Fellow Shareholders
While the OTC Fund was off 0.9% for the three months ended June 30, its
decline was far less than the 5% and nearly 4% suffered by the unmanaged
Nasdaq Composite and Russell 2000, respectively. However, for the second
quarter in a row, large-cap stocks as measured by the unmanaged S&P 500
outperformed their smaller-cap peers. Despite a poor six months for
small-cap stocks, we still believe we remain in a bull market for this
market sector. More on this is in our outlook section.
Performance Comparison
Periods Ended 6/30/94
3 Months 6 Months
OTC Fund -0.9% -4.0%
Nasdaq Composite <F1> -5.0 -9.1
Russell 2000 -3.9 -6.4
S&P 500 0.4 -3.4
<F1>Principal only
The second quarter correction hit small-company growth investors
particularly hard. During the quarter, the average small-company fund, as
measured by Lipper, declined nearly 6%. Hardest hit was the technology
sector, which fell nearly 9%. Severe damage, however, was not limited to
technology; two other large components of the growth universe also
experienced significant losses: health care stocks were off 7.9% and
discretionary consumer stocks dropped 8.2%. Fortunately for your Fund,
these sectors were substantially underweighted in the portfolio. And, the
one Russell 2000 sector that posted a significant positive return, energy,
rose 6.6% and was a major emphasis for your Fund.
Given 1994's sharp correction, we are now finding small-cap growth
stocks compellingly cheap. Indeed, the second quarter's major purchases and
sales reflect our "cherry picking" of selected bargains in technology,
health care, and consumer growth.
Investment Review
For the last two years, your portfolio has been significantly underweighted
in technology. As these stocks moved into their traditional summer slowdown
(i.e., in eight of the previous 10 years, tech stocks underperformed the
general indices from May through August), we began purchasing a number of
fine growth shares at what we believe were good prices. Additions include
Synopsys, a maker of automated software design systems; Xilinx, a
semiconductor manufacturer; 3Com, a vendor of hub and router networking
products; Intuit, a software firm specializing in PC-based financial
software products for the home; and MapInfo, a new software firm offering
desktop mapping software used to analyze data in geographic form. Each of
these stocks, despite strong company fundamentals, now sells at
price/earnings ratios which are significantly discounted relative to their
historic and projected growth rates.
We also found value in consumer growth shares. For the past several
quarters, we've been writing of the bounce in consumer confidence and our
desire to invest in well-positioned retailers. The largest purchase in the
quarter was Urban Outfitters, a highly successful retailer of fashion
forward clothing for "Generation X." Earnings can grow in excess of 20% for
several years, in our opinion, and the shares sell at 16 times estimated
earnings, reasonable for such high-growth prospects. We also purchased Cy-
gne Designs, a private label design and apparel source for major retailers
which will benefit the Fund if, as we project, we are on the verge of
another favorable cycle for women's apparel. Selling at only 15 times
estimated earnings and growing at an annual rate of 25%, we found the
shares another good value.
On the sale side, two mergers led to significant proceeds coming into
the OTC Fund from existing holdings. We've previously written of the Cragin
Financial merger with the Dutch financial firm ABN Holdings. This merger
was consummated in June and led to our largest sale in the quarter.
Moreover, Wheatley TXT, a recent purchase, also agreed to be acquired by
another energy services firm, Dresser Industries. As Wheatley's shares
reached its acquisition value, we decided to sell. Other significant sales
include the HMO Pacificare, a stock which we believe reached full value
over the near term at almost 21 times projected earnings, and Stewart
Enterprises, the New Orleans-based funeral provider whose stock also
appeared fully priced.
Finally, we had investments that didn't work out too well. In an
earlier report, we wrote of the major commitment made to the tobacco leaf
merchant, Monk-Austin. While Monk remains a fine firm, we underestimated
two major factors. First, the severe glut of tobacco on world markets
continues. We had previously anticipated that leaf would come into closer
demand and supply balance by the summer. It now appears this may not occur
until at least late 1995. Second, the recent FDA and Congressional attacks
on the tobacco industry put pressure on price/earnings (P/E) multiples in
the group. While we could have suffered through one of these events and
held a significant position, this "double whammy" proved too much for our
patience. We believe Monk-Austin will prosper as the leaf glut ends.
Moreover, Monk, as an international company, is far from dependent on the
U.S. market. Consequently, we have retained a modest position and will
look to rebuilding the holding as tobacco supply and demand reach
equilibrium.
Outlook
Is the party over in small-company shares? We believe the answer is no.
While small-cap stocks are now in their fourth year of market leadership,
outperforming large-caps since October of 1990, this performance hasn't
occurred in a straight line. Sharp corrections in small-cap growth stocks
occurred in early 1992, 1993, and now in 1994. These mid-cycle corrections
are common in the multiyear "up cycles" for small-cap shares. Consequently,
we see no reason to declare an end to the current bull market.
Despite the market's correction and rising interest rates, we see no
signs of the next U.S. recession. Indeed, economic growth is now
re-accelerating, and our "late cycle" capital goods stocks are seeing
improving fundamentals. As we move toward the earnings-driven phase of this
bull market, we believe small-cap stocks will once again outperform. As
we've written previously, these stocks remain attractive on a relative
basis versus larger-cap stocks. The P/E premium for small-caps, which
typically peaks at about 2.0, remains much closer to 1.0. We believe these
stocks trade in similar patterns from cycle to cycle. Greed still exists on
Wall Street, and stocks typically peak when investors have bid up
valuations in excess of existing levels. Keep the faith, and we appreciate
your patience.
Respectfully submitted,
(signature)
Greg McCrickard
President and Chairman of the
Investment Advisory Committee
July 25, 1994
Twenty-Five Largest Holdings
June 30, 1994
Percent of
Company Net Assets
Selective Insurance 2.3 %
Collective Bancorp. 1.8
Enterra 1.7
Werner Enterprises 1.5
Pittston Minerals 1.5
Glacier Bancorp. 1.4
Maxim Integrated Products 1.4
M.S. Carriers 1.4
Insituform Technologies 1.3
Shorewood Packaging 1.3
United Financial of South Carolina 1.3
SEI 1.3
Flair 1.2
Analogic 1.2
CSS Industries 1.2
Mercantile Bancorporation 1.2
Tuboscope Vetco 1.2
Holophone 1.1
Autodesk 1.1
Brookstone 1.0
Oceaneering International 1.0
AMTROL 1.0
Cellular 1.0
Intertrans 1.0
Isomedix 1.0
Total 32.4%
Major Portfolio Changes
Three Months Ended June 30, 1994
Ten Largest Purchases
Cost (000)
Urban Outfitters $1,288
Synopsys <F1> 1,157
Xilinx <F1> 1,131
Cygne Designs 1,015
3Com <F1> 1,007
Intuit <F1> 929
Lincare <F1> 884
DT Industries <F1> 743
MapInfo <F1> 531
Autodesk 514
Ten Largest Sales
Proceeds (000)
Cragin Financial<F2> $2,394
Swift Transportation 1,700
Pacificare Health System<F2> 1,437
Advantage Health<F2> 1,400
Watts Industries 1,190
Wheatley TXT<F2> 1,113
Monk-Austin 1,070
BGS Systems<F2> 975
Stewart Enterprises<F2> 956
Linear Technology 896
<F1> Position added
<F2> Position eliminated
Statement of Net Assets (Value in thousands)
T. Rowe Price OTC Fund/June 30, 1994 (Unaudited)
Common Stocks & Warrants _ 88.5%
FINANCIAL _ 14.5%
Value
BANK & TRUST _ 8.3%
30,000 shs. <F1> Bell Bancorp $ 1,616
150,000 Collective Bancorp 3,281
50,000 First Security 1,456
146,410 <F2> Glacier Bancorp 2,672
61,500 Mercantile Bancorporation 2,160
55,000 <F1> Premier Bancorp 963
180,000 United Financial of South Carolina 2,363
52,500 ValliCorp Holdings 768
15,279
INSURANCE _ 6.2%
35,000 Foremost 1,098
70,000 Harleysville Group 1,417
103,000 Intercargo 1,043
156,200 <F1> Pac Rim Holding 381
171,400 Selective Insurance 4,328
60,400 <F1> Transnational Re 1,495
42,500 W. R. Berkley 1,652
11,414
Total Financial 26,693
CONSUMER NONDURABLES _ 9.9%
BEVERAGES _ 0.2%
79,100 <F1> Chalone 455
FOOD PROCESSING _ 2.4%
290,000 <F1> Foodmaker 1,631
164 <F1> Makepeace 902
60,500 <F1> Seneca Foods 1,339
25,000 Thorn Apple Valley 587
4,459
HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT _ 1.3%
40,000 <F1> Lincare 785
30,000 <F1> Quorum Health Group 529
35,000 St. Jude Medical 1,128
2,442
PHARMACEUTICALS _ 1.1%
45,000 <F1> Immunex 568
30,000 Life Technologies 559
25,000 <F1> Marsam Pharmaceuticals 266
47,500 <F1> Zenith Laboratories 647
2,040
HEALTH CARE SERVICES _ 1.3%
9,000 shs. <F1> Intergroup Healthcare $ 401
51,500 <F1> Mariner Health 991
58,700 <F1> Multicare 998
2,390
MISCELLANEOUS CONSUMER PRODUCTS _ 3.6%
91,500 Boston Acoustics 1,315
38,025 <F1> CIMCO 219
34,500 <F1><F2> Crown City Plating 224
134,662 Culp 1,212
55,600 <F1> Cygne Designs 1,209
33,400 Liqui-Box 1,186
90,800 Monk-Austin 1,181
6,546
Total Consumer Nondurables 18,332
CONSUMER SERVICES _ 8.9%
GENERAL MERCHANDISERS _ 1.9%
123,500 <F1> Brookstone 1,852
100,000 <F1> Carson Pirie Scott 1,744
3,596
SPECIALTY MERCHANDISERS _ 3.7%
50,000 Charming Shoppes 463
135,000 <F1> CSS Industries 2,177
51,200 <F1> Shoe Carnival 499
26,400 <F1> Tommy Hilfiger 1,049
60,000 <F1> Urban Outfitters 1,215
161,200 <F1> Vans 796
40,000 Wolohan Lumber 560
6,759
ENTERTAINMENT & LEISURE _ 1.8%
35,000 <F1> Carmike Cinemas (Class A) 639
100,000 CKE Restaurants 850
25,000 <F1> Hollywood Park 578
200,000 <F1> TPI Enterprises 1,187
3,254
MEDIA & COMMUNICATIONS _ 1.5%
48,978<F1><F2> Cowles Media 1,139
78,000 Gray Communications Systems 1,150
30,000 <F1> Mobile Telecommunication Technologies 544
2,833
Total Consumer Services 16,442
CONSUMER CYCLICALS _ 3.9%
AUTOMOBILES & RELATED _ 0.7%
7,756 shs. Adrian Steel $ 1,346
BUILDING & REAL ESTATE _ 0.3%
13,384 <F1> First Republic of America 522
MISCELLANEOUS CONSUMER DURABLES _ 2.9%
20,970 wts. <F1> Craftmatic Contour, 12/31/02 0
55,000 shs. Juno Lighting 1,059
157,500 LADD Furniture 1,063
60,000 <F1> Scotts (Class A) 982
73,500 <F1> Vallen 854
150,000 <F1> Winston Furniture 1,294
5,252
Total Consumer Cyclicals 7,120
TECHNOLOGY _ 8.7%
ELECTRONIC COMPONENTS _ 4.6%
138,213 <F1> Analogic 2,246
60,000 <F1> Lattice Semiconductor 1,125
40,000 Linear Technology 1,755
50,000 <F1> Maxim Integrated Products 2,594
25,000 <F1> Xilinx 856
8,576
INFORMATION PROCESSING _ 0.9%
80,000 <F1> DH Technology 1,610
TELECOMMUNICATIONS _ 2.4%
20,000 <F1> 3Com 1,029
55,000 <F1> Cellular Communications of Puerto Rico 1,361
100,000 <F1> EIS International 994
30,000 <F1> LCI International 971
4,355
AEROSPACE & DEFENSE _ 0.8%
18,000 Woodward Governor 1,530
Total Technology' 16,071
CAPITAL EQUIPMENT _ 6.8%
ELECTRICAL EQUIPMENT _ 1.1%
115,900 <F1> Holophane 2,072
MACHINERY _ 5.7%
101,000 AMTROL 1,818
13,000 <F1> Central Sprinkler 140
55,000 DT Industries 880
120,000 Flair 2,295
50,000 Greenfield Industries 962
37,290 Harding Brothers (Class A) 923
126,600 <F1> Hurco Companies 301
17,450 shs. <F1> Laser Alignment $ 366
55,000 <F1> Lindsay Manufacturing 1,616
50,000 Watts Industries (Class A) 1,175
10,476
Total Capital Equipment 12,548
BUSINESS SERVICES & TRANSPORTATION _ 21.6%
COMPUTER SERVICE & SOFTWARE _ 4.8%
40,000 Autodesk 1,975
50,000 HBO 1,269
30,000 <F1> Intuit 1,001
50,000 <F1> MapInfo 1,006
53,000 <F1> Ross Systems 189
127,400 SEI 2,325
30,400 <F1> Synopsys 1,144
8,909
ENVIRONMENTAL _ 2.8%
164,250 <F1> EMCON 1,242
88,608 Heidemij 897
135,000 Mid-American Waste Systems 760
130,000 <F1> TRC 1,300
50,000 <F1> United Waste Systems 925
5,124
TRANSPORTATION SERVICES _ 7.0%
60,000 Expeditors International of Washington 1,050
59,800 <F1> FRP Properties 912
50,000 <F1> Heartland Express 1,500
62,250 International Shipholding 1,245
140,000 Intertrans 1,785
130,000 <F1> M.S. Carriers 2,584
20,000 <F1> Swift Transportation 645
31,400 <F1> TRISM 459
101,000 Werner Enterprises 2,841
13,021
MISCELLANEOUS BUSINESS SERVICES _ 6.3%
40,000 Gilbert Associates (Class A) 605
184,200 <F1> Insituform Technologies 2,475
105,000 <F1> Isomedix 1,772
100,000 McGrath RentCorp 1,662
110,000 <F1> MFRI 839
126,000 <F1> Shorewood Packaging 2,378
40,000 Unitog 1,120
140,000 <F1> UTILX 744
11,595
RAILROADS _ 0.7%
33,400 <F1> North Carolina Railroad 1,294
Total Business Services & Transportation 39,943
ENERGY _ 7.5%
ENERGY SERVICES _ 6.8%
115,000 shs. <F1> Atwood Oceanics $ 1,495
151,500 <F1> Enterra 3,181
50,000 <F1> Garnet Resources 206
10,000 Geophysique (FRF) 1,076
101,200 Moorco International 1,607
130,000 <F1> Oceaneering International 1,820
61,500 <F1> Petroleum Helicopters 676
33,500 <F1> Petroleum Helicopters (non-voting) 369
310,000 <F1> Tuboscope Vetco 2,151
12,581
INTEGRATED PETROLEUM-DOMESTIC _ 0.7%
166,000 <F1> Benton Oil and Gas 1,224
Total Energy 13,805
PROCESS INDUSTRIES _ 1.6%
DIVERSIFIED CHEMICALS _ 0.9%
103,616 Aceto 1,606
SPECIALTY CHEMICALS _ 0.7%
50,000 A. Schulman 1,287
Total Process Industries 2,893
BASIC MATERIALS _ 3.3%
METALS _ 0.4%
50,400 <F1> Webco Industries 762
MINING _ 2.9%
9,295 <F2> Coal Creek 1,046
150,000 Pittston Minerals 2,775
15,728 Rochester & Pittsburgh 570
164,000 <F1> TVX Gold 943
5,334
Total Basic Materials 6,096
Miscellaneous _ 1.8% 3,260
Total Common Stocks (Cost _ $133,177) 163,203
Miscellaneous Convertible Preferred _ 0.4% (Cost _ $812) 815
Convertible Bonds _ 1.8%
$ 1,500,000 American City Business Journals,
6.00%, 12/31/11 1,538
2,000,000 Cellular, 6.75%, 7/15/09 1,810
Total Convertible Bonds (Cost _ $2,525) 3,348
Short-Term Investments _ 9.5%
COMMERCIAL PAPER _ 8.4%
$ 2,352,000 ABN AMRO Bank N.V., 4.45%, 9/16/94 $ 2,326
3,000,000 Daimler-Benz North America,4.30%,7/19/94 2,990
5,184,000 Harvard University, 4.30%, 7/1/94 5,183
5,000,000 National Australia Funding (Delaware),
4.27 - 4.41%, 7/25 - 8/1/94 4,968
15,467
MEDIUM-TERM NOTES _ 1.1%
1,000,000 Citicorp, VR, 4.675%, 12/7/94 999
1,000,000 Morgan Stanley Group, VR,4.713%,7/13/95 1,001
2,000
Total Short-Term Investments (Cost _ $17,467) 17,467
Total Investments in Securities _ 100.2% (Cost _ $153,981) 184,833
Other Assets Less Liabilities _ (0.2)% (297)
Net Assets Consisting of:
Accumulated net investment income -
net of distributions $ 96
Accumulated realized gains/losses -
net of distributions 20,910
Net unrealized appreciation of investments 30,852
Paid-in-capital applicable to 12,482,721 shares of
$0.50 par value capital stock outstanding;
200,000,000 shares authorized 132,678
Net Assets - 100.0% $ 184,536
Net Asset Value Per Share $ 14.78
<F1> Non-income producing
<F2> Affiliated company
VR Variable rate
(FRF) French franc denominated
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price OTC Fund / Six Months Ended June 30, 1994 (Unaudited)
Amounts in Thousands
INVESTMENT INCOME
Income
Dividends (including $87,000 from affiliated issues) $ 865
Interest 358
Total income $ 1,223
Expenses
Investment management fees 776
Shareholder servicing fees & expenses 207
Custodian and accounting fees & expenses 74
Prospectus & shareholder reports 24
Registration fees & expenses 17
Legal & auditing fees 17
Directors' fees & expenses 6
Proxy & annual meeting 5
Miscellaneous 1
Total expenses 1,127
Net investment income 96
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 15,249
Change in net unrealized appreciation or depreciation (23,057)
Net loss on investments (7,808)
DECREASE IN NET ASSETS FROM OPERATIONS $ (7,712)
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price OTC Fund (Unaudited)
Six Months Ended Year Ended
June 30,1994 Dec. 31, 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 96 $ (16)
Net realized gain on investments 15,249 24,877
Change in net unrealized appreciation or
depreciation of investments (23,057) 7,769
Increase (decrease) in net assets
from operations (7,712) 32,630
Distributions to shareholders
Net realized gain on investments _ (19,192)
Capital share transactions
Sold 822 and 2,717 shares 12,553 41,461
Distributions reinvested of 0 and 1,166 shares _ 17,461
Redeemed 1,636 and 3,589 shares (24,914) (54,589)
Increase (decrease) in net assets from
capital share transactions (12,361) 4,333
Total increase (decrease) (20,073) 17,771
NET ASSETS
Beginning of period 204,609 186,838
End of period $184,536 $204,609
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price OTC Fund / June 30, 1994 (Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price OTC Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities that are 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.
Debt securities are generally traded in the over-the-counter market
and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in these securities or by an independent pricing
service. Short-term debt securities are valued at their cost which, when
combined with accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are
converted into U.S. dollars at the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by, or under the supervision of, the
officers of the Fund, as authorized by the Board of Directors.
B) Affiliated Companies - Investments in companies 5% or more of whose
outstanding voting securities are held by the Fund are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of
1940.
C) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at
the rate of exchange at the end of the respective period, purchases and
sales of securities, and income and expenses at the rate of exchange
prevailing on the dates of such transactions. The effect of changes in
foreign exchange rates on realized and unrealized security gains or losses
is reflected as a component of such gains or losses.
D) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized
gains and losses are reported on an identified cost basis. Dividend income
and distributions to shareholders are recorded by the Fund on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from
generally accepted accounting principles.
Note 2 - Portfolio Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $31,697,000 and $49,977,000,
respectively, for the six months ended June 30, 1994.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $153,981,000 and net unrealized
appreciation aggregated $30,852,000, of which $41,936,000 related to
appreciated investments and $11,084,000 to depreciated investments.
Note 4 - Related Party Transactions
The investment management agreement between the Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.45% of average daily net assets and a Group Fee. The Group Fee
is based on the combined assets of certain mutual funds sponsored by the
Manager or Rowe Price-Fleming International, Inc. (the Group). The Group
Fee rate ranges from 0.48% for the first $1 billion of assets to 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
June 30, 1994 and for the six months then ended was 0.34%. The Fund pays a
pro rata portion of the Group Fee based on the ratio of the Fund's net
assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer
and dividend disbursing agent functions and shareholder services for all
accounts. RPS provides subaccounting and recordkeeping services for
certain retirement accounts invested in the Fund. The Manager, under a
separate agreement, calculates the daily share price and maintains the
financial records of the Fund. For the six months ended June 30, 1994,
the Fund incurred fees totalling approximately $202,000 for these services
provided by related parties. At June 30, 1994, these investment management
and service fees payable were $182,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price OTC Fund (Unaudited)
For a share outstanding throughout each period
Six Months Ended Year Ended December 31,
June 30, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.39 $14.37 $16.86 $12.72 $16.23 $14.14
Investment Activities
Net investment income 0.01 _ 0.02 0.07 0.11 0.09
Net realized and unrealized gain (loss) (0.62) 2.60 2.20 4.84 (3.43) 2.61
Total from Investment Activities (0.61) 2.60 2.22 4.91 (3.32) 2.70
Distributions
Net investment income _ _ (0.07) (0.09) (0.09) (0.13)
Net realized gain _ (1.58) (4.64) (0.68) (0.10) (0.48)
Total Distributions _ (1.58) (4.71) (0.77) (0.19) (0.61)
NET ASSET VALUE, END OF PERIOD $14.78 $15.39 $14.37 $16.86 $12.72 $16.23
RATIOS / SUPPLEMENTAL DATA
Total Return (4.0)% 18.4% 13.9% 38.6% (20.5)% 19.1%
Ratio of Expenses to Average Net Assets 1.15%<F1> 1.20% 1.32% 1.34% 1.47% 1.45%
Ratio of Net Investment Income to Average Net Assets 0.10%<F1> (0.01)% 0.03% 0.48% 0.73% 0.63%
Portfolio Turnover Rate 34.7%<F1> 40.8% 30.7% 31.2% 34.8% 33.10%
Net Assets, End of Period (in thousands) $184,536 $204,609 $186,838 $266,584 $215,299 $315,939
<FN>
<F1> Annualized.
</FN>
</TABLE>
Shareholder Services
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 and services _ at no extra cost.
Knowledgeable Service Representatives
By Phone _ Shareholder Service Representatives are available from 8:00
a.m. to 10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00
p.m E.T. Call 1-800-225-5132 to speak directly with a representative who
will be able to assist you with your accounts.
In Person _ Visit one of our investor center locations to meet with a
representative who can help you with your accounts. While there, you can
drop off applications or obtain prospec - tuses and other literature.
Automated 24-Hour Services
Tele*Access(R) (1-800-638-2587) provides information such as account
balance, date and amount of your last transaction, latest dividend payment,
and fund prices and yields. Additionally, you have the ability to request
prospectuses, statements, account and tax forms, reorder checks, and
initiate purchase, redemption, and exchange orders for identically
registered accounts.
PC*Access(R) provides the same information as Tele*Access, but on a
personal computer via dial-up modem.
Account Services
Checking _ Write checks for $500 or more on any money market and
most bond fund accounts.
Automatic Investing _ Build your account over time by investing
directly from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic
investments from one fund account into another, such as from a money fund
into a stock fund. A low, $50 minimum makes it easy to get started.
Automatic Withdrawal _ If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options _ Reinvest all or some of
your distributions, or take them in cash. We give you maximum flexibility
and convenience.
Investment Information
Combined Statement _ A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides
total portfolio value, and lists your investments by type _ stock, bond,
and money market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports _ Portfolio managers review the
performance of the funds in plain language and discuss T. Rowe Price's
economic outlook.
The T. Rowe Price Report _ A quarterly newsletter with relevant
articles on market trends, personal financial planning, and
T. Rowe Price's economic perspective.
Insights _ A library of information that includes reports on mutual
fund tax issues, investment strategies, and financial markets.
Detailed Investment Guides _ Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Retirees Financial Guide, Retirement
Planning Kit (also available on disk for PC use), and Guide to
Risk-Adjusted Performance can help you determine and reach your investment
goals.
Discount Brokerage
You can trade stocks, bonds, options, precious metals, and other securities
at a substantial savings over regular commission rates. Call a Shareholder
Service Representative for more information.
