PAGE 1
Registration Nos. 033-32859/811-5986
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 10 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. 11 / X /
Fiscal Year Ended December 31, 1997
_________________________________________
T. ROWE PRICE INDEX TRUST, 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 February 24, 1998
_________________
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)(1)
/ / on (date) pursuant to paragraph (a)(1)
/X/ 75 days after filing pursuant to paragraph (a)(2)
PAGE 2
/ / on (date) pursuant to paragraph (a)(2) 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.
TITLE OF SECURITIES BEING REGISTERED: Common Stock
________________________________________________________
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.<PAGE>
PAGE 3
The Registration Statement of T. Rowe Index Trust, Inc. on
Form N-1A (File Number 33-32859) is hereby amended under the
Securities Act of 1933 to add two new portfolios to the
Registrant's Prospectus and Statement of Additional Information.
This Amendment consists of the following:
Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Accountant's Consent
<PAGE>
PAGE 4
T. ROWE PRICE EQUITY INDEX 500 FUND
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 Financial Highlights
Item 4. General Description of Transaction and Fund
Registrant Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management;
Understanding
Performance
Information;
Investment Policies
and Practices; Types
of Management
Practices
Item 5. Management of the Fund Transaction Fund and
Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management
Item 5A. Management's Discussion of
Fund Performance +
Item 6. Capital Stock and Other Distributions and
Securities Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
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;
Exchanging and
Redeeming Shares;
Shareholder Services
Item 9. Pending Legal Proceedings +
PAGE 5
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; Portfolio
Management Practices;
Investment
Restrictions;
Investment Performance
Item 14. Management of the Registrant Management of Funds
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
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 Redemptions in Kind;
Pricing of Securities Being Pricing of Securities;
Offered Net Asset Value Per
Share; Federal
Registration of
Shares; Ratings of
Corporate Debt
Securities
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
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>
PAGE 6
T. ROWE PRICE EXTENDED EQUITY MARKET INDEX FUND
T. ROWE PRICE TOTAL EQUITY MARKET INDEX FUND
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 Transaction and Fund
Registrant Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management;
Understanding
Performance
Information;
Investment Policies
and Practices; Types
of Management
Practices
Item 5. Management of the Fund Transaction Fund and
Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management
Item 5A. Management's Discussion of
Fund Performance +
Item 6. Capital Stock and Other Distributions and
Securities Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
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;
Exchanging and
Redeeming Shares;
Shareholder Services
PAGE 7
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; Portfolio
Management Practices;
Investment
Restrictions;
Investment Performance
Item 14. Management of the Registrant Management of Funds
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
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 Redemptions in Kind;
Pricing of Securities Being Pricing of Securities;
Offered Net Asset Value Per
Share; Federal
Registration of
Shares; Ratings of
Corporate Debt
Securities
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
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>
PAGE 8
<PAGE>
PROSPECTUS
January 30, 1998
Equity Index 500 Fund
A fund seeking long-term capital growth through investment in
stocks composing
the Standard & Poor's 500 Stock Index.
<PAGE>
FACTS AT A GLANCE
Investment Goal
To match the total return performance of the U.S. equity markets
as represented
by the Standard & Poor's 500 Composite Stock Index/(R)/ (S&P 500
Index).
As with any mutual fund, there is no guarantee the fund will
achieve its goal.
Strategy
To invest in all 500 stocks that compose the S&P 500 Index.
Risk/Reward
The potential to match the performance and volatility of the
broad stock
market. The share price of the fund may decline, causing a loss.
Investor Profile
Investors seeking capital appreciation and dividend income who
can accept the
risk of loss inherent in common stock investing. Appropriate for
both regular
and tax-deferred accounts, such as IRAs.
Fees and Charges
100% no load. Shares held for less than six months (excluding
those purchased
through reinvested distributions) are subject to a 0.50%
redemption fee. 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
$125 billion
for more than six million individual and institutional investor
accounts as of
September 30, 1997.
<PAGE>
T. Rowe Price Index Trust, Inc.
Prospectus
January 30, 1998
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>
T. ROWE PRICE 2
CONTENTS
1
ABOUT THE FUND
Transaction and Fund Expenses 2
Financial Highlights 3
Fund, Market, and Risk Characteristics 5
2
ABOUT YOUR ACCOUNT
Pricing Shares and Receiving Sale Proceeds 8
Distributions and Taxes 10
Transaction Procedures and Special Requirements 12
3
MORE ABOUT THE FUND
Organization and Management 15
Understanding Performance Information 17
Investment Policies and Practices 18
4
INVESTING WITH T. ROWE PRICE
Account Requirements and Transaction Information 21
Opening a New Account 21
Purchasing Additional Shares 23
Exchanging and Redeeming 23
Shareholder Services 25
Discount Brokerage 27
Investment Information 28
This prospectus contains information you should know before
investing. Please
keep it for future reference. A Statement of Additional
Information about the
fund, dated January 30, 1998, 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>
ABOUT THE FUND
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
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 shows how
much it will cost
to operate the fund for a year, based on 1996 fiscal year
expenses. 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) 1996 Average Net Assets
Sales charge "load" on purchases Management fe
None e
0.14%/a/
Sales charge "load" on reinvested Marketing
fees (12b-1)
distributions None
None
Redemption fees Total other
(shareholder servicing,
(for shares held less custodial,
auditing, etc.)
than six months) 0.50%
0.26%/a/
Exchange fees
None
Account maintenance fee
/b/ $10
Total fund
expense 0.40%/a/
s
- -----------------------------------------------------------------
- ------------------------------------------------
</TABLE>
a The fund's management fee other expenses, and total expense
ratio would have
been 0.20%, 0.26%, and 0.46%, respectively, had T. Rowe Price
not agreed to
waive fees and bear any expenses in accordance with the expense
limitations
described below. Effective January 1, 1994, T. Rowe Price
agreed to extend
the fund's initial 0.45% expense limitation for a period of two
years through
December 31, 1995. Effective January 1, 1996, T. Rowe Price
agreed that the
expense ratio for the fund would not exceed 0.40% for a period
of two years
from January 1, 1996. Fees waived or expenses paid or assumed
under these
agreements are subject to reimbursement to T. Rowe Price by the
fund whenever
the fund's expense ratio is below 0.45% (for the first
agreement) or 0.40%
(for the second agreement); however, no reimbursement will be
made after
December 31, 1995 (for the first agreement) or after December
31, 1999 (for
the second agreement), or if it would result in the expense
ratio exceeding
bA $10 annual account maintenance fee will be charged at the
rate of $2.50
Note:
The fund charges a $5 fee for wire redemptions under $5,000,
subject to change
without notice.
<PAGE>
T. ROWE PRICE 4
The main types of expenses, which all mutual funds may charge
against fund
assets, are:
o A management fee The percent of fund assets paid to the
fund's investment
manager. The fund's fee is 0.20%.
o "Other" administrative expenses Primarily the servicing of
shareholder
accounts, such as providing statements and reports, disbursing
dividends, and
providing custodial services.
o Marketing or distribution fees An annual charge ("12b-1") to
existing
shareholders to defray the cost of selling shares to new
shareholders. T.
Rowe Price funds do not levy 12b-1 fees.
For further details on fund expenses, please see Organization
and Management.
o Hypothetical example Assume you invest $1,000, the fund
returns 5% annually,
expense ratios remain as listed previously, and you close your
account at the
end of the time periods shown. Your expenses would be:
<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C>
<C>
Hypothetical Fund Expenses
1 year
4
Fund Expenses $ 4 $13 $22
$ 51
4
Account Fee $ 10 $30 $50
$100
- -----------------------------------------------------------------
- ------------
</TABLE>
o Table 2 is just an example; actual expenses can be higher or
lower than
those shown.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 3, which provides information about the fund's financial
history, is
based on a single share outstanding throughout each fiscal
year. The table is
part of the fund's financial statements which are included in
its annual
report, and are incorporated by reference into the Statement
of Additional
Information (available upon request). The financial statements
in the annual
report were audited by Coopers & Lybrand L.L.P., the fund's
independent
accountants.
<PAGE>
ABOUT THE FUND 5
<PAGE>
<TABLE>
Table 4 Financial Highlights
<CAPTION>
<S> <C> <C> <C>
<C> <C>
Income From Investment
Activities
Net Asset Net
Net Realized Total From
Period Value, Investment
&
Unrealized Investment
Ended Beginning Income (Loss)
Gain (Loss) on Activities
of Period
Investments
1990/a/ $ 10.00 $
0.31/b/$
(0.28) $ 0.03
1991 9.72
0.34/b/
2.46 2.80
1992 12.10
0.32/b/
0.53 0.85
1993 12.63
0.32/b/
0.86 1.18
1994 13.48
0.36/b/
(0.23) 0.13
1995 13.09
0.39/b/
4.43 4.82
1996 17.21
0.38/c/
3.47 3.85
1997/e/ 20.34
0.17/c/
4.01 4.18
- -----------------------------------------------------------------
- -----
- ---------------------------------
<CAPTION>
<S> <C> <C> <C>
<C>
<C>
Less Distributions
Net Asset Value
Net Distributions
Net Asset
Investment Net Realized in Excess of
Total Value,
Income ) Gain) Net Realized
Distributions End of Period
Gain
$ (0.31) -- --
$
(0.31) $ 9.72
--
(0.34) $ (0.08) --
(0.42) 12.10
--
(0.31) (0.01) --
(0.32) 12.63
--
(0.32) (0.01) --
(0.33) 13.48
(0.36) (0.09) $(0.07)
(0.52) 13.09
(0.40) (0.30) --
(0.70) 17.21
--
(0.38) (0.34) --
(0.72) 20.34
(0.16) (0.15) --
(0.31) 24.21
- -----------------------------------------------------------------
- -----
- --------------------------------
</TABLE>
<TABLE>
Table $ Financial Highlights (continued)
<CAPTION>
<S> <C>
Period
Ended
1990/a/
1991
1992
1993
1994
1995
1996
- --------------
<CAPTION>
<S> <C> <C>
<C> <C> <C>
Returns, Ratios, and Supplemental Data
Total Return Net Assets
Ratio of Ratio of Net
(Includes ($
thousands)Expenses to Investment Portfolio
Reinvested
Average Net Income to TurnoverRate
Distributions)
Assets Average Net
Assets
0.4 %/b//d$ 7,285
0.45 %/b/ 4.28 %/b/ 7.0%
29.2 /b/ 22,069
0.45 /b/ 3.07 /b/ 5.8
7.19 /b/ 128,242
0.45 /b/ 2.57/b/ 0.1
9.42 /b/ 166,994
0.45/b/ 2.40 /b/ 0.8
1.01 /b/ 270,165
0.45 /b/ 2.73 /b/ 1.3
37.16 /b/ 457,256
0.45/b/ 2.54 /b/ 1.3
22.65/c/ 807,655
0.40///c/ 2.05 /c/ 1.3
20.36 1,311,000
0.40/cd/ 0.82/cd/ 0.9/d/
- -----------------------------------------------------------------
- -----
- ------------------------------------------------
<CAPTION>
<S> <C>
Average
Commission
Rate Paid
--
--
--
--
--
--
--
--
--
--
--
$ 0.0183
0.0150
- --------------------
</TABLE>
/a/For the period March 30, 1990 (commencement of operations) to
December 31,
1990.
/b/
Excludes expenses in excess of a 0.45% voluntary expense
limitation in effect
through December 31, 1995.
/c/
Excludes expenses in excess of a 0.40% voluntary expense
limitation in effect
through December 31, 1997.
/d/ Annualized.
<PAGE>
T. ROWE PRICE 6
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide whether this fund is appropriate for you,
this section
takes a closer look at its investment objective and approach.
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 to match the investment performance of the U.S.
equity markets
as represented by the Standard & Poor's 500 Stock Index.
What is the fund's investment program?
The fund will invest in all 500 stocks composing the S&P
500/(R)/, which
includes companies operating across a broad spectrum of the
U.S. economy. The
index represents a significant portion of the total market
value of all U.S.
common stocks.
S&P/(R)/ first identifies important industry categories and
then allocates a
representative sample of stocks to them. It determines the
appropriate
percentage of each stock in the index by a "weighting" that
reflects the
total market value of its outstanding shares. Because of this
weighting
technique, the 50 largest companies in the index currently
account for over
45% of its value. The inclusion of a stock in the index is in
no way an
endorsement by S&P of its attractiveness as an investment, nor
is S&P a
sponsor of the fund, or in any way affiliated with it.
How does a stock index fund differ from the typical stock fund?
Index funds are passively managed, attempting to deviate as
little as
possible from a particular benchmark. Since fewer resources
are devoted to
researching stocks, and portfolio turnover (the buying and
selling of stocks)
is low, an index fund incurs lower costs than the average
equity fund. The
typical equity fund is actively managed, meaning the manager
makes buy and
sell decisions in pursuit of the fund's investment objective.
Why was the S&P 500 chosen as the fund's benchmark?
The S&P 500 Index is a widely accepted performance benchmark
for the U.S.
stock market. Standard & Poor's/(R)/ seeks a representative
sample of common
stocks that trade on the New York and American Stock Exchanges
as well as
certain Nasdaq National Market and other issues.
<PAGE>
ABOUT THE FUND 7
How will the fund's portfolio specifically attempt to match the
performance of
the index?
The fund relies on a full replication strategy, in which the
fund manager
attempts to maintain holdings of every S&P 500 stock in the
same relative
weightings as the index. The fund manager may also purchase
stock index
futures to manage cash flows.
o Stock index futures can help manage cash flow and track the
index
efficiently.
Will the fund's performance match the index exactly?
No. Returns are likely to be slightly below the index
primarily because the
fund has fees and transaction expenses while an index has
none. The timing of
cash flows and the fund's size can also influence returns.
While there is no
guarantee, the investment manager expects the correlation
between the fund's
return and the return of the S&P 500 Index to be at least .95.
A correlation
of 1.00 means the return of the fund can be completely
explained by the
return of the S&P 500.
T. Rowe Price compares the composition of the portfolio with
that of the
index at least weekly. If a misweighting develops, the
portfolio is
rebalanced to bring it in line with the index. When investing
cash flow, the
fund may purchase a sample of stocks from the index or
purchase stock index
futures or both. This approach is intended to minimize
deviations in
performance versus the index.
What are some of the fund's potential risks?
Because it seeks to closely track performance of the S&P
Index, the fund will
be subject to the same degree of fluctuation as the broad U.S.
stock market.
Since the fund is passively managed, assets cannot be shifted
from one stock
to another based on market conditions or in reaction to trends
in market
sectors. Therefore, actively managed funds may outperform this
fund.
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?
Stocks have historically been among the most rewarding
investments, although
past performance is no guarantee of future results. The fund
offers investors
the opportunity to diversify their assets in many industries
and individual
stocks. Most of the S&P 500 stocks pay a dividend, which, when
reinvested, is
an important capital-building component.
Because it is passively managed, the fund's expenses are lower
than the
average stock market fund. Assuming all other factors are
equal, lower
expenses can increase a fund's total return. The fund's lower
turnover may
also offer a tax benefit, because the amount of capital gain
distributions
should be reduced.
<PAGE>
T. ROWE PRICE 8
What are some potential risks and rewards of investing in the
stock market
through the 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. 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.
How can I decide if the fund is appropriate for me?
Review your own financial objectives, time horizon, and risk
tolerance to
choose the fund suitable for your particular needs. The Equity
Index 500 Fund
provides an opportunity for investors seeking long-term
capital appreciation
along with some dividend income.
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 -1
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a
T. Rowe Price
equity fund.
How and when shares are priced
The share price (also called "net asset value" or NAV per
share) for each
fund is calculated at 4 p.m. ET each day the New York Stock
Exchange is open
for business. To calculate the NAV, a fund's assets are valued
and totaled,
liabilities are subtracted, and the balance, called net
assets, is divided by
the number of shares outstanding.
. 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
. 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
<PAGE>
20,000 banks, savings banks, and credit unions, which
electronically
exchanges the transactions primarily through the Federal
Reserve Banks.
Proceeds sent by bank wire should be credited to your account
the next
business day.
. Exception: Under certain circumstances and when deemed to be
in the fund's
best interests, your proceeds may not be sent for up to five
business days
after receiving your sale or exchange request. If you were
exchanging into a
bond or money fund, your new investment would not begin to
earn dividends
until the sixth business day.
. If for some reason we cannot accept your request to sell
shares, we will
contact you.
Contingent Redemption Fee
The funds can experience substantial price fluctuations and is
intended for
long-term investors. Short-term "market timers" who engage in
frequent
purchases and redemptions can disrupt the fund's investment
program and
create additional transaction costs that are borne by all
shareholders. For
these reasons, the funds assess a 0.50% fee on redemptions
(including
exchanges) of fund shares held for less than six months.
Redemption fees are paid to the funds to help offset
transaction costs and
protect the funds' long-term shareholders. The funds 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 with the
earliest purchase date of shares held in the account. If this
holding period
is less than six months, the fee will be charged.
The fee does not apply to any shares purchased through
reinvestment of
dividends 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. The fee does apply to shares held in IRA accounts
and to shares
purchased through automatic investment plans (described under
Shareholder
Services). The fee may apply to shares in retirement plans
held in broker
omnibus accounts.
In determining "six months" the funds will use the six-month
anniversary date
of the transaction. Thus, shares purchased on January 1, 1998,
for example,
will be subject to the fee if they are redeemed on or prior to
June 30, 1998.
If they are redeemed on or after July 1, 1998, they will not
be subject to
the fee.
<PAGE>
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. 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 Equity Index 500 Fund declares and pays dividends (if any)
quarterly.
The Extended Market and Total Market Funds declare and pay
dividends
(if any)
annually.
All or part of the funds' 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.
<PAGE>
T. ROWE PRICE 2
. If the fund has net capital gains for the year (after
subtracting any
capital losses), they are usually declared and paid in
December to
shareholders of record on a specified date that month. If a
second
distribution is necessary, it is usually declared and paid
during the first
quarter of the following year.
Tax Information
. You will be sent timely information for your tax filing
needs.
You need to be aware of the possible tax consequences when:
. The fund makes a distribution to your account.
. You sell fund shares, including an exchange from one fund to
another.
Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or
loss. An exchange
from one fund to another is still a sale for tax purposes.
In January, you will be sent Form 1099-B, indicating the date
and amount of
each sale you made in the fund during the prior year. This
information will
also be reported to the IRS. For accounts opened new or by
exchange in 1983
or later, we will provide you with the gain or loss of the
shares you sold
during the year, based on the "average cost" method. This
information is not
reported to the IRS, and you do not have to use it. You may
calculate the
cost basis using other methods acceptable to the IRS, such as
"specific
identification."
To help you maintain accurate records, we send you a
confirmation immediately
following each transaction 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
funds 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.
<PAGE>
MORE ABOUT THE FUND
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How is the fund organized?
The fund was incorporated in Maryland in 1989, and is a
"diversified,
open-end investment company," or mutual fund. Mutual funds
pool money
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
o 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 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
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
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>
ABOUT YOUR ACCOUNT 17
Portfolio Management
The fund has an Investment Advisory Committee composed of the
following
members: Richard T. Whitney, Chairman, Kristen F. Culp, and
Donald J. Peters.
The committee chairman has day-to-day responsibility for
managing the
portfolio and works with the committee in developing and
executing the fund's
investment program. Mr. Whitney has been chairman of the
fund's committee
since 1990. He joined T. Rowe Price in 1985 and has been
managing investments
since 1986.
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 year ended December 31, 1996, fees paid by the
fund included
the following: $249,000 to T. Rowe Price Services, Inc. for
transfer and
dividend disbursing functions and shareholder services;
$854,000 to T. Rowe
Price Retirement Plan Services, Inc. for recordkeeping
services for certain
retirement plans; and $61,000 to T. Rowe Price for accounting
services.
The Management Fee
The fund pays the fund manager an annual investment management
fee of 0.20%
of the average daily net asset value of the fund. The fund
calculates and
accrues the fee daily.
<PAGE>
T. ROWE PRICE 18
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 the end of the
period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative
return, it tells you what constant year-by-year return would
have produced
the actual cumulative return. By smoothing out all the
variations in annual
performance, it gives you an idea of the investment's annual
contribution to
your portfolio provided you held it for the entire period in
question.
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of
securities the
fund may hold in its portfolio and the various kinds of
investment practices
that may be used in day-to-day portfolio management. The
fund's investment
program is subject to further restrictions and risks described
in the
Statement of Additional Information.
<PAGE>
ABOUT YOUR ACCOUNT 19
Shareholder approval is required to substantively change the
fund's
objectives 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.
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.
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.
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, redemption, or conversion terms of a
security could be
related to the market price of some commodity, currency, or
securities index.
Such securities may bear interest or pay dividends at below
market (or even
relatively nominal) rates. Under certain conditions, the
redemption value of
such an investment could be zero.
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.
<PAGE>
T. ROWE PRICE 20
Types of Management Practices
Cash Position
The fund will hold a certain portion of its assets in U.S. and
foreign
dollar-denominated money market securities, including
repurchase agreements,
in the two highest rating categories, maturing in one year or
less. For
temporary, defensive purposes, the fund may invest without
limitation in such
securities. This reserve position provides flexibility in
meeting
redemptions, expenses, and the timing of new investments and
serves as a
short-term defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets
The fund can borrow money from banks as a temporary measure
for emergency
purposes, to facilitate redemption requests, or for other
purposes consistent
with the fund's investment objective and program. Such
borrowings may be
collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of
total fund
assets.
Operating policies The fund may not transfer as collateral any
portfolio
securities except as necessary in connection with permissible
borrowings or
investments, and then such transfers may not exceed
33/1//\\/3/\\% of the
fund's total assets. The fund may not purchase additional
securities when
borrowings exceed 5% of total assets.
Futures and Options
The fund may make such investments to provide an efficient
means of
maintaining liquidity while being invested in the market, to
facilitate
trading or to reduce transaction costs. The fund may also
purchase call
options on stock indices. Such options would be used in a
manner similar to
the fund's use of stock index futures.
Futures contracts and options 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 investment in 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 indicies: The fund will not commit
more than 5% of
its total assets to premiums when purchasing call options.
<PAGE>
MORE ABOUT THE FUND 21
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.
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 rates for the fiscal years ending December
31, 1996, 1995,
and 1994, were 1.30%, 1.30%, and 1.30%, respectively.
Standard & Poor's
Although S&P obtains information for inclusion in or for use
in the
calculation of the S&P 500 Index from sources which S&P
considers reliable,
S&P does not guarantee the accuracy and/or the completeness of
the S&P 500
Index or any data included therein. S&P makes no warranty,
express or
implied, as to results to be obtained by the fund, or any
other person or
entity from the use of the S&P 500 Index or any data included
therein. S&P
makes no express or implied warranties, and expressly
disclaims all
warranties of merchantability or fitness for a particular
purpose with
respect to the S&P 500 Index or any data included therein.
Standard &
Poor's, S&P, S&P 500 Index, Standard & Poor's 500, and 500 are
trademarks of
McGraw-Hill, Inc. and have been licensed for use by the fund.
The fund is not
sponsored, endorsed, sold, or promoted by S&P, and S&P makes
no
representation regarding the advisability of investing in the
fund.
<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,
Always verify your transactions by carefully reviewing the
confirmation we send
Employer-Sponsored Retirement Plans and Institutional Accounts T.
Rowe Price
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
$2,500 minimum initial investment; $1,000 for retirement plans or
gifts or
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
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 23
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 account name 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.
<PAGE>
T. ROWE PRICE 24
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, 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 25
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 the trade or if the
written
confirmation has not been received by the shareholder, whichever
is sooner; to
<PAGE>
T. ROWE PRICE 26
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 a state
tax-free fund are
limited to investors living in states where the funds are
registered.) Some of
the T. Rowe Price
<PAGE>
INVESTING WITH T. ROWE PRICE 27
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.
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.
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.
<PAGE>
T. ROWE PRICE 28
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
considerable 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.
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./
<PAGE>
INVESTING WITH T. ROWE PRICE 29
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
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, Personal Strategy
Planner, Retirees
Financial Guide, Retirement Planning Kit, Tax Considerations for
Investors, and
Diversifying Overseas: A T. Rowe Price Guide to International
Investing.
<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
F050-040 01/30/98
<PAGE>
PAGE 9
<PAGE>
PROSPECTUS
January 30, 1998
Equity Market IndexFunds
Three funds seeking long-term capital growth through investments
in common
stocks.
<PAGE>
FACTS AT A GLANCE
Equity Market Index Funds
Investment Goal
Equity Index 500 Fund seeks to match the total return of the
Standard & Poor's
500 Composite Stock Index/(R)/ (S&P 500).
Extended Equity Market Index Fund seeks to match the total return
of the
Wilshire 4500 Equity Index.
Total Equity Market Index Fund seeks to match the total return of
the entire
U.S. equity market as represented by the Wilshire 5000 Equity
Index.
As with all mutual funds, there is no guarantee the funds will
achieve their
goals.
Strategy
Equity Index 500 Fund invests in all 500 stocks composing the
mostly large-cap
S&P 500.
Extended Equity Market Index Fund invests in small- and mid-cap
stocks
representative of the Wilshire 4500/(R)/.
Total Equity Market Index Fund invests in small-, mid-, and
large-cap stocks
representative of the Wilshire 5000.
Risk/Reward
The funds are designed to provide investors with the same level
of risk and
reward reflected either in the entire U.S. stock market or in
particular
segments of it. Among the three funds, Extended Equity Market
Index represents
the highest level of potential risk and reward, Total Equity
Market Index the
next highest, and Equity Index 500 the lowest level. The share
price of each
fund may decline, causing a loss.
Investor Profile
Investors seeking capital growth over time, plus dividend income
in the case of
the Equity Index 500 Fund. Investors should assess their risk
tolerance and
select a fund with a corresponding risk profile. They should be
willing to
accept the risk of loss inherent in common stock investing.
Appropriate for
both regular and tax-deferred accounts, such as IRAs.
Fees and Charges
100% no load. Shares held for less than six months (excluding
those purchased
through reinvested distributions) are subject to a 0.50%
redemption fee. 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
$125 billion
for more than six million individual and institutional investor
accounts as of
September 30, 1997.
<PAGE>
T. Rowe Price Index Trust, Inc.
Prospectus
January 30, 1998
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>
T. ROWE PRICE 2
CONTENTS
1
ABOUT THE FUNDS
Transaction and Fund Expenses 2
Financial Highlights 4
Fund, Market, and Risk Characteristics 5
2
ABOUT YOUR ACCOUNT
Pricing Shares and Receiving Sale Proceeds 10
Distributions and Taxes 12
Transaction Procedures and Special Requirements 14
3
MORE ABOUT THE FUNDS
Organization and Management 17
Understanding Performance Information 19
Investment Policies and Practices 20
4
INVESTING WITH T. ROWE PRICE
Account Requirements and Transaction Information 24
Opening a New Account 24
Purchasing Additional Shares 26
Exchanging and Redeeming 26
Shareholder Services 28
Discount Brokerage 30
Investment Information 31
This prospectus contains information you should know before
investing. Please
keep it for future reference. A Statement of Additional
Information about the
fund, dated January 30, 1998, 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>
3
ABOUT THE FUND
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
o Like all T. Rowe Price funds, these funds are 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 a fund for a year, based on: 1996
fiscal year
expenses for the Equity Index 500 Fund; and on projected
fiscal year expenses
for the other two funds; and the applicable expense
limitations for each fund
(shown in Table 3). 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 Expenses Extended Equity
Total Equity Market
Equity Index 500 Market Index
Index
Sales charge "load" on
purchases None None
None
Sales charge "load" on
reinvested
distributions None None
None
Redemption fees (for
shares held less than
six months)/a/ 0.50% 0.50%
0.50%
Exchange fees None None
None
Account maintenance
fee/b/ $10 $10
$10
Annual Fund Expenses
(after reduction) Percentage of Fiscal Year Average
Net Assets
Management fee 0.14%/c/ ___%/d/
/ /___%/d/
Marketing fees (12b-1) None None
None
Total other
(shareholder
servicing, custodial,
auditing, etc.) 0.26%/c/ ___%/d/
___%/d/
Total fund expenses 0.40%/c/ ___%/d/
___%/d/
- -----------------------------------------------------------------
- ----------------------
</TABLE>
/a/
Please see Contingent Redemption Fee under Pricing Shares and
Receiving Sale
Proceeds for additional infor-
<PAGE>
T. ROWE PRICE 4
mation.
/b/
A $2.50 quarterly account maintenance fee is charged for
accounts with
balances less than $10,000.
/c/
The fund's management fee, other expenses, and total expense
ratio would have
been 0.20%, 0.26%, and 0.46%, respectively, had T. Rowe Price
not agreed to
waive fees and bear any expenses in accordance with the expense
limitations
described in Table 3.
/d/Had T. Rowe Price not agreed to waive fees and bear expenses
in accordance
with an expense limitation agreement, it is estimated that
Extended Market
Index and Total Market Index Funds' management fees, other
expenses, and
total expense ratios would have been ____%, ____%, and ____%,
and ____%,
____%, and ____%, respectively.
Note:The fund charges a $5 fee for wire redemptions under
$5,000, subject to change without notice.
The main types of expenses, which all mutual funds may charge
against fund
assets, are:
o A management fee The percent of fund assets paid to the
funds' investment
manager. The funds' fees are as follows: 0.20% for the Equity
Index 500 Fund;
___%, for the Extended Equity Market Index Fund; and ____% for
the Total
Equity Market Index Fund.
o "Other" administrative expenses Primarily the servicing of
shareholder
accounts, such as providing statements and reports, disbursing
dividends, and
providing custodial services.
o Marketing or distribution fees An annual charge ("12b-1") to
existing
shareholders to defray the cost of selling shares to new
shareholders. T.
Rowe Price funds do not levy 12b-1 fees.
For further details on fund expenses, please see Organization
and Management.
o Hypothetical example Assume you invest $1,000, the fund
returns 5% annually,
expense ratios remain as listed previously, and you close your
account at the
end of the time periods shown. Your expenses would be:
<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C>
<C>
HypotheticalFundExpenses*
Fund 1 year 3 years 5
years 10 years
Equity Index Fund Expenses $4 $ 13 $22
$51
Extended Equity Fund Expenses $___ $___ --
--
Total Equity Fund Expenses $___ $___ --
--
- -----------------------------------------------------------------
- --------------
</TABLE>
* Does not include account maintenance fee for accounts of less
than $10,000.
o Table 2 is just an example; actual expenses can be higher or
lower than
those shown.
Table 3 sets forth expense ratio limitations and the periods
for which they
are effective. For each, T. Rowe Price has agreed to waive its
fees and bear
any expenses to the extent such fees or expenses would cause
the fund's ratio
of expenses to average net assets to exceed the indicated
percentage
limitations. Fees waived or expenses paid or assumed are subject
to
reimbursement to T.Rowe Price by each fund through the indicated
reimbursement
date, but no reimbursement will be made if it would result in the
fund's expense
ratio exceeding its specified limit.
1
<TABLE>
Table 3
<CAPTION>
<S> <C> <C> <C>
<C>
Expense Ratio Limitations
Expense Ratio
Limitation Period Limitation
Reimbursement Date
Equity Index 500 1/1/98-12/31/99 0.40%
12/31/01
Extended Equity
Market/a/ 1/30/98-12/31/99 0.__%
12/31/01
Total Market/b/ 1/30/98-12/31/99 0.__%
12/31/01
- ----------------------------------------------------------------------
- ----------------------
</TABLE>
a The Equity Index 500 Fund previously operated under
limitations that
expired December 31, 1995, and 1997. T.Rowe Price agreed to
extend each of the
expense limitations for a period of two years. No reimbursement
will be made
after December 31, 1997 (for the first agreement) or December 31,
1999 (for the
second agreement) or if it would result in the expense ratio
exceeding 0.40%.
Financial Highlights
Table 4, which provides information about the Equity Index 500
Fund's financial
history, is based on a single share outstanding throughout each
fiscal year, and
for the six months ended June 30, 1996. The table is part of the
Equity Index
500 Fund's financial statements, which are included in its annual
and semiannual
reports, respectively, and are incorporated by reference into the
Statement of
Additional Information (available upon request). The financial
statements in the
annual report were audited by Coopers & Lybrand L.L.P., the
fund's independent
accountants. The financial statements in the semiannual report
are unaudited.
<PAGE>
<TABLE>
Table 4 Financial Highlights
<CAPTION>
<S> <C> <C> <C>
<C> <C>
Income From Investment
Activities
Net Asset Net
Net Realized Total From
Period Value, Investment &
Unrealized Investment
Ended Beginning Income (Loss)
Gain (Loss) on Activities
of Period
Investments
1990/a/ $ 10.00 $ 0.31/b/$
(0.28) $ 0.03
1991 9.72 0.34/b/
2.46 2.80
1992 12.10 0.32/b/
0.53 0.85
1993 12.63 0.32/b/
0.86 1.18
1994 13.48 0.36/b/
(0.23) 0.13
1995 13.09 0.39/b/
4.43 4.82
1996 17.21 0.38/c/
3.47 3.85
1997/e/ 20.34 0.17/c/
4.01 4.18
- ----------------------------------------------------------------------
- ---------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
<C>
Less Distributions
Net Asset Value
Net Distributions
Net Asset
Investment Net Realized in Excess of
Total Value,
Income ) Gain) Net Realized
Distributions End of Period
Gain
$ (0.31) -- -- $
(0.31) $ 9.72
--
(0.34) $ (0.08) --
(0.42) 12.10
--
(0.31) (0.01) --
(0.32) 12.63
--
(0.32) (0.01) --
(0.33) 13.48
(0.36) (0.09) $(0.07)
(0.52) 13.09
(0.40) (0.30) --
(0.70) 17.21
--
(0.38) (0.34) --
(0.72) 20.34
(0.16) (0.15) --
(0.31) 24.21
- ----------------------------------------------------------------------
- --------------------------------
</TABLE>
<TABLE>
Table $ Financial Highlights (continued)
<CAPTION>
<S> <C>
Period
Ended
1990/a/
1991
1992
1993
1994
1995
1996
- --------------
<CAPTION>
<S> <C> <C>
<C> <C> <C>
Returns, Ratios, and Supplemental Data
Total Return Net Assets
Ratio of Ratio of Net
(Includes ($
thousands)Expenses to Investment Portfolio
Reinvested
Average Net Income to TurnoverRate
Distributions)
Assets Average Net
Assets
0.4 %/b//d$ 7,285
0.45 %/b/ 4.28 %/b/ 7.0%
29.2 /b/ 22,069
0.45 /b/ 3.07 /b/ 5.8
7.19 /b/ 128,242
0.45 /b/ 2.57/b/ 0.1
9.42 /b/ 166,994
0.45/b/ 2.40 /b/ 0.8
1.01 /b/ 270,165
0.45 /b/ 2.73 /b/ 1.3
37.16 /b/ 457,256
0.45/b/ 2.54 /b/ 1.3
22.65/c/ 807,655
0.40///c/ 2.05 /c/ 1.3
20.36 1,311,000
0.40/cd/ 0.82/cd/ 0.9/d/
- ----------------------------------------------------------------------
- ------------------------------------------------
<CAPTION>
<S> <C>
Average
Commission
Rate Paid
--
--
--
--
--
--
--
--
--
--
--
$ 0.0183
0.0150
- --------------------
</TABLE>
Footnotes appear on page 5. (continued on next page)
a For the period March 30, 1990 (commencement of
operations) to December
31, 1990.
b Excludes expenses in excess of a 0.45% voluntary
expense limitation in
effect through December 31, 1995.
c Excludes expenses in excess of a 0.40% voluntary
expense limitation in
effect through December 31, 1997.
d Annualized.
e For the 6 months ended June 30, 1997.
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether the funds are appropriate for you,
this section takes
a closer look at their investment objectives and approaches.
The fund or funds you select should not be relied upon as a
complete investment
program nor be used for short-term trading purposes.
What are the funds' objectives and investment programs?
Equity Index 500 Fund (formerly the Equity Index Fund) The fund's
objective is
to match the performance of the S&P 500 Stock Index. The fund
will invest in all
500 stocks composing the S&P 500(R), which includes primarily
large-cap
companies operating across a broad spectrum of the U.S. economy.
These stocks
compose about 70% of the total market cap of the U.S. stock
market. (Market
capitalization is the number of outstanding shares multiplied by
the stock
price.)
Standard & Poor's first identifies important industry categories
and then
allocates a representative sample of stocks to them. It
determines the
appropriate percentage of each stock in the index by a weighting
that reflects
the total market value of its outstanding shares. Because of this
weighting
technique, the 50 largest companies in the index currently
account for over 45%
of its value. The inclusion of a stock in the index is in no way
an endorsement
by S&P of its attractiveness as an investment, nor is S&P a
sponsor of the fund,
or in any way affiliated with it.
Extended Equity Market Index Fund The fund's objective is to
match the
performance of U.S. stocks not included in the S&P 500 index. The
fund defines
these stocks as those which make up the Wilshire 4500 Equity
Index.
Page 1
<PAGE>
This index consists of virtually all actively traded U.S. stocks
not included in
the S&P 500. These are primarily small and midcap stocks (market
caps under $1
billion and $1 to 5 billion, respectively). The fund will seek to
accomplish its
objective by investing in a sample of stocks representative of
the Wilshire 4500
Equity Index. Despite its name, this index includes over 6,500
stocks.
Total Equity Market Index Fund The fund's objective is to match
the performance
of the entire U.S. stock market. The fund defines the U.S. stock
market as those
stocks which make up the Wilshire 5000 Equity Index. This index
consists of
virtually all actively traded U.S. stocks (over 7,000). The fund
will seek to
accomplish its objective by investing in a broad spectrum of
small, mid, and
largecap stocks representative of the Wilshire 5000 Equity Index.
The inclusion of a stock in the Wilshire indexes is in no way an
endorsement by
Wilshire of its attractiveness as an investment, nor is Wilshire
a sponsor of
the funds or in any way affiliated with them. Stocks in both
Wilshire indexes
are weighted according to market capitalization.
<PAGE>
1
<TABLE>
Table 5
<CAPTION>
<S> <C> <C> <C>
<C>
Index Funds Comparison Guide
Fund Investment Emphasis Type of Stocks
Risk/Reward Profile
(Relative to one
another)
Equity Index 500 S&P 500 stocks Large-cap
Lowest
Extended Equity Market Broad market apart Small- and
mid-cap Highest
Index from S&P 500 stocks
Total Equity Market Broad market including Blend of mid-,
small-, Medium
Index S&P 500 stocks and large- cap
stocks
- ----------------------------------------------------------------------
- -------------------------------
</TABLE>
How will the funds' portfolios specifically attempt to match the
performances of
their indexes?
The Equity Index 500 Fund relies on a full replication strategy,
in which the
fund manager attempts to maintain holdings of every S&P 500 stock
in the same
weightings as the index.
The Extended Equity Market Index Fund will invest in stocks
representative of
the Wilshire 4500 Index in an attempt to track the performance of
the index as a
whole.
The Total Equity Market Index Fund will invest in stocks
representative of the
Wilshire 5000 in an attempt to match the entire U.S. stock
market.
The investment manager selects stocks in an attempt to recreate
the Wilshire
indexes in terms of industry, size, and other characteristics.
For example, if
15% of the Wilshire 4500 and 5000 consisted of technology stocks,
the two funds
pegged to the Wilshire indexes would invest approximately 15% of
assets in
technology stocks with similar characteristics. Since the funds
do not invest in
all the stocks in the indexes, it is possible that their total
returns could
deviate from those of the indexes.
T. Rowe Price continually compares the composition of all three
funds with those
of the indexes. If a misweighting develops, the portfolios are
rebalanced to
bring them in line with their respective indexes. When investing
cash flow, the
funds may purchase stocks from their indexes, stock index futures
or stock
options. This approach is intended to minimize any deviations in
performance.
Will the funds' performances match their respective indexes
exactly?
No. As discussed in the preceding question, the use of sampling
for the Extended
Equity and Total Equity Funds may result in some deviation. In
addition, returns
are likely to be slightly below those of the indexes because the
funds have fees
and transaction expenses while indexes have none. The timing of
cash flows and a
fund's size can also influence returns. While there is no
guarantee, the
investment manager expects the correlation between the funds and
their
respective indexes to be a least .95. A correlation of 1.00 means
the return of
a fund can be completely explained by the return of an index.
How does a stock index fund differ from the typical stock fund?
Index funds are passively managed, attempting to deviate as
little as possible
from a particular benchmark. Since fewer resources are devoted to
researching
stocks, and portfolio turnover (the buying and selling of stocks)
Page 2
<PAGE>
is low, an index fund incurs lower costs than the average equity
fund. The
typical equity fund is actively managed, meaning the manager
makes buy and sell
decisions, based on a particular company's prospects, in pursuit
of the fund's
investment objective. In addition, index funds are fully invested
in stocks
while actively managed funds often hold some cash reserves.
What are some of the funds' potential risks?
Since the funds are passively managed, assets cannot be shifted
from one stock
to another based on market conditions or in reaction to trends in
market
sectors. Fund managers make no attempt to cushion a fund's value
in the event of
a stock market decline. Therefore, actively managed funds may
outperform these
funds.
The Equity Index 500 Fund will be subject to the same degree of
fluctuation as
that of the broad U.S. stock market, because it seeks to track
the S&P 500. The
Extended Equity Market Index Fund will be subject to the greater
risks
associated with small and midcap stocks. Smaller companies often
have limited
product lines, markets, or financial resources, and may be
dependent upon a
small group of inexperienced managers. The securities of small
companies may
have limited marketability and liquidity and may be subject to
more abrupt or
erratic market movements than securities of larger companies or
the market
averages in general. The very nature of investing in smaller
companies involves
greater risk than is customarily associated with largecap
companies. The Total
Equity Market Index Fund will have a risk level between the other
two funds.
What are some of the funds' potential rewards?
Stocks have historically been among the most rewarding
investments, although
past performance is no guarantee of future results. Each fund
offers investors
the opportunity to diversify their assets in many industries and
individual
stocks through a single investment. Small- and mid-cap stocks
also offer the
potential for higher total returns over time. In the case of the
S&P 500, most
of these stocks pay a dividend, which, when reinvested, is an
important
capital-building component.
Index investing provides investors with a convenient and
relatively lowcost way
to approximate the performance of either the entire U.S. stock
market or a
segment of it.
Because the funds are passively managed, their expenses are lower
than the
average stock fund. Assuming all other factors are equal, lower
expenses can
increase a fund's total return. The funds' lower turnover may
also offer a tax
benefit, because the amount of capital gain distributions should
be reduced.
What are some potential risks and rewards of investing in the
stock market
through the funds?
Common stocks, in general, offer a way to invest for longterm
growth of capital.
As the U.S. economy has expanded, corporate profits have grown
and share prices
have risen. Nevertheless, economic growth has bee 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
lowerthanexpected earnings to changes in investor psychology.
Significant
trading by large institutional investors also can lead to price
declines. Since
1950, the U.S. stock market has experienced 10 negative years as
well as steep
drops of shorter duration. Its worst calendar quarter in recent
years was 22.5%
in 1987's fourth quarter.
Equity investors should have a long-term investment horizon and
be willing to
wait out bear markets.
How can I decide which fund is most appropriate for me?
Page 3
<PAGE>
Review your own investment objectives, time horizon for achieving
them, and risk
tolerance to choose the fund or funds suitable for your
particular needs. If you
seek a relatively lowcost way of participating in the U.S. equity
markets
through a passively managed portfolio, one or more of these funds
could be an
appropriate part of your overall investment strategy.
The S&P 500 is one of the most widely tracked stock indexes in
the world. If you
are looking to closely match the return of the mostly largecap
stocks in this
index, with the same level of risk, you may choose to invest in
the Equity Index
500 Fund.
If you seek potentially higher returns by assuming greater risk,
and are also
interested in approximating the return of the broader market of
small and midcap
stocks, you may wish to invest in the Extended Equity Market
Index Fund.
Finally, if your risk/reward profile is between that of the first
two funds and
you would like to participate in the entire U.S. equity market,
you may want to
consider the Total Equity Market Index Fund.
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.
You should also review the information in Section 2, which
discusses contingent
redemption fees and account maintenance fees.
Page 4
<PAGE>
ABOUT YOUR ACCOUNT -1
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a
T. Rowe Price
equity fund.
How and when shares are priced
The share price (also called "net asset value" or NAV per
share) for each
fund is calculated at 4 p.m. ET each day the New York Stock
Exchange is open
for business. To calculate the NAV, a fund's assets are valued
and totaled,
liabilities are subtracted, and the balance, called net
assets, is divided by
the number of shares outstanding.
. 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
. 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
<PAGE>
20,000 banks, savings banks, and credit unions, which
electronically
exchanges the transactions primarily through the Federal
Reserve Banks.
Proceeds sent by bank wire should be credited to your account
the next
business day.
. Exception: Under certain circumstances and when deemed to be
in the fund's
best interests, your proceeds may not be sent for up to five
business days
after receiving your sale or exchange request. If you were
exchanging into a
bond or money fund, your new investment would not begin to
earn dividends
until the sixth business day.
. If for some reason we cannot accept your request to sell
shares, we will
contact you.
Contingent Redemption Fee
The funds can experience substantial price fluctuations and is
intended for
long-term investors. Short-term "market timers" who engage in
frequent
purchases and redemptions can disrupt the fund's investment
program and
create additional transaction costs that are borne by all
shareholders. For
these reasons, the funds assess a 0.50% fee on redemptions
(including
exchanges) of fund shares held for less than six months.
Redemption fees are paid to the funds to help offset
transaction costs and
protect the funds' long-term shareholders. The funds 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 with the
earliest purchase date of shares held in the account. If this
holding period
is less than six months, the fee will be charged.
The fee does not apply to any shares purchased through
reinvestment of
dividends 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. The fee does apply to shares held in IRA accounts
and to shares
purchased through automatic investment plans (described under
Shareholder
Services). The fee may apply to shares in retirement plans
held in broker
omnibus accounts.
In determining "six months" the funds will use the six-month
anniversary date
of the transaction. Thus, shares purchased on January 1, 1998,
for example,
will be subject to the fee if they are redeemed on or prior to
June 30, 1998.
If they are redeemed on or after July 1, 1998, they will not
be subject to
the fee.
<PAGE>
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. 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 Equity Index 500 Fund declares and pays dividends (if any)
quarterly.
The Extended Market and Total Market Funds declare and pay dividends
(if any)
annually.
All or part of the funds' 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.
<PAGE>
T. ROWE PRICE 2
. If the fund has net capital gains for the year (after
subtracting any
capital losses), they are usually declared and paid in
December to
shareholders of record on a specified date that month. If a
second
distribution is necessary, it is usually declared and paid
during the first
quarter of the following year.
Tax Information
. You will be sent timely information for your tax filing
needs.
You need to be aware of the possible tax consequences when:
. The fund makes a distribution to your account.
. You sell fund shares, including an exchange from one fund to
another.
Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or
loss. An exchange
from one fund to another is still a sale for tax purposes.
In January, you will be sent Form 1099-B, indicating the date
and amount of
each sale you made in the fund during the prior year. This
information will
also be reported to the IRS. For accounts opened new or by
exchange in 1983
or later, we will provide you with the gain or loss of the
shares you sold
during the year, based on the "average cost" method. This
information is not
reported to the IRS, and you do not have to use it. You may
calculate the
cost basis using other methods acceptable to the IRS, such as
"specific
identification."
To help you maintain accurate records, we send you a
confirmation immediately
following each transaction 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
funds 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.
<PAGE>
ABOUT YOUR ACCOUNT 3
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
rate 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 lower long-term rates. 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.
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.
. 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 in the form of a taxable distribution a portion of the
money you just
invested. Therefore, you may wish to find out a fund's record
date(s) before
investing. Of course, the fund's share price may reflect
undistributed
capital gains or income and unrealized appreciation at any
time.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. 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
<PAGE>
T. ROWE PRICE 4
redeem shares you own in this or another identically
registered T. Rowe Price
fund as reimbursement. The fund and its agents have the right
to reject or
cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S.
banks.
Sale (Redemption) Conditions
10-day hold
If you sell shares that you just purchased and paid for by
check or ACH
transfer, the fund will process your redemption but will
generally delay
sending you the proceeds for up to 10 calendar days to allow
the check or
transfer to clear. If your redemption request was sent by mail
or mailgram,
proceeds will be mailed no later than the seventh calendar day
following
receipt unless the check or ACH transfer has not cleared. (The
10-day hold
does not apply to the following: purchases paid for by bank
wire; cashier's,
certified, or treasurer's checks; or automatic purchases
through your
paycheck.)
Telephone, Tele*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 which states that you do not want these services.
Personal computer
transactions must be authorized separately. The fund uses
reasonable
procedures (including shareholder identity verification) to
confirm that
instructions given by telephone are genuine and is not liable
for acting on
these instructions. If these procedures are not followed, it
is the opinion
of certain regulatory agencies that the fund may be liable for
any losses
that may result from acting on the instructions given. A
confirmation is sent
promptly after the telephone transaction. All conversations
are recorded.
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability
to implement a
fund's investment strategy by causing the premature sale of
securities that
would otherwise be held. If, in any 90-day period, you redeem
(sell) more
than $250,000, or your sale amounts to more than 1% of 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
. T. Rowe Price may bar excessive traders from purchasing
shares.
<PAGE>
ABOUT YOUR ACCOUNT 5
Frequent trades, involving either substantial fund assets or a
substantial
portion of your account or accounts controlled by you, can
disrupt management
of the fund and raise its expenses. We define "excessive
trading" as
exceeding one purchase and sale involving the same fund within
any 120-day
period.
For example, you are in fund A. You can move substantial
assets from fund A
to fund B and, within the next 120 days, sell your shares in
fund B to return
to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred
indefinitely from further purchases of T. Rowe Price funds.
Three types of transactions are exempt from excessive trading
guidelines: 1)
trades solely between money market funds; 2) redemptions that
are not part of
exchanges; and 3) systematic purchases or redemptions (see
Shareholder
Services).
Keeping Your Account Open
Due to the relatively high cost to the funds 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.
Account Maintenance Fee
The account maintenance fee is charged on a quarterly basis
usually during
the last week of a calendar quarter. On the day of the
assessment, accounts
with balances below $10,000 will be charged the fee. Please
note that the fee
will be charged to accounts that fall below $10,000 due to
market
fluctuations or other reasons. When an account with less than
$10,000 is
closed either through redemption or exchange, the fee will be
charged and
deducted from the proceeds. The fee will apply to IRA
accounts. The fee does
not apply to retirement plans directly registered with T. Rowe
Price
Services.
Signature Guarantees
. A signature guarantee is designed to protect you and the T.
Rowe Price funds
from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such
as:
. 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.
<PAGE>
T. ROWE PRICE 6
. 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>
ABOUT YOUR ACCOUNT 7
MORE ABOUT THE FUND
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How is the fund organized?
T. Rowe Price Index Trust, Inc. (the "Corporation") was
incorporated in
Maryland in 1989 and is a "diversified, open-end investment
company," or
mutual fund. Currently there are three series of the
Corporation. The Equity
Index 500 Fund was established in 1989, and the Extended
Equity Market Index
and Total Equity Market Index Funds were established in 1997.
The Equity
Index 500 Fund was originally established as the Equity Index
Fund but
changed its name effective January 30, 1998. Mutual funds pool
money received
from shareholders and invest it to try to achieve specified
objectives.
. 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.
<PAGE>
T. ROWE PRICE 8
Who runs the funds?
General Oversight
The Corporation is governed by a Board of Directors that meets
regularly to
review the funds' investments, performance, expenses, and
other business
affairs. The Board elects the Corporation's officers. The
policy of the
Corporation is that a majority of Board members will be
independent of T.
Rowe Price.
. All decisions regarding the purchase and sale of fund
investments are made
by T. Rowe Price - specifically by the funds' portfolio
managers.
Portfolio Management
Each fund has an Investment Advisory Committee composing the
following
members: Richard T. Whitney, Chairman, Kristen F. Culp, and
Donald J. Peters.
The committee chairman has day-to-day responsibility for
managing the
portfolio and works with the committee in developing and
executing each
fund's investment program. Mr. Whitney has been chairman of
the Equity Index
500 Fund's committee since 1990 and was named chairman of the
Advisory
Committee for the Extended Equity Market and Total Equity
Market Funds in
1998. He joined T. Rowe Price in 1985 and has been managing
investments since
1986.
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
each fund. In
addition to the management fee, the funds pay 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.
<PAGE>
ABOUT YOUR ACCOUNT 9
The Equity Index 500 Fund paid the expenses shown in Table 6
for the fiscal
year ended December 31, 1996. The expenses shown for Extended
Equity Market
and Total Equity Market Funds are estimated for the period
ending December
31, 1998.
<TABLE>
Table 6 Services Fees Paid
<CAPTION>
Transfer Agent and
Fund Shareholder Services
Subaccounting Services Accounting Services
- -----------------------------------------------------------------
- --------------------------------
<S> <S> <C> <C>
<C> <C>
Equity Index 500 $ $
$
- -----------------------------------------------------------------
- --------------------------------
Extended Equity Market Index
- -----------------------------------------------------------------
- --------------------------------
Total Equity Market Index
- -----------------------------------------------------------------
- ------------------------------------------
</TABLE>
The Management Fee
The funds pay the fund manager an annual investment management
fee of the
average daily net asset value of the fund as shown in Table 7.
The fund
calculates and accrues the fee daily.
<TABLE>
Table 7
<CAPTION>
Fund Management Fee
--------------------------------------------------
<S> <S> <C> <C>
Equity Index 500 0.20%
--------------------------------------------------
Extended Equity Market Index _.__%
--------------------------------------------------
Total Equity Market Index _.__%
- ------------------------------------------------------------
</TABLE>
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.
<PAGE>
T. ROWE PRICE 10
. 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.
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
funds may hold in their portfolios and the various kinds of
investment
practices that may be used in day-to-day portfolio management.
The funds'
investment program is subject to further restrictions and
risks described in
the Statement of Additional Information.
Shareholder approval is required to substantively change a
fund's objectives
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
funds adhere to applicable investment restrictions and
policies at the time
they make an investment. A later change in circumstances does
not cause a
violation of the restriction and will not require the sale of
an investment
if it was proper at the time it was made.
Changes in a funds' holdings, a fund's performance, and the
contribution of
various investments are discussed in the shareholder reports
sent to you.
. Fund managers have considerable leeway in choosing investment
strategies and
selecting securities they believe will help the funds achieve
their
objectives.
<PAGE>
MORE ABOUT THE FUND 11
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds 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 funds' investment programs. The following
pages describe
the principal types of portfolio securities and investment
management
practices of the funds.
Fundamental policy A fund will not purchase a security if, as
a result, with
respect to 75% of the fund's total assets, more than 5% of its
total assets
would be invested in securities of a single issuer or more
than 10% of the
voting securities of the issuer would be held by the fund.
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, redemption, or conversion terms of a
security could be
related to the market price of some commodity, currency, or
securities index.
Such securities may bear interest or pay dividends at below
market or even
relatively nominal rates. Under certain conditions, the
redemption value of
such an investment could be zero.
. Hybrids can have volatile prices and limited liquidity, and
their use by the
fund may not be successful.
Operating policy Each fund may invest up to 10% of its total
assets in hybrid
instruments.
Types of Management Practices
Reserve Position
Each fund will hold a certain portion of its assets in cash or
cash
equivalents. Each fund's reserve position can consist of
shares of a T. Rowe
Price internal money market fund and U.S. and foreign
dollar-denominated
money market securities, including repurchase agreements, in
the two highest
rating categories, maturing in one year or less. T. Rowe Price
internal money
market funds do not receive management fees. For temporary,
defensive
purposes, a fund may invest without limitation in such money
market funds and
securities. This reserve position provides flexibility in
meeting
redemptions, expenses, and the timing of new investments, and
serves as a
short-term defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets
The funds can borrow money from banks as a temporary measure
for emergency
purposes, to facilitate redemption requests, or for other
purposes consistent
with the funds' investment objectives and programs. Such
borrowings may be
collateralized with fund assets, subject to restrictions.
<PAGE>
T. ROWE PRICE 12
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of
total fund
assets.
Operating policies Each 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 a
fund's total assets. A fund may not purchase additional
securities when
borrowings exceed 5% of total assets.
Futures and Options
The funds may make such investments to provide an efficient
means of
maintaining liquidity while being invested in the market, to
facilitate
trading or to reduce transaction costs. The funds may also
purchase call
options on stock indices. Such options would be used in a
manner similar to
the funds' use of stock index futures.
Futures contracts and options prices can be highly volatile;
using them could
lower the funds' total return; and the potential loss from the
use of futures
can exceed the funds' initial investment in such contracts.
Operating policies Futures: Initial margin deposits and
premiums on options
used for non-hedging purposes will not equal more than 5% of
each fund's net
asset value. Options on indices: The funds will not commit
more than 5% of
total assets to premiums when purchasing call options.
Lending of Portfolio Securities
Like other mutual funds, the funds 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, a 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.
Portfolio Turnover
The funds 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
Equity Index
500 Fund's portfolio turnover rates for the fiscal years
ending December 31,
1996, 1995, and 1994, were 1.30%, 1.30%, and 1.30%,
respectively. The
Extended Equity Market and Total Equity Market Funds do not
expect their
portfolio turnover rates for their initial periods of
operations to exceed
100%.
<PAGE>
MORE ABOUT THE FUND 13
Standard & Poor's (Equity Index 500 Fund)
Although S&P obtains information for inclusion in or for use
in the
calculation of the S&P 500 Index from sources which S&P
considers reliable,
S&P does not guarantee the accuracy and/or the completeness of
the S&P 500
Index or any data included therein. S&P makes no warranty,
express or
implied, as to results to be obtained by the fund, or any
other person or
entity from the use of the S&P 500 Index or any data included
therein. S&P
makes no express or implied warranties, and expressly
disclaims all
warranties of merchantability or fitness for a particular
purpose with
respect to the S&P 500 Index or any data included therein.
Standard & Poor's,
S&P, S&P 500 Index, Standard & Poor's 500, and 500 are
trademarks of
McGraw-Hill, Inc. and have been licensed for use by the fund.
The fund is not
sponsored, endorsed, sold, or promoted by S&P, and S&P makes
no
representation regarding the advisability of investing in the
fund.
Wilshire Associates, Incorporated (Extended Equity and Total
Equity Market
Funds)
Wilshire and Wilshire 5000 are registered service marks of
Wilshire
Associates Incorporated of Santa Monica, California.
These funds are not sponsored, endorsed, sold, or promoted by
Wilshire, and
Wilshire makes no representation regarding the advisability of
investing in
these funds.
<PAGE>
T. ROWE PRICE 14
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.)
<PAGE>
INVESTING WITH T. ROWE PRICE 15
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.
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.
<PAGE>
T. ROWE PRICE 16
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>
INVESTING WITH T. ROWE PRICE 17
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>
T. ROWE PRICE 18
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 the trade or if the
written
confirmation has not been
<PAGE>
INVESTING WITH T. ROWE PRICE 19
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 a state
tax-free fund are
limited to investors living in states where the fund is
registered.) Some of the
<PAGE>
T. ROWE PRICE 20
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.
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
<PAGE>
INVESTING WITH T. ROWE PRICE 21
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.
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.
<PAGE>
T. ROWE PRICE 22
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>
INVESTING WITH T. ROWE PRICE 23
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
<PAGE>
T. ROWE PRICE 24
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
C10-040 1/30/98
<PAGE>
INVESTING WITH T. ROWE PRICE 25
<PAGE>
T. ROWE PRICE 26
<PAGE>
<PAGE>
PAGE 10
<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 EQUITY INDEX 500 FUND
T. ROWE PRICE EXTENDED EQUITY MARKET INDEX FUND
T. ROWE PRICE TOTAL EQUITY MARKET INDEX FUND
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
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 January 30, 1998 (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 October 31, 1997 for the T. Rowe Price Real
Estate Fund), which may be obtained from T. Rowe Price Investment
Services, Inc., 100 East Pratt Street, Baltimore, Maryland
21202.
If you would like a prospectus for a Fund of which you are not
a shareholder, please call 1-800-638-5660. A prospectus with
more complete information, including management fees and
expenses, will be sent to you. Please read it carefully.
The date of this Statement of Additional Information is
January 30, 1998; 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 October 31, 1997 for the T. Rowe Price Real Estate Fund.
C20-043 1/30/98
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
Page
----
----
<S> <C> <C> <C>
<C>
Capital Stock 62 Legal Counsel 64
Code of Ethics 51 Management of Funds 29
Custodian 51 Net Asset Value Per
Share 57
Distributor for Fund 50 Organization of the
Funds
Dividends and Distributions 58 Portfolio Management
Practices 14
Federal Registration of 64 Portfolio Transactions
Shares
Independent Accountants 64 Pricing of Securities 57
Investment Management 45 Principal Holders of
Services Securities 45
Investment Objectives and 2 Ratings of Corporate
Policies Debt Securities 74
Investment Performance 59 Risk Factors 2
Investment Program 5 Shareholder Services 51
Investment Restrictions 26 Tax Status 58
</TABLE>
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
Because of its investment policy, the Fund may or may not be
suitable or appropriate for all investors. The Fund is not a
money market fund and is not an appropriate investment for
those whose primary objective is principal stability. The Fund
will normally have substantially all (for the Balanced Fund
50-70% and for the Capital Appreciation Fund at least 50%) of its
assets in equity securities (e.g., common stocks). This
portion of the Fund's assets will be subject to all of the
risks of investing in the stock market. There is risk in all
investment. The value of the portfolio securities of the Fund
will fluctuate based upon market conditions. Although the Fund
seeks to reduce risk by investing in a diversified portfolio,
such diversification does not eliminate all risk. There can,
of course, be no assurance that the Fund will achieve its
investment objective. Reference is also made to the sections
entitled "Types of Securities" and "Portfolio Management
Practices" for discussions of the risks associated with the
investments and practices described therein as they apply to
the Fund.
<PAGE>
Foreign Securities (All Funds other than Equity Index 500
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. Certain of these
risks are inherent in any international mutual fund while
others relate more to the countries in which the Funds will
invest. 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.
<PAGE>
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.
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.
<PAGE>
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 of 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).
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.
<PAGE>
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.
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.
<PAGE>
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 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.
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 of 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).
<PAGE>
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.
<PAGE>
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, averaging 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.
<PAGE>
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, obsolescence, 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.
<PAGE>
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 risk 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
and certain state regulatory agencies, the Fund may make loans
to, or borrow funds from, other mutual funds sponsored or
advised by T. Rowe Price or Rowe Price-Fleming International,
Inc. ("Price-Fleming"), (collectively, "Price Funds"). The
Fund has no current intention of engaging in these practices at
this time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which
an investor (such as the Fund) purchases a security (known as
the "underlying security") from a well-established securities
dealer or a bank that is a member of the Federal Reserve
System. Any such dealer or bank will be on T. Rowe Price's
approved list and have a credit rating with respect to its
short-term debt of at least A1 by Standard & Poor's
Corporation, P1 by Moody's Investors Services, Inc., or the
equivalent rating by T. Rowe Price. At that time, the bank or
securities dealer agrees to repurchase the underlying security at
the same price, plus specified interest. Repurchase agreements
are generally for a short period of time, often less than a
week. Repurchase agreements which do not provide for payment
within seven days will be treated as illiquid securities. The
Fund will only enter into repurchase agreements where (i) the
underlying securities are of the type (excluding maturity
limitations) which the Fund's investment guidelines would
allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at
all times equal to or exceed the value of the repurchase
agreement, and (iii) payment for the underlying security is
made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as
agent. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack
of access to income during this period; and (c) expenses of
enforcing its rights.
Reverse Repurchase Agreements
Although the Fund has no current intention, 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
__).
<PAGE>
Money Market Reserves
It is expected that the Funds will invest their cash reserves
primarily in one or more money market funds established for
the exclusive use of the T. Rowe Price family of mutual funds
and other clients of T. Rowe Price and Price-Fleming.
Currently, two such money market funds are in
operation-Reserve Investment Fund ("RIF") and Government Reserve
Investment Fund ("GRF"), each a series of the Reserve
Investment Funds, Inc. Additional series may be created in the
future. These funds were created and operate under an
Exemptive Order issued by the Securities and Exchange Commission
(Investment Company Act Release No. IC-22770, July 29, 1997).
Both funds must comply with the requirements of Rule 2a-7
under the Investment Company Act of 1940 governing money
market funds. The RIF invests at least 95% of its total assets
in prime money market instruments receiving the highest credit
rating. The GRF invests primarily in a portfolio of U.S.
government-backed securities, primarily U.S. Treasuries, and
repurchase agreements thereon.
The RIF and GRF provide a very efficient means of managing the
cash reserves of the Funds. While neither RIF or GRF pay an
advisory fee to the Investment Manager, they will incur other
expenses. However, the RIF and GRF are expected by T. Rowe
Price to operate at very low expense ratios. The Funds will
only invest in RIF or GRF to the extent it is consistent with
each Fund's objective and program.
Neither fund is insured or guaranteed by the U.S. government,
and there is no assurance they will maintain a stable net
asset value of $1.00 per share.
All Funds, Except Equity Index 500, Extended Equity Market
Index, and Total Equity Market Index Funds
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 written 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 to 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 500, Extended Equity Market Index, and Total
Equity Market Index Funds
The only option activity the Funds currently may engage in is
the purchase of S&P 500 call options for the Equity Index 500
Fund, or the purchases of call options on any indices that may
be consistent with the investment programs for the Extended
Equity Market Index and Total Equity Market Index Funds. Such
activity is subject to the same risks described above under
"Purchasing Call Options." The Funds reserve 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 500 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 premium 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 made up
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 decline. Furthermore, in the case of
a futures contract purchase, in order to be certain that the
Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund earmarks to the futures contract
money market instruments equal in value to the current value
of the underlying instrument less the margin deposit.
Liquidity The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long
futures positions or short futures positions. The Fund may
close its positions by taking opposite positions which would
operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or
released to the Fund, and the Fund would realize a loss or a
gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures
contracts only on exchanges or boards of trade where there
appears to be an active market, there is no assurance that a
liquid market on an exchange or board of trade will exist for
any particular contract at any particular time. In such event,
it might not be possible to close a futures contract, and in
the event of adverse price 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 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 500, Extended Equity Market
Index, and Total Equity Market Index Funds
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 parties will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, T. Rowe Price believes
that it is important to have the flexibility to enter into
such forward contracts when it determines that the best
interests of the Fund will be served.
The Fund may enter into forward contacts for any other purpose
consistent with the Fund's investment objective and program.
However, the Fund will not enter into a forward contract, or
maintain exposure to any such contract(s), if the 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 options, 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.
<PAGE>
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 "Taypayer 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 a 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. Calculation of the Fund's total assets for compliance
with any of the following fundamental or operating policies or
any other investment restrictions set forth in the Funds
prospectus or Statement of Additional Information will not
include cash collateral held in connection with securities
lending activities.
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;
(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,
Financial Services, and Real Estate 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, Financial
Services, and Real Estate 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; (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;
(iii) the Real Estate Fund will invest more than 25% of
its total assets in the real estate 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, it 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
(defined as any other mutual fund managed or for which T.
Rowe Price acts as adviser) 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.
<PAGE>
Operating Policies
As a matter of fundamental 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; or
(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") to the extent applicable.
<PAGE>
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; (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 and Chief Executive Officer, Western
Exploration and Development, Ltd.; Director Golden Star
Resources Ltd. and Miranda Mining Development Corporation;
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: 1231 State Street, Suite
247, Santa Barbara, California 93190-0409
PAUL M. WYTHES, Founding General Partner, Sutter Hill
Ventures, a venture capital limited partnership, providing
equity capital to young high technology companies throughout
the United States; Director, Teltone Corporation,
Interventional Technologies Inc. and Stuart Medical, Inc.;
Address: 755 Page Mill Road, Suite A200, Palo Alto, California
94304-1005
Officers
HENRY H. HOPKINS, Vice President-Vice President, Price-Fleming
and T. Rowe Price Retirement Plan Services, Inc.; 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
LENORA V. HORNUNG, Secretary-Vice President, T. Rowe Price
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
PATRICIA S. BUTCHER, Assistant Secretary-Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment
Services, Inc.
<PAGE>
Balanced Fund
* JAMES A.C. KENNEDY III, Vice President and Director
- -Managing Director, T. Rowe Price; Chartered Financial Analyst
* 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 Trust
Company; Director, Price-Fleming 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
RICHARD T. WHITNEY, President -Vice President, 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
EDMUND M. NOTZON, Vice President -Managing Director, T. Rowe
Price; Vice President, T. Rowe Price Trust Company; Chartered
Financial Analyst
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, Price-Fleming and T. Rowe Price Trust
Company
MARK J. VASELKIV, Vice President -Vice President, T. Rowe
Price
Blue Chip Growth Fund
* JAMES A.C. KENNEDY III, 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 Trust
Company; Director, Price-Fleming 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
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
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
WILLIAM J. STROMBERG, Vice President -Vice President, T. Rowe
Price; Chartered Financial Analyst
Capital Appreciation Fund
* JAMES A.C. KENNEDY III, Vice President and Director
- -Managing Director, T. Rowe Price; Chartered Financial Analyst
* 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 Trust Company; Director,
Price-Fleming 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
RICHARD P. HOWARD, President -Vice President, T. Rowe Price;
Chartered Financial Analyst
ARTHUR B. CECIL 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 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 Trust Company; Director,
Price-Fleming 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
JOHN F. WAKEMAN, Executive Vice President -Vice President, T.
Rowe Price
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; 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
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 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 Trust Company; Director,
Price-Fleming 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
RICHARD T. WHITNEY, President -Vice President, T. Rowe Price
and T. Rowe Price Trust Company; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
KRISTEN F. CULP, Vice President -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 A.C. KENNEDY III, 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 Trust Company; Director,
Price-Fleming 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
WILLIAM J. STROMBERG, President -Vice President, T. Rowe
Price; Chartered Financial Analyst
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 -Assistant Vice President,
T. Rowe Price; formerly Research Analyst at Bowles, Hollowell,
Conner and Company; Chartered Financial Analyst
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
DAVID J. WALLACK, Vice President -Vice President, T. Rowe
Price
Equity Income Fund
* JAMES A.C. KENNEDY III, Trustee -Managing Director, T. Rowe
Price; Chartered Financial Analyst
* 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 Trust Company; Director,
Price-Fleming 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
BRIAN C. ROGERS, President -Director and Managing Director, 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
MARK J. VASELKIV, Vice President -Vice President, T. Rowe
Price
Equity Index 500, Extended Equity Market Index, and Total
Market Index Funds
* JAMES A.C. KENNEDY III, 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 Trust Company; Director,
Price-Fleming 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
RICHARD T. WHITNEY, President -Vice President, T. Rowe Price
and T. Rowe Price Trust Company; Chartered Financial Analyst
KRISTEN F. CULP, Executive Vice President -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 A.C. KENNEDY III, 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 Trust Company; Director,
Price-Fleming 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
LARRY J. PUGLIA, President -Vice President, T. Rowe Price;
Chartered Financial Analyst
ROBERT N. GENSLER, Vice President -Vice President, T. Rowe
Price
ROBERT J. MARCOTTE, Vice President -Vice President, T. Rowe
Price
ANNA M. DOPKIN, Assistant Vice President -Employee, T. Rowe
Price
SUSAN J. KLEIN, Assistant Vice President -Employee, T. Rowe
Price
Growth & Income Fund
* JAMES A.C. KENNEDY III, Director -Managing Director, T.
Rowe Price; Chartered Financial Analyst
* 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 Trust Company; Director,
Price-Fleming 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
STEPHEN W. BOESEL, President -Vice President, T. Rowe Price
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 -Vice President, T. Rowe Price;
Chartered Financial Analyst; 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
DAVID J. WALLACK, Vice President -Vice President, T. Rowe
Price
RICHARD T. WHITNEY, Vice President -Vice President, T. Rowe
Price and T. Rowe Price Trust Company; Chartered Financial
Analyst
Growth Stock Fund
* JAMES A.C. KENNEDY III, Vice 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 Trust Company; Director,
Price-Fleming 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
ROBERT W. SMITH, President -Vice President, T. Rowe Price
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
D. JAMES PREY III, Vice President -Vice President, T. Rowe
Price
LARRY J. PUGLIA, Vice President -Vice President, T. Rowe
Price; Chartered Financial Analyst
CAROL G. BARTHA, Assistant Vice President -Employee, T. Rowe
Price
Health Sciences 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 Trust Company; Director,
Price-Fleming 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
JOSEPH KLEIN III, Executive Vice President -Vice President, T.
Rowe Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; 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
D. JAMES PREY III, Vice President -Vice President, T. Rowe
Price
DARRELL M. RILEY, Vice President -Assistant Vice President, T.
Rowe Price
MICHAEL F. SOLA, Vice President -Assistant Vice President, T.
Rowe Price; formerly Systems Analyst/ Programmer at SRA
Corporation
ANDREW K. 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 -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 Trust Company; Director,
Price-Fleming 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
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; 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
JOHN F. WAKEMAN, Vice President -Vice President, T. Rowe Price
Mid-Cap Equity Growth Fund
* JAMES A.C. KENNEDY III, Director -Managing Director, T. Rowe
Price; Chartered Financial Analyst
* 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 Trust Company; Director,
Price-Fleming and Rhone-Poulenc Rorer, Inc.
* 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
BRIAN W.H. BERGHUIS, Executive Vice President -Managing
Director, T. Rowe Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
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, 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 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
* 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 Trust Company; Director,
Price-Fleming and Rhone-Poulenc Rorer, Inc.
BRIAN W.H. BERGHUIS, President -Managing Director, T. Rowe
Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
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, 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
* JAMES A.C. KENNEDY III, Vice 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 Trust Company; Director,
Price-Fleming 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
GREGORY A. MCCRICKARD, President -Vice President, 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 -Assistant 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, T. Rowe Price; Chartered Financial Analyst
* 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 Trust Company; Director,
Price-Fleming 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
BRIAN W.H. BERGHUIS, Executive Vice President -Managing
Director, T. Rowe Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
ROBERT N. GENSLER, Vice President -Vice President, T. Rowe
Price
THOMAS J. HUBER, Vice President -Assistant Vice President, T.
Rowe Price
KARA CHESEBY LANDERS, Vice President -Vice President, T. Rowe
Price; formerly Vice President, Legg Mason Wood Walker; Chartered
Financial Analyst
CHARLES G. PEPIN, Vice President -Assistant Vice President, T.
Rowe Price
STEVEN B. ROORDA, Vice President -Vice President, T. Rowe
Price
BRIAN D. STANSKY, Vice President -Vice President, T. Rowe
Price; Chartered Financial Analyst
JOHN F. WAKEMAN, Vice President -Vice President, T. Rowe Price
New Era Fund
* JAMES A.C. KENNEDY III, Vice 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 Trust Company; Director,
Price-Fleming 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
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 -Vice President, T. Rowe Price;
Chartered Financial Analyst; formerly Marketing Representative at
IBM
ROBERT J. MARCOTTE, Vice President -Vice President, T. Rowe
Price
GEORGE A. ROCHE, Vice President -President, Chief Executive
Officer, Chairman of the Board, and Managing Director, T. Rowe
Price; Vice President and Director, Price-Fleming
New Horizons 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 Trust Company; Director,
Price-Fleming 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
PRESTON G. ATHEY, Vice President -Managing Director, T. Rowe
Price; Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
BRIAN W.H. BERGHUIS, Vice President -Managing Director, T.
Rowe Price; Chartered Financial Analyst
MARCY L. FISHER, Vice President -Assistant 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 -Assistant Vice President, T.
Rowe Price
STEVEN B. ROORDA, Vice President -Vice President, T. Rowe
Price
BRIAN D. STANSKY, Vice President -Vice President, T. Rowe
Price; Chartered Financial Analyst
JOHN F. WAKEMAN, Vice President -Vice President, T. Rowe Price
FRANCIES W. HAWKS, Assistant Vice President -Assistant Vice
President, T. Rowe Price
Real Estate Fund
* JAMES A.C. KENNEDY III, Vice 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 Trust Company; Director,
Price-Fleming 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
WILLIAM J. STROMBERG, President -Vice President, T. Rowe
Price; Chartered Financial Analyst
DAVID M. LEE, Executive Vice President -Vice President, T.
Rowe Price; Chartered Financial Analyst; formerly Marketing
Representative at IBM
STEPHEN W. BOESEL, Vice President -Vice President, T. Rowe
Price
ANNA M. DOPKIN, Assistant Vice President -Employee, T. Rowe
Price
CHARLES M. OBER, Vice President -Vice President, T. Rowe
Price; Chartered Financial Analyst
BRIAN C. ROGERS, Vice President -Director and Managing
Director, 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 Trust Company; Director,
Price-Fleming 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
CHARLES A. MORRIS, President -Vice President, T. Rowe Price;
Chartered Financial Analyst
MARC L. BAYLIN, Vice President -Vice President, T. Rowe Price;
formerly financial analyst, Rausher Pierce Refsnes; Chartered
Financial Analyst
MARCY L. FISHER, Vice President -Assistant 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
D. JAMES PREY III, Vice President -Vice President, T. Rowe
Price
MICHAEL F. SOLA, Vice President -Assistant Vice President, 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 Stock 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 Trust Company; Director,
Price-Fleming 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
GREGORY A. MCCRICKARD, 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 and T. Rowe Price Trust Company; Chartered Financial
Analyst
Small-Cap Value 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 Trust Company; Director,
Price-Fleming 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
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
FRANCIES W. HAWKS, Assistant Vice President -Assistant Vice
President, T. Rowe Price
Value Fund
* JAMES A.C. KENNEDY III, 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 Trust Company; Director,
Price-Fleming 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
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 CHESEBY LANDERS, Vice President -Vice President, T. Rowe
Price; formerly Vice President, Legg Mason Wood Walker; Chartered
Financial Analyst
ROBERT W. SMITH, Vice President -Vice President, T. Rowe Price
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
a Fund who is an officer or employee of T. Rowe Price or
Price-Fleming does not receive any remuneration from the Fund.
<TABLE>
<CAPTION>
Name of Person, Aggregate Total Compensation From
Position Compensation Fund and Fund Complex Paid
from Fund(a) to Directors/Trustees(b)
- ------- -------------- ------------------------
<S> <C> <C>
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
Addison 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
Addison 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 1,068 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
Addison 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,
Director(c) $1,876 $42,083
Donald W. Dick, Jr.,
Director 4,805 72,917
David K. Fagin,
Director 7,418 59,167
Addison Lanier,
Director(c) 1,876 42,083
John K. Major,
Director(c) 1,876 34,167
Hanne M. Merriman,
Director 7,418 59,167
Hubert D. Vos,
Director 7,318 59,167
Paul M. Wythes,
Director 4,805 69,667
- -----------------------------------------------------------------
Equity Index 500 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
Addison 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
- -----------------------------------------------------------------
Extended Equity Market 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
Addison 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
Addison 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
Addison 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
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 $354 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
Addison 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,
Director(c) $685 $42,083
Donald W. Dick, Jr.,
Director 1,929 72,917
David K. Fagin,
Director 3,250 59,167
Addison Lanier,
Director(c) 685 42,083
John K. Major,
Director(c) 1,268 34,167
Hanne M. Merriman,
Director 3,250 59,167
Hubert D. Vos,
Director 3,250 59,167
Paul M. Wythes,
Director 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
Addison 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
Addison 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(d)
Donald W. Dick, Jr.,
Director $933 72,917
David K. Fagin,
Director 1,045 59,167
Hanne M. Merriman,
Director 1,045 59,167
Hubert D. Vos,
Director 1,045 59,167
Paul M. Wythes,
Director 932 69,667
- -----------------------------------------------------------------
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
Addison 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
Addison 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
Addison 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
- -----------------------------------------------------------------
Total Market 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
Addison 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
- -----------------------------------------------------------------
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
Addison 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
- -----------------------------------------------------------------
</TABLE>
(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 and Lanier 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 December 1, 1997, the following shareholders
beneficially owned more than 5% of the outstanding shares of:
Growth Stock, New Era, New Horizons, Growth & Income, Blue
Chip Growth, 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;
Blue Chip Growth Fund: Fidelity Investments Institutional
Operations as agent for Merck & Company, Inc., #83169, 100
Magellan Way, Covington, Kentucky 41015-1999;
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;
Media & Telecommunications: MLPF&S, Attn.: Karen Gemski, 4800
Deerlake Drive E, 3rd Floor, Jacksonville, Florida
32246-6484;
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; Mac & Company A/C
JHFF0800212 Mutual Funds Operations, P.O. Box 3198, Pittsburgh,
Pennsylvania 15230-3198; Boston Harbor Trust Company, NA, Nominee
Account, 100 Federal Street, 37th Floor, Boston, Massachusetts
02110-1802.
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 500 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:
<TABLE>
Price Funds' Annual Group Base Fee Rate for Each Level
of Assets
<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>
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 500 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 Funds' 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:
<TABLE>
<CAPTION>
<S> <C>
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 500 Fund 0.20%
Extended Equity Market Index Fund
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%
Total Equity Market Index Fund
Value Fund 0.35%
</TABLE>
*Subject to Performance Adjustment (please see page 58.)
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by each Fund, during the last three
years:
<TABLE>
<CAPTION>
Fund 1996 1995
1994
---- ---- ----
----
<S> <C> <C>
<C>
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 500 925,000 498,000
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)
- -----------------------------------------------------------------
- ---------------
</TABLE>
(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 500, 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.
<TABLE>
<CAPTION>
Expense
Fund Limitation Period
Reimbursement Date
---- ----------------- Ratio
- ------------------
Limitation
----------
<S> <C> <C> <C>
<C>
January 1, 1995 -
Blue Chip Growth(a) December 31, 1996 1.25%
December 31, 1998
November 30, 1994 -
Capital Opportunity December 31, 1996 1.35%
December 31, 1998
Diversified Small-Cap June 30, 1997 -
Growth December 31, 1998 1.25%
December 31, 2000
January 1, 1995 -
Dividend Growth(b) December 31, 1996 1.10%
December 31, 1998
January 1, 1996 -
Equity Index 500(c) December 31, 1997 0.40%
December 31, 1999
September 30, 1996 -
Financial Services December 31, 1998 1.25%
December 31, 2000
December 29, 1995 -
Health Sciences December 31, 1997 1.35%
December 31, 1999
Media & July 26, 1997 -
Telecommunications December 31, 1998 1.25%
December 31, 2000
July 31, 1996 -
Mid-Cap Equity Growth December 31, 1997 0.85%
December 31, 1999
January 1, 1994 -
Mid-Cap Growth December 31, 1995 1.25%
December 31, 1997
June 28, 1996 -
Mid-Cap Value December 31, 1997 1.25%
December 31, 1999
October 31, 1997 -
Real Estate December 31, 1999 1.00%
December 31, 2001
Value September 30, 1994 - 1.10%
December 31, 1998
December 31, 1996
- -----------------------------------------------------------------
</TABLE>
(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 500 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 limitations
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 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 Capital Opportunity Fund's expense limitation that
expired on December 31, 1996, $1,000 of managements 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 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.
<PAGE>
Pursuant to the Equity Index 500 Fund's current expenses
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 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.
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 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 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 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 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.
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 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 no longer
be any 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)%.
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)%.
<PAGE>
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 ex-dividend 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 ex-dividend date occurring within the
period made by companies whose securities comprise the Index.
Management Fee
Equity Index 500 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, Mid-Cap Value,
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 provide 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 than 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.
<PAGE>
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 purchases 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 500 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.
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.
<PAGE>
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 a 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.
Descriptions 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.
<PAGE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
1996
1995 1994
Fund Commissions %
Commissions % Commissions- %
---- ----------- -
----------- -----------
<S> <C> <C>
<C> <C> <C> <C> <C>
Balanced $ 292,325
13.0% 14.8% $258,006 18.1 %
Blue Chip Growth 748,661
34.6% 420,931 10.3% 219,539 11.9 %
Capital Appreciation 886,009
46.6% 1,922,697 32.4% 828,822 67.4 %
Capital Opportunity 764,518
38.7% 528,727 24.6% 7,857 7.2 %
Dividend Growth 478,131
28.6% 373,298 9.6% 294,479 15.9 %
Equity Income 6,912,071
59.2% 4,193,326 43.2% 4,511,187 48.4 %
Growth & Income 1,874,214
42.7% 1,431,194 44.7% 2,550,364 23.7 %
Growth Stock 5,630,241
48.7% 4,769,565 42.6% 4,002,616 51.6 %
Equity Index 500 37,146
0.0% 98,198 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 & Telecommunications 1,659,735
15.0% 1,069,973 22.6% 45.1 %
Mid-Cap Equity Growth 24,079
12.0% (a) (a) (a) (a)
Mid-Cap Growth 3,149,050
27.9% 924,702 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% 3,605,675 16.1% 1,646,550 23.7 %
New Era 2,500,868
45.2% 1,259,196 42.7% 1,863,739 35.8 %
New Horizons 15,900,960
6.5% 8,729,848 9.1% 5,246,463 10.0 %
Small-Cap Stock 1,044,665
5.5% 873,954 7.5% 584,525 4.6 %
Science & Technology 5,713,825
39.1% 4,766,171 18.5% 1,272,479 45.4 %
Small-Cap Value 1,289,012
31.8% 1,321,168 14.4% 512,452 26.28%
Value 780,033
57.4% 270,119 32.3% 30,478 14.9 %
- -----------------------------------------------------------------
</TABLE>
(a) Prior to commencement of operations.
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.
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 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 Equity Income Fund held common stock
of the following regular brokers or 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 GNAM 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 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.
On December 31, 1996, the Equity Index 500 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
stock of the following regular brokers or 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 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 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.
The portfolio turnover rate for each Fund for the years ended
1996, 1995, and 1994, was as follows:
<TABLE>
<CAPTION>
Fund 1996 1995
1994
---- ---- ----
- ----
<S> <C> <C> <C>
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 500 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%(a) (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%
- -----------------------------------------------------------------
</TABLE>
(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 the 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, or in the case of
the Japan Fund, either the NYSE or TSE is closed, (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 500, 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 a 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 500, Extended Equity Market
Index, and Total Equity Market Index Funds
To the extent the Fund invests in foreign securities, the
following would apply:
<PAGE>
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.
<TABLE>
<CAPTION>
Cumulative Performance
Percentage Change
1 Yr. 5 Yrs.
10 Yrs. % Since Inception
----- ------
- ------- ----------------- Inception Date
Ended Ended
Ended 12/31/96 --------------
----- -----
----- --------
12/31/96 12/31/96
12/31/96
-------- --------
- --------
<S> <C> <C> <C>
<C> <C> <C>
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
28,585.93% 12 /31/39
Balanced Fund 14.57 71.09
184.22
Blue Chip Growth Fund 27.75 N/A
N/A 103.02 06 /30/93
Capital Appreciation Fund 16.82 87.99
251.25 281.11 06 /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 500 Fund 22.65 99.32
N/A 158.34 03 /30/90
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 04 /11/50
Media & Telecommunications Fund(a) 1.78 N/A
N/A 31.71 10 /13/93
Mid-Cap Growth Fund 24.84 N/A
N/A 177.44 06 /30/92
New America Growth Fund 20.01 106.90
336.86 492.08 09 /30/85
New Era Fund 24.25 85.78
214.24 1,699.77 01 /20/69
New Horizons Fund 17.03 146.18
352.34 6,628.27 /03/60
Small-Cap Stock Fund 21.05 118.70
219.48 23,328.87 /01/56
Science & Technology Fund 14.23 203.52
N/A 516.07 09 /30/87
Small-Cap Value Fund 24.61 136.78
N/A 220.15 06 /30/88
Value Fund 28.51 N/A
N/A 85.29 09 /30/94
Health Sciences Fund 26.75 N/A
N/A 26.75 12 /29/95
Financial Services Fund N/A N/A
N/A 13.40 09 /30/96
Mid-Cap Value Fund N/A N/A
N/A 16.30 06 /28/96
Mid-Cap Equity Growth Fund N/A N/A
N/A 16.10 07 /31/96
- -----------------------------------------------------------------
</TABLE>
(a) Figures based on performance as a closed-end investment
company traded on the New York Stock Exchange.
<TABLE>
<CAPTION>
Average Annual
Compound Rates of Return
1 Yr. 5 Yrs.
Ended 10 Yrs. Ended % Since
-----
- ------------ ------------- ------- Inception Date
Ended 12/31/96
12/31/96 Inception --------------
----- --------
-------- ---------
12/31/96
12/31/96
--------
--------
<S> <C> <C> <C>
<C> <C> <C>
S & P 500 22.96%
15.22% 15.27%
Dow Jones Industrial Average 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 06 /30/93
Capital Appreciation Fund 16.82
13.46 13.39 13.59 06 /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 /31/92
Equity Income Fund 20.40 17.08
14.46 16.27 10 /31/85
Equity Index 500 Fund 22.65
14.79 N/A 15.08 03 /30/90
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 04 /11/50
Media & Telecommunications Fund(a) 1.78 N/A
N/A 8.94 10 /13/93
Mid-Cap Growth Fund 24.84 N/A
N/A 25.44 06 /30/92
New America Growth Fund 20.01
15.65 15.89 17.12 09 /30/85
New Era Fund 24.25
13.19 12.13 10.90 01 /20/69
New Horizons Fund 17.03
19.74 16.29 12.19 /03/60
Small-Cap Stock Fund 21.05
16.94 12.32 14.39 /01/56
Science & Technology Fund 14.23
24.86 N/A 21.72 09 /30/87
Small-Cap Value Fund 24.61
18.81 N/A 4.67 06 /30/88
Value Fund 28.51 N/A
N/A 31.52 09 /30/94
Health Sciences Fund 26.75 N/A
N/A 26.75 12 /29/95
Financial Services Fund N/A N/A
N/A N/A 09 /30/96
Mid-Cap Value Fund N/A N/A
N/A N/A 06 /28/96
Mid-Cap Equity Growth Fund N/A N/A
N/A N/A 07 /31/96
- -----------------------------------------------------------------
</TABLE>
<PAGE>
(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 Find 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, may 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, 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 nonassesable, 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 is
such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of such Fund.
All Funds
FEDERAL REGISTRATION OF SHARES
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 Fund.
INDEPENDENT ACCOUNTANTS
Extended Market Index and Total Equity Market Index Funds
__________________ are independent accountants to the
Fund.
Blue Chip Growth, Diversified Small-Cap Growth, Dividend
Growth, Equity Income, Growth & Income, Media &
Telecommunications, Mid-Cap Equity Growth, Mid-Cap Growth,
Mid-Cap Value, New America Growth, New Era, and Real Estate
Funds
Price Waterhouse LLP, Gateway International II, 1306 Concourse
Street, Suite 100, Linthicum, Maryland 21090-1020, are
independent accountants to the Fund.
Balanced, Capital Appreciation, Capital Opportunity, Equity
Index 500 Fund, Financial services, Growth Stock, New
Horizons, Science & Technology, Small-Cap Stock, Small-Cap
Value, and Value Funds
Coopers & Lybrand LLP, 250 West Pratt Street, 21st Floor,
Baltimore, Maryland 21201, are independent accountants to the
Fund.
A Statement of Assets and Liabilities 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:
<TABLE>
<CAPTION>
ANNUAL REPORT REFERENCES:
CAPITAL EQUITY EQUITY
GROWTH &
APPRECIATION INCOME INDEX
500 -
------------ ------
- --------- INCOME
------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
GROWTH NEW
SMALL-CAP
STOCK AMERICA NEW ERA
STOCK
----- GROWTH -------
- -----
------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
MEDIA &
MID-CAP BLUE CHIP
BALANCED
TELECOMMUNIGROWTHS GROWTH
--------
- --------- ------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIVIDEND VALUE CAPITAL
SCIENCE &
GROWTH ----- OPPORTUNITY
TECHNOLOGY
------ -----------
- ----------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
NEW SMALL-CAP
HORIZONS VALUE
-------- -----
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
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
<PAGE>
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
<TABLE>
<CAPTION>
UNAUDITED SEMIANNUAL REPORT REFERENCES:
CAPITAL EQUITY EQUITY
GROWTH &
APPRECIATION INCOME INDEX
500 -
------------ ------
- --------- INCOME
------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
GROWTH NEW
SMALL-CAP
STOCK AMERICA NEW ERA
STOCK
----- GROWTH -------
- -----
------
<S> <C> <C> <C> <C>
<C>
Statement of Net Assets, June
30, 1997 10-18 10-14 10-15
10-19
Statement of Operations, 6
months 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIA &
MID-CAP BLUE CHIP
BALANCED
TELECOMMUNIGROWTHS GROWTH
--------
- --------- ------
<S> <C> <C> <C> <C>
<C>
Statement of Net Assets, June
30, 1997 10-37 12-15
9-14 10-18
Statement of Operations, 6
months 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
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND VALUE CAPITAL
SCIENCE &
GROWTH ----- OPPORTUNITY
TECHNOLOGY
------ -----------
- ----------
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
NEW SMALL-CAP
HORIZONS VALUE
-------- -----
<S> <C> <C> <C> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL
SERVICES
--------
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEALTH
SCIENCES
--------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
MID-CAP
VALUE
-----
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
MID-CAP
EQUITY
GROWTH
------
<S> <C> <C>
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
</TABLE>
<PAGE>
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 capitalstock 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.
<PAGE>
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
<PAGE>
T. ROWE PRICE REAL ESTATE FUND, INC. STATEMENT OF ASSETS AND
LIABILITIES
OCTOBER 27, 1997
Assets
Cash $100,000
Deferred organizational expenses 46,920
Total assets 146,920
Liabilities
Amount due Manager 44,620
Accrued expenses 2,300
Total liabilities 46,920
Net Assets-offering and redemption
price of $10.00 per share; 1,000,000,000 shares of
$0.0001 par
value capitalstock authorized, 10,000 shares outstanding $100,000
========
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
T. Rowe Price Real Estate Fund, Inc. (the "Corporation") was
organized on September 18, 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 Real Estate Fund at $10.00 per share on October
24, 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
October 27, 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
$46,920 have been accrued at October 27, 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of T. Rowe Price
Real Estate 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 Real Estate Fund,
Inc., hereafter referred to as the "Fund," at October 27,
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
October 27, 1997
<PAGE>
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 know 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-Bonds rated C represent the lowest-rated, and have extremely
poor prospects of 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, B, 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.
<PAGE>
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 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.
<PAGE>
PAGE 11
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
T. Rowe Price Equity Index 500 Fund
(a) Financial Statements. Condensed Financial Information
(Financial Highlights table) is included in Part A of the
Registration Statement.
Statement of Net Assets, Statement of Operations, Statement
of Changes in Net Assets are included in the Annual Report
to Shareholders, the pertinent portions of which are
incorporated by reference in Part B of the Registration
Statement.
T. Rowe Price Extended Equity Market Index and T. Rowe Price
Total Equity Market Index Fund
Financial Statements.
Inapplicable
(b) Exhibits.
(1) Articles of Incorporation of Registrant, dated
December 19, 1989 (electronically filed with
Amendment No. 9 dated April 22, 1997)
(1)(a) Amended Articles of Incorporation of Registrant,
dated February 20, 1990 (electronically filed with
Amendment No. 8 dated February 28, 1994)
(1)(b) Articles of Amendment dated May 1, 1991
(electronically filed with Amendment No. 9 dated
April 22, 1997)
(1)(c) Articles Supplementary, for T. Rowe Price Extended
Equity Market Index Fund and T. Rowe Price Total
Equity Market Index Fund dated December 3, 1997
(1)(d) Articles of Amendment dated January 30, 1997 (to be
filed by Amendment)
(2) By-Laws of Registrant, amended to May 1, 1991
(electronically filed with Amendment No. 8 dated
February 28, 1994)
(3) Inapplicable
(4) Inapplicable
<PAGE>
PAGE 12
(5)(a) Investment Management Agreement between the
Registrant on behalf of Registrant and T. Rowe Price
Associates, Inc., dated May 1, 1991 (electronically
filed with Amendment No. 8 dated February 28, 1994)
(5)(b) Form of Investment Management Agreement between the
Registrant on behalf of T. Rowe Price Extended
Equity Market Index Fund and T. Rowe Price
Associates, Inc.
(5)(c) Form of Investment Management Agreement between the
Registrant on behalf of T. Rowe Price Total Equity
Market Index Fund and T. Rowe Price Associates,
Inc.
(6) Underwriting Agreement between the Registrant and
T. Rowe Price Investment Services, Inc., dated
February 21, 1990 (electronically filed with
Amendment No. 8 dated February 28, 1994)
(7) Inapplicable
(8) Custodian Agreement between T. Rowe Price Funds and
State Street Bank and Trust Company, dated September
28, 1987, as amended to June 24, 1988, October 19,
1988, February 22, 1989, July 19, 1989, September
15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990,
July 18, 1990, October 15, 1990, February 13, 1991,
March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28,
1993, April 22, 1993, September 16, 1993, November
3, 1993, March 1, 1994, April 21, 1994, July 27,
1994, September 21, 1994, November 1, 1994, November
2, 1994, January 25, 1995, September 20, 1995,
November 1, 1995, December 11, 1995, April 24, 1996,
August 2, 1996, November 12, 1996, February 4, 1997,
April 24, 1997, July 23, 1997, and October 24, 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, July 23, 1997, and October 24,
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, July 23, 1997, and October 24, 1997
(to be filed by Amendment)
PAGE 13
(9)(c) Agreement between T. Rowe Price Retirement Plan
Services, Inc. and the Taxable Funds, dated January
1, 1997, as amended April 24, 1997, July 23, 1997,
and October 24, 1997 (to be filed by Amendment)
(10) Inapplicable
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) The Registrant hereby incorporates by reference the
methodology used in calculating the performance
information included in Post-Effective Amendment No.
45 and Amendment No. 9 of the T. Rowe Price New Era
Fund, Inc. (SEC. File Nos. 2-29866 and 811-1710)
dated March 2, 1988.
(17) Financial Data Schedule for T. Rowe Price Equity
Index Fund as of June 30, 1997. Financial Data
Schedules for T. Rowe Price Extended Equity Market
Index and T. Rowe Price Total Equity Market Index
Funds as of November 14, 1997.
(18) Inapplicable
(19) Other Exhibits:
(a) Power of Attorney for T. Rowe Price Index
Trust, Inc.
(b) Certificate of Vice President.
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None.
Item 26. Number of Holders of Securities
As of December 2, 1997, there were 40,126 shareholders in
the T. Rowe Price Equity Index Fund.
As of December 11, 1997, there were zero shareholders in the
T. Rowe Price Extended Equity Market Index Fund.
PAGE 14
As of December 11, 1997, there were zero shareholders in the
T. Rowe Price Total Equity Market Index Fund.
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 fifty investment companies,
namely, T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price New
Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc. T. Rowe
Price New Income Fund, 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 State Tax-
Free Income Trust, T. Rowe Price California Tax-Free Income
Trust, T. Rowe Price Science & Technology Fund, Inc., T. Rowe
Price Small-Cap Value Fund, Inc., Institutional International
Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe
Price 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., T. Rowe Price Media &
Telecommunications Fund, Inc., Reserve Investment Funds, Inc.,
and T. Rowe Price Real Estate Fund, Inc. The Registrant and the
fifty 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
PAGE 15
Funds, Inc., T. Rowe Price International Series, Inc., and
Institutional International Funds, Inc. and is 50% owned by TRP
Finance, Inc., a wholly-owned subsidiary of the Manager, 25%
owned by Copthall Overseas Limited, a wholly-owned subsidiary of
Robert Fleming Holdings Limited, and 25% owned by Jardine Fleming
International Holdings Limited. In addition to the corporate
insureds, the policies also cover the officers, directors, and
employees of each of the named insureds. The premium is
allocated among the named corporate insureds in accordance with
the provisions of Rule 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 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:
<PAGE>
PAGE 16
(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:
<PAGE>
PAGE 17
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.
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
PAGE 18
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.
<PAGE>
PAGE 19
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
PAGE 20
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.
<PAGE>
PAGE 21
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.
<PAGE>
PAGE 22
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.
PAGE 23
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 eighty Price Funds.
Investment Services, a wholly owned subsidiary of the
Manager, is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.
Investment Services has been formed for the limited
purpose of distributing the shares of the Price Funds
and will not engage in the general securities business.
Since the Price Funds are sold on a no-load basis,
Investment Services will not receive any commission or
other compensation for acting as principal
underwriter.
(b) The address of each of the directors and officers of
Investment Services listed below is 100 East Pratt
Street, Baltimore, Maryland 21202.
<PAGE>
PAGE 24
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James S. Riepe Chairman of the Board Vice President
and Director
Edward C. Bernard President None
Henry H. Hopkins Vice President
and Director Vice President
Charles E. Vieth Vice President
and Director None
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
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
PAGE 25
Mark S. Finn Controller and
Vice President None
Richard J. Barna Assistant Vice President None
Catherine L. BerkenkemperAssistant 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
Janelyn A. Healey Assistant Vice President None
Kathleen Hussey 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
Barbara A. O'Connor Assistant Vice President None
JeanneMarie B. Patella 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 Index Trust, Inc. under
Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder will be maintained by T. Rowe Price Index
Trust, 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
Index Trust, 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.
Registrant is not a party to any management related service
contract, other than as set forth in the Prospectus.
<PAGE>
PAGE 26
Item 32. Undertakings.
(a) Each new series 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.
(b) 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).
(c) Each series of the Registrant agrees to furnish, upon
request and without charge, a copy of its latest Annual
Report to each person to whom as prospectus is
delivered.
<PAGE>
PAGE 27
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant and 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
11th day of December, 1997.
T. ROWE PRICE INDEX TRUST, INC.
/s/Richard T. Whitney
By: Richard T. Whitney
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 and DirectorDecember 11, 1997
James S. Riepe
/s/Richard T. Whitney President December 11, 1997
Richard T. Whitney
/s/Carmen F. Deyesu Treasurer December 11, 1997
Carmen F. Deyesu (Chief Financial Officer)
* Director December 11, 1997
Donald W. Dick, Jr.
* Director December 11, 1997
David K. Fagin
* Director December 11, 1997
Hanne M. Merriman
/s/M. David Testa Director December 11, 1997
M. David Testa
* Director December 11, 1997
Hubert D. Vos
* Director December 11, 1997
Paul M. Wythes
*/s/Henry H. Hopkins, Attorney-In-Fact December 11, 1997
Henry H. Hopkins, Attorney-In-Fact
<PAGE>
PAGE 1
INVESTMENT MANAGEMENT AGREEMENT
Between
T. ROWE PRICE INDEX TRUST, INC.
and
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT MANAGEMENT AGREEMENT, made as of the ____ day of
January, 1998, by and between T. ROWE PRICE INDEX TRUST, INC., a
Maryland corporation (hereinafter called the "Corporation"), and
T. ROWE PRICE ASSOCIATES, INC., a corporation organized and
existing under the laws of the State of Maryland (hereinafter
called the "Manager").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-
end management investment company and is registered as such under
the federal Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, the Corporation is authorized to issue shares of
capital stock ("Shares") in the T. Rowe Price Extended Equity
Market Index Fund (the "Fund"), a separate series of the
Corporation whose Shares represent interests in a separate
portfolio of securities and other assets ("Fund Shares"); and
WHEREAS, the Manager is engaged principally in the business
of rendering investment supervisory services and is registered as
an investment adviser under the federal Investment Advisers Act
of 1940, as amended; and
WHEREAS, the Fund desires the Manager to render investment
supervisory services to the Fund in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto agree
as follows:
1. Duties and Responsibilities of Manager.
<PAGE>
PAGE 2
A. Investment Management Services. The Manager
shall act as investment manager and shall supervise and direct
the investments of the Fund in accordance with the Fund's
investment objective, program and restrictions as provided in the
Corporation's prospectus, on behalf of the Fund, as amended from
time to time, and such other limitations as the Corporation may
impose by notice in writing to the Manager. The Manager shall
obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program
for the management of the assets and resources of the Fund in a
manner consistent with its investment objective. In furtherance
of this duty, the Manager, as agent and attorney-in-fact with
respect to the Corporation, is authorized, in its discretion and
without prior consultation with the Corporation, to:
(i) buy, sell, exchange, convert, lend, and
otherwise trade in any stocks, bonds, and other
securities or assets; and
(ii) place orders and negotiate the commissions (if
any) for the execution of transactions in securities
with or through such brokers, dealers, underwriters
or issuers as the Manager may select.
B. Financial, Accounting, and Administrative
Services. The Manager shall maintain the existence and records
of the Corporation; maintain the registrations and qualifications
of Fund Shares under federal and state law; monitor the
financial, accounting, and administrative functions of the Fund;
maintain liaison with the various agents employed for the benefit
of the Fund by the Corporation (including the Fund's transfer
agent, custodian, independent accountants and legal counsel) and
assist in the coordination of their activities on behalf of the
Fund.
C. Reports to Fund. The Manager shall furnish to or
place at the disposal of the Corporation or Fund, as appropriate,
such information, reports, evaluations, analyses and opinions as
the Fund may, at any time or from time to time, reasonably
request or as the Manager may deem helpful.
D. Reports and Other Communications to Shareholders.
The Manager shall assist in developing all general shareholder
communications, including regular shareholder reports.
E. Fund Personnel. The Manager agrees to permit
individuals who are officers or employees of the Manager to serve
(if duly elected or appointed) as officers, directors, members of
any committee of directors, members of any advisory board, or
members of any other committee of the Corporation, without
remuneration or other cost to the Fund or the Corporation.
PAGE 3
F. Personnel, Office Space, and Facilities of
Manager. The Manager at its own expense shall furnish or provide
and pay the cost of such office space, office equipment, office
personnel, and office services as the Manager requires in the
performance of its investment advisory and other obligations
under this Agreement.
2. Allocation of Expenses.
A. Expenses Paid by Manager.
(1) Salaries and Fees of Officers. The Manager
shall pay all salaries, expenses, and fees of the
officers and directors of the Corporation who are
affiliated with the Manager.
(2) Assumption of Expenses by Manager. The
payment or assumption by the Manager of any expense
of the Corporation or Fund, as appropriate, that the
Manager is not required by this Agreement to pay or
assume shall not obligate the Manager to pay or
assume the same or any similar expense on any
subsequent occasion.
B. Expenses Paid by Fund. The Corporation or Fund,
as appropriate, shall bear all expenses of its organization,
operations, and business not specifically assumed or agreed to be
paid by the Manager as provided in this Agreement. In
particular, but without limiting the generality of the foregoing,
the Corporation or Fund, as appropriate, shall pay:
(1) Custody and Accounting Services. All
expenses of the transfer, receipt, safekeeping,
servicing and accounting for the cash, securities,
and other property of the Corporation, for the
benefit of the Fund, including all charges of
depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of
maintaining and servicing shareholder accounts,
including all charges of the Fund's transfer,
shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of the
Fund, if any;
(3) Shareholder Communications. All expenses of
preparing, setting in type, printing, and
distributing reports and other communications to
shareholders;
<PAGE>
PAGE 4
(4) Shareholder Meetings. All expenses
incidental to holding meetings of shareholders,
including the printing of notices and proxy material,
and proxy solicitation therefor;
(5) Prospectuses. All expenses of preparing,
setting in type, and printing of annual or more
frequent revisions of the prospectus and of mailing
them to shareholders;
(6) Pricing. All expenses of computing the
Fund's net asset value per share, including the cost
of any equipment or services used for obtaining price
quotations;
(7) Communication Equipment. All charges for
equipment or services used for communication between
the Manager or the Corporation or the Fund and the
custodian, transfer agent or any other agent selected
by the Corporation;
(8) Legal and Accounting Fees and Expenses. All
charges for services and expenses of the
Corporation's legal counsel and independent auditors
for the benefit of the Fund;
(9) Directors' Fees and Expenses. All
compensation of directors, other than those
affiliated with the Manager, and all expenses
incurred in connection with their service;
(10) Federal Registration Fees. All fees and
expenses of registering and maintaining the
registration of the Corporation under the Act and the
registration of the Fund Shares under the Securities
Act of 1933, as amended (the "'33 Act"), including
all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of
any registration statement and prospectus under the
'33 Act or the Act, and any amendments or supplements
that may be made from time to time;
(11) State Filing Fees. All fees and expenses
imposed on the Corporation or Fund, as appropriate,
with respect to the sale of the Fund's shares under
securities laws of various states or jurisdictions,
and under all other laws applicable to the
Corporation or Fund, as appropriate, or its business
activities (including registering the Corporation as
a broker-dealer, or any officer of the Corporation or
any person as agent or salesman of the Corporation in
any state);
<PAGE>
PAGE 5
(12) Issue and Redemption of Fund Shares. All
expenses incurred in connection with the issue,
redemption, and transfer of Fund Shares, including
the expense of confirming all Fund Share
transactions, and of preparing and transmitting the
Fund's stock certificates;
(13) Bonding and Insurance. All expenses of
bond, liability, and other insurance coverage
required by law or deemed advisable by the board of
directors;
(14) Brokerage Commissions. All brokers'
commissions and other charges incident to the
purchase, sale, or lending of the Fund's portfolio
securities;
(15) Taxes. All taxes or governmental fees
payable by or with respect of the Corporation or
Fund, as appropriate to federal, state, or other
governmental agencies, domestic or foreign, including
stamp or other transfer taxes;
(16) Trade Association Fees. All fees, dues, and
other expenses incurred in connection with the
Corporation's or Fund's, as appropriate, membership
in any trade association or other investment
organization;
(17) Licensing Fees. All fees and other expenses
incurred in connection with any licensing or similar
agreement entered into by the Corporation in
connection with the use of any trademark, service
mark or similar device, sign, symbol or name; and
(18) Nonrecurring and Extraordinary Expenses.
Such nonrecurring expenses as may arise, including
the costs of actions, suits, or proceedings to which
the Corporation or Fund, as appropriate, is a party
and the expenses the Corporation or Fund, as
appropriate, may incur as a result of its legal
obligation to provide indemnification to its
officers, directors, and agents.
3. Management Fee. The Fund shall pay the Manager a fee
computed as follows, based on the value of the net assets of the
Fund:
A. Fee Rate. The fee shall be at the annual rate of
_____% of the average daily net assets of the Fund.
<PAGE>
PAGE 6
B. Method of Computation. The fee shall be accrued
for each calendar day and the sum of the daily fee accruals shall
be paid monthly to the Manager on the first business day of the
next succeeding calendar month. The daily fee accruals will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the applicable annual rate described
in subparagraph (a) of this Paragraph 3, and multiplying this
product by the net assets of the Fund 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.
C. Expense Limitation. As part of the consideration
for the Fund entering into this Agreement, the Manager hereby
agrees to limit the aggregate expenses of every character
incurred by the Fund, including but not limited to Fees of the
Manager computed as hereinabove set forth, but excluding
interest, taxes, brokerage, and other expenditures which are
capitalized in accordance with generally accepted accounting
principles and extraordinary expenses, ( Manager Limitation ).
Under the Manager Limitation, the Manager agrees that through
December 31, 1999, such expenses shall not exceed ___% of the
average daily net assets of the Fund ( ____% Expense
Limitation ). To determine the Manager s liability for the Fund s
expenses over the ____% Expense Limitation, the amount of
allowable year-to-date expenses shall be computed daily by
prorating the ____% Expense Limitation based on the number of
days elapsed within the fiscal year of the Fund, or limitation
period, if shorter ( Prorated Limitation ). The Prorated
Limitation shall be compared to the expenses of the Fund recorded
through the prior day in order to produce the allowable expenses
to be recorded for the current day ( Allowable Expenses ). If the
Fund s Management Fee and other expenses for the current day
exceed the Allowable Expenses, the Management Fee for the current
day shall be reduced by such excess ( Unaccrued Fees ). In the
event the excess exceeds the amount due as the Management Fee,
the Manager shall be responsible to the Fund for the additional
excess ( Other Expenses Exceeding Limit ). If at any time up
through and including December 31, 1999, the Fund s Management
Fee and other expenses for the current day are less than the
Allowable Expenses, the differential shall be due to the Manager
as payment of cumulative Unaccrued Fees (if any) or as payment
for cumulative Other Expenses Exceeding Limit (if any). If
cumulative Unaccrued Fees or cumulative Other Expenses Exceeding
Limit remain at December 31, 1999, these amounts shall be paid to
the Manager in the future provided that: (1) no such payment
shall be made to the Manager after December 31, 2001; and (2)
such payment shall only be made to the extent that it does not
result in the Fund s aggregate expenses exceeding an expense
limit of ____% of average daily net assets. The Manager may
voluntarily agree to an additional expense limitation (any such
additional expense limitation hereinafter referred to as an
Additional Expense Limitation ), at the same or a different
level and for the same or a different period of time beyond
PAGE 7
December 31, 1999 (any such additional period being hereinafter
referred to an as Additional Period ) provided, however, that:
(1) the calculations and methods of payment shall be as described
above; (2) no payment for cumulative Unaccrued Fees or cumulative
Other Expenses Exceeding Limit shall be made to the Manager more
than two years after the end of an Additional Period; and (3)
payment for cumulative Unaccrued Fees or cumulative Other
Expenses Exceeding Limit after the expiration of the Additional
Period shall only be made to the extent it does not result in the
Fund s aggregate expenses exceeding the Additional Expense
Limitation to which the unpaid amounts relate.
D. Proration of Fee. If this Agreement becomes
effective or terminates before the end of any month, the Fee for
the period from the effective date to the end of such month or
from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such
effectiveness or termination occurs.
4. Brokerage. Subject to the approval of the board of
directors of the Fund, the Manager, in carrying out its duties
under Paragraph 1.A., may cause the Corporation, with respect to
the Fund, to pay a broker-dealer which furnishes brokerage or
research services [as such services are defined under Section
28(e) of the Securities Exchange Act of 1934, as amended (the
"'34 Act")] a higher commission than that which might be charged
by another broker-dealer which does not furnish brokerage or
research services or which furnishes brokerage or research
services deemed to be of lesser value, if such commission is
deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either
that particular transaction or the overall responsibilities of
the Manager with respect to the accounts as to which it exercises
investment discretion (as such term is defined under Section
3(a)(35) of the '34 Act).
5. Manager's Use of the Services of Others. The Manager
may (at its cost except as contemplated by Paragraph 4 of this
Agreement) employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the
purpose of providing the Manager or the Corporation or Fund, as
appropriate, with such statistical and other factual information,
such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other
information, advice or assistance as the Manager may deem
necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Corporation or
Fund, as appropriate, or in the discharge of Manager's overall
responsibilities with respect to the other accounts which it
serves as investment manager.
<PAGE>
PAGE 8
6. Ownership of Records. All records required to be
maintained and preserved by the Corporation or Fund pursuant to
the provisions of rules or regulations of the Securities and
Exchange Commission under Section 31(a) of the Act and maintained
and preserved by the Manager on behalf of the Corporation or
Fund, as appropriate, are the property of the Corporation or
Fund, as appropriate, and will be surrendered by the Manager
promptly on request by the Corporation or Fund, as appropriate.
7. Reports to Manager. The Corporation or Fund, as
appropriate, shall furnish or otherwise make available to the
Manager such prospectuses, financial statements, proxy
statements, reports, and other information relating to the
business and affairs of the Corporation or Fund, as appropriate,
as the Manager may, at any time or from time to time, reasonably
require in order to discharge its obligations under this
Agreement.
8. Services to Other Clients. Nothing herein contained
shall limit the freedom of the Manager or any affiliated person
of the Manager to render investment supervisory and corporate
administrative services to other investment companies, to act as
investment manager or investment counselor to other persons,
firms or corporations, or to engage in other business activities;
but so long as this Agreement or any extension, renewal or
amendment hereof shall remain in effect or until the Manager
shall otherwise consent, the Manager shall be the only investment
manager to the Fund.
9. Limitation of Liability of Manager. Neither the
Manager nor any of its officers, directors, or employees, nor any
person performing executive, administrative, trading, or other
functions for the Corporation or Fund (at the direction or
request of the Manager) or the Manager in connection with the
Manager's discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any
error of judgment or mistake of law or for any loss suffered by
the Corporation or Fund in connection with the matters to which
this Agreement relates, except for loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of
its or his duties on behalf of the Corporation or Fund or from
reckless disregard by the Manager or any such person of the
duties of the Manager under this Agreement.
10. Use of Manager's Name. The Corporation or Fund may
use the name "T. Rowe Price Index Trust, Inc.," "T. Rowe Price
Extended Equity Market Index Fund," or any other name derived
from the name of "T. Rowe Price" only for so long as this
Agreement or any extension, renewal or amendment hereof remains
in effect, including any similar agreement with any organization
which shall have succeeded to the business of the Manager as
investment manager. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
PAGE 9
agreement shall no longer be in effect, the Corporation or Fund
will (by corporate action, if necessary) cease to use any name
derived from the name "T. Rowe Price," any name similar thereto
or any other name indicating that it is advised by or otherwise
connected with the Manager, or with any organization which shall
have succeeded to the Manager's business as investment manager.
11. Term of Agreement. The term of this Agreement shall
begin on the date first above written, and unless sooner
terminated as hereinafter provided, this Agreement shall remain
in effect through April 30, 1998. Thereafter, this Agreement
shall continue in effect from year to year, with respect to the
Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as: (a) such continuation shall be
specifically approved at least annually by the board of directors
of the Corporation, or by vote of a majority of the outstanding
voting securities of the Fund and, concurrently with such
approval by the board of directors or prior to such approval by
the holders of the outstanding voting securities of the Fund, as
the case may be, by the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of the
directors of the Corporation, with respect to the Fund, who are
not parties to this Agreement or interested persons of any such
party; and (b) the Manager shall not have notified the
Corporation, in writing, at least 60 days prior to April 30, 1998
or prior to April 30th of any year thereafter, that it does not
desire such continuation. The Manager shall furnish to the
Corporation, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement
or any extension, renewal or amendment hereof.
12. Amendment and Assignment of Agreement. This
Agreement may not be amended or assigned without the affirmative
vote of a majority of the outstanding voting securities of the
Fund, and this Agreement shall automatically and immediately
terminate in the event of its assignment.
13. Termination of Agreement. This Agreement may be
terminated by either party hereto, without the payment of any
penalty, upon 60 days' prior notice in writing to the other
party; provided, that in the case of termination by the
Corporation, with respect to the Fund, such action shall have
been authorized by resolution of a majority of the directors who
are not parties to this Agreement or interested persons of any
such party, or by vote of a majority of the outstanding voting
securities of the Fund.
14. Miscellaneous.
A. Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delineate any of the provisions hereof or otherwise affect
their construction or effect.
PAGE 10
B. Interpretation. Nothing herein contained shall
be deemed to require the Corporation to take any action contrary
to its Articles of Incorporation or By-Laws, or any applicable
statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the board of
directors of the Corporation of its responsibility for and
control of the conduct of the affairs of the Fund.
C. Definitions. Any question of interpretation of
any term or provision of this Agreement having a counterpart in
or otherwise derived from a term or provision of the Act shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as
used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the
meanings assigned to them by Section 2(a) of the Act. In
addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision
shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto
duly authorized and their respective seals to be hereunto
affixed, as of the day and year first above written.
Attest: T. ROWE PRICE INDEX TRUST, INC.
/s/Patricia S. Butcher /s/Richard T. Whitney
___________________________ By: ______________________________
Patricia S. Butcher, Richard T. Whitney
Assistant Secretary President
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
____________________________ By: ______________________________
Barbara A. VanHorn, Henry H. Hopkins
Assistant Secretary Managing Director
<PAGE>
PAGE 1
INVESTMENT MANAGEMENT AGREEMENT
Between
T. ROWE PRICE INDEX TRUST, INC.
and
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT MANAGEMENT AGREEMENT, made as of the ____ day of
January, 1998, by and between T. ROWE PRICE INDEX TRUST, INC., a
Maryland corporation (hereinafter called the "Corporation"), and
T. ROWE PRICE ASSOCIATES, INC., a corporation organized and
existing under the laws of the State of Maryland (hereinafter
called the "Manager").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-
end management investment company and is registered as such under
the federal Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, the Corporation is authorized to issue shares of
capital stock ("Shares") in the T. Rowe Price Total Equity Market
Index Fund (the "Fund"), a separate series of the Corporation
whose Shares represent interests in a separate portfolio of
securities and other assets ("Fund Shares"); and
WHEREAS, the Manager is engaged principally in the business
of rendering investment supervisory services and is registered as
an investment adviser under the federal Investment Advisers Act
of 1940, as amended; and
WHEREAS, the Fund desires the Manager to render investment
supervisory services to the Fund in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto agree
as follows:
1. Duties and Responsibilities of Manager.
A. Investment Management Services. The Manager
shall act as investment manager and shall supervise and direct
the investments of the Fund in accordance with the Fund's
PAGE 2
investment objective, program and restrictions as provided in the
Corporation's prospectus, on behalf of the Fund, as amended from
time to time, and such other limitations as the Corporation may
impose by notice in writing to the Manager. The Manager shall
obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program
for the management of the assets and resources of the Fund in a
manner consistent with its investment objective. In furtherance
of this duty, the Manager, as agent and attorney-in-fact with
respect to the Corporation, is authorized, in its discretion and
without prior consultation with the Corporation, to:
(i) buy, sell, exchange, convert, lend, and
otherwise trade in any stocks, bonds, and other
securities or assets; and
(ii) place orders and negotiate the commissions (if
any) for the execution of transactions in securities
with or through such brokers, dealers, underwriters
or issuers as the Manager may select.
B. Financial, Accounting, and Administrative
Services. The Manager shall maintain the existence and records
of the Corporation; maintain the registrations and qualifications
of Fund Shares under federal and state law; monitor the
financial, accounting, and administrative functions of the Fund;
maintain liaison with the various agents employed for the benefit
of the Fund by the Corporation (including the Fund's transfer
agent, custodian, independent accountants and legal counsel) and
assist in the coordination of their activities on behalf of the
Fund.
C. Reports to Fund. The Manager shall furnish to or
place at the disposal of the Corporation or Fund, as appropriate,
such information, reports, evaluations, analyses and opinions as
the Fund may, at any time or from time to time, reasonably
request or as the Manager may deem helpful.
D. Reports and Other Communications to Shareholders.
The Manager shall assist in developing all general shareholder
communications, including regular shareholder reports.
E. Fund Personnel. The Manager agrees to permit
individuals who are officers or employees of the Manager to serve
(if duly elected or appointed) as officers, directors, members of
any committee of directors, members of any advisory board, or
members of any other committee of the Corporation, without
remuneration or other cost to the Fund or the Corporation.
<PAGE>
PAGE 3
F. Personnel, Office Space, and Facilities of
Manager. The Manager at its own expense shall furnish or provide
and pay the cost of such office space, office equipment, office
personnel, and office services as the Manager requires in the
performance of its investment advisory and other obligations
under this Agreement.
2. Allocation of Expenses.
A. Expenses Paid by Manager.
(1) Salaries and Fees of Officers. The Manager
shall pay all salaries, expenses, and fees of the
officers and directors of the Corporation who are
affiliated with the Manager.
(2) Assumption of Expenses by Manager. The
payment or assumption by the Manager of any expense
of the Corporation or Fund, as appropriate, that the
Manager is not required by this Agreement to pay or
assume shall not obligate the Manager to pay or
assume the same or any similar expense on any
subsequent occasion.
B. Expenses Paid by Fund. The Corporation or Fund,
as appropriate, shall bear all expenses of its organization,
operations, and business not specifically assumed or agreed to be
paid by the Manager as provided in this Agreement. In
particular, but without limiting the generality of the foregoing,
the Corporation or Fund, as appropriate, shall pay:
(1) Custody and Accounting Services. All
expenses of the transfer, receipt, safekeeping,
servicing and accounting for the cash, securities,
and other property of the Corporation, for the
benefit of the Fund, including all charges of
depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of
maintaining and servicing shareholder accounts,
including all charges of the Fund's transfer,
shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of the
Fund, if any;
(3) Shareholder Communications. All expenses of
preparing, setting in type, printing, and
distributing reports and other communications to
shareholders;
(4) Shareholder Meetings. All expenses
incidental to holding meetings of shareholders,
including the printing of notices and proxy material,
and proxy solicitation therefor;
PAGE 4
(5) Prospectuses. All expenses of preparing,
setting in type, and printing of annual or more
frequent revisions of the prospectus and of mailing
them to shareholders;
(6) Pricing. All expenses of computing the
Fund's net asset value per share, including the cost
of any equipment or services used for obtaining price
quotations;
(7) Communication Equipment. All charges for
equipment or services used for communication between
the Manager or the Corporation or the Fund and the
custodian, transfer agent or any other agent selected
by the Corporation;
(8) Legal and Accounting Fees and Expenses. All
charges for services and expenses of the
Corporation's legal counsel and independent auditors
for the benefit of the Fund;
(9) Directors' Fees and Expenses. All
compensation of directors, other than those
affiliated with the Manager, and all expenses
incurred in connection with their service;
(10) Federal Registration Fees. All fees and
expenses of registering and maintaining the
registration of the Corporation under the Act and the
registration of the Fund Shares under the Securities
Act of 1933, as amended (the "'33 Act"), including
all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of
any registration statement and prospectus under the
'33 Act or the Act, and any amendments or supplements
that may be made from time to time;
(11) State Filing Fees. All fees and expenses
imposed on the Corporation or Fund, as appropriate,
with respect to the sale of the Fund's shares under
securities laws of various states or jurisdictions,
and under all other laws applicable to the
Corporation or Fund, as appropriate, or its business
activities (including registering the Corporation as
a broker-dealer, or any officer of the Corporation or
any person as agent or salesman of the Corporation in
any state);
<PAGE>
PAGE 5
(12) Issue and Redemption of Fund Shares. All
expenses incurred in connection with the issue,
redemption, and transfer of Fund Shares, including
the expense of confirming all Fund Share
transactions, and of preparing and transmitting the
Fund's stock certificates;
(13) Bonding and Insurance. All expenses of
bond, liability, and other insurance coverage
required by law or deemed advisable by the board of
directors;
(14) Brokerage Commissions. All brokers'
commissions and other charges incident to the
purchase, sale, or lending of the Fund's portfolio
securities;
(15) Taxes. All taxes or governmental fees
payable by or with respect of the Corporation or
Fund, as appropriate to federal, state, or other
governmental agencies, domestic or foreign, including
stamp or other transfer taxes;
(16) Trade Association Fees. All fees, dues, and
other expenses incurred in connection with the
Corporation's or Fund's, as appropriate, membership
in any trade association or other investment
organization;
(17) Licensing Fees. All fees and other expenses
incurred in connection with any licensing or similar
agreement entered into by the Corporation in
connection with the use of any trademark, service
mark or similar device, sign, symbol or name; and
(18) Nonrecurring and Extraordinary Expenses.
Such nonrecurring expenses as may arise, including
the costs of actions, suits, or proceedings to which
the Corporation or Fund, as appropriate, is a party
and the expenses the Corporation or Fund, as
appropriate, may incur as a result of its legal
obligation to provide indemnification to its
officers, directors, and agents.
3. Management Fee. The Fund shall pay the Manager a fee
computed as follows, based on the value of the net assets of the
Fund:
A. Fee Rate. The fee shall be at the annual rate of
_____% of the average daily net assets of the Fund.
<PAGE>
PAGE 6
B. Method of Computation. The fee shall be accrued
for each calendar day and the sum of the daily fee accruals shall
be paid monthly to the Manager on the first business day of the
next succeeding calendar month. The daily fee accruals will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the applicable annual rate described
in subparagraph (a) of this Paragraph 3, and multiplying this
product by the net assets of the Fund 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.
C. Expense Limitation. As part of the consideration
for the Fund entering into this Agreement, the Manager hereby
agrees to limit the aggregate expenses of every character
incurred by the Fund, including but not limited to Fees of the
Manager computed as hereinabove set forth, but excluding
interest, taxes, brokerage, and other expenditures which are
capitalized in accordance with generally accepted accounting
principles and extraordinary expenses, ( Manager Limitation ).
Under the Manager Limitation, the Manager agrees that through
December 31, 1999, such expenses shall not exceed ___% of the
average daily net assets of the Fund ( ____% Expense
Limitation ). To determine the Manager s liability for the Fund s
expenses over the ____% Expense Limitation, the amount of
allowable year-to-date expenses shall be computed daily by
prorating the ____% Expense Limitation based on the number of
days elapsed within the fiscal year of the Fund, or limitation
period, if shorter ( Prorated Limitation ). The Prorated
Limitation shall be compared to the expenses of the Fund recorded
through the prior day in order to produce the allowable expenses
to be recorded for the current day ( Allowable Expenses ). If the
Fund s Management Fee and other expenses for the current day
exceed the Allowable Expenses, the Management Fee for the current
day shall be reduced by such excess ( Unaccrued Fees ). In the
event the excess exceeds the amount due as the Management Fee,
the Manager shall be responsible to the Fund for the additional
excess ( Other Expenses Exceeding Limit ). If at any time up
through and including December 31, 1999, the Fund s Management
Fee and other expenses for the current day are less than the
Allowable Expenses, the differential shall be due to the Manager
as payment of cumulative Unaccrued Fees (if any) or as payment
for cumulative Other Expenses Exceeding Limit (if any). If
cumulative Unaccrued Fees or cumulative Other Expenses Exceeding
Limit remain at December 31, 1999, these amounts shall be paid to
the Manager in the future provided that: (1) no such payment
shall be made to the Manager after December 31, 2001; and (2)
such payment shall only be made to the extent that it does not
result in the Fund s aggregate expenses exceeding an expense
limit of ____% of average daily net assets. The Manager may
voluntarily agree to an additional expense limitation (any such
additional expense limitation hereinafter referred to as an
Additional Expense Limitation ), at the same or a different
level and for the same or a different period of time beyond
December 31, 1999 (any such additional period being hereinafter
PAGE 7
referred to an as Additional Period ) provided, however, that:
(1) the calculations and methods of payment shall be as described
above; (2) no payment for cumulative Unaccrued Fees or cumulative
Other Expenses Exceeding Limit shall be made to the Manager more
than two years after the end of an Additional Period; and (3)
payment for cumulative Unaccrued Fees or cumulative Other
Expenses Exceeding Limit after the expiration of the Additional
Period shall only be made to the extent it does not result in the
Fund s aggregate expenses exceeding the Additional Expense
Limitation to which the unpaid amounts relate.
D. Proration of Fee. If this Agreement becomes
effective or terminates before the end of any month, the Fee for
the period from the effective date to the end of such month or
from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such
effectiveness or termination occurs.
4. Brokerage. Subject to the approval of the board of
directors of the Fund, the Manager, in carrying out its duties
under Paragraph 1.A., may cause the Corporation, with respect to
the Fund, to pay a broker-dealer which furnishes brokerage or
research services [as such services are defined under Section
28(e) of the Securities Exchange Act of 1934, as amended (the
"'34 Act")] a higher commission than that which might be charged
by another broker-dealer which does not furnish brokerage or
research services or which furnishes brokerage or research
services deemed to be of lesser value, if such commission is
deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either
that particular transaction or the overall responsibilities of
the Manager with respect to the accounts as to which it exercises
investment discretion (as such term is defined under Section
3(a)(35) of the '34 Act).
5. Manager's Use of the Services of Others. The Manager
may (at its cost except as contemplated by Paragraph 4 of this
Agreement) employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the
purpose of providing the Manager or the Corporation or Fund, as
appropriate, with such statistical and other factual information,
such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other
information, advice or assistance as the Manager may deem
necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Corporation or
Fund, as appropriate, or in the discharge of Manager's overall
responsibilities with respect to the other accounts which it
serves as investment manager.
6. Ownership of Records. All records required to be
maintained and preserved by the Corporation or Fund pursuant to
the provisions of rules or regulations of the Securities and
PAGE 8
Exchange Commission under Section 31(a) of the Act and maintained
and preserved by the Manager on behalf of the Corporation or
Fund, as appropriate, are the property of the Corporation or
Fund, as appropriate, and will be surrendered by the Manager
promptly on request by the Corporation or Fund, as appropriate.
7. Reports to Manager. The Corporation or Fund, as
appropriate, shall furnish or otherwise make available to the
Manager such prospectuses, financial statements, proxy
statements, reports, and other information relating to the
business and affairs of the Corporation or Fund, as appropriate,
as the Manager may, at any time or from time to time, reasonably
require in order to discharge its obligations under this
Agreement.
8. Services to Other Clients. Nothing herein contained
shall limit the freedom of the Manager or any affiliated person
of the Manager to render investment supervisory and corporate
administrative services to other investment companies, to act as
investment manager or investment counselor to other persons,
firms or corporations, or to engage in other business activities;
but so long as this Agreement or any extension, renewal or
amendment hereof shall remain in effect or until the Manager
shall otherwise consent, the Manager shall be the only investment
manager to the Fund.
9. Limitation of Liability of Manager. Neither the
Manager nor any of its officers, directors, or employees, nor any
person performing executive, administrative, trading, or other
functions for the Corporation or Fund (at the direction or
request of the Manager) or the Manager in connection with the
Manager's discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any
error of judgment or mistake of law or for any loss suffered by
the Corporation or Fund in connection with the matters to which
this Agreement relates, except for loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of
its or his duties on behalf of the Corporation or Fund or from
reckless disregard by the Manager or any such person of the
duties of the Manager under this Agreement.
10. Use of Manager's Name. The Corporation or Fund may
use the name "T. Rowe Price Index Trust, Inc.," "T. Rowe Price
Total Equity Market Index Fund," or any other name derived from
the name of "T. Rowe Price" only for so long as this Agreement or
any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall
have succeeded to the business of the Manager as investment
manager. At such time as this Agreement or any extension,
renewal or amendment hereof, or such other similar agreement
shall no longer be in effect, the Corporation or Fund will (by
corporate action, if necessary) cease to use any name derived
from the name "T. Rowe Price," any name similar thereto or any
other name indicating that it is advised by or otherwise
PAGE 9
connected with the Manager, or with any organization which shall
have succeeded to the Manager's business as investment manager.
11. Term of Agreement. The term of this Agreement shall
begin on the date first above written, and unless sooner
terminated as hereinafter provided, this Agreement shall remain
in effect through April 30, 1998. Thereafter, this Agreement
shall continue in effect from year to year, with respect to the
Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as: (a) such continuation shall be
specifically approved at least annually by the board of directors
of the Corporation, or by vote of a majority of the outstanding
voting securities of the Fund and, concurrently with such
approval by the board of directors or prior to such approval by
the holders of the outstanding voting securities of the Fund, as
the case may be, by the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of the
directors of the Corporation, with respect to the Fund, who are
not parties to this Agreement or interested persons of any such
party; and (b) the Manager shall not have notified the
Corporation, in writing, at least 60 days prior to April 30, 1998
or prior to April 30th of any year thereafter, that it does not
desire such continuation. The Manager shall furnish to the
Corporation, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement
or any extension, renewal or amendment hereof.
12. Amendment and Assignment of Agreement. This
Agreement may not be amended or assigned without the affirmative
vote of a majority of the outstanding voting securities of the
Fund, and this Agreement shall automatically and immediately
terminate in the event of its assignment.
13. Termination of Agreement. This Agreement may be
terminated by either party hereto, without the payment of any
penalty, upon 60 days' prior notice in writing to the other
party; provided, that in the case of termination by the
Corporation, with respect to the Fund, such action shall have
been authorized by resolution of a majority of the directors who
are not parties to this Agreement or interested persons of any
such party, or by vote of a majority of the outstanding voting
securities of the Fund.
14. Miscellaneous.
A. Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delineate any of the provisions hereof or otherwise affect
their construction or effect.
B. Interpretation. Nothing herein contained shall
be deemed to require the Corporation to take any action contrary
to its Articles of Incorporation or By-Laws, or any applicable
statutory or regulatory requirement to which it is subject or by
PAGE 10
which it is bound, or to relieve or deprive the board of
directors of the Corporation of its responsibility for and
control of the conduct of the affairs of the Fund.
C. Definitions. Any question of interpretation of
any term or provision of this Agreement having a counterpart in
or otherwise derived from a term or provision of the Act shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as
used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the
meanings assigned to them by Section 2(a) of the Act. In
addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision
shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto
duly authorized and their respective seals to be hereunto
affixed, as of the day and year first above written.
Attest: T. ROWE PRICE INDEX TRUST, INC.
/s/Patricia S. Butcher /s/Richard T. Whitney
__________________________ By: _____________________________
Patricia S. Butcher, Richard T. Whitney
Assistant Secretary President
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
__________________________ By: _____________________________
Barbara A. VanHorn, Henry H. Hopkins
Assistant Secretary Managing Director
<PAGE>
PAGE 1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
T. Rowe Price Index Trust, Inc.
We consent to the incorporation by reference in Post-
Effective Amendment No. 10 to the Registration Statement of
T. Rowe Price Index Trust, Inc. on Form N-1A (File No. 33-32859)
of our report dated January 20, 1997, on our audit of the
financial statements and financial highlights of T. Rowe Price
Equity Index Fund, which report is included in the Annual Report
to Shareholders for the year ended December 31, 1996, which is
incorporated by reference in the Registration Statement. We also
consent to the reference to our Firm under the caption "Financial
Highlights" in the Prospectus and "Independent Accountants" in
the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
December 11, 1997
<PAGE>
PAGE 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Statement of Additional Information constituting part of this
Registration Statement on Form N-1A (the "Registration
Statement") of T. Rowe Price Extended Market Index Fund and T.
Rowe Price Total Market Index Fund (two of three portfolios of
the T. Rowe Price Index Trust, Inc.), of our reports dated
January 20, 1997, relating to the financial statements and
financial highlights appearing in the December 31, 1996 Annual
Reports to Shareholders of T. Rowe Price Blue Chip Growth Fund,
Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price
Equity Income Fund, T. Rowe Price Growth & Income Fund, 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 Real Estate Fund, Inc., and
Mid-Cap Equity Growth Fund (constituting Institutional Equity
Funds, Inc.), which are also incorporated by reference into the
Registration Statement. We also consent to the reference to us
under the heading "Independent Accountants" in the Statement of
Additional Information.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
December 11, 1997
<PAGE>
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<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 926863
<INVESTMENTS-AT-VALUE> 1312013
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<REALIZED-GAINS-CURRENT> 8814
<APPREC-INCREASE-CURRENT> 181445
<NET-CHANGE-FROM-OPS> 198814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8044
<DISTRIBUTIONS-OF-GAINS> 4213
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<NUMBER-OF-SHARES-SOLD> 19850
<NUMBER-OF-SHARES-REDEEMED> 5928
<SHARES-REINVESTED> 529
<NET-CHANGE-IN-ASSETS> 503671
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 873
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<GROSS-EXPENSE> 2085
<AVERAGE-NET-ASSETS> 1051552
<PER-SHARE-NAV-BEGIN> 20.34
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 4.01
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> .15
<RETURNS-OF-CAPITAL> 0
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<PAGE>
PAGE 1
T. ROWE PRICE INDEX TRUST, INC.
POWER OF ATTORNEY
RESOLVED, that the Corporation and each of its directors do
hereby constitute and authorize, James S. Riepe, Joel H.
Goldberg, and Henry H. Hopkins, and each of them individually,
their true and lawful attorneys and agents to take any and all
action and execute any and all instruments which said attorneys
and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
any rules, regulations, orders or other requirements of the
United States Securities and Exchange Commission thereunder, in
connection with the registration under the Securities Act of
1933, as amended, of shares of the Corporation, to be offered by
the Corporation, and the registration of the Corporation under
the Investment Company Act of 1940, as amended, including
specifically, but without limitation of the foregoing, power and
authority to sign the name of the Corporation on its behalf, and
to sign the names of each of such directors and officers on his
behalf as such director or officer to any amendment or supplement
(including Post-Effective Amendments) to the Registration
Statement on Form N-1A of the Corporation filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended, and the Registration Statement on Form N-1A of
the Corporation under the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed
as a part of or in connection with such Registration Statement.
<PAGE>
PAGE 2
IN WITNESS WHEREOF, the Corporation has caused these
presents to be signed by its Vice President and the same attested
by its Secretary, each thereunto duly authorized by its Board of
Directors, and each of the undersigned has hereunto set his hand
and seal as of the day set opposite his name.
T. ROWE PRICE INDEX TRUST, INC.
/s/James S. Riepe
By: _______________________________
James S. Riepe, Vice President
and Director
April 24, 1997
Attest:
/s/Lenora V. Hornung
__________________________
Lenora V. Hornung, Secretary
(Signatures Continued)<PAGE>
PAGE 3
/s/James S. Riepe
____________________ Vice President and April 24, 1997
James S. Riepe Director
/s/Richard T. Whitney
____________________ President (Principal April 24, 1997
Richard T. Whitney Executive Officer)
/s/Carmen F. Deyesu Treasurer (Principal
____________________ Financial Officer) April 24, 1997
Carmen F. Deyesu
/s/Donald W. Dick, Jr.
____________________ Director April 24, 1997
Donald W. Dick, Jr.
/s/David K. Fagin
____________________ Director April 24, 1997
David K. Fagin
James A.C. Kennedy, III
____________________ Director April 24, 1997
James A.C. Kennedy, III
Hanne M. Merriman
____________________ Director April 24, 1997
Hanne M. Merriman
M. David Testa
____________________ Director April 24, 1997
M. David Testa
Hubert D. Vos
____________________ Director April 24, 1997
Hubert D. Vos
Paul M. Wythes
____________________ Director April 24, 1997
Paul M. Wythes
<PAGE>
CERTIFICATE OF VICE PRESIDENT
T. ROWE PRICE INDEX TRUST, INC.
on behalf of T. Rowe Price Equity Index Fund
Pursuant to Rule 306 of Regulation S-T
_________________________________________________________________
I, the undersigned, Henry H. Hopkins, Vice President of
T. Rowe Price Index Trust, Inc. on behalf of T. Rowe Price Equity
Index Fund (the "Fund"), do hereby certify that the definitive
copy of the prospectus for the Fund will be translated into the
Spanish language. The Spanish version of the prospectus
constitutes a full and complete representation of the English
version which has been filed as a part of this Registration
Statement. A copy of the Spanish version will be available for
inspection upon request.
WITNESS my hand and the seal of the Fund this 11th day of
December, 1997.
T. ROWE PRICE INDEX TRUST, INC. on
behalf of T. Rowe Price Equity Index
Fund
/s/Henry H. Hopkins
(Seal) ___________________________________
Henry H. Hopkins, Vice President
<PAGE>
