>
o Table 2 is just an example; actual expenses can be higher or lower than
those shown.
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
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To help you decide whether this fund is appropriate for you, this section
takes a closer look at its investment objective and approach.
o The fund should not represent your complete investment program nor be used
for short-term trading purposes.
What is the fund's objective?
The fund seeks long-term total return through a combination of capital growth
and current income.
What is the fund's investment program?
The fund will invest at least 80% of total assets (under normal conditions)
in the equity securities of real estate companies. The fund's definition of
real estate companies is broad and includes those with a minimum of 50% of
revenues or profits derived from, or assets committed to, real estate
activities. Examples include (but are not limited to) the following:
. Real estate investment trusts (REITs)
. Real estate operating companies
<PAGE>
T. ROWE PRICE 4
. Real estate brokers, developers, and builders of residential, commercial,
and industrial properties
. Property management firms
. Finance, mortgage, and mortgage servicing firms
. Construction supply and equipment manufacturing companies
. Firms dependent on real estate holdings for revenues and profits, including
lodging, leisure, timber, mining, and agriculture companies
The fund will not own real estate directly and will have no restrictions on
the size of companies selected for investment.
To take advantage of overseas opportunities, the fund is permitted to invest
up to 25% of its total 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.
Up to 20% of fund assets may be invested in companies deriving a substantial
portion of revenues or profits from servicing real estate firms, as well as
in companies unrelated to the real estate business.
o For further details on the fund's investment program and practices, please
see the section entitled Investment Policies and Practices.
How does the fund select stocks for the portfolio?
Stock selection is based on fundamental, bottom-up analysis that seeks to
identify high-quality companies with both good appreciation prospects and
income-producing potential. Factors considered in selecting real estate
companies include: relative valuation; free cash flow; undervalued assets;
quality and experience of management; type of real estate owned; and the
nature of a company's real estate activities.
At different times, the market may favor one type of real estate investment
over another, and the fund's flexible investment charter enables it to seek
opportunities wherever they exist in the industry. Both capital appreciation
(or depreciation) and current income will be important components of total
return, and the contribution made by each at any time will depend on the
composition of the portfolio and market conditions.
<PAGE>
ABOUT THE FUND 5
What is a REIT?
The fund may invest a substantial portion of its assets in real estate
investment trusts or REITs, which are pooled investment vehicles that
typically invest directly in real estate, in mortgages and loans
collateralized by real estate, or a combination of the two. An "equity" REIT
invests primarily in real estate that produces income from rentals.
"Mortgage" REITs invest primarily in mortgages and derive their income from
interest payments.
The types of properties owned, and sometimes managed, by REITs include:
. office buildings . health care facilities
. apartments and condominiums . manufactured housing
. retail properties . self-storage facilities
.industrial and commercial . golf courses
sites
. hotels and resorts
REITs usually specialize in a particular type of property and may concentrate
their investments in particular geographical areas. For this reason and
others, a fund investing in REITs provides investors with an efficient,
low-cost means of diversifying among various types of property in different
regions.
What are some of the fund's potential risks?
While the fund will not invest directly in property, many of the risks
involved in direct real estate investing will apply to the fund as well. The
fund will be less diversified than stock funds investing in a broad range of
industries and, therefore, could experience significant volatility when
conditions are perceived as unfavorable for the real estate industry. For
example, changes in the tax laws, overbuilding, environmental regulations or
hazards, the quality of property management in the case of REITs, and other
factors could have a negative impact on the fund.
Real estate is also affected by general economic conditions. When economic
growth is slowing, demand for property decreases and prices may decline.
Rising interest rates, which drive up mortgage and financing costs, can
restrain construction and buying and selling activity, and can make other
investments more attractive.
To the extent that the fund invests in foreign companies, its share price
willbe 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 will be subject to the greater
price fluctuations typical of small-cap stocks.
Generally, a fund limited to one area of economic activity represents greater
potential risk than a more diversified fund, although the relatively high
income offered by certain real estate companies moderates this risk to some
extent.
<PAGE>
T. ROWE PRICE 6
o The fund's share price will fluctuate; when you sell your shares, you may
lose money.
What are some of the fund's potential rewards?
The stocks of companies engaged in the real estate area could provide
significant total return through capital appreciation and income over the
long term for several reasons, including:
. Performance and diversification While the long-term returns from real estate
stocks have been attractive, periods of strong performance have not always
coincided with those of the broad market. Therefore, real estate stocks may
provide beneficial diversification when combined with other stocks and asset
classes in an investment portfolio;
. Current income Many real estate stocks, including REITs, often pay
relatively high dividends, which could serve to cushion a portfolio in a
general market decline; and
. Inflation hedge Historically, real estate has tended to appreciate during
times of accelerating inflation. Therefore, a fund investing in real estate
companies may provide a hedge against inflation.
What are some potential risks and rewards of investing in the stock market
through this fund?
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. Nevertheless, economic growth has been punctuated by
periods of stagnation and recession. Share prices of all companies, even the
best managed and most profitable, can fall for any number of reasons, ranging
from lower-than-expected earnings to changes in investor psychology.
Significant trading by large institutional investors also can lead to price
declines. In addition, if our assessment of company prospects proves
incorrect, companies that our managers and analysts expect to do well may
perform poorly. Since 1950, the U.S. stock market has experienced 10 negative
years as well as steep drops of shorter duration. Its worst calendar quarter
return in recent years was -22.5% in 1987's fourth quarter.
o Equity investors should have a long-term investment horizon and be willing
to wait out bear markets.
<PAGE>
ABOUT THE FUND 7
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 and current income
through a more narrowly focused fund and are willing to accept the price
swings that can affect real estate 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 read Investment Policies and Practices in Section 3, which
discusses the principal types of portfolio securities that the fund may
purchase as well as the types of management practices that the fund may use.
<PAGE>
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
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Here are some procedures you should know when investing in a T. Rowe Price
equity fund.
How and when shares are priced
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.
o 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.
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
o 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 Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale. ACH 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.
<PAGE>
ABOUT YOUR ACCOUNT 9
. Exception: 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 we receive 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.
o If for some reason we cannot accept your request to sell shares, we will
contact you.
Contingent Redemption Fee
The fund is not designed for short-term traders, whose frequent purchases,
redemptions, and exchanges can unnecessarily disrupt the fund's investment
program and drive up the fund's transaction costs. For these reasons, the
fund assesses a 1% fee on redemptions (including exchanges) of shares held
for less than six months.
Redemption fees will be paid to the fund to help offset transaction costs.
The fund will use the first-in, first-out (FIFO) method to determine the six
month holding period. Under this method, the date of the redemption or
exchange will be compared to the earliest purchase date of shares held in the
account. If this holding period is less than six months, the redemption fee
will be assessed.
The fee does not apply to any shares purchased through reinvested
distributions (dividends and capital gains) or to shares held in retirement
plans such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA,
SEP-IRA, and money purchase pension accounts. These exceptions may not apply
to shares held in broker omnibus accounts. The fee does apply to shares held
in IRA accounts and to shares purchased through automatic investment plans
(described under Shareholder Services).
In determining "one year," the fund will use the anniversary date of a
transaction. Thus, shares purchased on December 1, 1997, for example, will be
subject to the fee if they are redeemed on or prior to November 30, 1998. If
they are redeemed on or after December 1, 1998, they will not be subject to
the fee.
<PAGE>
T. ROWE PRICE 10
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
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o All net investment income and realized capital gains are distributed to
shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. 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
. The fund declares and pays dividends (if any) quarterly.
. All or part of the fund's dividends will be eligible for the 70% deduction
for dividends received by corporations.
Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. 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
o You will be sent timely information for your tax filing needs.
You need to be aware of the possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
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.
<PAGE>
ABOUT YOUR ACCOUNT 11
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 you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
Taxes on fund distributions
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 a calendar 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.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Recent changes in the tax code revised capital gain holding periods for
long-term gains and created a new class of mid-term gains. Short-term (one
year or less) capital gain distributions continue to be taxable at the same
rates as ordinary income. Gains on securities held more than 12 months but
not more than 18 months (mid-term gains) are taxed at the rates formerly
applicable to long-term gains, and gains on securities held for more than 18
months are taxed at a new and lower long-term rate. 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 net 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 a fund's ordinary income dividend. Net foreign currency losses
may result in the fund's dividend being classified as a return of capital.
<PAGE>
T. ROWE PRICE 12
If a 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
deduction on your tax return for your portion of foreign taxes paid by the
fund.
o Distributions are taxable whether reinvested in additional shares or
received in cash.
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 a portion of the money you just invested in the form of a taxable
distribution. 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
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o Following these procedures helps assure timely and accurate transactions.
Purchase Conditions
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
<PAGE>
ABOUT YOUR ACCOUNT 13
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*Access/(R)/, and personal computer transactions
Exchange and redemption services through telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the box that states that you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds use
reasonable procedures (including shareholder identity verification) to
confirm that instructions given by telephone are genuine and are not liable
for acting on these instructions. If these procedures are not followed, it is
the opinion of certain regulatory agencies that the funds 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 fund net assets, the
fund has the right to pay the difference between the redemption amount and
the lesser of the two previously mentioned figures with securities from the
fund.
Excessive Trading
o 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 just described, 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).
<PAGE>
T. ROWE PRICE 14
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 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
o 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:
. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
. Remitting redemption proceeds to any person, address, or bank account not on
record.
. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.
. 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.
<PAGE>
MORE ABOUT THE FUND
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How is the fund organized?
The fund was incorporated in Maryland in 1997 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 specified objectives.
o Shareholders benefit from T. Rowe Price's 60 years of investment management
experience.
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:
. Receive a proportional interest in a fund's income and capital gain
distributions.
. Cast one vote per share on certain fund matters, including the 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 fund 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?
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.
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by the fund's portfolio managers.
<PAGE>
T. ROWE PRICE 16
Portfolio Management
The fund has an Investment Advisory Committee comprising the following
members: ________________________________________________________________
_________________________________________________. 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.
_________________ is chairman of the fund's committee. ____________ joined T.
Rowe Price in ____ and has been managing investments since ____.
Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of this 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?
The management agreement spells out the expenses to be paid by the fund. 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 director/trustee fees and expenses.
o For the fiscal period ending December 31, 1997, 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.
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, the Spectrum Funds, and any
institutional or private label
<PAGE>
ABOUT YOUR ACCOUNT 17
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
--------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
----------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter
----------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>
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 T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of over $71 billion
at June 30, 1997, 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
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.
o 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.
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 end of the period specified.
<PAGE>
T. ROWE PRICE 18
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 in this prospectus. 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.
o Fund managers have considerable leeway in choosing investment strategies
and selecting securities they believe will help the fund achieve its
objective.
<PAGE>
MORE ABOUT THE FUND 19
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may invest in any type
of security or instrument (including certain potentially high-risk
derivatives described in this section) 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 if more than 10% of
the voting securities of the issuer would be held by the fund.
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 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
<PAGE>
T. ROWE PRICE 20
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 that may be made in such
countries.
Operating policy The fund may invest up to 25% of its total assets (excluding
reserves) in foreign securities.
Debt Securities
A bond or money market instrument is usually an interest-bearing security- an
IOU-issued by companies or governmental units. The issuer has a contractual
obligation to pay interest at a stated rate on specific dates and to repay
principal (the bond's face value) on a specified date. An issuer may have the
right to redeem or "call" a bond before maturity, and the investor may have
to reinvest the proceeds at lower market rates. Money market securities and
bonds (such as a zero coupon bond) may also be issued in discounted form to
reflect the rate of interest paid. In such a case, no coupon interest is
paid, but the security's price is discounted so that the interest is realized
when the security matures at face value.
A bond's annual interest income, set by its coupon rate, is usually fixed for
the life of the bond. Its yield (income as a percent of current price) will
fluctuate to reflect changes in interest rate levels. Except for adjustable
rate instruments, a money market security's interest rate, as reflected in
the coupon rate or discount, is usually fixed for the life of the security.
Its current yield (coupon or discount as a percent of current price) will
fluctuate to reflect changes in interest rate levels. A bond's price usually
rises when interest rates fall, and vice versa, so that its yield generally
reflects market rates.
Bonds may be unsecured (backed by the issuer's general creditworthiness only)
or secured (also backed by specified collateral).
Certain bonds have interest rates, adjusted periodically, which tend to
minimize fluctuations in their principal value. In calculating the fund's
weighted average maturity, the maturity of these securities may be shortened
under certain specified conditions.
Bonds may be senior or subordinated obligations. Senior obligations generally
have the first claim on a corporation's earnings and assets and, in the event
of liquidation, are paid before subordinated debt.
<PAGE>
MORE ABOUT THE FUND 21
High-Yield/High-Risk Investing
The total return and yield of lower-quality (high-yield/high-risk) bonds,
commonly referred to as "junk" bonds, can be expected to fluctuate more than
the total return and yield of higher-quality, shorter-term bonds, but not as
much as common stocks. Junk bonds (those rated below BBB or in default) are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Operating policy The fund will not purchase a noninvestment-grade debt
security (or junk bond) if immediately after such purchase the fund would
have more than 10% of its total assets invested in such securities. The
fund's investments in convertible securities are not subject to this limit.
Asset-Backed Securities
An underlying pool of assets, such as credit card or automobile trade
receivables or corporate loans or bonds, backs these bonds and provides the
interest and principal payments to investors. Credit quality depends
primarily on the quality of the underlying assets and the level of credit
support, if any, provided by the issuer. The underlying assets (i.e., loans)
are subject to prepayments which can shorten the securities' weighted average
life and may lower their return. The value of these securities also may
change because of actual or perceived changes in the creditworthiness of the
originator, the servicing agent, or the financial institution providing the
credit support.
Mortgage-Backed Securities
The fund may invest in a variety of mortgage-backed securities. Mortgage
lenders pool individual home mortgages with similar characteristics to back a
certificate or bond, which is sold to investors such as the fund. Interest
and principal payments generated by the underlying mortgages are passed
through to the investors. The "big three" issuers are the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association
(Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).
GNMA certificates are backed by the full faith and credit of the U.S.
government, while others, such as Fannie Mae and Freddie Mac certificates,
are only supported by the ability to borrow from the U.S. Treasury or
supported only by the credit of the agency. Private mortgage bankers and
other institutions also issue mortgage-backed securities.
Mortgage-backed securities are subject to scheduled and unscheduled principal
payments as homeowners pay down or prepay their mortgages. As these payments
are received, they must be reinvested when interest rates may be higher or
lower than on the original mortgage security. Therefore, these securities are
not an effective means of locking in long-term interest rates. In addition,
when interest rates fall, the pace of mortgage prepayments picks up. These
refinanced mortgages are paid off at face value (par), causing a loss for any
investor who may
<PAGE>
T. ROWE PRICE 22
have purchased the security at a price above par. In such an environment,
this risk limits the potential price appreciation of these securities and can
negatively affect the fund's net asset value. When rates rise, the prices of
mortgage-backed securities can be expected to decline, although historically
these securities have experienced smaller price declines than comparable
quality bonds. In addition, when rates rise and prepayments slow, the
effective duration of mortgage-backed securities extends, resulting in
increased volatility.
Additional mortgage-related securities in which the fund may invest include:
. Collateralized Mortgage Obligations (CMOs) CMOs are debt securities that are
fully collateralized by a portfolio of mortgages or mortgage-backed
securities. All interest and principal payments from the underlying mortgages
are passed through to the CMOs in such a way as to create, in most cases,
more definite maturities than is the case with the underlying mortgages. CMOs
may pay fixed or variable rates of interest, and certain CMOs have priority
over others with respect to the receipt of prepayments.
. Stripped Mortgage Securities Stripped mortgage securities (a type of
potentially high-risk derivative) are created by separating the interest and
principal payments generated by a pool of mortgage-backed securities or a CMO
to create additional classes of securities. Generally, one class receives
only interest payments (IOs) and one principal payments (POs).
IOs and POs are acutely sensitive to interest rate changes and to the rate of
principal prepayments. These securities are very volatile in price and may
have lower liquidity than most other mortgage-backed securities. Certain CMOs
may also exhibit these qualities, especially those that pay variable rates of
interest that adjust inversely with and more rapidly than short-term interest
rates. In addition, if interest rates is rapidly and prepayment rates slow
more than expected, certain CMOs, in addition to loosing value, can exhibit
characteristics of longer securities and become more volatile. There is no
guarantee the fund's investment in CMOs, IOs, or POs will be successful, and
the fund's total return could be adversely affected as a result.
Operating policy The fund may invest up to 10% of its total assets in
stripped mortgage securities.
Hybrid Instruments
These instruments (a type of potentially high-risk derivative) can combine
the characteristics of securities, futures, and options. For example, the
principal amount or interest rate of a hybrid could be tied (positively or
negatively) to the price of some commodity, currency, or securities index or
another interest rate (each a "benchmark"). Hybrids can be used as an
efficient means of pursuing a variety of investment goals, including currency
hedging, duration management,
<PAGE>
MORE ABOUT THE FUND 23
and increased total return. Hybrids may not bear interest or pay dividends.
The value of a hybrid or its interest rate may be a multiple of a benchmark
and, as a result, may be leveraged and move (up or down) more steeply and
rapidly than the benchmark. These benchmarks may be sensitive to economic and
political events, such as commodity shortages and currency devaluations,
which cannot be readily foreseen by the purchaser of a hybrid. Under certain
conditions, the redemption value of a hybrid could be zero. Thus, an
investment in a hybrid may entail significant market risks that are not
associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed
rate or floating rate of interest. The purchase of hybrids also exposes the
fund to the credit risk of the issuer of the hybrid. These risks may cause
significant fluctuations in the net asset value of the fund.
o Hybrids can have volatile prices and limited liquidity, and their use by
the fund may not be successful.
Operating policy The fund may invest up to 10% of its total assets in hybrid
instruments.
Deferrable Subordinated Securities
Recently, securities have been issued which have long maturities and are
deeply subordinated in the issuer's capital structure. They generally have
30-year maturities and permit the issuer to defer distributions for up to
five years. These characteristics give the issuer more financial flexibility
than is typically the case with traditional bonds. As a result, the
securities may be viewed as possessing certain "equity-like" features by
rating agencies and bank regulators. However, the securities are treated as
debt securities by market participants, and the fund intends to treat them as
such as well. These securities may offer a mandatory put or remarketing
option that creates an effective maturity date significantly shorter than the
stated one. The fund will invest in these securities to the extent their
yield, credit, and maturity characteristics are consistent with the fund's
investment objective and program.
Private Placements
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.
<PAGE>
T. ROWE PRICE 24
Types of Management Practices
Reserve Position
The fund will hold a certain portion of its assets in money market reserves.
The fund's reserve position can consist of shares of one or more T. Rowe
Price internal money market funds as well as short-term, high-quality U.S.
and foreign dollar-denominated money market securities, including repurchase
agreements. For temporary, defensive purposes, the fund may invest without
limitation in money market reserves. The reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and can serve 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 (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 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
<PAGE>
MORE ABOUT THE FUND 25
which the fund writes 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 total fund assets.
When-Issued Securities and Forward Commitment Contracts
The fund may purchase securities on a when-issued or delayed delivery basis
or may purchase or sell securities on a forward commitment basis. The price
of these securities is fixed at the time of the commitment to buy, but
delivery and payment can take place a month or more later. During the interim
period, the market value of the securities can fluctuate, and no interest
accrues to the purchaser. At the time of delivery, the value of the
securities may be more or less than the purchase or sale price. To the extent
the fund remains fully or almost fully invested (in securities with a
remaining maturity of 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.
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>
INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
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.
Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.
Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670 1-410-625-6585
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.)
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 on the next page. We do not accept third party checks to open new
accounts, except for IRA Rollover checks that are properly endorsed.
<PAGE>
INVESTING WITH T. ROWE PRICE 27
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353
Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117
By Wire
Call Investor Services for an account number and give the following wire
information to your bank:
PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 name of owner(s) and account number
Complete a New Account Form and mail it to one of the appropriate addresses
listed above.
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. For limitations on exchanging, see explanation of Excessive
Trading under Transaction Procedures and Special Requirements.
In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
Through a Broker
If you buy or sell T. Rowe Price funds through anyone other than T. Rowe Price,
such as broker-dealers or banks, you may be charged transaction or service fees
by those institutions. No such fees are charged by T. Rowe Price Investment
Services or the T. Rowe Price funds for transactions conducted directly with the
fund.
<PAGE>
T. ROWE PRICE 28
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access or 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.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the address shown below with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.
3. Remember to provide your account number and the fund name on the memo line of
your check.
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 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 express mail. For
exchange policies, please see Transaction Procedures and Special Requirements -
Excessive Trading.
<PAGE>
INVESTING WITH T. ROWE PRICE 29
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.
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. 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 and IRA accounts
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220
For employer-sponsored retirement accounts
T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300
/(For mailgrams, express, registered, or certified mail, see addresses / /under
Opening a New Account.)/
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 refuse any purchase
order; 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
<PAGE>
T. ROWE PRICE 30
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
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
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 on, 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.
Note: Corporate and other institutional 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, institutions, and large and
small businesses: IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money
purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, including our no-load
variable annuity, 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
<PAGE>
INVESTING WITH T. ROWE PRICE 31
a state tax-free fund are limited to investors living in states where the fund
is registered.) Some of the T. Rowe Price funds may impose a redemption fee of
0.5% to 2% on shares held for less than six months or one year, as specified in
the prospectus. The fee is paid to the fund.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers below).
T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.
After obtaining proper authorization, account transactions may also be conducted
on the Internet.
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
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 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.
<PAGE>
T. ROWE PRICE 32
Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) 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.
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
----------------------------------------------------------
This additional service gives you the opportunity to easily consolidate all of
your investments with one company. Through our discount brokerage, you can buy
and sell individual securities - stocks, bonds, options, and others - at
commission savings over full-service brokers. We also provide a wide range of
services, including:
To open an account 1-800-638-5660 For existing discount brokerage investors
1-800-225-7720
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.
<PAGE>
INVESTING WITH T. ROWE PRICE 33
Investor information
A variety of informative reports, such as our Brokerage Insights series, S&P
Market Month newsletter, and select stock reports can help you better evaluate
economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this
service-free of charge.
/Discount Brokerage is a division of //T. Rowe Price// Investment / /Services,
Inc., Member NASD/SIPC./
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, Maryland 21202.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.
Performance Update
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, How to Choose a Bond Fund, Personal
Strategy Planner, Retirees Financial Guide, Retirement Planning Kit, and Tax
Considerations for Investors.
<PAGE>
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.
To Open a Mutual Fund 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, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days
To Open a Discount Brokerage Account
1-800-638-5660
Plan Account Line
1-800-401-3279
For retirement plan
investors
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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
www.troweprice.com
F__-040 10/31/97
<PAGE>
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 DIVERSIFIED SMALL-CAP GROWTH 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 MEDIA & TELECOMMUNICATIONS FUND, 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 REAL ESTATE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK 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, 1997
(or June 30 1997, for the T. Rowe Price Diversified Small-Cap Growth Fund,
Inc.; or July 28, 1997, for the T. Rowe Price Media & Telecommunications Fund,
Inc., or September 22, 1997, for the T. Rowe Price Real Estate Fund, Inc.),
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, 1997,
revised to June 30, 1997, for the Diversified Small-Cap Growth Fund, Inc., to
July 28, 1997, for the T. Rowe Price Media & Telecommunications Fund, Inc.,
and to September 22, 1997, for the T. Rowe Price Real Estate Fund, Inc.
C20-043 9/22/97
TABLE OF CONTENTS
Page Page
Capital Stock. . . . . . . Legal Counsel . . . . . . . .
Code of Ethics . . . . . . Management of Funds . . . . .
Custodian. . . . . . . . . Net Asset Value Per Share . .
Distributor for Fund . . . Organization of the Funds . .
Dividends and Distributions. . . Portfolio Management Practices. . .
Federal Registration of Shares . Portfolio Transactions. . . .
Independent Accountants. . Pricing of Securities . . . .
Investment Management Services . Principal Holders of Securities . .
Investment Objectives. . . Ratings of Corporate Debt
and Policies. . . . . . . Securities . . . . . . . . .
Investment Performance . . Risk Factors. . . . . . . . .
Investment Program . . . . Shareholder Services
Investment Restrictions. . Tax Status. . . . . . . . . .
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 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 (50-70% for the
Balanced and Fund and at least 50% 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 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 Fund's assets denominated in that currency. Such changes
will also affect the Fund's 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
Fund's 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.
Market Characteristics. It is contemplated that most foreign 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.
Investments in certain markets may 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 invests 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 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 Fund's
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 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
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 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 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 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 total 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, Financial Services, Growth & Income, Media &
Telecommunications, Mid-Cap Value, New Era, Real Estate, Small-Cap Stock,
Small-Cap Value, and Value Funds
Debt Obligations
Although a majority of the Fund's assets are invested in 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 issuer. 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 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 leveraged 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; 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 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 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 and Real Estate Funds
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 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 it issues. The
obligations of Freddie Mac are obligations solely of Freddie Mac and are not
backed by the full 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.
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. 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 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 fully recoup 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 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.
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.
Real Estate and REIT Risk
Real Estate Fund only
Investors in the Fund may experience many of the same risks involved
with investing in real estate directly. These risks include: declines in real
estate values, risks related to local or general economic conditions,
particularly lack of demand, overbuilding and increased competition, increases
in property taxes and operating expenses, changes in zoning laws, heavy cash
flow dependency, possible lack of availability of mortgage funds,
obsolenscence, losses due to natural disasters, condemnation of properties,
regulatory limitations on rents and fluctuations in rental income, variations
in market rental rates, and possible environmental liabilities. Real Estate
Investment Trusts (REITs") may own real estate properties (Equity REITs) and
be subject to these risks directly, or may make or purchase mortgages
(Mortgage REITs) and be subject to these risks indirectly through underlying
construction, development, and long-term mortgage loans that may default or
have payment problems.
Equity REITs can be affected by rising interest rates that may cause
investors to demand a high annual yield from future distributions which, in
turn, could decrease the market prices for the REITs. In addition, rising
interest rates also increase the costs of obtaining financing for real estate
projects. Since many real estate projects are dependent upon receiving
financing, this could cause the value of the Equity REITs in which the Fund
invests to decline.
Mortgage REITs may hold mortgages that the mortgagors elect to prepay
during periods of declining interest rates which may diminish the yield on
such REITs. In addition, borrowers may not be able to repay mortgages when due
which could have a negative effect on the Fund.
Some REITs have relatively small market capitalizations which could
increase their volatility. REITs tend to be dependent upon specialized
management skills and have limited diversification so they are subject to
risks inherent in operating and financing a limited number of properties. In
addition, when the Fund invests in REITs, a shareholder will bear his
proportionate share of fund expenses and, indirectly bear similar expenses of
the REITs. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders. In addition, both equity and mortgage
REITs are subject to the risks of failing to qualify for tax-free status of
income under the Internal Revenue Code or failing to maintain exemption from
the Investment Company Act of 1940.
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 on 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 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, 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
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, 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 the
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 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 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 appreciation of the
underlying security or currency owned by the Fund.
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. 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 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.
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. 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 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.
The Fund will not commit more than 5% of its assets to premiums when
purchasing put and call 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.
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.
The Fund will not 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. 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.
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
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.
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 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 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 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 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.
Margin deposits required on futures trading are low. 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 cash, liquid, high-grade debt, or other appropriate cover,
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 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 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.
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 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 CFTC
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 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 contracts 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 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) or
other suitable cover. 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 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 losses, 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 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. Note that this 30% test will no longer apply to funds with tax
years beginning after August 5, 1997.
As a result of the "Taxpayer Relief Act of 1997" certain options,
futures contracts, or forward contracts may result in the "constructive sale"
of offsetting stocks or debt securities of the Fund.
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 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;
(5) Percent Limit on Assets Invested in Any One Issuer.
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 or limited
partnership interests thereon, 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 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
semiannual 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 only to the extent permitted by the Fund's
prospectus and only 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 if, as
a result, more than 15% of its net assets would be
invested in such securities;
(5) Investment Companies. Purchase securities of open-end or
closed-end investment companies except in compliance with
the Investment Company Act of 1940;
(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 if, as a result thereof, more than 5% of the
value of the total assets of the Fund would be invested
in such 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) Short Sales. Effect short sales of securities;
(11) Warrants. Invest in warrants if, as a result thereof,
more than 10% of the value of the net assets of the
Fund would be invested in warrants.
Blue Chip Growth, Capital Opportunity, Diversified Small-Cap Growth,
Financial Services, Health Sciences, Media & Telecommunications, Mid-Cap
Value, Real Estate, 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 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, EuroCapital Advisors, LLC, an acquisition and
management advisory firm; formerly (5/89-6/95) 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: P.O.
Box 491, Chilmark, MA 02535-0491
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: 1660 Lincoln Street, Suite 3000,
Denver, Colorado 80264
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.; Address: 3201 New Mexico Avenue, N.W., Suite
350, Washington, D.C. 20016
HUBERT D. VOS, President, Stonington Capital Corporation, a private investment
company; Address: 1114 State Street, Suite 247, P.O. Box 90409, 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 94304-1005
Officers
HENRY H. HOPKINS, Vice President--Director and 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--Vice Chairman of the Board and
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; Vice Chairman of the Board, Chief Investment Officer, and
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 and Director--Managing Director of T.
Rowe Price; Chartered Financial Analyst
EDMUND M. NOTZON, Vice President--Managing Director, T. Rowe Price; Vice
President, 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
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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
JAMES A. C. KENNEDY III, Director--Managing Director of T. Rowe Price;
Chartered Financial Analyst
BRIAN W. H. BERGHUIS, Vice President--Managing Director, T. Rowe Price;
Chartered Financial Analyst
STEPHANIE C. CLANCY, Vice President--Assistant Vice President, T. Rowe Price
JILL L. HAUSER, Vice President--Vice President, T. Rowe Price
THOMAS J. HUBER, Vice President--Assistant 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
WILLIAM J. STROMBERG, Vice President--Vice President, T. Rowe Price; Chartered
Financial Analyst
Capital Appreciation Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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, Trustee--President, Chief Executive Officer, Chairman of the
Board, and Managing Director, T. Rowe Price; Vice President and Director, Rowe
Price-Fleming International, Inc.
*M. DAVID TESTA, Chairman of the Board--Chairman of the Board, Price-Fleming;
Vice Chairman of the Board, Chief Investment Officer, and Managing Director,
T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company;
Chartered Financial Analyst; Chartered Investment Counselor
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
*JOHN H. LAPORTE, JR., President and Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
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--Managing Director, 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
Diversified Small-Cap Growth Fund
*JOHN H. LAPORTE, JR., Vice President and Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board, 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; Vice Chairman
of the Board, Chief Investment Officer, and 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
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes
KRISTEN F. CULP, Vice President--Assistant Vice President, T. Rowe Price
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price; formerly
portfolio manager, Geewax Terker and Company
Dividend Growth Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, T. Rowe Price; Vice President and
Director, T. Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
JAMES A. C. KENNEDY III, Director--Managing Director of T. Rowe Price;
Chartered Financial Analyst
WILLIAM J. STROMBERG, President--Vice President, T. Rowe Price
BRIAN C. ROGERS, Executive Vice President--Director and 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, Vice President--Assistant Vice President, T. Rowe Price
MICHAEL W. HOLTON, Vice President--Employee, T. Rowe Price, formerly Research
Analyst at Bowles, Hollowell, Conner and Company
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price; formerly
portfolio manager, Geewax Terker and Company
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
Equity Income Fund
*JAMES S. RIEPE, Vice President and Trustee--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, T. Rowe Price; Vice President and
Director, T. Rowe Price Trust Company; Chartered Financial Analyst; Chartered
Investment Counselor
BRIAN C. ROGERS, President--Director and Managing Director, T. Rowe Price;
Chartered Financial Analyst
JAMES A. C. KENNEDY III, Trustee--Managing Director of T. Rowe Price;
Chartered Financial Analyst
*THOMAS H. BROADUS, JR., Vice President--Managing Director, T. Rowe Price;
Chartered Financial Analyst and Chartered Investment Counselor
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 M. 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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
JAMES A. C. KENNEDY III, Director--Managing Director of T. Rowe Price;
Chartered Financial Analyst
RICHARD T. WHITNEY, President--Vice President, T. Rowe Price; Chartered
Financial Analyst
KRISTEN F. CULP, Executive Vice President--Assistant Vice President, T. Rowe
Price
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price; formerly
portfolio manager, Geewax Terker and Company
WENDY R. DIFFENBAUGH, Assistant Vice President--Assistant Vice President, T.
Rowe Price
Financial Services Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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--Chairman of the Board, Price-Fleming;
Vice Chairman of the Board, Chief Investment Officer, and Managing Director,
T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company;
Chartered Financial Analyst; Chartered Investment Counselor
JAMES A. C. KENNEDY III, Director--Managing Director of T. Rowe Price;
Chartered Financial Analyst
DANIEL M. 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
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
SUSAN J. KLEIN, Assistant Vice President--Employee, T. Rowe Price
Growth & Income Fund
*JAMES S. RIEPE, Chairman of the Board--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
*STEPHEN W. BOESEL, President and Director--Vice President, T. Rowe Price
JAMES A. C. KENNEDY III, Director--Managing Director of T. Rowe Price;
Chartered Financial Analyst
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
ARTHUR B. CECIL III, Vice President--Vice President, T. Rowe Price; Chartered
Financial Analyst
DAVID M. LEE, Vice President--Assistant Vice President, T. Rowe Price,
formerly Marketing Representative at IBM
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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
JAMES A. C. KENNEDY III, Vice President and Director--Managing Director, T.
Rowe Price; Chartered Financial Analyst
ROBERT W. SMITH, President--Vice President, T. Rowe Price; formerly (1987-
1992) Investment Analyst, Massachusetts Financial Services, Inc.; Boston,
Massachusetts
BRIAN W. H. BERGHUIS, 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
JAMES D. PREY III, Vice President--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.
CAROL G. BARTHA, Assistant Vice President--Employee, T. Rowe Price
Health Sciences Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
*JOHN H. LAPORTE, JR., President and 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
DARRELL M. RILEY, Vice President--Employee, T. Rowe Price
MICHAEL F. SOLA, Vice President--Employee, T. Rowe Price, formerly Systems
Analyst/Programmer at SRA Corporation
ANDREW BHAK, Assistant Vice President--Employee, T. Rowe Price; formerly
(1990-1995) Senior Healthcare Analyst, United States General Accounting Office
Media & Telecommunications Fund
*JAMES S. RIEPE, Chairman of the Board and Director--Vice Chairman of the
Board and 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, President--Managing Director, T. Rowe Price;
Chartered Financial Analyst
*CHARLES A. MORRIS, Executive Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
*BRIAN D. STANSKY, Executive Vice President--Vice President, T. Rowe Price
LISE J. BUYER, Vice President--Vice President, T. Rowe Price; Chartered
Financial Analyst
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
SEEMA R. HINGORANI, Vice President--Employee, T. Rowe Price
D. JAMES PREY III, Vice President--Vice President, T. Rowe Price
*M. DAVID TESTA, Vice President and Director--Chairman of the Board,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst; Chartered Investment Counselor
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
Mid-Cap Equity Growth Fund
*JAMES S. RIEPE, Chairman of the Board--Vice Chairman of the Board and
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, President and Director--Chairman of the Board, Price-Fleming;
Vice Chairman of the Board, Chief Investment Officer, and 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--Assistant 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 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--Vice Chairman of the Board and
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--Managing Director, 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--Assistant Vice President, T. Rowe Price
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--Chairman of the Board, Price-Fleming; Vice
Chairman of the Board, Chief Investment Officer, and 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--Vice Chairman of the Board and
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, Vice President and Director--Managing Director, T.
Rowe Price; Chartered Financial Analyst
PRESTON G. ATHEY, Vice President--Managing Director, 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
BRIAN C. ROGERS, Vice President--Director and 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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and 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--Managing Director, T. Rowe
Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President--Assistant Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
ROBERT N. GENSLER, Vice President--Vice President, T. Rowe Price
THOMAS J. HUBER, Vice President--Assistant Vice President, T. Rowe Price
KARA M. CHESEBY, Vice President--Vice President, T. Rowe Price, formerly Vice
President, Legg Mason Wood Walker
CHARLES PEPIN, Vice President--Employee, 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
New Era Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
JAMES A. C. KENNEDY III, Vice President and Director--Managing Director, T.
Rowe Price; Chartered Financial Analyst
CHARLES M. OBER, President--Vice President, T. Rowe Price; Chartered Financial
Analyst
DAVID J. WALLACK, Executive 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
DAVID M. LEE, Vice President--Assistant Vice President, T. Rowe Price
ROBERT J. MARCOTTE, Vice President--Vice President, T. Rowe Price
*GEORGE A. ROCHE, Vice President--Chief Executive Officer, President, Chairman
of the Board, and Managing Director, T. Rowe Price; Vice President and
Director, Rowe Price-Fleming International, Inc.
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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
PRESTON G. ATHEY, Vice President--Managing Director, 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--Managing Director, 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.; 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--Assistant Vice President, 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 G. PEPIN, Vice President--Assistant Vice President, T. Rowe Price
DARRELL M. RILEY, Vice President--Employee, 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
Real Estate Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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.
Small-Cap Stock 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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and 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
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, 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 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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
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.; 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
MICHAEL F. SOLA, Vice President--Employee, T. Rowe Price, formerly Systems
Analyst/Programmer at SRA Corporation
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--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
PRESTON G. ATHEY, President--Managing Director, 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
LAUREN A. ROMEO, Vice President--Employee, 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.
FRANCIES W. HAWKS, Assistant Vice President--Assistant Vice President of T.
Rowe Price
Value Fund
*JAMES S. RIEPE, Vice President and Director--Vice Chairman of the Board and
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; Vice Chairman
of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price;
Vice President and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst; Chartered Investment Counselor
BRIAN C. ROGERS, President--Director and Managing Director, T. Rowe Price;
Chartered Financial Analyst
STEPHEN W. BOESEL, 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
KARA M. CHESEBY, Vice President--Vice President, T. Rowe Price, formerly Vice
President, Legg Mason Wood Walker
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 their officers or
directors/trustees. Also, any director/trustee of the Fund who is an officer
or employee of T. Rowe Price does not receive any remuneration from the Fund.
Total
Compensation
Aggregate From Fund and
Name of Compensation Fund Complex
Person, From Paid to
Position Fund(a) Directors (b)
________________________________________________________________
Balanced Fund
Leo C. Bailey, , Director (c) $ 512 $42,083
Donald W. Dick, Jr., Director 1,563 72,917
David K. Fagin, Director 2,331 59,167
Addison Lanier, Director (c) 512 42,083
John K. Major, Director(c) 883 34,167
Hanne M. Merriman, Director 2,331 59,167
Hubert D. Vos, Director 2,331 59,167
Paul M. Wythes, Director 1,772 69,667
_________________________________________________________________
Blue Chip Growth Fund
Leo C. Bailey, Director(c) $ 281 $42,083
Donald W. Dick, Jr., Director 1,140 72,917
David K. Fagin, Director 1,280 59,167
Addison Lanier, Director(c) 281 42,083
John K. Major, Director(c) 370 34,167
Hanne M. Merriman, Director 1,280 59,167
Hubert D. Vos, Director 1,280 59,167
Paul M. Wythes, Director 1,188 69,667
_________________________________________________________________
Capital Appreciation Fund
Leo C. Bailey, Director (c) $ 599 $42,083
Donald W. Dick, Jr., Director 1,693 72,917
David K. Fagin, Director 2,646 59,167
Addision Lanier, Director (c) 599 42,083
John K. Major, Director (c) 1,078 34,167
Hanne M. Merriman, Director 2,646 59,167
Hubert D. Vos, Director 2,646 59,167
Paul M. Wythes, Director 1,971 69,667
_________________________________________________________________
Capital Opportunity Fund
Leo C. Bailey, Director (c) $ 241 $42,083
Donald W. Dick, Jr., Director 1,026 72,917
David K. Fagin, Director 1,024 59,167
Addision Lanier, Director (c) 241 42,083
John K. Major, Director (c) 280 34,167
Hanne M. Merriman, Director 1,024 59,167
Hubert D. Vos, Director 1,024 59,167
Paul M. Wythes, Director 1,046 69,667
_________________________________________________________________
Dividend Growth Fund
Leo C. Bailey, Director(c) $ 248 $42,083
Donald W. Dick, Jr., Director 1,041 72,917
David K. Fagin, Director 1,043 59,167
Addision Lanier, Director (c) 248 42,083
John K. Major, Director(c) 297 34,167
Hanne M. Merriman, Director 1,043 59,167
Hubert D. Vos, Director 1,043 59,167
Paul M. Wythes, Director 1,068 69,667
_________________________________________________________________
Equity Income Fund
Leo C. Bailey, Trustee (c) $1,876 $42,083
Donald W. Dick, Jr., Trustee 4,805 72,917
David K. Fagin, Trustee 7,418 59,167
Addision Lanier, Trustee (c) 1,876 42,083
John K. Major,Trustee (c) 1,876 34,167
Hanne M. Merriman, Trustee 7,418 59,167
Hubert D. Vos, Trustee 7,418 59,167
Paul M. Wythes, Trustee 4,805 69,667
_________________________________________________________________
Equity Index Fund
Leo C. Bailey, Director (c) $ 430 $42,083
Donald W. Dick, Jr., Director 1,437 72,917
David K. Fagin, Director 2,029 59,167
Addision Lanier, Director (c) 430 42,083
John K. Major, Director (c) 701 34,167
Hanne M. Merriman, Director 2,029 59,167
Hubert D. Vos, Director 2,029 59,167
Paul M. Wythes, Director 1,587 69,667
_________________________________________________________________
Financial Services Fund
Donald W. Dick, Jr., Director $249 $72,917
David K. Fagin, Director 249 59,167
Hanne M. Merriman, Director 249 59,167
Hubert D. Vos, Director 249 59,167
Paul M. Wythes, Director 249 69,667
_________________________________________________________________
Growth & Income Fund
Leo C. Bailey, Director (c) $1,020 $42,083
Donald W. Dick, Jr., Director 2,581 72,917
David K. Fagin, Director 4,686 59,167
Addision Lanier, Director (c) 1,020 42,083
John K. Major, Director (c) 1,876 34,167
Hanne M. Merriman, Director 4,686 59,167
Hubert D. Vos, Director 4,686 59,167
Paul M. Wythes, Director 3,052 69,667
_________________________________________________________________
Growth Stock Fund
Leo C. Bailey, Director (c) $1,476 $42,083
Donald W. Dick, Jr., Director 3,417 72,917
David K. Fagin, Director 5,441 59,167
Addision Lanier, Director (c) 1,476 42,083
John K. Major, Director (c) 1,876 34,167
Hanne M. Merriman, Director 5,441 59,167
Hubert D. Vos, Director 5,441 59,167
Paul M. Wythes, Director 3,681 69,667
_________________________________________________________________
Media & Telecommunications Fund (d)
Donald W. Dick, Jr., Director $824 72,917
David K. Fagin, Director 1,151 59,167
Hanne M. Merriman, Director 1,151 59,167
Hubert D. Vos, Director 1,151 59,167
Paul M. Wythes, Director 824 69,667
_________________________________________________________________
Mid-Cap Equity Growth Fund
Donald W. Dick, Jr., Director $416 72,917
David K. Fagin, Director 417 59,167
Hanne M. Merriman, Director 417 59,167
Hubert D. Vos, Director 417 59,167
Paul M. Wythes, Director 416 69,667
_________________________________________________________________
Mid-Cap Growth Fund
Leo C. Bailey, Director (c) $ 354 $42,083
Donald W. Dick, Jr., Director 1,366 72,917
David K. Fagin, Director 1,858 59,167
Addision Lanier, Director (c) 354 42,083
John K. Major, Director (c) 529 34,167
Hanne M. Merriman, Director 1,858 59,167
Hubert D. Vos, Director 1,858 59,167
Paul M. Wythes, Director 1,454 69,667
_________________________________________________________________
Mid-Cap Value Fund
Donald W. Dick, Jr., Director $421 72,917
David K. Fagin, Director 427 59,167
Hanne M. Merriman, Director 427 59,167
Hubert D. Vos, Director 427 59,167
Paul M. Wythes, Director 422 69,667
________________________________________________________________
New America Growth Fund
Leo C. Bailey, Trustee (c) $ 685 $42,083
Donald W. Dick, Jr., Trustee 1,929 72,917
David K. Fagin, Trustee 3,250 59,167
Addision Lanier, Trustee (c) 685 42,083
John K. Major, Trustee (c) 1,268 34,167
Hanne M. Merriman, Trustee 3,250 59,167
Hubert D. Vos, Trustee 3,250 59,167
Paul M. Wythes, Trustee 2,256 69,667
_________________________________________________________________
New Era Fund
Leo C. Bailey, Director (c) $ 721 $42,083
Donald W. Dick, Jr., Director 1,974 72,917
David K. Fagin, Director 3,314 59,167
Addision Lanier, Director (c) 721 42,083
John K. Major, Director (c) 1,317 34,167
Hanne M. Merriman, Director 3,314 59,167
Hubert D. Vos, Director 3,314 59,167
Paul M. Wythes, Director 2,297 69,667
_________________________________________________________________
New Horizons Fund
Leo C. Bailey, Director (c) $1,560 $42,083
Donald W. Dick, Jr., Director 3,787 72,917
David K. Fagin, Director 6,146 59,167
Addision Lanier, Director (c) 1,560 42,083
John K. Major, Director (c) 1,876 34,167
Hanne M. Merriman, Director 6,146 59,167
Hubert D. Vos, Director 6,146 59,167
Paul M. Wythes, Director 4,035 69,667
_________________________________________________________________
Real Estate Fund
Donald W. Dick, Jr., Director $_____ $_____
David K. Fagin, Director _____ _____
Hanne M. Merriman, Director _____ _____
Hubert D. Vos, Director _____ _____
Paul M. Wythes, Director _____ _____
_________________________________________________________________
Small-Cap Stock Fund
Leo C. Bailey, Director (c) $ 333 $42,083
Donald W. Dick, Jr., Director 1,204 72,917
David K. Fagin, Director 1,457 59,167
Addision Lanier, Director (c) 333 42,083
John K. Major, Director (c) 486 34,167
Hanne M. Merriman, Director 1,457 59,167
Hubert D. Vos, Director 1,457 59,167
Paul M. Wythes, Director 1,293 69,667
_________________________________________________________________
Science & Technology Fund
Leo C. Bailey, Director (c) $1,309 $42,083
Donald W. Dick, Jr., Director 3,191 72,917
David K. Fagin, Director 5,381 59,167
Addision Lanier, Director (c) 1,309 42,083
John K. Major, Director (c) 1,876 34,167
Hanne M. Merriman, Director 5,381 59,167
Hubert D. Vos, Director 5,381 59,167
Paul M. Wythes, Director 3,545 69,667
_________________________________________________________________
Small-Cap Value Fund
Leo C. Bailey, Director (c) $ 658 $42,083
Donald W. Dick, Jr., Director 1,871 72,917
David K. Fagin, Director 3,108 59,167
Addision Lanier, Director (c) 658 42,083
John K. Major, Director (c) 1,205 34,167
Hanne M. Merriman, Director 3,108 59,167
Hubert D. Vos, Director 3,108 59,167
Paul M. Wythes, Director 2,178 69,667
_________________________________________________________________
Value Fund
Leo C. Bailey, Director (c) $ 235 $42,083
Donald W. Dick, Jr., Director 1,011 72,917
David K. Fagin, Director 987 59,167
Addision Lanier, Director (c) 235 42,083
John K. Major, Director (c) 267 34,167
Hanne M. Merriman, Director 987 59,167
Hubert D. Vos, Director 987 59,167
Paul M. Wythes, Director 1,027 69,667
(a) Amounts in this column are based on accrued compensation for calendar
year 1996.
(b) Amounts in this column are based on compensation received from January
1, 1996 to December 31, 1996. The T. Rowe Price complex included 76
funds as of December 31, 1996.
(c) Messrs. Bailey, Lanier, and Major retired from their positions with the
Funds in April 1996.
(d) Estimated future annual compensation from the Fund based on a full
calendar year.
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 Funds in
the intervals between meetings of the Board, except the powers prohibited by
statute from being 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 August 31, 1997, the following shareholders beneficially owned
more than 5% of the outstanding shares of:
Growth Stock, New Era, New Horizons, Growth & Income, and Mid-Cap Value Funds:
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, Dividend Growth, Equity Income, Media &
Telecommunications, Mid-Cap Growth, New Era, Small-Cap Value and Science &
Technology Funds: Charles Schwab & Co. Inc., Reinvest. Account, Attn.: Mutual
Fund Dept., 101 Montgomery Street, San Francisco, California 94104-4122;
Growth & Income Fund: Manulife Financial USA, 200 Bloor St East NT3, Toronto,
Ontario Canada M4WIE5, Attn.: Rosie Chuck, Pension Accounting;
Small-Cap Stock 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;
Mid-Cap Equity Growth Fund: Roland & Company, c/o Mercantile Bank of St.
Louis, Attn.: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, Missouri
63166-0387; Atlantic Trust Company NA, Attn.: Nominee Account, 100 Federal
Street, 37th Floor, Boston, Massachusetts 02110-1802; Conref & Company, c/o
Mercantile Bank of St. Louis, Attn.: Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, Missouri 63166-0387; Wentworth-Douglass Hospital, Attn.: Rayna
Feldman, 789 Central Avenue, Dover, New Hampshire 03820-2589;
Blue Chip Growth Fund: Fidelity Investments, Institutional Operations Co., 100
Magellan Way, Covington, Kentucky 41015-1999;
Media & Telecommunications Fund, Inc.: Bear Stearns Securities Corp, One
Metrotech Center North, Brooklyn, New York 11201-3857; MLPF&S For the Sole
Benefit of Its Customers, 4800 Deerlake Drive East, 3rd Floor, Jacksonville,
Florida 32246-6484; Smith Barney Inc., 333 West 34th Street, 8th Floor, New
York, New York 10001-2483.
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 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.
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 0.340% Next $5 billion
0.450% Next $1 billion 0.330% Next $10 billion
0.420% Next $1 billion 0.320% Next $10 billion
0.390% Next $1 billion 0.310% Next $16 billion
0.370% Next $1 billion 0.305% Next $30 billion
0.360% Next $2 billion 0.300% Thereafter
0.350% Next $2 billion
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 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:
Balanced Fund 0.15%
Blue Chip Growth Fund 0.30%
Capital Appreciation Fund 0.30%*
Capital Opportunity Fund 0.45%
Diversified Small-Cap Growth Fund 0.35%
Dividend Growth Fund 0.20%
Equity Income Fund 0.25%
Equity Index Fund 0.20%
Financial Services Fund 0.35%
Growth & Income Fund 0.25%
Growth Stock Fund 0.25%
Health Sciences Fund 0.35%
Media & Telecommunications 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%
Real Estate Fund ____%
Small-Cap Stock Fund 0.45%
Science & Technology Fund 0.35%
Small-Cap Value Fund 0.35%
Value Fund 0.35%
(a) 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 last three years:
Fund 1996 1995 1994
Balanced $3,765,000 $2,778,000 $1,969,227
Blue Chip Growth 1,924,000 534,000 76,000
Capital Appreciation 4,218,000 4,940,000 4,161,612
Capital Opportunity 890,000 134,000 (b)
Dividend Growth 754,000 357,000 107,000
Equity Income 37,762,000 24,358,000 17,847,000
Equity Index 925,000 498,000 156,349
Financial Services (b) (a) (a)
Growth & Income 12,048,000 8,195,000 5,984,000
Growth Stock 17,848,000 14,222,000 11,981,872
Health Sciences 750,000 (a) (a)
Media &
Telecommunications (c) 3,056,000 2,665,000 2,109,000
Mid-Cap Equity Growth (b) (a) (a)
Mid-Cap Growth 4,390,000 1,234,000 545,000
Mid-Cap Value 22,000 (a) (a)
New America Growth 8,648,000 5,554,000 4,395,000
New Era 7,559,000 6,218,000 5,272,000
New Horizons 25,875,000 15,035,000 11,402,554
Small-Cap Stock 2,619,000 1,897,000 1,534,235
Science & Technology 19,792,000 11,393,000 4,467,208
Small-Cap Value 8,187,000 4,262,000 3,047,508
Value 748,000 19,000 (b)
(a) Prior to commencement of operations.
(b) Due to each Fund's expense limitation in effect at that time, no
management fees were paid by the Funds to T. Rowe Price.
(c) Fees listed were paid under this Fund's previous management agreement,
prior to becoming an open-end mutual fund.
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.
Balanced, Blue Chip Growth, Capital Opportunity, Diversified Small-Cap
Growth, Dividend Growth, Equity Index, Financial Services, Health Sciences,
Media & Telecommunications, Mid-Cap Equity Growth, Mid-Cap Growth, Mid-Cap
Value, Real Estate, 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 made if it would result
in the Fund's expense ratio exceeding its applicable limitation.
Expense
Limitation Ratio Reimbursement
Fund Period Limitation Date
_______ _________ ________ __________
Blue Chip
Growth(a) January 1, 1995- 1.25% December 31, 1998
December 31, 1996
Capital
Opportunity November 30, 1994- 1.35% December 31, 1998
December 31, 1996
Diversifed
Small-Cap
Growth June 30, 1997-
December 31, 1998 1.25% December 31, 2000
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 30, 1996- 1.25% December 31, 2000
December 31, 1998
Health
Sciences December 29, 1995- 1.35% December 31, 1999
December 31, 1997
Mid-Cap Equity
Growth July 31, 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 28, 1996- 1.25% December 31, 1999
December 31, 1997
Real Estate October 31, 1997-
December 31, 1999 ____% December 31, 2001
Value September 30,1994- 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 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 Health Sciences Fund's current expense limitation,
$101,000 of management fees were not accrued by the Fund for the year ended
December 31, 1996.
Pursuant to the Blue Chip Growth Fund's current and previous expense
limitation, $214,000 of unaccrued fees and expenses were repaid during the
year ended December 31, 1996.
Pursuant to the Dividend Growth Fund's previous expense limitation,
$174,000 of unaccrued 1993-94 fees and expenses were repaid by the Fund for
the year ended December 31, 1996. Additionally, $5,000 of unaccrued management
fees related to the current expense limitation are subject to reimbursement
through December 31, 1998.
Pursuant to the Equity Index Fund's current expense limitation, $370,000
of management fees were not accrued by the fund for the year ended December
31, 1996. Additionally, $445,000 of unaccrued management fees related to a
previous expense limitation are subject to reimbursement through December 31,
1997.
Pursuant to Capital Opportunity Fund's expense limitation that expired
on December 31, 1996, $1,000 of management fees were not accrued by the fund
for the year ended December 31, 1996. Additionally, $156,000 of unaccrued
1994-95 fees and expenses are subject to reimbursement through December 31,
1998.
Pursuant to the Value Fund's current expense limitation, $35,000 of
management fees were not accrued by the fund for the year ended December 31,
1996. Additionally, $202,000 of unaccrued 1994-95 fees and expenses are
subject to reimbursement through December 31, 1998.
Pursuant to the Mid-Cap Growth Fund's previous expense limitation,
$58,000 of unaccrued management fees were repaid during the year ended
December 31, 1996.
Pursuant to the Mid-Cap Equity Growth Fund's current expense limitation,
$14,000 of management fees and $34,000 of expenses were not accrued by the
fund for the year ended December 31, 1996 and are subject to reimbursement
through December 31, 1999.
Pursuant to the Mid-Cap Value Fund's current expense limitation, $78,000
of management fees were not accrued by the fund for the year ended December
31, 1996 and are subject to reimbursement through December 31, 1999.
Pursuant to the Financial Services Fund's current expense limitation,
$24,000 of management fees were not accrued by the fund for the year ended
December 31, 1996 and $2,000 of other expenses were borne by the manager.
Capital Appreciation Fund
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,
1996, decreased management fees by $1,530,000.
The Monthly Group Fee and Monthly Fund Fee are combined (the "Combined
Fee") and are subject to a downward Performance Fee Adjustment until October
31, 1998, 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.
Effective November 1, 1998, there will be no Performance Fee Adjustment. The
Performance Fee adjustment is computed as of the end of each month and if any
adjustment results, is 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) 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
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 0.20% of the average daily net asset value of the
Fund.
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 Funds listed above are 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").
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: necessary state
filings; 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
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 the various states 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.
SHAREHOLDER SERVICES
The Fund from time to time may enter into agreements with outside
parties through which shareholders hold Fund shares. The shares would be held
by such parties in omnibus accounts. The agreements would provide for payments
by the Fund to the outside party for shareholder services provided to
shareholders in the omnibus accounts.
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 10 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 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 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 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 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 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
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 JFG in the capacity of
broker in connection with the execution of the Fund's portfolio transactions.
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 1996, 1995, and 1994, 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.
1996 1995 1994
Fund Commissions % Commissions % Commissions %
Balanced 292,325 13.0% $392,293.25 14.8% $258,006 18.1%
Blue Chip
Growth 748,661 34.6% 420,930.75 10.3% 219,539 11.9%
Capital
Apprec-
iation 886,009 46.6% 1,922,697.14 32.4% 828,822 67.4%
Capital
Oppor-
tunity 764,518 38.7% 528,726.58 24.6% 7,857 7.2%
Dividend
Growth 478,131 28.6% 373,297.65 9.6% 294,479 15.9%
Equity
Income 6,912,071 59.2% 4,193,326.16 43.2% 4,511,187 48.4%
Growth &
Income 1,874,214 42.7% 1,431,193.83 44.7% 2,550,364 23.7%
Growth
Stock 5,630,241 48.7% 4,769,565.10 42.6% 4,002,616 51.6%
Equity
Index 37,146 0.0% 98,198.06 0.1% 21,198 3.27%
Financial
Services 60,862 10.5% (a) (a) (a) (a)
Health
Sciences 1,488,623 20.4% (a) (a) (a) (a)
Media &
Telecom-
munica-
tions 1,659,735 15.0% 1,069,972.92 22.6% 1,008,389.53 45.1%
Mid-Cap
Equity
Growth 24,079 12.0% (a) (a) (a) (a)
Mid-Cap
Growth 3,149,050 27.9% 924,702.44 16.5% 349,991 30.8%
Mid-Cap
Value 92,359 17.0% (a) (a) (a) (a)
New America
Growth 1,344,080 31.6% 3,605,674.73 16.1% 1,646,550 23.7%
New Era 2,500,868 45.2% 1,259,196.48 42.7% 1,863,739 35.8%
New
Horizons 15,900,960 6.5% 8,729,848.09 9.1% 5,246,463 10.0%
Small-Cap
Stock 1,044,665 5.5% 873,954.17 7.5% 584,525 4.6%
Science &
Tech-
nology 5,713,825 39.1% 4,766,170.90 18.5% 1,272,479 45.4%
Small-Cap
Value 1,289,012 31.8% 1,321,168.10 14.4% 512,45226.28%
Value 780,033 57.4% 270,118.81 32.3% 30,478 14.9%
(a) Prior to commencement of operations.
On December 31, 1996, 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 $1,002,000, $6,837,000,
$1,896,000, $2,569,000, and 1,262,000 respectively. In 1996, 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, 1996, 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 $16,336,000, and $30,504,000
respectively. The Fund also held medium-term notes of Morgan Stanley with a
value of $10,003,000. In 1996, 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, 1996, the Small-Cap Value Fund held commercial paper of
Morgan Stanley Group with a value of $7,002,000. In 1996, 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, 1996, the Dividend Growth Fund held medium-term notes of
Morgan Stanley Group with a value of $1,000,000. In 1996, 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, 1996, the Capital Appreciation Fund held commercial
paper of Morgan Stanley Group with a value of $10,003,000. In 1996, 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, 1996, the Small-Cap Stock Fund held commercial paper of
Morgan Stanley Group with a value of $2,001,000. In 1996, 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, 1996, 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 $41,331,000, $0, and
$82,981,000, respectively. The Fund also held medium-term notes of GMAC and
the Morgan Stanley Group, with a value of $7,002,000$19,979,000 and
$31,455,000, respectively. In 1996, 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, 1996, the Balanced Fund held common stock of J.P. Morgan
with a value of $1,953,000. The Fund also held a bond of Lehman Brothers
Holding with a value of $1,615,000. The Fund also held commercial paper of
Morgan Stanley Group with a value of $5,006,000. In 1996, 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 1996,
1995, and 1994, was as follows:
Fund 1996 1995 1994
Balanced 22.3% 12.6% 33.3%
Blue Chip Growth 26.3% 38.1% 75.0%
Capital Appreciation 44.2% 47.0% 43.6%
Capital Opportunity 107.3% 136.9% 134.5%
Dividend Growth 43.1% 56.1% 71.4%
Equity Income 25.0% 21.4% 36.3%
Equity Index 1.3% 1.3% 1.3%
Financial Services 5.6% (a) (b) (b)
Growth & Income 13.5% 26.2% 25.6%
Growth Stock 49.0% 42.5% 54.0%
Health Sciences 133.1% (b) (b)
Media &
Telecommunications 102.9% 118.9% 133.9%
Mid-Cap Equity Growth 31.3% (a) (b) (b)
Mid-Cap Growth 38.1% 57.5% 48.7%
Mid-Cap Value 3.9%* (b) (b)
New America Growth 36.7% 56.2% 31.0%
New Era 28.6% 22.7% 24.7%
New Horizons 41.4% 55.9% 44.3%
Small-Cap Stock 31.1% 57.8% 41.9%
Science & Technology 125.6% 130.3% 113.3%
Small-Cap Value 15.2% 18.1% 21.4%
Value 68.0% 89.7% 30.8%
(a) Annualized.
(b) 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 at the time 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 amortized 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, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
Fund, as authorized by the Board of Directors/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 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, Dr. Martin Luther King, Jr., Holiday, President's Day, 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, Real Estate, 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 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.
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
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 Fund's 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.
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-
12/31/96 12/31/96 12/31/96 12/31/96
S & P 500 22.96% 103.05% 314.28%
Dow Jones
Industrial Average 28.88 132.65 366.13
CPI 3.65 15.37 43.98
Balanced Fund 14.57 71.09 184.22 28,585.93%
(12/31/39)
Blue Chip Growth Fund 27.75 N/A N/A 103.02
(6/30/93)
Capital Appreciation
Fund 16.82 87.99 251.25 281.11
(6/30/86)
Capital Opportunity Fund 16.76 N/A N/A 78.41
(11/30/94)
Dividend Growth Fund 25.36 N/A N/A 101.47
(12/31/92)
Equity Income Fund 20.40 119.97 286.01 438.33
(10/31/85)
Equity Index Fund 22.65 99.32 N/A 158.34
(3/30/90)
Financial Services Fund N/A N/A N/A 13.40
(9/30/96)
Growth & Income Fund 25.64 113.97 257.36 544.47
(12/21/82)
Growth Stock Fund 21.70 96.96 247.90 16,900.01
(4/11/50)
Health Sciences Fund 26.75 N/A N/A 26.75
(12/29/95)
Media & Tele-
communications Fund (a) 1.78 N/A N/A 31.71
(10/13/93)
Mid-Cap Equity
Growth Fund N/A N/A N/A 16.10
(7/31/96)
Mid-Cap Growth Fund 24.84 N/A N/A 177.44
(6/30/92)
Mid-Cap Value Fund N/A N/A N/A 16.30
(6/28/96)
New America Growth Fund 20.01 106.90 336.86 492.08
(9/30/85)
New Era Fund 24.25 85.78 214.24 1,699.77
(1/20/69)
New Horizons Fund 17.03 146.18 352.34 6,628.27
(6/3/60)
Small-Cap Stock Fund 21.05 118.70 219.48 23,328.87
(6/1/56)
Science & Technology
Fund 14.23 203.52 N/A 516.07
(9/30/87)
Small-Cap Value Fund 24.61 136.78 N/A 220.15
(6/30/88)
Value Fund 28.51 N/A N/A 85.29
(9/30/94)
(a) Figures based on performance as a closed-end investment company traded
on the New York Stock Exchange.
Average Annual Compound Rates of Return
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
12/31/96 12/31/96 12/31/96 12/31/96
S&P 500 22.96% 15.22% 15.27%
Dow Jones
Industrial Avg. 28.88 18.40 16.64
CPI 3.65 2.90 3.71
Balanced Fund 14.57 11.34 11.01 10.44%
(12/31/39)
Blue Chip Growth Fund 27.75 N/A N/A 22.41
(6/30/93)
Capital Appreciation
Fund 16.82 13.46 13.39 13.59
(6/30/86)
Capital Opportunity
Fund 16.76 N/A N/A 32.01
(11/30/94)
Dividend Growth Fund 25.36 N/A N/A 19.14
(12/30/92)
Equity Income Fund 20.40 17.08 14.46 16.27
(10/31/85)
Equity Index Fund 22.65 14.79 N/A 15.08
(3/30/90)
Financial Services Fund N/A N/A N/A N/A
(9/30/96)
Growth & Income Fund 25.64 16.43 13.58 14.21
(12/21/82)
Growth Stock Fund 21.70 14.52 13.28 11.62
(4/11/50)
Health Sciences Fund 26.75 N/A N/A 26.75
(12/29/95)
Media & Tele- 1.78 N/A N/A 8.94
communications Fund (a) (10/13/93)
Mid-Cap Equity
Growth Fund N/A N/A N/A N/A
(7/31/96)
Mid-Cap Growth Fund 24.84 N/A N/A 25.44
(6/30/92)
Mid-Cap Value Fund N/A N/A N/A N/A
(6/28/96)
New America Growth Fund 20.01 15.65 15.89 17.12
(9/30/85)
New Era Fund 24.25 13.19 12.13 10.90
(1/20/69)
New Horizons Fund 17.03 19.74 16.29 12.19
(6/3/60)
Small-Cap Stock Fund 21.05 16.94 12.32 14.39
(6/1/56)
Science & Technology
Fund 14.23 24.86 N/A 21.72
(9/30/87)
Small-Cap Value Fund 24.61 18.81 N/A 14.67
(6/30/88)
Value Fund 28.51 N/A N/A 31.52
(9/30/94)
(a) Figures based on performance as a closed-end investment company traded
on the New York Stock Exchange.
Outside Sources of Information
From time to time, in reports and promotional literature: (1) the Fund's
total return performance, ranking, or any other measure of the Fund's
performance may be compared to any one or combination of the following: (i) a
broad based index; (ii) other groups of mutual funds, including T. Rowe Price
Funds, tracked by independent research firms ranking entities, or financial
publications; (iii) indices of stocks comparable to those in which the Fund
invests; (2) the Consumer Price Index (or any other measure for inflation,
government statistics, such as GNP may be used to illustrate investment
attributes of the Fund or the general economic, business, investment, or
financial environment in which the Fund operates; (3) various financial,
economic and market statistics developed by brokers, dealers and other persons
may be used to illustrate aspects of the Fund's performance; (4) the effect of
tax-deferred compounding on the Fund's investment returns, or on returns in
general in both qualified and non-qualified retirement plans or any other tax
advantage product, may be illustrated by graphs, charts, etc.; and (5) the
sectors or industries in which the Fund invests may be compared to relevant
indices or surveys in order to evaluate the Fund's historical performance or
current or potential value with respect to the particular industry or sector.
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.
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, which include, but are
not limited to, 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.
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 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.
Media & Telecommunications Fund
On July 28, 1997, the Fund converted its status from a closed-end fund
to an open-end mutual fund. Prior to the conversion the Fund was known as New
Age Media Fund, Inc.
Small-Cap Stock Fund
Effective May 1, 1997, the Fund's name was changed from the T. Rowe
Price OTC Fund to the T .Rowe Price Small-Cap Stock Fund.
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 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 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 FUNDS
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 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 REGISTRATION OF SHARES
All Funds
The Fund's shares are registered for sale under the Securities Act of
1933. Registration of the Fund's shares is not required under any state law,
but the Fund is required to make certain filings with, and pay fees to, the
states in order to sell its shares in the states.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, LLP, whose address is 919 Third
Avenue, New York, New York 10022, is legal counsel to the Funds.
INDEPENDENT ACCOUNTANTS
Real Estate Fund
____________________, Maryland, are independent accountants to the Fund.
Blue Chip Growth, Diversified Small-Cap Growth Fund, Dividend Growth, Equity
Income, Growth & Income, Media & Telecommunications, Mid-Cap Equity Growth,
Mid-Cap Growth, Mid-Cap Value, New America Growth, and New Era Funds
Price Waterhouse LLP, 1306 Concourse Drive, Suite 100, Linthicum,
Maryland 21090-1020, are independent accountants to the Funds.
Balanced, Capital Appreciation, Capital Opportunity, Equity Index Fund,
Financial Services, Growth Stock, Health Sciences, New Horizons,
Small-Cap Stock, Science & Technology, Small-Cap Value, and Value Funds
Coopers & Lybrand L.L.P., 250 West Pratt Street, 21st Floor, Baltimore,
Maryland 21201, are independent accountants to the Fund.
The financial statements for the Diversified Small-Cap Growth and Real
Estate Funds are attached to the end of this Statement of Additional
Information.
The financial statements of the Funds (except for Diversified Small-Cap
Growth and Real Estate Funds) for the year ended December 31, 1996, and the
report of independent accountants are included in the Fund s Annual Report for
the year ended December 31, 1996. A copy of the Annual Report accompanies this
Statement of Additional Information. The financial statements for the period
ending June 30, 1997, are included in the Fund's unaudited semiannual report.
A copy of the semiannual 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,
1996, and the semiannual report for the period ending June 30, 1997, 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 25 25 32 23
Statement of Net Assets,
December 31, 1996 12-19 9-18 12-26 9-17
Statement of Operations,
year ended
December 31, 1996 20 19 27 18
Statement of Changes in
Net Assets, years ended
December 31, 1996 and
December 31, 1995 21 20 28 19
Notes to Financial
Statements,
December 31, 1996 22-24 21-24 29-31 20-22
Financial Highlights 11 8 11 8
NEW SMALL-
GROWTH AMERICA NEW CAP
STOCK GROWTH ERA STOCK
________ ________ _____ ____
Report of Independent
Accountants 25 20 21 25
Statement of Net Assets,
December 31, 1996 11-19 11-14 11-15 10-19
Statement of Operations,
year ended
December 31, 1996 20 15 16 20
Statement of Changes in
Net Assets, years ended
December 31, 1996 and
December 31, 1995 21 16 17 21
Notes to Financial
Statements,
December 31, 1996 22-24 17-19 18-20 22-24
Financial Highlights 10 10 10 9
MEDIA &
TELECOMMUN- MID-CAP BLUE CHIP
BALANCED MUNICATIONS GROWTH GROWTH
_________ ________ ________ _________
Report of Independent
Accountants 41 15 21 25
Statement of Net Assets,
December 31, 1996 11-34 8-10 11-15 12-19
Statement of Operations,
year ended
December 31, 1996 35 11 16 20
Statement of Changes in
Net Assets, years ended
December 31, 1996 and
December 31, 1995 36 12 17 21
Notes to Financial
Statements,
December 31, 1996 37-40 13-14 18-20 22-24
Financial Highlights 10 7 10 11
SCIENCE &
DIVIDEND CAPITAL TECH-
GROWTH VALUE OPPORTUNITY NOLOGY
_________ ________ ________ _________
Report of Independent
Accountants 24 21 20 21
Statement of Net Assets,
December 31, 1996 10-17 9-15 10-14 12-15
Statement of Operations,
year ended
December 31, 1996 18 16 15 16
Statement of Changes in
Net Assets, years ended
December 31, 1996 and
December 31, 1995 19 17 16 17
Notes to Financial
Statements,
December 31, 1996 20-23 18-20 17-19 18-20
Financial Highlights 9 8 9 11
NEW SMALL-CAP
HORIZONS VALUE
__________ __________
Report of Independent
Accountants 29 27
Portfolio of Investments,
December 31, 1996 11-22 10-20
Statement of Assets and
Liabilities,
December 31, 1996 23 21
Statement of Operations,
year ended
December 31, 1996 24 22
Statement of Changes
in Net Assets, years ended
December 31, 1996 and
December 31, 1995 25 23
Notes to Financial
Statements,
December 31, 1996 26-28 24-26
Financial Highlights 10 9
FINANCIAL SERVICES
__________________
Report of Independent Accountants 19
Statement of Net Assets, December 31, 1996 12-13
Statement of Operations, September 30, 1996
(Commencement of Operations) to December 31, 1996 14
Statement of Changes in Net Assets, September 30, 1996
(Commencement of Operations) to December 31, 1996 15
Notes to Financial Statements, December 31, 1996 16-18
Financial Highlights 9
HEALTH SCIENCES
_______________
Report of Independent Accountants 25
Statement of Net Assets, December 31, 1996 13-19
Statement of Operations, December 31, 1995
(Commencement of Operations) to December 31, 1996 20
Statement of Changes in Net Assets, December 31, 1995
(Commencement of Operations) to December 31, 1996 21
Notes to Financial Statements, December 31, 1996 22-24
Financial Highlights 12
MID-CAP VALUE
_____________
Report of Independent Accountants 22
Statement of Net Assets, December 31, 1996 10-16
Statement of Operations, June 28, 1996
(Commencement of Operations) to December 31, 1996 17
Statement of Changes in Net Assets, June 28, 1996
(Commencement of Operations) to December 31, 1996 18
Notes to Financial Statements, December 31, 1996 19-21
Financial Highlights 9
MID-CAP EQUITY GROWTH
_____________________
Report of Independent Accountants 12
Statement of Net Assets, December 31, 1996 5-7
Statement of Operations, July 31, 1996
(Commencement of Operations) to December 31, 1996 8
Statement of Changes in Net Assets, July 31, 1996
(Commencement of Operations) to December 31, 1996 9
Notes to Financial Statements, December 31, 1996 10-11
Financial Highlights 4
UNAUDITED SEMIANNUAL REPORT REFERENCES
CAPITAL EQUITY EQUITY GROWTH &
APPRECIATION INCOME INDEX INCOME
____________ ________ ______ ________
Statement of Net Assets,
June 30, 1997 10-17 7-16 10-25 8-16
Statement of Operations,
6 months ended
June 30, 1997 19 17 25 17
Statement of Changes in
Net Assets, 6 months ended
June 30, 1997, and year ended
December 31, 1996 19 18 26 18
Notes to Financial
Statements,
June 30, 1997 20-23 19-21 27-29 19-21
Financial Highlights 9 6 9 7
NEW SMALL-
GROWTH AMERICA NEW CAP
STOCK GROWTH ERA STOCK
________ ________ _____ ____
Statement of Net Assets,
June 30, 1997 10-18 10-14 10-15 10-19
Statement of Operations,
6 monthes ended
June 30, 1997 19 15 16 20
Statement of Changes in
Net Assets, 6 months ended
June 30, 1997, and year ended
December 31, 1996 20 16 17 21
Notes to Financial
Statements,
June 30, 1997 21-23 17-19 18-20 22-24
Financial Highlights 9 9 9 9
MEDIA
&
TELECOMMUN- MID-CAP BLUE CHIP
BALANCED MUNICATIONS GROWTH GROWTH
_________ ________ ________ _________
Statement of Net Assets,
June 30, 1997 10-37 12-15 9-14 10-18
Statement of Operations,
6 monthes ended
June 30, 1997 38 16 15 19
Statement of Changes in
Net Assets, 6 months ended
June 30, 1997, and year ended
December 31, 1996 39 17 16 20
Notes to Financial
Statements,
June 30, 1997 40-42 18-20 17-19 21-22
Financial Highlights 9 11 8 9
SCIENCE &
DIVIDEND CAPITAL TECH-
GROWTH VALUE OPPORTUNITY NOLOGY
_________ ________ ________ _________
Statement of Net Assets,
June 30, 1997 8-15 8-14 9-13 13-16
Statement of Operations,
6 months ended
June 30, 1997 16 15 14 17
Statement of Changes in
Net Assets, 6 months ended
June 30, 1997, and year ended
December 31, 1996 17 16 15 18
Notes to Financial
Statements,
June 30, 1997 18-20 17-19 16-18 19-21
Financial Highlights 7 7 8 12
NEW SMALL-CAP
HORIZONS VALUE
__________ __________
Portfolio of Investments,
June 30, 1997 11-24 8-18
Statement of Assets and
Liabilities,
June 30, 1997 25 19
Statement of Operations,
6 months ended
June 30, 1997 26 20
Statement of Changes
in Net Assets, 6 months ended
June 30, 1997, and year ended
December 31, 1996 27 21
Notes to Financial
Statements,
June 30, 1997 28-30 22-24
Financial Highlights 10 7
FINANCIAL SERVICES
__________________
Statement of Net Assets, June 30, 1997 10-13
Statement of Operations, 6 months ended
June 30, 1997 14
Statement of Changes in Net Assets,
6 months ended June 30, 1997,
and September 30, 1996-December 31, 1996 15
Notes to Financial Statements,
June 30, 1997 16-18
Financial Highlights 9
HEALTH SCIENCES
_______________
Statement of Net Assets, June 30, 1997 12-19
Statement of Operations, 6 months ended
June 30, 1997 20
Statement of Changes in Net Assets,
6 months ended June 30, 1997, and
December 31, 1995-December 31, 1996 21
Notes to Financial Statements,
June 30, 1997 22-24
Financial Highlights 11
MID-CAP VALUE
_____________
Statement of Net Assets, June 30, 1997 11-18
Statement of Operations, 6 months ended
June 30, 1997 19
Statement of Changes in Net Assets,
6 months ended June 30, 1997, and
June 28, 1996-December 31, 1996 20
Notes to Financial Statements,
June 30, 1997 21-23
Financial Highlights 10
MID-CAP EQUITY GROWTH
_____________________
Statement of Net Assets, June 30, 1997 5-7
Statement of Operations,
6 months ended June 30, 1997 8
Statement of Changes in Net Assets,
6 months ended June 30, 1997, and
July 31, 1996-December 31, 1996 9
Notes to Financial Statements,
June 30, 1997 10-11
Financial Highlights 4
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 23, 1997
Assets
Receivable for Fund shares sold $100,000
Deferred organizational expenses 48,745
Total assets 148,745
Liabilities
Amount due Manager 46,395
Accrued expenses 2,350
Total liabilities 48,745
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 Diversified Small-Cap Growth Fund, Inc. (the "Corporation")
was organized on April 22, 1997, 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 Diversified Small-Cap Growth Fund at
$10.00 per share on June 23, 1997 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 24, 1997 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 $48,745 have
been accrued at June 23, 1997, 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
T. Rowe Price Diversified Small-Cap Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the T. Rowe Price
Diversified Small-Cap Growth Fund, Inc., hereafter referred to as the "Fund",
at June 24, 1997, 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 our
opinion expressed above.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 24, 1997
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 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 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.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements. A Statement of Assets and Liabilities of
Registrant as of _____________, 1997, 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 accounting.+ 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 September 18,
1997
(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.
(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, and 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, August 2,
1996, November 12, 1996, February 4, 1997, April 24, 1997, and
July 23, 1997 (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, July 31, 1996, and July 23,
1997 (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, 1997,
as amended February 4, 1997, April 24, 1997, and July 23, 1997
(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,
1997, as amended February 4, 1997, April 24, 1997, and July
23, 1997 (to be filed by amendment)
(9)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc.
and the Taxable Funds, dated January 1, 1997, as amended April
24, 1997, and July 23, 1997 (to be filed by amendment)
(10) Opinion of Counsel, dated September 22, 1997
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Financial Data Schedule as of September 22, 1997
(18) Inapplicable
(19) Inapplicable
Item 25. Persons Controlled by or Under Common Control With Registrant.
None.
Item 26. Number of Holders of Securities
As of September 22, 1997, there were zero shareholders in the T. Rowe
Price Real Estate 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-nine investment companies, including, 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 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 California Tax-Free Income Trust, T.
Rowe Price State 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 Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc.,
T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock 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., Institutional
Equity Funds, Inc., T. Rowe Price Financial Services Fund, Inc., T. Rowe Price
Diversified Small-Cap Growth Fund, Inc., T. Rowe Price Tax-Efficient Balanced
Fund, Inc., Reserve Investment Funds, Inc., and T. Rowe Price Media &
Telecommunications Fund, Inc. The Registrant and the forty-nine investment
companies listed above, with the exception of Institutional International
Funds, Inc., will be collectively referred to as the Price Funds. The
investment manager for the Price Funds, 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 subsidiary of the
Manager, 25% owned by Copthall Overseas Limited, a 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 17d-1(d)(7) under the Investment Company Act of 1940.
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 ("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 applicable Maryland law, as from time to time amended. 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 applicable Maryland Law, as from
time to time amended. 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 applicable Maryland law, as from
time to time amended.
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 Act of 1940,
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 of 1940, 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 of 1940, 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.
Insofar as indemnification for liability arising 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 incorporated in
Maryland 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, was incorporated in Maryland 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, was incorporated in Maryland in 1991. It was organized for and
engages in the sale of certain investment related products prepared by
Investment Services.
T. Rowe Price Associates Foundation, Inc. (the "Foundation"), was
incorporated in 1981 (and is not a subsidiary of the Manager). The
Foundation's overall objective emphasizes various community needs by giving to
a broad range of educational, civic, cultural, and health-related
institutions. The Foundation has a very generous matching gift program
whereby employee gifts designated to qualifying institutions are matched
according to established guidelines.
T. Rowe Price Services, Inc. ("Price Services"), a wholly owned
subsidiary of the Manager, was incorporated in Maryland 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 one trust.
T. Rowe Price Investment Technologies, Inc. was incorporated in Maryland
in 1996. A wholly owned subsidiary of the Manager, it owns the technology
rights, hardware, and software of the Manager and affiliated companies and
provides technology services to them.
T. Rowe Price Threshold Fund Associates, Inc., a wholly owned subsidiary
of the Manager, was incorporated in Maryland 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 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"),
was incorporated in Maryland in 1988 as a wholly owned subsidiary of the
Manager. Stable Asset Management, is registered as an investment adviser under
the Investment Advisers Act of 1940, and 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., T. Rowe
Price Recovery Fund II, L.P., Delaware limited partnerships which invest in
financially distressed companies.
T. Rowe Price Recovery Fund II Associates, Inc., is a Maryland limited
liability Company organized in 1996. Wholly owned by the Manager, it serves as
the General Partner of T. Rowe Price Recovery Fund II, L.P., a Delaware
limited partnership which also 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).
T. Rowe Price Insurance Agency, Inc., is a wholly owned 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.
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.
TRP Suburban, Inc., is a Maryland corporation organized in 1990 as a
wholly owned subsidiary of the Manager. It entered into agreements with
McDonogh School and CMANE-McDonogh-Rowe Limited Partnership to construct an
office building in Owings Mills, Maryland, which currently 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 II, L.P. is a Delaware limited
partnership organized in 1992 for the purpose of investing in 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.
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:
GEORGE J. COLLINS, Director of the Manager and Price-Fleming. Mr. Collins
retired from the offices of Chairman of the Board, Chief Executive Officer,
and President of the Manager effective as of May 31, 1997. He continues to
serve on the Board of Directors 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 Dean of the
Jepson School of Leadership Studies at the University of Richmond 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; Cone
Mills Corporation, a textiles producer; and Providence Journal Company, a
publisher of newspapers and owner of broadcast television stations. Mr.
Rosenblum's address is: University of Richmond, Richmond, Virginia 23173.
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: Pleasant
Valley, Peapack, New Jersey 07977.
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; the James River Corporation of Virginia; and
Albemarle Corporation. Mrs. Whittemore's address is One James Center,
Richmond, Virginia 23219.
With the exception of Messrs. Collins, Halbkat, Menschel, Rosenblum,
Strickland, and Walsh, and Mrs. Whittemore, all of the following directors of
the Manager are employees of the Manager.
James S. Riepe, who is a Vice-Chairman of the Board, Director, and Managing
Director of the Manager, is also a Director of Price-Fleming.
George A. Roche, who is Chairman of the Board, President, and Managing
Director of the Manager, is a Director and Vice President of Price-Fleming.
M. David Testa, who is a Vice-Chairman of the Board, Chief Investment Officer,
and Managing Director of the Manager, is Chairman of the Board of
Price-Fleming.
Henry H. Hopkins, who is a Director and Managing Director of the Manager, is a
Vice President of Price-Fleming.
Charles P. Smith and Peter Van Dyke, who are Managing Directors of the
Manager, are Vice Presidents of Price-Fleming.
James A. C. Kennedy III, John H. Laporte, Jr., William T. Reynolds, and Brian
C. Rogers are Directors and Managing Directors of the Manager.
Preston G. Athey, Brian W.H. Berghuis, Edward C. Bernard, Stephen W. Boesel,
Thomas H. Broadus, Jr., Michael A. Goff, Andrew C. Goresh, Mary J. Miller,
Charles A. Morris, Edmund M. Notzon III, R. Todd Ruppert, Charles E. Vieth,
and Richard T. Whitney are Managing Directors of the Manager.
George A. Murnaghan, who is a Managing Director of the Manager, is also an
Executive Vice President of Price-Fleming.
Robert P. Campbell, Michael J. Conelius, Roger L. Fiery III, R. Aran Gordon,
Veena A. Kutler, Heather R. Landon, Nancy M. Morris, Robert W. Smith, William
F. Wendler II, and Edward A. Wiese, who are Vice Presidents of the Manager,
are Vice Presidents of Price-Fleming.
Todd J. Henry, and Kathleen G. Polk, who are employees of the Manager, are
Vice Presidents of Price-Fleming.
Kimberly A. Haker, an Assistant Vice President of the Manager, is Assistant
Vice President and Controller of Price-Fleming.
Alvin M. Younger, Jr., who is Chief Financial Officer, Managing Director,
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.
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.
Ava M. Rainey, an Assistant Vice President of the Manager, is an Assistant
Vice President of Price-Fleming.
Elsie S. Crawford, an employee of the Manager, is an Assistant Vice Presidents
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 seventy-nine 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 commissions 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.
Name Positions and
and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James S. Riepe President and Director Vice President
and Director
Edward C. Bernard President None
Henry H. Hopkins Vice President and Vice President
Director
Charles E. Vieth Vice President and None
Director
Patricia M. Archer Vice President None
Joseph C. Bonasorte Vice President None
Darrell N. Braman Vice President None
Ronae M. Brock Vice President None
Meredith C. Callanan Vice President None
Christine M. Carolan Vice President None
Laura H. Chasney Vice President None
Renee M. Christoff Vice President None
Victoria C. Collins Vice President None
Alana S. Curtice Vice President None
Christopher W. Dyer Vice President None
Christine S. Fahlund Vice President None
Forrest R. Foss Vice President None
Andrea G. Griffin Vice President None
Douglas E. Harrison 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 R. Krieger Vice President None
Keith W. Lewis Vice President None
James Link Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Scott R. Powell Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Christopher S. Ross Vice President None
Kenneth J. Rutherford Vice President None
Daniel S. Schreiner Vice President None
Kristin E. Seeberger Vice President None
Monica R. Tucker Vice President None
William F. Wendler II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Mark S. Finn Controller & Vice
President None
Richard J. Barna Assistant Vice President None
Catherine L.
Berkenkemper Assistant Vice President None
Robin C.B. Binkley Assistant Vice President None
Patricia S. Butcher Assistant Vice President Assistant Secretary
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Edward F. Giltenan Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Kathleen Hussey Assistant Vice President None
Valerie King Assistant Vice President None
Steven A. Lasson Assistant Vice President None
Jeanette M. LeBlanc 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
Danielle N. Nicholson Assistant Vice President None
Barbara A. O'Connor Assistant Vice President None
JeanneMarie B.
Patella Assistant Vice President None
Carin C. Quinn Assistant Vice President None
David A. Roscum Assistant Vice President None
Arthur J. Silber Assistant Vice President None
Jerome Tuccille Assistant Vice President None
Linda C. Wright Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. Van Horn 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 Real Estate Fund, Inc., under Section 31(a) of the Investment
Company Act of 1940 and the rules thereunder will be maintained by T. Rowe
Price Real Estate Fund, Inc., at its offices at 100 East Pratt Street,
Baltimore, Maryland 21202. Transfer, 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 Real Estate 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 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.
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 22nd day of September, 1997.
T. ROWE PRICE REAL ESTATE FUND, INC.
By: /s/James S. Riepe
James S. Riepe, Vice 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/James S. Riepe Vice President September 22, 1997
James S. Riepe (Principal Executive Officer)
/s/Carmen F. Deyesu
Carmen F. Deyesu Treasurer September 22, 1997
(Principal Financial Officer)
T. ROWE PRICE REAL ESTATE 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 Real Estate 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
acquire all or any portion of any entity 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 $0.0001 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 "T. Rowe Price Real Estate"
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 the shares of
Common Stock classified as the "T. Rowe Price Real Estate" 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.
(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.
(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 and disclosed in the current Prospectus or Statement
of Additional Information for the Corporation. 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 and
disclosed in the Prospectus or Statement of Additional
Information for the Corporation.
(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 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 make the contribution referred to in the
preceding sentence in the event of any such loss.
(9) 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 and as disclosed in the
Corporation's current Prospectus or Statement of Additional
Information.
(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:
(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 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
or successors are 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 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 further 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.
(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 18th day of September, 1997.
Witness:
/s/Patricia S. Butcher /s/Henry H. Hopkins
_____________________________ _____________________________
Patricia S. Butcher Henry H. Hopkins
T. ROWE PRICE REAL ESTATE 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 REAL ESTATE
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. 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
AssistantSecretary 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 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
providedin 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 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, or any other form capable of 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)]
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]
(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 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
therwise 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 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;
(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.
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 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.
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 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 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.
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.
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]
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)]
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:
(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.
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.
September 22, 1997
T. Rowe Price Real Estate 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 September 18, 1997, 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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