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T.ROWEPRICE
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T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD 21202
James S. Riepe
Managing Director
Dear Shareholder:
All of the T. Rowe Price mutual funds will hold shareholder meetings in
1994 to elect directors, ratify the selection of independent accountants, and
approve amendments to a number of investment policies.
The T. Rowe Price funds are not required to hold annual meetings each year
if the only items of business are to elect directors or ratify accountants. In
order to save fund expenses, most of the funds have not held annual meetings
for a number of years. There are, however, conditions under which the funds
must ask shareholders to elect directors, and one is to comply with a
requirement that a minimum number have been elected by shareholders, not
appointed by the funds' boards. Since the last annual meetings of the T. Rowe
Price funds, several directors have retired and new directors have been added.
In addition, a number of directors will be retiring in the near future.
Given this situation, we believed it appropriate to hold annual meetings
for all the T. Rowe Price funds in 1994. At the same time, we reviewed the
investment policies of all of the funds for consistency and to assure the
portfolio managers have the flexibility they need to manage your money in
today's fast changing financial markets. The changes being recommended, which
are explained in detail in the enclosed proxy material, DO NOT ALTER THE
FUNDS' INVESTMENT OBJECTIVES OR BASIC INVESTMENT PROGRAMS.
In many cases the proposals are common to several funds, so we have
combined certain proxy statements to save on fund expenses. For those of you
who own more than one of these funds, the combined proxy may also save you the
time of reading more than one document before you vote and mail your ballots.
The proposals which are specific to an individual fund are easily identifiable
on the Notice and in the proxy statement discussion. If you own more than one
fund, please note that EACH FUND HAS A SEPARATE CARD. YOU SHOULD VOTE AND SIGN
EACH ONE, then return all of them to us in the enclosed postage-paid envelope.
Your early response will be appreciated and could save your fund the
substantial costs associated with a follow-up mailing. We know we are asking
you to review a rather formidable proxy statement, but this approach
represents the most efficient one for your fund as well as for the other
funds. Thank you for your cooperation. If you have any questions, please call
us at 1-800-225-5132.
Sincerely,
SIGNATURE
James S. Riepe
Director, Mutual Funds Division
CUSIP#77954G108/fund#068
CUSIP#779552108/fund#050
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T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE EQUITY INDEX FUND
NOTICE OF MEETING OF SHAREHOLDERS
APRIL 20, 1994
The Annual Meeting of Shareholders of the T. Rowe Price Balanced Fund,
Inc. ("Balanced Fund"), a Maryland corporation, and T. Rowe Price Equity Index
Fund ("Equity Index Fund") (each a "Fund" and collectively the "Funds"), will
be held jointly on Wednesday, April 20, 1994, at 9:30 o'clock a.m., Eastern
time, at the offices of the Funds, 100 East Pratt Street, Baltimore, Maryland
21202. The Equity Index Fund is currently the sole portfolio of the T. Rowe
Price Index Trust, Inc., a Maryland corporation (the "Corporation"). The
following matters will be acted upon at that time:
1. FOR THE SHAREHOLDERS OF EACH FUND: To elect directors for the Fund in
which you invest to serve until the next annual meeting, if any, or
until their successors shall have been duly elected and qualified;
2. FOR THE SHAREHOLDERS OF EACH FUND:
A. To amend each Fund's fundamental policies to increase its ability
to engage in borrowing transactions;
B. To amend each Fund's fundamental policies to increase its ability
to engage in lending transactions;
C. To change from a fundamental to an operating policy each Fund's
policy on purchasing securities on margin;
D. To amend each Fund's fundamental policies on the issuance of senior
securities;
E. To amend each Fund's fundamental policies on investing in
commodities and futures contracts to permit greater flexibility in
futures trading;
F. To change from a fundamental to an operating policy each Fund's
policy on short sales;
3. FOR THE SHAREHOLDERS OF EACH FUND: To ratify or reject the selection of
the firm of Coopers & Lybrand as the independent accountants for each
Fund for the fiscal year 1994; and
4. To transact such other business as may properly come before the meeting
and any adjournments thereof.
LENORA V. HORNUNG
Secretary
March 9, 1994
100 East Pratt Street CUSIP#77954G108/fund#068
Baltimore, Maryland 21202 CUSIP#779552108/fund#050
YOUR VOTE IS IMPORTANT
SHAREHOLDERS ARE URGED TO DESIGNATE THEIR CHOICES ON EACH OF THE MATTERS TO BE
ACTED UPON AND TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR
PROMPT RETURN OF THE PROXY WILL HELP ASSURE A QUORUM AT THE MEETING AND AVOID
THE ADDITIONAL FUND EXPENSE OF FURTHER SOLICITATION.
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T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE EQUITY INDEX FUND
MEETING OF SHAREHOLDERS--APRIL 20, 1994
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the T. Rowe Price Balanced Fund, Inc., a Maryland corporation, (the
"Balanced Fund") and the T. Rowe Price Equity Index Fund (the "Equity Index
Fund") (each a "Fund" and collectively the "Funds") for use at the Annual
Meeting of Shareholders of each Fund to be held jointly on April 20, 1994, and
at any adjournments thereof. The Equity Index Fund is currently the sole
portfolio of the T. Rowe Price Index Trust, Inc., a Maryland corporation (the
"Corporation").
Shareholders may vote only on matters which concern the Fund or Funds in
which they hold shares. Shareholders are entitled to one vote for each full
share, and a proportionate vote for each fractional share, of the Fund held as
of the record date. Under Maryland law, shares owned by two or more persons
(whether as joint tenants, co-fiduciaries, or otherwise) will be voted as
follows, unless a written instrument or court order providing to the contrary
has been filed with the Fund: (1) if only one votes, that vote will bind all;
(2) if more than one votes, the vote of the majority will bind all; and (3) if
more than one votes and the vote is evenly divided, the vote will be cast
proportionately.
In order to hold the meeting, a majority of each Fund's shares entitled to
be voted must have been received by proxy or be present at the meeting. In the
event that a quorum is present but sufficient votes in favor of one or more of
the Proposals are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies. Any such adjournment will require
the affirmative vote of a majority of the shares present in person or by proxy
at the session of the meeting adjourned. The persons named as proxies will
vote in favor of such adjournment if they determine that such adjournment and
additional solicitation is reasonable and in the interests of each Fund's
shareholders. The shareholders of each Fund vote separately with respect to
each Proposal.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you own shares of more than one Fund or have multiple
accounts) will vote in accordance with your directions as indicated thereon if
your proxy is received properly executed. You may direct the proxy holders to
vote your shares on a Proposal by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the Proposal by
checking the "Abstain" box. Alternatively, you may simply sign, date and
return your proxy card(s) with no specific instructions as to the Proposals.
If you properly execute your proxy card and give no voting instructions with
respect to a Proposal, your shares will be voted for the Proposal. Any proxy
may be revoked at any time prior to its exercise by filing with the Fund a
written notice of revocation, by delivering a duly executed proxy bearing a
later date, or by attending the meeting and voting in person.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent
votes cast with respect to any Proposal. "Broker non-votes" are shares held by
a broker or nominee for which an executed proxy is received by the Fund, but
are not voted as to one or more Proposals because instructions have not been
received from the beneficial owners or persons entitled to vote and the broker
or nominee does not have discretionary voting power.
{{PAGE}}
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING BY EACH FUND
IS SUFFICIENT TO APPROVE PROPOSAL 1 FOR EACH FUND. A MAJORITY OF THE SHARES OF
EACH FUND PRESENT IN PERSON OR BY PROXY AT THE MEETING IS SUFFICIENT TO
APPROVE PROPOSAL 3 FOR EACH FUND. APPROVAL OF ALL REMAINING PROPOSALS OF EACH
FUND REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF THE LESSER OF (A) 67% OF
THE SHARES PRESENT AT THE MEETING IN PERSON OR BY PROXY, OR (B) A MAJORITY OF
EACH FUND'S OUTSTANDING SHARES.
If the proposed amendments to each Fund's fundamental investment policies
are approved, they will become effective on or about May 1, 1994. If a
proposed amendment to a Fund's fundamental investment policies is not
approved, that policy will remain unchanged.
Each Fund will pay a portion of the costs of the meeting, including the
solicitation of proxies, allocated on the basis of the number of shareholder
accounts of each Fund. Persons holding shares as nominees will be reimbursed,
upon request, for their reasonable expenses in sending solicitation materials
to the principals of the accounts. In addition to the solicitation of proxies
by mail, directors, officers, and/or employees of each Fund or of its
investment manager, T. Rowe Price Associates, Inc. ("T. Rowe Price"), may
solicit proxies in person or by telephone.
The approximate date on which this Proxy Statement and form of proxy is
first being mailed to shareholders of each Fund is March 9, 1994.
1. ELECTION OF DIRECTORS
The following table sets forth information concerning each of the nominees
for director indicating the particular Board(s) on which the nominee has been
asked to serve. Each nominee has agreed to hold office until the next annual
meeting (if any) or his/her successor is duly elected and qualified. With the
exception of Ms. Merriman, each of the nominees is a member of the present
Board of Directors of the Balanced Fund and has served in that capacity since
originally elected. With the exception of Ms. Merriman and Messrs. Dick,
Fagin, Lanier, Major, Testa, and Vos, each of the nominees is a member of the
present Board of Directors of the Equity Index Fund and has served in that
capacity since originally elected. A shareholder using the enclosed proxy form
can vote for all or any of the nominees of the Board of Directors or withhold
his or her vote from all or any of such nominees. IF THE PROXY CARD IS
PROPERLY EXECUTED BUT UNMARKED, IT WILL BE VOTED FOR ALL OF THE NOMINEES.
Should any nominee become unable or unwilling to accept nomination or
election, the persons named in the proxy will exercise their voting power in
favor of such other person or persons as the Board of Directors of the Fund
may recommend. There are no family relationships among these nominees.
{{PAGE}}
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Fund
Shares All Other Price
Beneficially Funds' Shares
Owned, Directly Beneficially
Name, Address, Date or Indirectly, Directly Owned
of Birth of Nominee Principal as of as of
and Position with Fund Occupations/(1)/ 1/31/94/(2)/ 1/31/94
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Leo C. Bailey Retired; Director of Balanced Fund: -- 177,668
3396 S. Placita Fabula the following T. Rowe Equity Index
Green Valley, AZ 85614 Price Funds: Growth Fund:--
3/3/24 Stock, New Era, Science
Balanced Fund: & Technology, Mid-Cap
Director since 1992 Growth (since
Equity Index Fund: inception), OTC (since
Director since 1990 inception), Dividend
Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
Donald W. Dick, Jr. Principal, Overseas Balanced Fund: 504 171,595
375 Park Avenue Partners, Inc., a Equity Index Fund:
New York, NY 10152 financial investment --
1/27/43 firm; formerly
Balanced Fund: (6/65-3/89) Director
Director since 1991 and Vice
Equity Index Fund: President-Consumer
Initial election Products Division,
McCormick & Company,
Inc., international
food processors;
Director/Trustee,
Waverly Press, Inc. and
the following T. Rowe
Price Funds/Trusts:
Growth Stock, Growth &
Income, New America
Growth, Capital
Appreciation, Mid-Cap
Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
David K. Fagin Chairman, Chief Balanced Fund: 403 19,459
One Norwest Center Executive Officer and Equity Index
1700 Lincoln Street Director, Golden Star Fund:--
Suite 1950 Resources, Ltd.;
Denver, CO 80203 formerly (1986-7/91)
4/9/38 President, Chief
Balanced Fund: Operating Officer and
Director since 1991 Director, Homestake
Equity Index Fund: Mining Company;
Initial election Director/ Trustee of
the following T. Rowe
Funds/Trusts: New
Horizons, New Era,
Equity Income, Capital
Appreciation, Mid-Cap
Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
Addison Lanier Financial management; Balanced Fund: -- 26,523
441 Vine Street, #2310 President and Director, Equity Index
Cincinnati, OH Thomas Emery's Sons, Fund:--
45202-2913 Inc. and Emery Group,
1/12/24 Inc.; Scinet
Balanced Fund: Development and
Director since 1991 Holdings, Inc. and the
Equity Index Fund: following T. Rowe Price
Initial election Funds/Trusts: New
America Growth, Equity
Income, Small-Cap
Value, Mid-Cap Growth
(since inception), OTC
(since inception),
Dividend Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
{{PAGE}}
John K. Major Chairman of the Board Balanced Fund: -- 69,981
126 E. 26 Place and President, KCMA Equity Index
Tulsa, OK Incorporated, Tulsa, Fund:--
74114-2422 Oklahoma;
8/3/24 Director/Trustee of the
Balanced Fund: following T. Rowe Price
Director since 1991 Funds/Trusts: Growth
Equity Index Fund: Stock, New Horizons,
Initial election New Era, Growth &
Income, Capital
Appreciation, Science &
Technology, Mid-Cap
Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
Hanne M. Merriman Retail business Balanced Fund: -- 2,029
655 15th Street consultant; formerly, Equity Index
Suite 300 President and Chief Fund: --
Washington, D.C. 20005 Operating Officer
11/16/41 (1991-92), Nan Duskin,
Balanced Fund: Initial Inc., a women's
election specialty store,
Equity Index Fund: Director (1984-90) and
Initial election Chairman (1989-90)
Federal Reserve Bank of
Richmond, and President
and Chief Executive
Officer (1988-89),
Honeybee, Inc., a
division of Spiegel,
Inc.; Director,
AnnTaylor Stores
Corporation, Central
Illinois Public Service
Company, CIPSCO
Incorporated, The Rouse
Company, State Farm
Mutual Automobile
Insurance Company and
USAir Group, Inc.;
Member, National
Women's Forum; Trustee,
American-Scandinavian
Foundation
*James S. Riepe Managing Director, T. Balanced Fund: 580,197
100 East Pratt Street Rowe Price Associates, 21,191
Baltimore, MD 21202 Inc.; President and Equity Index
6/25/43 Director, T. Rowe Price Fund: 9,032
Balanced Fund: Investment Services,
Chairman of the Board Inc.; Chairman of the
and member of Board, T. Rowe Price
Executive Committee Services, Inc., T. Rowe
since 1991 Price Trust Company, T.
Equity Index Fund: Rowe Price Retirement
Vice President and Plan Services, Inc.,
member of Executive and the following T.
Committee since 1990 Rowe Price Funds:
Growth & Income,
Spectrum (since
inception), and Mid-Cap
Growth (since
inception); Vice
President of the
following T. Rowe Price
Funds/Trusts: New Era,
New America Growth,
Prime Reserve,
International, and
Institutional
International (since
inception); Vice
President and
Director/Trustee of the
23 other T. Rowe Price
Funds/Trusts; Director,
T. Rowe Price Tax-Free
Insured Intermediate
Bond Fund, Inc. (since
inception) and
Rhone-Poulenc Rorer,
Inc.
{{PAGE}}
*M. David Testa Managing Director, T. Balanced Fund: 461,137
100 East Pratt Street Rowe Price Associates, 1,867
Baltimore, MD 21202 Inc.; Chairman of the Equity Index
4/22/44 Board, Rowe Fund: 2,659
Balanced Fund: Vice Price-Fleming
President and member International, Inc. and
of Executive Committee the following T. Rowe
since 1991 Price Funds: Growth
Equity Index Fund: Stock, International,
Initial election and Institutional
International (since
inception); Vice
President and Director,
T. Rowe Price Trust
Company; Director of
the following T. Rowe
Price Funds: Dividend
Growth (since
inception) and Blue
Chip Growth (since
inception); Vice
President, T. Rowe
Price Spectrum Fund,
Inc. (since inception)
Hubert D. Vos President, Stonington Balanced Fund: 510 10,294
1231 State Street Capital Corporation, a Equity Index
Suite 210 private investment Fund: --
Santa Barbara, CA company;
93190-0409 Director/Trustee of the
8/2/33 following T. Rowe Price
Balanced Fund: Funds/Trusts: New
Director since 1991 Horizons, New Era,
Equity Index Fund: Equity Income, Capital
Initial election Appreciation, Science &
Technology, Small-Cap
Value, Mid-Cap Growth
(since inception), OTC
(since inception),
Dividend Growth (since
inception), and Blue
Chip Growth (since
inception)
Paul M. Wythes Founding General Balanced Fund: -- 49,308
755 Page Mill Road Partner, Sutter Hill Equity Index
Suite A200 Ventures, a venture Fund: --
Palo Alto, CA 94304 capital limited
6/23/33 partnership providing
Balanced Fund: equity capital to young
Director since 1992 high technology
Equity Index Fund: companies throughout
Director since 1990 the United States;
Director/Trustee,
Teltone Corporation,
Interventional
Technologies, Inc.,
Stuart Medical, Inc.,
and the following T.
Rowe Price
Funds/Trusts: New
Horizons, Growth &
Income, New America
Growth, Science &
Technology, Small-Cap
Value, Mid-Cap Growth
(since inception), OTC
(since inception),
Dividend Growth (since
inception), and Blue
Chip Growth (since
inception)
*Nominees considered "interested persons" of T. Rowe Price.
(1)Except as otherwise noted, each individual has held the office indicated,
or other offices in the same company, for the last five years.
(2)In addition to the shares owned beneficially and of record by each of the
nominees, the amounts shown reflect the proportionate interests of Messrs.
Riepe and Testa in 5,770 and 8,219 shares of the Balanced and Equity Index
Funds, respectively, which are owned by a wholly-owned subsidiary of the
Funds' investment manager T. Rowe Price. The amounts shown also reflect the
aggregate interests of Messrs. Riepe and Testa in 17,288 and 3,472 shares
of the Balanced and Equity Index Funds, respectively, owned by the T. Rowe
Price Associates, Inc. Profit Sharing Trust. The Equity Index Fund is
available to institutional investors, individuals investing through
employer-sponsored, defined contribution plans and institutions investing
on behalf of defined benefit plans.
{{PAGE}}
The directors of each Fund who are officers or employees of T. Rowe Price
receive no remuneration from the Fund. For the year 1993, Messrs. Bailey,
Dick, Fagin, Lanier, Major, Vos and Wythes, received from the Balanced Fund
directors' fees aggregating $13,810, including expenses. For the same period,
Messrs. Bailey and Wythes, received from the Equity Index Fund directors' fees
aggregating $9,010, including expenses. The fee paid to each such director is
calculated in accordance with the following fee schedule: a fee of $25,000 per
year as the initial fee for the first Price Fund/Trust on which a director
serves; a fee of $5,000 for each of the second, third, and fourth Price
Funds/Trusts on which a director serves; a fee of $2,500 for each of the fifth
and sixth Price Funds/Trusts on which a director serves; and a fee of $1,000
for each of the seventh and any additional Price Funds/Trusts on which a
director serves. Those nominees indicated by an asterisk (*) are persons who,
for purposes of Section 2(a)(19) of the Investment Company Act of 1940 are
considered "interested persons" of T. Rowe Price. Each such nominee is deemed
to be an "interested person" by virtue of his officership, directorship,
and/or employment with T. Rowe Price. Messrs. Bailey, Dick, Fagin, Lanier,
Major, Vos and Wythes are the current independent directors of the Balanced
Fund and Messrs. Bailey and Wythes are the current independent directors of
the Equity Index Fund.
The Price Funds have established a Joint Audit Committee, which is
comprised of at least one independent director representing each of the Funds.
Messrs. Dick and Vos, directors of the Balanced Fund, and Mr. Bailey, a
director of each Fund, are members of the Committee. The other member is
Anthony W. Deering. These directors also received a fee of $500 for each
Committee meeting attended. The Audit Committee holds two regular meetings
during each fiscal year, at which time it meets with the independent
accountants of the Price Funds to review: (1) the services provided; (2) the
findings of the most recent audit; (3) management's response to the findings
of the most recent audit; (4) the scope of the audit to be performed; (5) the
accountants' fees; and (6) any accounting questions relating to particular
areas of the Price Funds' operations or the operations of parties dealing with
the Price Funds, as circumstances indicate.
The Board of Directors of each Fund has an Executive Committee which is
authorized to assume all the powers of the Board to manage the Fund, in the
intervals between meetings of the Board, except the powers prohibited by
statute from being delegated.
The Board of Directors of each Fund has a Nominating Committee, which is
comprised of all the Price Funds' independent directors. The Nominating
Committee, which functions only in an advisory capacity, is responsible for
reviewing and recommending to the full Board candidates for election as
independent directors to fill vacancies on the Board of Directors. The
Nominating Committee will consider written recommendations from shareholders
for possible nominees. Shareholders should submit their recommendations to the
Secretary of the Fund. Members of the Nominating Committee met informally
during the last full fiscal year, but the Committee as such held no formal
meetings.
Each Fund's Board of Directors held seven meetings during the last full
fiscal year. With the exception of Messrs. Major and Testa, directors of the
Balanced Fund, each director standing for reelection attended 75% or more of
the aggregate of (i) the total number of meetings of the Board of Directors
(held during the period for which he was a director) and (ii) the total number
of meetings held by all committees of the Board on which he served.
{{PAGE}}
2. APPROVAL OR DISAPPROVAL OF CHANGES TO THE FUNDS' FUNDAMENTAL INVESTMENT
POLICIES
The Investment Company Act of 1940 (the "1940 Act") requires investment
companies such as the Funds to adopt certain specific investment policies that
can be changed only by shareholder vote. An investment company may also elect
to designate other policies that may be changed only by shareholder vote. Both
types of policies are often referred to as "fundamental policies." Certain of
the Funds' fundamental policies have been adopted in the past to reflect
regulatory, business or industry conditions that are no longer in effect.
Accordingly, each Fund's Board of Directors has approved, and has authorized
the submission to each Fund's shareholders for their approval, the amendment
and/or reclassification of certain of the fundamental policies applicable to
each Fund.
The proposed amendments would (i) conform the fundamental policies of each
Fund to ones which are expected to become standard for all T. Rowe Price
Funds, (ii) simplify and modernize the limitations that are required to be
fundamental by the 1940 Act and (iii) eliminate as fundamental any limitations
that are not required to be fundamental by that Act. The Board believes that
standardized policies will assist the Funds and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. By reducing to a minimum those limitations that can be
changed only by shareholder vote, the Funds would be able to minimize the
costs and delay associated with holding frequent annual shareholders'
meetings. The Directors also believe that T. Rowe Price's ability to manage
the Funds' assets in a changing investment environment will be enhanced and
that investment management opportunities will be increased by these changes.
In the following discussion "the Fund" is intended to refer to each Fund.
EACH FUND
A. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE ITS
ABILITY TO ENGAGE IN BORROWING TRANSACTIONS
The Board of Directors has proposed an amendment to the Fund's Fundamental
Investment Policy which would permit the Fund greater flexibility to engage in
borrowing transactions. The current restriction is not required by applicable
law. The new restriction would (1) allow the Fund to borrow slightly larger
amounts of money; (2) borrow from persons other than banks or other Price
Funds to the extent permitted by applicable law; and (3) clarify that the
Fund's restriction on borrowing does not prohibit the Fund from entering into
reverse repurchase agreements and other proper investments and transactions.
The new restriction would also conform the Fund's policy on borrowing to one
which is expected to become standard for all T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of borrowing is as
follows:
{{PAGE}}
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund may borrow from banks or other Price Funds as a temporary
measure for extraordinary or emergency purposes, and then only in amounts
not exceeding 30% of its total assets valued at market. The Fund will not
borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. Interest paid on any such borrowings will reduce net
investment income. The Fund may enter into futures contracts as set forth
in [its fundamental policy on futures];"
As amended, the Fund's fundamental policy on borrowing would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money
except that the Fund may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase agreements and
make other investments or engage in other transactions, which may involve
a borrowing, in a manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other persons to the extent
permitted by applicable law;"
If approved, the primary effect of the proposals would be to allow the
Fund to: (1) borrow up to 33 1/3% (or such higher amount permitted by law) of
its total assets (including the amount borrowed) less liabilities (other than
borrowings) as opposed to the current limitation of 30%; (2) borrow from
persons in addition to banks and other mutual funds advised by T. Rowe Price
or Rowe Price-Fleming International, Inc. ("Price Funds"); and (3) enter into
reverse repurchase agreements and other investments consistent with the Fund's
investment objective and program.
33 1/3% LIMITATION
The increase in the amount of money which the Fund could borrow is
primarily designed to allow the Fund greater flexibility to meet shareholder
redemption requests should the need arise. As is the case under its current
policy, the Fund would not borrow to increase income through leveraging. It is
possible the Fund's ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate sufficient
securities, or the Fund were forced to liquidate securities at unfavorable
prices, to pay back the borrowed sums. However, the Directors believe the
risks of such possibilities are outweighed by the greater flexibility the Fund
would have in borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions, to avoid
liquidating securities at unfavorable prices or times to a greater degree than
would be the case under the current policy.
{{PAGE}}
REVERSE REPURCHASE AGREEMENTS
To facilitate portfolio liquidity, it is possible the Fund could enter
into reverse repurchase agreements. In a repurchase agreement, the Fund would
purchase securities from a bank or broker-dealer (Counterparty) with the
agreement that the Counterparty would repurchase the securities at a later
date. Reverse repurchase agreements are ordinary repurchase agreements in
which a fund is a seller of, rather than the purchaser of, securities and
agrees to repurchase them at an agreed upon time and price. Reverse repurchase
agreements can avoid certain market risks and transaction costs associated
with an outright sale and repurchase. Reverse repurchase agreements, however,
may be viewed as borrowings. To the extent they are, the proposed amendment
would clarify that the Fund's restrictions on borrowing would not prohibit the
Fund from entering into a reverse repurchase agreement.
OTHER CHANGES
The other proposed changes in the Fund's fundamental policy--to allow the
Fund to borrow from persons other than banks and other Price Funds to the
extent consistent with applicable law--and to engage in transactions other
than reverse repurchase agreements which may, or may be deemed to, involve a
borrowing--are simply designed to permit the Fund the greatest degree of
flexibility permitted by law in pursuing its investment program. As noted
above, the Fund will not use its increased flexibility to borrow to engage in
transactions which could result in leveraging the Fund. All activities of the
Fund are, of course, subject to the 1940 Act and the rules and regulations
thereunder as well as various state securities laws.
The Board of Directors recommends that shareholders vote FOR the proposal.
B. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING THE
MAKING OF LOANS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to: (i) increase the amount of its
assets which may be subject to its lending policy; and (ii) allow the Fund to
purchase the entire or any portion of the debt of a company. The new
restriction would also conform the Fund's policy on lending to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements; (ii) acquire publicly-distributed bonds,
debentures, notes and other debt securities and purchase debt securities
at private placement; (iii) lend portfolio securities; and (iv)
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 30% of the value of the Fund's total assets;"
{{PAGE}}
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] 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;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
PURCHASE OF DEBT
The Fund's fundamental policy on lending allows the Fund to purchase debt
securities as an exception to the general limitations on making loans.
However, there is no similar exception for the purchase of straight debt,
e.g., a corporate loan held by a bank for example which might not be
considered a debt security. The amended policy would allow the purchase of
this kind of debt. Because the purchase of straight debt could be viewed as a
loan by the Fund to the issuer of the debt, the Board of Directors has
determined to clarify this matter by including the purchase of debt as an
exception to the Fund's general prohibition against making loans. The purchase
of debt might be subject to greater risks of illiquidity and unavailability of
public information than would be the case for an investment in a publicly held
security. The primary purpose of this proposal is to conform the Fund's
fundamental policy in this area to one that is expected to become standard for
all T. Rowe Price Funds. The Fund will continue to invest primarily in equity
securities. However, the Board of Directors believes that increased
standardization will help promote operational efficiencies and facilitate
monitoring of compliance with the Fund's investment restrictions.
OTHER MATTERS
For purposes of this restriction, 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. Because such
transactions by the Fund could be viewed as a loan by the Fund to the maker of
the note, the Board of Directors has determined to clarify this matter by
including these transactions as an exception to the Fund's general prohibition
against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
{{PAGE}}
C. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING SECURITIES ON MARGIN
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The purpose of the proposal is to
allow the Fund greater flexibility in responding to market and regulatory
developments by providing the Board of Directors with the authority to make
changes in the Fund's policy on margin without further shareholder approval.
The new restriction would also conform the Fund's policy on margin to one
which is expected to become standard for all T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities; except that it may make
margin deposits in connection with futures contracts, subject to [its
fundamental policy on futures];"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] 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;"
Both the Fund's current policy and the proposed operating policy prohibit
the purchase of securities on margin but allow the Fund to make margin
deposits in connection with futures contracts and use such short-term credit
as is necessary for clearance of purchases of portfolio securities. The
proposed operating policy also would acknowledge that the Fund is permitted to
make margin deposits in connection with other investments in addition to
futures. Such investments might include, but are not limited to, written
options where the Fund could be required to put up margin with a broker as
security for the Fund's obligation to deliver the security on which the option
is written.
The Board of Directors recommends that shareholders vote FOR the proposal.
{{PAGE}}
D. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON THE ISSUANCE
OF SENIOR SECURITIES
The Fund's Board of Directors has proposed an amendment to the Fund's
Fundamental Investment Policy on issuing senior securities which would allow
the Fund to issue senior securities to the extent permitted under the 1940
Act. The new policy, if adopted, would provide the Fund with greater
flexibility in pursuing its investment objective and program. The Board has
directed that such amendment be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of issuing senior
securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Issue senior
securities;"
As amended, the Fund's fundamental policy on issuing senior securities
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Issue senior
securities except in compliance with the Investment Company Act of 1940;"
The 1940 Act limits a Fund's ability to issue senior securities or engage
in investment techniques which could be deemed to create a senior security.
Although the definition of a "senior security" involves complex statutory and
regulatory concepts, a senior security is generally thought of as a class of
security preferred over shares of the Fund with respect to the Fund's assets
or earnings. It generally does not include temporary or emergency borrowings
by the Fund (which might occur to meet shareholder redemption requests) in
accordance with federal law and the Fund's investment limitations. Various
investment techniques that obligate the Fund to pay money at a future date
(e.g., the purchase of securities for settlement on a date that is longer than
required under normal settlement practices) occasionally raise questions as to
whether a "senior security" is created. The Fund utilizes such techniques only
in accordance with applicable regulatory requirements under the 1940 Act.
Although the Fund has no current intention of issuing senior securities, the
proposed change will clarify the Fund's authority to issue senior securities
in accordance with the 1940 Act without the need to seek shareholder approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
E. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICIES ON INVESTING IN
COMMODITIES AND FUTURES CONTRACTS TO PROVIDE GREATER FLEXIBILITY IN
FUTURES TRADING
BALANCED FUND
The Board of Directors has proposed amendments to the Fund's Fundamental
Investment Policies on commodities and futures. The principal purpose of the
proposals is to conform the Fund's policies on commodities and futures with
policies which are expected to become standard for all T. Rowe Price Funds.
The Board has directed that such amendments be submitted to shareholders for
approval or disapproval.
{{PAGE}}
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may (i) enter into
futures contracts and options on futures contracts, subject to [its
fundamental policy on futures]; (ii) enter into forward foreign currency
exchange contracts (although the Fund does not consider such contracts to
be commodities); and (iii) invest in instruments which have the
characteristics of both futures contracts and securities;"
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract or an option thereon, although the Fund may enter into
financial and currency futures contracts or options on financial and
currency futures contracts;"
As amended, the Fund's fundamental policies on investing in futures and
commodities would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy")."
If adopted, the primary effect of the amendment would be to remove the
restriction in the current policies that the Fund may only enter into
financial and currency futures. Although not specifically described in the
amended fundamental restriction, the Fund would continue to have the ability
to enter into forward foreign currency contracts and to invest in instruments
which have the characteristics of futures and securities or whose value is
determined, in whole or in part, by reference to commodity prices.
The Fund has no current intention of investing in other types of futures.
However, the new policy, if adopted, would allow it to do so. The risks of any
such futures activity could differ from the risks of the Fund's currently
permitted futures activity. As noted, the principal purpose of seeking the
proposed change in the Fund's fundamental policies is to conform such policies
to ones which are expected to become standard for all T. Rowe Price Funds. The
Board of Directors believes that standardized policies will assist the Fund
and T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject.
The Board of Directors recommends that shareholders vote FOR the proposal.
{{PAGE}}
EQUITY INDEX FUND
The Board of Directors has proposed amendments to the Fund's Fundamental
Investment Policies on commodities and futures. The principal purpose of the
proposals is to conform the Fund's policies on commodities and futures with
policies which are expected to become standard for all T. Rowe Price Funds.
The Board has directed that such amendments be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may enter into futures
contracts and options on futures contracts, subject to [its fundamental
policy on futures];"
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract or an option thereon, although the Fund may enter into
financial futures contracts or options on financial futures contracts;"
As amended, the Fund's fundamental policies on investing in commodities
and futures would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy")."
If adopted, the primary effect of the amendment would be to remove the
restriction in the current policies that the Fund may only enter into
financial futures.
The Fund has no current intention of investing in other types of futures.
However, the new policy, if adopted, would allow it to do so. As noted, the
principal purpose of seeking the proposed change in the Fund's fundamental
policies is to conform such policies to ones which are expected to become
standard for all T. Rowe Price Funds. The Board of Directors believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject.
The Board of Directors recommends that shareholders vote FOR the proposal.
{{PAGE}}
F. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON SHORT
SALES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on effecting short sales be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by the Board
of Directors without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. The purpose of the proposal
is to provide the Fund with greater flexibility in pursuing its investment
objective and program. The Board has directed that the proposal be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of effecting short sales
of securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Effect short sales
of securities;"
The operating policy on short sales, to be adopted by the Fund, would be
as follows:
"[As a matter of operating policy, the Fund may not:] Effect short sales
of securities;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval.
In a short sale, an investor, such as the Fund, sells a borrowed security
and must return the same security to the lender. Although the Board has no
current intention of allowing the Fund to engage in short sales, if the
proposed amendment is adopted, the Board would be able to authorize the Fund
to engage in short sales at any time without further shareholder action. In
such a case, the Fund's prospectus would be amended and a description of short
sales and their risks would be set forth therein.
The Board of Directors recommends that shareholders vote FOR the proposal.
3. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by each Fund's Board of Directors of the firm of Coopers &
Lybrand as the independent accountants for each Fund for the fiscal year 1994
is to be submitted for ratification or rejection by the shareholders at the
Shareholders Meeting. The firm of Coopers & Lybrand has served each Fund as
independent accountants since its inception. The independent accountants have
advised each Fund that they have no direct or material indirect financial
interest in the Fund. Representatives of the firm of Coopers & Lybrand are
expected to be present at the Shareholders Meeting and will be available to
make a statement, if they desire to do so, and to respond to appropriate
questions which the shareholders may wish to address to them.
{{PAGE}}
INVESTMENT MANAGER
The Fund's investment manager is T. Rowe Price, a Maryland corporation,
100 East Pratt Street, Baltimore, Maryland 21202. The principal executive
officer of T. Rowe Price is George J. Collins, who together with Thomas H.
Broadus, Jr., James E. Halbkat, Jr., Carter O. Hoffman, Henry H. Hopkins,
James S. Riepe, George A. Roche, John W. Rosenblum, Charles H. Salisbury, Jr.,
Robert L. Strickland, M. David Testa, and Philip C. Walsh, constitute its
Board of Directors. The address of each of these persons, with the exception
of Messrs. Halbkat, Rosenblum, Stickland and Walsh, is 100 East Pratt Street,
Baltimore, Maryland 21202, and, with the exception of Messrs. Halbkat,
Rosenblum, Strickland, and Walsh, all are employed by T. Rowe Price. Mr.
Halbkat is President of U.S. Monitor Corporation, a provider of public
response systems, P.O. Box 23109, Hilton Head Island, South Carolina 29925.
Mr. Rosenblum, whose address is P.O. Box 6550, Charlottesville, Virginia
22906, is the Tayloe Murphy Professor at the University of Virginia, and a
director of: Chesapeake Corporation, a manufacturer of paper products; Cadmus
Communications Corp., a provider of printing and communication services;
Comdial Corporation, a manufacturer of telephone systems for businesses; and
Cone Mills Corporation, a textiles producer. Mr. Strickland is Chairman of
Lowe's Companies, Inc., a retailer of specialty home supplies, 604 Two
Piedmont Plaza Building, Winston-Salem, North Carolina 27104. Mr. Walsh, whose
address is Blue Mill Road, Morristown, New Jersey 07960, is a consultant to
Cyprus Amax Minerals Company, Englewood, Colorado, and a director of Piedmont
Mining Company, Charlotte, North Carolina.
The officers of the Funds (other than the nominees for election or
reelection as directors) and their positions with T. Rowe Price are as
follows:
- ------------------------------------------------------------------------------
Officer Position with Fund Position with Manager
- ------------------------------------------------------------------------------
Richard T. Whitney* President Vice President
Stephen W. Boesel** Vice President Managing Director
Andrew M. Brooks** Vice President Vice President
Kristen D. Farrow+ Vice President Assistant Vice President
Jonathan M. Greene Vice President Vice President
Henry H. Hopkins Vice President Managing Director
James A.C. Kennedy, III** Vice President Managing Director
Edmund M. Notzon** Vice President Vice President
Alan R. Stuart+ Vice President Vice President
Peter Van Dyke** Vice President Managing Director
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice President Employee
Edward T. Schneider Assistant Vice President Employee
Ingrid I. Vordemberge Assistant Vice President Employee
*Mr. Whitney's date of birth is May 7, 1958. He is the President of the
Balanced and Equity Index Funds and has been employed by T. Rowe Price since
July 1, 1985.
**Messrs. Boesel, Brooks, Kennedy, Notzon and Van Dyke are Vice Presidents of
the Balanced Fund only.
+Ms. Farrow and Mr. Stuart are Vice Presidents of the Equity Index Fund only.
{{PAGE}}
The Funds have an Underwriting Agreement with T. Rowe Price Investment
Services, Inc. ("Investment Services"), a Transfer Agency Agreement with T.
Rowe Price Services, Inc. ("Price Services"), and an Agreement with T. Rowe
Price Retirement Plan Services, Inc. ("Retirement Services"), which are
wholly-owned subsidiaries of T. Rowe Price. In addition, the Funds have an
Agreement with T. Rowe Price to perform fund accounting services. James S.
Riepe, the Chairman of the Board of the Balanced Fund and a Vice President and
Director of the Equity Index Fund, is Chairman of the Board of Price Services
and Retirement Services and President and Director of Investment Services.
Henry H. Hopkins, a Vice President of the Funds, is a Vice President and
Director of both Investment Services and Price Services and a Vice President
of Retirement Services. Edward T. Schneider, an Assistant Vice President of
the Funds, is a Vice President of Price Services. Certain officers of the
Funds own shares of the common stock of T. Rowe Price, its only class of
securities.
The following information pertains to transactions involving common stock
of T. Rowe Price, par value $.20 per share ("Stock"), during the period
January 1, 1993 through December 31, 1993. There were no transactions during
the period by any director or officer of the Fund, or any director or officer
of T. Rowe Price which involved more than 1% of the outstanding Stock of T.
Rowe Price. These transactions did not involve, and should not be mistaken
for, transactions in the stock of the Fund.
During the period, the holders of certain options purchased a total of
343,525 shares of common stock at varying prices from $0.67 to $18.75 per
share. Pursuant to the terms of T. Rowe Price's Employee Stock Purchase Plan,
eligible employees of T. Rowe Price and its subsidiaries purchased an
aggregate of 96,931 shares at fair market value. Such shares were purchased in
the open market during this period for employees' accounts.
The Company's Board of Directors has approved the repurchase of shares of
its common stock in the open market. During 1993, the Company purchased 80,000
common shares under this plan, leaving 1,432,000 shares authorized for future
repurchase at December 31, 1993.
During the period, T. Rowe Price issued 1,154,000 common stock options
with an exercise price of $28.13 per share to certain employees under terms of
the 1990 and 1993 Stock Incentive Plans.
An audited consolidated balance sheet of T. Rowe Price as of December 31,
1993, is included in this Proxy Statement.
INVESTMENT MANAGEMENT AGREEMENT
T. Rowe Price serves as investment manager to the Funds pursuant to their
Investment Management Agreements (each the "Management Agreement" and
collectively the "Management Agreements"). The Balanced and Equity Index
Funds' Management Agreements, dated May 1, 1992 and May 1, 1991, respectively,
were approved by the shareholders of each Fund on April 23, 1992 and April 18,
1991, respectively. By their terms, the Management Agreements will continue in
effect from year to year as long as they are approved annually by each Fund's
Board of Directors (at a meeting called for that purpose) or by vote of a
majority of each Fund's outstanding shares. In either case, renewal of the
Management Agreement must be approved by a majority of each Fund's independent
directors. On March 1, 1994, the directors of each Fund, including all of the
independent directors, voted to extend the Management Agreement for an
additional period of one year, commencing May 1, 1994, and terminating April
30, 1995. Each Management Agreement is subject to termination by either party
without penalty on 60 days' written notice to the other and will terminate
automatically in the event of assignment.
{{PAGE}}
Under each Management Agreement, T. Rowe Price provides each Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of each Fund in accordance with
the Funds' investment objectives, programs, and restrictions as provided in
their prospectuses and Statements of Additional Information. T. Rowe Price is
also responsible for effecting all security transactions on behalf of the
Funds, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. In addition to these services, T.
Rowe Price provides the Funds with certain corporate administrative services,
including: maintaining each Fund's corporate existence, corporate records, and
registering and qualifying Fund shares under federal and state laws;
monitoring the financial, accounting, and administrative functions of the
Funds; maintaining liaison with the agents employed by the Funds such as each
Fund's custodian and transfer agent; assisting the Funds in the coordination
of such agents' activities; and permitting T. Rowe Price's employees to serve
as officers, directors, and committee members of the Funds without cost to the
Funds.
Each Fund's 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.
The Management Agreement provides that each Fund will bear all expenses of
its operations not specifically assumed by T. Rowe Price. However, in
compliance with certain state regulations, T. Rowe Price will reimburse the
Funds for any expenses (excluding interest, taxes, brokerage, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses) which in any year exceed
the limits prescribed by any state in which the Funds' shares are qualified
for sale. Presently, the most restrictive expense ratio limitation imposed by
any state is 2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million of such assets, and 1.5% of net assets in
excess of $100 million. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If the Fund is entitled to reimbursement, that month's
management fee will be reduced or postponed, with any adjustment made after
the end of the year.
For its services to the Balanced Fund under the Management Agreement, T.
Rowe Price is paid a management fee ("Management Fee") consisting of two
elements: a "group" fee ("Group Fee") and an "individual" fund fee
("Individual Fund Fee"). The Group Fee varies and is based on the combined net
assets of all of the Price Funds distributed by T. Rowe Price Investment
Services, Inc., other than institutional or "private label" products. For this
purpose, the Price Funds include all funds managed and sponsored by T. Rowe
Price as well as those Funds managed and sponsored by Rowe Price-Fleming
International, Inc. The Balanced Fund pays, as its portion of the Group Fee,
an amount equal to the ratio of its daily net assets to the daily net assets
of all the Price Funds. In addition, the Balanced Fund pays a flat Individual
Fund Fee of 0.15%, based on the net assets of the Fund. Based on combined
Price Funds' assets of approximately $34.7 billion at December 31, 1993, the
Group Fee was 0.35% and the total management fee for the year would have been
an annual rate of 0.50% of the Balanced Fund. The Equity Index 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. The following chart
shows the net assets and the management fees, paid by each Fund to T. Rowe
Price, at December 31, 1993.
{{PAGE}}
Fund Net Assets Management Fee
------------ ------------ --------------
Balanced $340,800,000 $1,169,000
Equity Index $166,994,000 $ 0
The following chart sets forth expense ratio limitations and the periods
for which they are effective. For each, T. Rowe Price has agreed to bear any
Fund expenses which would cause the Fund's ratio of expenses to average net
assets to exceed the indicated percentage limitations. The expenses borne by
T. Rowe Price are subject to reimbursement by the Fund through the indicated
reimbursement date, provided no reimbursement will be made if it would result
in the Fund's expense ratio exceeding its applicable limitation.
Expense Ratio Reimbursement
Fund Limitation Period Limitation Date
--------- --------------------------------- ------------- -----------------
Balanced* January 1, 1993-December 31, 1994 1.00% December 31, 1996
Equity January 1, 1994-December 31, 1995 0.45% December 31, 1997
Index**
*The Balanced Fund previously operated under a 1.00% limitation that expired
December 31, 1993. The reimbursement period for this limitation extends
through December 31, 1994.
**The Equity Index Fund previously operated under a 0.45% limitation that
expired December 31, 1993. The reimbursement period for this limitation
extends through December 31, 1995.
Each Fund's Management Agreement also provides that one or more additional
expense limitation periods (of the same or different time periods) may be
implemented after the expiration of the current expense limitation, and that
with respect to any such additional limitation period, the Fund may reimburse
T. Rowe Price, provided the reimbursement does not result in the Fund's
aggregate expenses exceeding the additional expense limitation.
As a result of the Balanced Fund's past and present expense limitations,
as of Decem-ber 31, 1992, $266,000 of management fees were not accrued by the
Fund for the period subsequent to the reorganization date and $305,000 of
unaccrued fees and expenses related to the Fund's operations in 1991 and 1992
(including the period prior to the reorganization date) are subject to
reimbursement through December 31, 1994.
Pursuant to the present expense limitation, $293,000 of management fees
were not accrued by the Equity Index Fund for the year ended December 31,
1993, and $20,000 of other expenses were borne by T. Rowe Price. Additionally,
$338,000 of unaccrued fees and expenses remain subject to future
reimbursement. Pursuant to the past expense limitation, $421,000 of unaccrued
fees and expenses from 1990-1991 have been permanently waived.
{{PAGE}}
PORTFOLIO TRANSACTIONS
In the following discussion "the Fund" is intended to refer to each Fund.
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. 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.
{{PAGE}}
HOW EVALUATIONS ARE MADE OF THE OVERALL REASONABLENESS OF BROKERAGE
COMMISSIONS PAID
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the Fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates, both before and
since rates have been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c) rates quoted
by brokers and dealers; (d) the size of a particular transaction, in terms of
the number of shares, dollar amount, and number of clients involved; (e) the
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm
over a period of time; and (g) the extent to which the broker or dealer has
capital at risk in the transaction.
DESCRIPTION OF RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries, groups
of securities, individual companies, statistical information, accounting and
tax law interpretations, political developments, legal developments affecting
portfolio securities, technical market action, pricing and appraisal services,
credit analysis, risk measurement analysis, performance analysis and analysis
of corporate responsibility issues. These services provide both domestic and
international perspective. Research services are received primarily in the
form of written reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such services may be
provided in the form of meetings arranged with corporate and industry
spokespersons, economists, academicians and government representatives. In
some cases, research services are generated by third parties but are provided
to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information presently provided
by brokers and dealers. T. Rowe Price pays cash for certain research services
received from external sources. T. Rowe Price also allocates brokerage for
research services which are available for cash. While receipt of research
services from brokerage firms has not reduced T. Rowe Price's normal research
activities, the expenses of T. Rowe Price could be materially increased if it
attempted to generate such additional information through its own staff. To
the extent that research services of value are provided by brokers or dealers,
T. Rowe Price may be relieved of expenses which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return
for products or services other than brokerage or research services. In
accordance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934, T. Rowe Price may from time to time receive services and products
which serve both research and non-research functions. In such event, T. Rowe
Price makes a good faith determination of the anticipated research and
non-research use of the product or service and allocates brokerage only with
respect to the research component.
{{PAGE}}
COMMISSIONS TO BROKERS WHO FURNISH RESEARCH SERVICES
Certain brokers who provide quality execution services also furnish
research services to T. Rowe Price. In order to be assured of continuing to
receive research services considered of value to its clients, 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.
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 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, 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
and make judgments as to the level of business which would recognize such
services. In addition, brokers 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 brokerage business is allocated on the basis of all the
considerations described above. In no case is a broker excluded from receiving
business from T. Rowe Price because it has not been identified as providing
research services.
MISCELLANEOUS
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers 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 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.
{{PAGE}}
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 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.
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.
BALANCED FUND
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.
{{PAGE}}
The Board of Directors of the Fund has authorized T. Rowe Price to utilize
certain affiliates of Robert Fleming Holdings and JFG in the capacity of
broker in connection with the execution of the Fund's portfolio transactions.
These affiliates include, but are not limited to, Jardine Fleming Securities
Limited ("JFS"), a wholly-owned subsidiary of JFG, Robert Fleming & Co.
Limited ("RF&Co."), Jardine Fleming Australia Securities Limited, and Robert
Fleming, Inc. (a New York brokerage firm). Other affiliates of Robert Fleming
Holdings 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 1940 Act,
the Board of Directors of the Fund has agreed that the procedures set forth in
Rule 17e-1 under that Act will be followed when using such brokers.
During the year ended December 31, 1993, the Fund paid Robert Fleming,
Inc., $10,000 in total brokerage commissions (including discounts received in
connection with underwritings) in connection with the Fund's portfolio
transactions. The brokerage commissions paid to Robert Fleming, Inc.
represented 11% of the Fund's aggregate brokerage commissions paid during
1993. The aggregate dollar amount of transactions effected through Robert
Fleming, Inc. involving the payment of commissions (including discounts
received in connection with underwritings) represented 2% of the aggregate
dollar amount of all transactions involving the payment of commissions during
1993. In accordance with the written procedures adopted pursuant to Rule
17e-1, the independent directors of the Fund reviewed the Fund's 1993
transactions with affiliated brokers and determined that such transactions
resulted in an economic advantage to the Fund either in the form of lower
execution costs or otherwise.
OTHER
Shown below are the approximate total brokerage commissions, including the
discounts received by securities dealers in connection with underwritings,
paid by each Fund for the last three years:
Fund 1993 1992 1991
-------------- ------------ ---------- ----------
Balanced $92,000 $162,000 $122,000
Equity Index $21,000 $ 39,000 $ 10,000
The approximate 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,
for the last three years, are shown in the following chart.
Fund 1993 1992 1991
-------------- ------------ ---------- ---------
Balanced 46% 65% 20%
Equity Index 9% 3% 0%
The portfolio turnover rate for each Fund for each of the last three years
has been as follows:
Fund 1993 1992 1991
-------------- ------------ ---------- ---------
Balanced 8.7% 63.1% 10.3%
Equity Index 0.8% 0.1% 5.8%
{{PAGE}}
OTHER BUSINESS
The management of each Fund knows of no other business which may come
before the meeting. However, if any additional matters are properly presented
at the meeting, it is intended that the persons named in the enclosed proxy,
or their substitutes, will vote such proxy in accordance with their judgment
on such matters.
GENERAL INFORMATION
As of December 31, 1993, there were 28,362,315 and 12,387,013 shares of
the capital stock of the Balanced and Equity Index Funds, respectively,
outstanding, each with a par value of $.01. Of the outstanding shares of the
Balanced and Equity Index Funds, approximately 3,023,938 and 195,422,
respectively, representing 10.7% and 1.6%, respectively, were registered to
the T. Rowe Price Trust Company as Trustee for participants in the T. Rowe
Price Funds Retirement Plan for Self-Employed (Keogh), as Trustee for
participants in T. Rowe Price Funds 401(k) plans, as Custodian for
participants in the T. Rowe Price Funds Individual Retirement Account (IRA),
as Custodian for participants in various 403(b)(7) plans, and as Custodian for
various Profit Sharing and Money Purchase plans. The T. Rowe Price Trust
Company has no beneficial interest in such accounts, nor in any other account
for which it may serve as trustee or custodian.
As of December 31, 1993, approximately 4,096 and 281,835 shares of
outstanding stock of the Balanced and Equity Index Funds, respectively,
representing approximately 0.01% and 2.3%, respectively, were owned by various
private counsel clients of the Funds' investment manager, T. Rowe Price, as to
which T. Rowe Price has discretionary authority. Accordingly, such shares are
deemed to be owned beneficially by T. Rowe Price only for the limited purpose
as that term is defined in Rule 13d-3 under the Securities Exchange Act of
1934. T. Rowe Price disclaims actual beneficial ownership of such shares. In
addition, as of December 31, 1993, a wholly-owned subsidiary of T. Rowe Price
owned directly 169,698 and 241,736 shares of the outstanding stock of the
Balanced and Equity Index Funds, respectively, representing approximately
0.60% and 2.0%, respectively.
As of December 31, 1993, the officers and directors of the Balanced and
Equity Index Funds, as a group, beneficially owned, directly or indirectly,
34,088 and 21,750 shares, respectively, representing approximately 0.12% and
0.18%, respectively, of each Fund's outstanding stock. The ownership of the
officers and directors reflects their proportionate interests, if any, in
12,761 and 13,561 shares of the Balanced and Equity Index Funds, respectively,
which are owned by a wholly-owned subsidiary of the Funds' investment manager,
T. Rowe Price, and their interests in 17,288 and 8,189 shares, respectively,
owned by the T. Rowe Price Associates, Inc. Profit Sharing Trust.
A copy of the Annual Report of each Fund for the year ended December 31,
1993, including financial statements, has been mailed to shareholders of
record at the close of business on that date and to persons who became
shareholders of record between that time and the close of business on February
18, 1994, the record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
{{PAGE}}
ANNUAL MEETINGS
Under Maryland General Corporation Law, any corporation registered under
the 1940 Act is not required to hold an annual meeting in any year in which
the 1940 Act does not require action by shareholders on the election of
directors. The Board of Directors of each Fund has determined that in order to
avoid the significant expense associated with holding annual meetings,
including legal, accounting, printing and mailing fees incurred in preparing
proxy materials, each Fund will take advantage of these Maryland law
provisions. Accordingly, no annual meetings shall be held in any year in which
a meeting is not otherwise required to be held by the 1940 Act for the
election of Directors unless the Board of Directors otherwise determines that
there should be an annual meeting. However, special meetings will be held in
accordance with applicable law or when otherwise determined by the Board of
Directors. Each Fund's By-Laws reflects this policy.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included in the Proxy
Statement for the next Annual Meeting, and if such Annual Meeting is held in
April, 1995, such proposal must be submitted in writing and received by the
Corporation's Secretary at its Baltimore office prior to November 10, 1994.
FINANCIAL STATEMENT OF INVESTMENT MANAGER
The audited consolidated balance sheet of T. Rowe Price which follows is
required by the 1940 Act, and should not be confused with, or mistaken for,
the financial statements of T. Rowe Price Balanced Fund, Inc., and T. Rowe
Price Equity Index Fund which are set forth in the Annual Report for each
Fund.
{{PAGE}}
T. ROWE PRICE ASSOCIATES,INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(in thousands)
ASSETS
Cash and cash equivalents ................................... $ 46,218
Accounts receivable ......................................... 43,102
Investments in sponsored mutual funds
Short-term bond and money market mutual funds held as
trading securities ...................................... 27,647
Other funds held as available-for-sale securities ......... 69,423
Partnership and other investments ........................... 19,606
Property and equipment ...................................... 39,828
Goodwill and deferred expenses .............................. 9,773
Other assets ................................................ 7,803
-------------
$263,400
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses ..................... $ 15,111
Accrued retirement and other compensation costs ........... 19,844
Income taxes payable ...................................... 5,097
Dividends payable ......................................... 3,784
Debt ...................................................... 12,915
Deferred revenues ......................................... 1,548
Minority interests in consolidated subsidiaries ........... 9,148
Total liabilities ..................................... 67,447
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.20 par value--authorized 48,000,000 shares;
issued and outstanding 29,095,039 shares ................ 5,819
Capital in excess of par value .............................. 1,197
Unrealized security holding gains ........................... 5,345
Retained earnings ........................................... 183,592
Total stockholders' equity ............................ 195,953
-------------
$263,400
-------------
The accompanying notes are an integral part of the consolidated balance sheet.
{{PAGE}}
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
"Company") provide investment advisory and administrative services to
sponsored mutual funds and investment products, and to private accounts of
other institutional and individual investors.
BASIS OF PREPARATION
The Company's financial statements are prepared in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority
owned subsidiaries and, by virtue of the Company's controlling interest, its
50%-owned subsidiary, Rowe Price-Fleming International, Inc. ("RPFI"). All
material intercompany accounts are eliminated in consolidation.
CASH EQUIVALENTS
For purposes of financial statement disclosure, cash equivalents consist of
all short-term, highly liquid investments including certain money market
mutual funds and all overnight commercial paper investments. The cost of these
investments is equivalent to fair value.
INVESTMENTS IN SPONSORED MUTUAL FUNDS
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to state its mutual fund
investments at fair value and to classify these holdings as either trading
(held for only a short period of time) or available-for-sale securities.
Unrealized holding gains on available-for-sale securities at December 31, 1993
are reported net of income tax effects in a separate component of
stockholders' equity.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk as defined by SFAS No. 105 consist primarily of investments in
sponsored money market and bond mutual funds and accounts receivable. Credit
risk is believed to be minimal in that counterparties to these financial
instruments have substantial assets including the diversified portfolios under
management by the Company which aggregate $54.4 billion at December 31, 1993.
{{PAGE}}
PARTNERSHIP AND OTHER INVESTMENTS
The Company invests in various partnerships and ventures including those
sponsored by the Company. These investments which hold equity securities,
venture capital investments, debt securities and real estate are stated at
cost adjusted for the Company's share of the earnings or losses of the
investees subsequent to the date of investment. Because the majority of these
entities carry their investments at fair value and include unrealized gains
and losses in their reported earnings, the Company's carrying value for these
investments approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following estimated useful
lives: computer and communications equipment and furniture and other
equipment, 3 to 7 years; building, 40 years; leased land, the 50-year lease
term; and leasehold improvements, the shorter of their useful lives or the
remainder of the lease term.
{{PAGE}}
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1--INVESTMENTS IN SPONSORED MUTUAL FUNDS
Investments in sponsored money market mutual funds, which are classified as
cash equivalents in the accompanying consolidated financial statements,
aggregate $45,272,000 at December 31, 1993.
The Company's investments in sponsored mutual funds held as available-for-
sale at December 31, 1993 (in thousands) includes:
Gross
unrealized Aggregate
Aggregate holding fair
cost gains value
--------------- ---------------- ---------------
Stock funds ......... $34,990 $7,025 $42,015
Bond funds .......... 26,190 1,218 27,408
--------------- ---------------- ---------------
Total ........... $61,180 $8,243 $69,423
--------------- ---------------- ---------------
--------------- ---------------- ---------------
The Company provides investment advisory and administrative services to the T.
Rowe Price family of mutual funds which had aggregate assets under management
at December 31, 1993 of $34.7 billion. All services rendered by the Company
are provided under contracts that set forth the services to be provided and
the fees to be charged. These contracts are subject to periodic review and
approval by each of the funds' boards of directors and, with respect to
investment advisory contracts, also by the funds' shareholders. Services
rendered to the funds accounted for 71% of 1993 revenues.
Accounts receivable from the sponsored mutual funds aggregated $21,741,000
at December 31, 1993.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 (in thousands) consists of:
Computer and communications equipment ........................ $31,431
Building and leased land ..................................... 19,756
Furniture and other equipment ................................ 13,889
Leasehold improvements ....................................... 4,691
----------
69,767
Accumulated depreciation and amortization .................... (29,939)
----------
$39,828
----------
----------
{{PAGE}}
NOTE 3--GOODWILL AND DEFERRED EXPENSES
On September 2, 1992, the Company acquired an investment management subsidiary
of USF&G Corporation and combined six USF&G mutual funds with aggregate net
assets of $.5 billion into the T. Rowe Price family of funds. The total
transaction cost which has been recognized using the purchase method of
accounting was approximately $11,024,000, including goodwill of $8,139,000
which is being amortized over 11 years using the straight-line method. Prepaid
non-compete and transition services agreements totaling $2,500,000 are being
amortized over their three-year life. Accumulated amortization at December 31,
1993 aggregates $2,216,000.
Goodwill of $1,980,000 from an earlier corporate acquisition is being
amortized over 40 years using the straight-line method. Accumulated
amortization was $1,039,000 at December 31, 1993.
NOTE 4--DEBT
In June 1991, the Company completed the long-term financing arrangements for
its administrative services facility. Terms of the $13,500,000 secured
promissory note with Confederation Life Insurance Company include an interest
rate of 9.77%, monthly principal and interest payments totaling $128,000 for
10 years, and a final principal payment of $9,845,000 in 2001. A prepayment
option is available under the terms of the note; however, the payment of a
substantial premium would have been required to retire the debt at December
31, 1993. Related debt issuance costs of $436,000 are included in deferred
expenses and are being amortized over the life of the loan to produce an
effective annual interest rate of 10.14%.
The outstanding principal balance for this note was $12,904,000 at
December 31, 1993. A fair value of $16,030,000 was estimated based on the cost
of risk-free assets that could be acquired to extinguish the obligation at
December 31, 1993.
A maximum of $20,000,000 is available to the Company under unused bank
lines of credit at December 31, 1993.
NOTE 5--INCOME TAXES
Deferred income taxes arise from differences between taxable income for
financial statement and income tax return purposes and are calculated using
the liability method prescribed by SFAS No. 109, "Accounting for Income
Taxes."
The net deferred tax liability of $2,596,000 included in income taxes
payable at December 31, 1993 consists of total deferred tax liabilities of
$5,609,000 and total deferred tax assets of $3,013,000. Deferred tax
liabilities include $2,898,000 arising from unrealized holding gains on
available-for-sale securities, $1,353,000 arising from unrealized capital
gains allocated from the Company's partnership investments, and $677,000 from
differences in the recognition of depreciation expense. Deferred tax assets
include $1,100,000 from differences in the recognition of the costs of the
defined benefit retirement plan and postretirement benefits.
{{PAGE}}
NOTE 6--COMMON STOCK AND EMPLOYEE STOCK INCENTIVE PLANS
SHARES AUTHORIZED
At December 31, 1993, the Company had reserved 8,151,315 shares of its
unissued common stock for issuance upon the exercise of stock options and
420,000 shares for issuance under an employee stock purchase plan.
SHARE REPURCHASES
The Company's board of directors has authorized the future repurchase of up to
1,432,000 common shares at December 31, 1993.
EXECUTIVE STOCK
At December 31, 1993, there were outstanding 1,226,540 shares of common stock
("Executive Stock") which were sold to certain officers of the Company in 1982
at a discount. These shares are subject to restrictions which require payment
of the discount of $.32 per share to the Company at the earlier of the sale of
such stock or termination of employment.
STOCK INCENTIVE PLANS
The following table summarizes the status of noncompensatory stock options
granted at market value to certain officers and directors of the Company.
Options
Unexercised Options Unexercised Exercisable
Options at Options Granted Options at at
Year December Exercised (Canceled) December December
of 31, During During 31, 31, Exercise
Grant 1992 1993 1993 1993 1993 Price
- ------------------------------------------------------------------------------
1983-4 53,000 (30,600) -- 22,400 22,400 $.67 & $.75
1987 309,410 (68,064) -- 241,346 241,346 $5.38 & $9.38
1988 359,000 (66,586) -- 292,414 292,414 $7.94
1989 632,280 (46,288) (5,600) 580,392 312,404 $11.38
1990 681,500 (83,387) (11,800) 586,313 141,313 $7.19 & $8.50
1991 811,450 (37,000) (14,000) 760,450 283,450 $17.00
1992 926,000 (11,600) (27,400) 887,000 168,600 $18.75
1993 -- -- 1,154,000 1,154,000 -- $28.13
--------- --------- ---------- --------- ---------
3,772,640 (343,525) 1,095,200 4,524,315 1,461,927
--------- --------- ---------- --------- ---------
The right to exercise stock options generally vests over the five-year period
following the grant. After the tenth year following the grant, the right to
exercise the related stock options lapses and the options are canceled.
{{PAGE}}
NOTE 7--EMPLOYEE RETIREMENT PLANS
The Company sponsors two defined contribution retirement plans: a
profit-sharing plan based on participant compensation and a 401(k) plan.
The Company also has a defined benefit plan covering those employees whose
annual base salaries do not exceed a specified salary limit. Participant
benefits are based on the final month's base pay and years of service
subsequent to January 1, 1987. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The following table sets forth the plan's funded status and the
amounts recognized in the Company's consolidated balance sheet (in thousands)
at December 31, 1993.
Actuarial present value of
Accumulated benefit obligation for service rendered
Vested ...................................................... $ 780
Non-vested .................................................. 1,362
---------
Total ....................................................... 2,142
Obligation attributable to estimated future compensation
increases ................................................... 2,594
---------
Projected benefit obligation .................................. 4,736
Plan assets held in sponsored mutual funds, at fair value ....... 2,594
---------
Projected benefit obligation in excess of plan assets ........... 2,142
Unrecognized loss from decreases in discount rate ............... 407
---------
Accrued retirement costs ........................................ $1,735
---------
---------
Discount rate used in determining actuarial present values ...... 6.40%
---------
---------
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a minority partner in the joint venture which owns the land and
building in which the Company leases its corporate offices. Future minimum
rental payments under the Company's lease agreement are $3,110,000 in 1994 and
1995, $3,220,000 in 1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006.
The Company leases office facilities and equipment under other
noncancelable operating leases. Future minimum rental payments under these
leases aggregate $4,621,000 in 1994, $4,123,000 in 1995, $1,776,000 in 1996,
$1,259,000 in 1997, $696,000 in 1998, and $4,806,000 in later years.
At December 31, 1993, the Company had outstanding commitments to invest an
additional $6,757,000 in various investment partnerships and ventures.
The Company has contingent obligations at December 31, 1993 under a
$500,000 direct pay letter of credit expiring not later than 1999 and a
$780,000 standby letter of credit which is renewable annually.
{{PAGE}}
Consolidated stockholders' equity at December 31, 1993 includes
$32,635,000 which is restricted as to use under various regulations and
agreements to which the Company and its subsidiaries are subject in the
ordinary course of business.
From time to time, the Company is a party to various employment-related
claims, including claims of discrimination, before federal, state and local
administrative agencies and courts. The Company vigorously defends itself
against these claims. In the opinion of management, after consultation with
counsel, it is unlikely that any adverse determination in one or more pending
employment-related claims would have a material adverse effect on the
Company's financial position.
{{PAGE}}
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of T. Rowe Price Associates,
Inc. and its subsidiaries at December 31, 1993 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 25, 1994
{{PAGE}}
T.ROWEPRICE PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE INDEX TRUST, INC. MEETING: 9:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James S. Riepe and M. David Testa, as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of stock of the Fund,
which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, April 20, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated March 9, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: ------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779552108/fund#050
{{PAGE}}
T.ROWEPRICE WE NEED YOUR PROXY VOTE BEFORE APRIL 20, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of FOR all nominees listed WITHHOLD AUTHORITY 1.
directors below (except as marked to vote for all nominees
to the contrary) listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Leo C. Bailey Donald W. Dick, Jr. David K. Fagin Addison Lanier
John K. Major Hanne M. Merriman James S. Riepe M. David Testa
Hubert D. Vos Paul M. Wythes
2. Approve changes to the FOR EACH POLICY LISTED ABSTAIN 2.
Fund's fundamental BELOW (except as marked
policies. to the contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (C) Purchasing on Margin (E) Commodities & Futures
(B) Lending (D) Senior Securities (F) Short Sales
{{PAGE}}
T.ROWEPRICE PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE BALANCED FUND, INC. MEETING: 9:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James S. Riepe and M. David Testa, as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of stock of the Fund,
which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, April 20, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated March 9, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: ------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#77954G108/fund#068
{{PAGE}}
T.ROWEPRICE WE NEED YOUR PROXY VOTE BEFORE APRIL 20, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of FOR all nominees listed WITHHOLD AUTHORITY 1.
directors below (except as marked to to vote for all nominees
the contrary) listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Leo C. Bailey Donald W. Dick, Jr. David K. Fagin Addison Lanier
John K. Major Hanne M. Merriman James S. Riepe M. David Testa
Hubert D. Vos Paul M. Wythes
2. Approve changes to the FOR EACH POLICY LISTED ABSTAIN 2.
Fund's fundamental BELOW (except as marked
policies. to the contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (C) Purchasing on Margin (E) Commodities & Futures
(B) Lending (D) Senior Securities (F) Short Sales
3. Ratify the selection of Coopers & Lybrand as independent accountants.
FOR AGAINST ABSTAIN 3.
4. I authorize the Proxies, in their discretion, to vote upon such other
business as may properly come before the meeting.
CUSIP#77954G108/fund#068
