PAGE 1 Registration Nos.: 033-49581/811-7059
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 1 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 2 / X /
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
_________________________________
(Exact Name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 410-547-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
_______________________________________
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________
Pursuant to Section 24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 and intends to file a 24f-2 notice by February 28,
1994.
+ Not applicable, as no securities are being registered by this Post-
Effective Amendment No. 1 to the Registration Statement.
<PAGE>
PAGE 2
CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ _________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary of Fund Fees and
Expenses
Item 3. Condensed Financial Information +
Item 4. General Description of Registrant Investment Summary; Investment
Objectives and Program; Summary
of Fund Fees and Expenses;
Investment Policies; Performance
Information; Capital Stock
Item 5. Management of the Fund Summary of Fund Fees and
Expenses; Management of the
Fund; Expenses and Management
Fee
Item 5A. Management's Discussion of +
Fund Performance
Item 6. Capital Stock and Other Securities Capital Stock; Dividends and
Distributions; Taxes
Item 7. Purchase of Securities Being NAV, Pricing, and Effective
Offered Date; Shareholder Services;
Conditions of Your Purchase;
Completing the New Account Form;
Opening a New Account;
Purchasing Additional Shares
Item 8. Redemption or Repurchase NAV, Pricing, and Effective
Date; Receiving Your Proceeds;
Conditions of Your Purchase;
Exchanging and Redeeming Shares
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment Objectives;
Investment Program; Investment
Restrictions; Investment
Performance
Item 14. Management of the Registrant Management of Fund
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian; Independent
Accountants; Legal Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Dividends; Organization of the
Fund
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per Share;
Redemptions in Kind; Federal and
State Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the Fund
Item 22. Calculation of Yield Quotations of
Money Market Funds +
Item 23. Financial Statements +
<PAGE>
PAGE 3 PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement
___________________________________
+ Not applicable or negative answer
<PAGE>
PAGE 4
Prospectus for the T. Rowe Price Blue Chip Growth Fund, Inc., dated February
__, 1994, should be inserted here.
PAGE 1
BLUE CHIP GROWTH FUND Investment Summary
The Fund seeks long-term growth of capital
through investments primarily in the common
stocks of well-established companies with
the potential for above-average growth in
earnings. Current income is a secondary
objective.
Prospectus
February __, 1994 This Fund may be appropriate for equity
T. Rowe Price Blue Chip investors who can accept the risks and
Growth Fund, Inc. potential rewards of a Fund seeking capital
appreciation through investing in "Blue
Chip" (i.e., high quality) growth
companies. The Fund's dividends will be
distributed annually.
__________________________________________
T. Rowe Price
100% No Load. This Fund has no sales
charges, no redemption fees, and no 12b-1
fees. 100% of your investment is credited
to your account.
Table of Contents Services. T. Rowe Price provides easy
access to your money through checkwriting,
Fund Information bank wires, or telephone redemptions and
Investment Objectives and offers easy exchange to other T. Rowe Price
Program Funds.
Summary of Fund Fees and
Expenses T. Rowe Price Associates, Inc. (T. Rowe
Financial Highlights Price) was founded in 1937 by the late
Investment Policies and Thomas Rowe Price, Jr. As of December 31,
Risk Considerations 1992, the firm and its affiliates managed
Performance Information over $40 billion for approximately two and
Capital Stock a half million individual and institutional
NAV, Pricing, and investors.
Effective Date ___________________________________________
Receiving Your Proceeds This prospectus contains information you
Dividends and should know about the Fund before you
Distributions invest. Please keep it for future
Taxes reference. A Statement of Additional
Management of the Fund Information for the Fund (dated February
Expenses and Management __, 1994) has been filed with the
Fee Securities and Exchange Commission and is
How to Invest incorporated by reference in this
Shareholder Services prospectus. It is available at no charge
Conditions of Your by calling: 1-800-638-5660.
Purchase
PAGE 2
Completing the New THESE SECURITIES HAVE NOT BEEN APPROVED OR
Account Form DISAPPROVED BY THE SECURITIES AND EXCHANGE
Opening a New Account COMMISSION, OR ANY STATE SECURITIES
Purchasing Additional COMMISSION, NOR HAS THE SECURITIES AND
Shares EXCHANGE COMMISSION, OR ANY STATE
Exchanging and Redeeming SECURITIES COMMISSION, PASSED UPON THE
Shares ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________ ___________________________________________
INVESTMENT OBJECTIVES AND The Fund's investment objective is to
PROGRAM provide long-term growth of capital. While
current income is a secondary objective,
most of the stocks in the Fund's portfolio
are expected to pay dividends.
The Fund will invest primarily (at least
65% of its total assets) in the common
stocks of Blue Chip companies as determined
by T. Rowe Price. These companies will
have the potential for above-average growth
in earnings and be well-established in
their respective industries. The Fund will
generally invest in large and medium sized
companies which possess some or all of the
following characteristics:
o Leading Market Positions
Blue Chip companies often occupy leading
market positions that are expected to be
maintained or enhanced over time. Strong
market positions, particularly in growing
industries, can give a company pricing
flexibility as well as the potential for
strong unit sales. These factors can in
turn lead to higher earnings growth and
greater share price appreciation.
o Seasoned Management Teams
The depth and breadth of management's
operating experience will be evaluated by
T. Rowe Price. The Fund will seek to
invest in companies possessing seasoned
management teams with a track record of
providing superior financial results.
PAGE 3
o Strong Financial Fundamentals
Companies considered for the Fund's
portfolio will typically demonstrate:
- faster earnings growth than its
competitors and the market in
general;
- high profit margins relative to
competitors;
- strong cash flow;
- healthy balance sheet, with
relatively low debt; and
- a high return on equity with a
relatively low dividend payout
ratio.
In selecting investments for the Fund, T.
Rowe Price will conduct proprietary
research to evaluate the growth prospects
of the company and the industry in which it
operates. This approach seeks to identify
Blue Chip companies with market franchises
in industries believed to be strategically
poised for long-term growth. The
investment approach is based on T. Rowe
Price's belief that the combination of
solid company fundamentals (with emphasis
on the potential for above-average growth
in earnings) along with a strong outlook
for overall industry growth will ultimately
reward investors with a higher stock price.
While primary emphasis is placed on a
company's prospects for future growth, the
Fund will not purchase securities which, in
T. Rowe Price's opinion, are overvalued
given the underlying business fundamentals.
The Fund seeks to invest in the stocks of
growth companies which are attractively
priced relative to their anticipated long-
term value, thereby providing the potential
for substantial capital appreciation.
The Fund will diversify among industry
sectors by investing no more than 25% of
its assets in one industry sector. The
PAGE 4
Fund will normally be fully invested with
cash reserves typically less than 10%. Up
to 25% of the Fund's assets may be invested
in convertible securities, preferred
stocks, and fixed income securities
(corporate or government) when deemed
consistent with the Fund's objectives.
Generally, the Fund will purchase debt
securities considered investment grade but
may invest up to 5% of its total assets in
non-investment grade debt securities,
including securities which are not rated or
have received the lowest rating from an
established rating agency. Medium grade
bonds are included in the investment grade
category. Such bonds are more susceptible
to adverse economic conditions or changing
circumstances than higher grade bonds.
Convertible securities will be purchased to
participate in the equity performance
characteristics they can provide. The Fund
will generally purchase convertible
securities in companies which meet the
criteria for Blue Chip companies described
above.
The Fund's share price will fluctuate with
changing market conditions, and your
investment may be worth more or less when
redeemed than when purchased. The Fund
should not be relied upon as a complete
investment program, nor used to play short-
term swings in the stock market. The Fund
cannot guarantee it will achieve its
investment objectives.
Please see Investment Policies for a
more complete description of the Fund's
investments and pages 14-16 for information
on how to purchase, exchange and redeem
Fund shares.
________________________ ___________________________________________
SUMMARY OF FUND FEES AND The Fund is 100% no-load . . . you pay no
EXPENSES fees to purchase, exchange or redeem
shares, nor any ongoing marketing (12b-1)
expenses. Lower expenses benefit you by
PAGE 5
increasing your investment return from the
Fund.
Shown below are estimates of all expenses
and fees that the Fund is expected to
incur. These expenses are expressed as a
percent of average Fund net assets. In the
interest of limiting the expenses of the
Fund during its initial period of
operations, T. Rowe Price has agreed to
bear any expenses through December 31, 1994
which would cause the Fund's ratio of
expenses to average net assets to exceed
1.25%. Expenses paid or assumed under this
agreement are subject to reimbursement to
T. Rowe Price by the Fund whenever the
Fund's expense ratio is below 1.25%;
however, no reimbursement will be made
after December 31, 1996, or if it would
result in the expense ratio exceeding
1.25%. Without this expense limitation, it
is estimated the Fund's management fee and
total expense ratio for the first period of
operation would be 0.65% and 1.59%,
respectively. Organizational expenses will
be charged to the Fund over a period not to
exceed 60 months.
More information about these expenses may
be found below and under Expenses and
Management Fee and in the Statement of
Additional Information under Management Fee
and Limitation on Fund Expenses.
Shareholder Transaction Expenses
___________________________________________
Sales load "charge" on
purchases None
___________________________________________
Sales load "charge" on
reinvested dividends None
___________________________________________
Redemption fees None
___________________________________________
Exchange fees None
___________________________________________
PAGE 6
Annual Fund Expenses
___________________________________________
Management fee (after
reduction) 0.31%
___________________________________________
Total other (Shareholder
servicing, custodial,
auditing, etc.)+ 0.94%
___________________________________________
Distribution fees
(12b-1) None
___________________________________________
Total Fund Expenses 1.25%
___________________________________________
+ The Fund charges a $5.00 fee for wire
redemptions under $5,000, subject to
change without notice.
Example of Fund expenses. The following example illustrates the
expenses you would incur on a $1,000
investment, assuming a 5% annual rate of
return and redemption at the end of each
period shown. For example, expenses for
the first year in the Fund would be $13.
This is an illustration only. Actual
expenses and performance may be more or
less than shown.
1 Year--$13 3 Years--$40
Management Fee. Subject to the expense
limitation described on the previous page,
the Fund pays T. Rowe Price an investment
management fee consisting of a flat
Individual Fund Fee of 0.30% of the Fund's
net assets and a Group Fee, defined on page
10 under Expenses and Management Fee, of
0.35% as of March 31, 1993. Thus, the
total combined management fee for the Fund
is estimated to be 0.65% of net assets.
Transfer Agent, Shareholder Servicing, and
Administrative Costs. The Fund is expected
to pay fees to: (i) T. Rowe Price Services,
Inc. (TRP Services) for transfer and
dividend disbursing agent functions and
PAGE 7
shareholder services for all accounts; (ii)
T. Rowe Price Retirement Plan Services,
Inc. for subaccounting and recordkeeping
services for certain retirement accounts;
and (iii) T. Rowe Price for calculating the
daily share price and maintaining the
portfolio and general accounting records of
the Fund. These fees are expected to total
approximately $50,000, $10,000, and
$15,000, respectively, for the period
ending December 31, 1993.
________________________ ___________________________________________
FINANCIAL HIGHLIGHTS The following table provides information
about the Fund's financial history. It is
based on a single share outstanding for the
period June 30, 1993 (commencement of
operations) to December 31, 1993. The
table is part of the Fund's financial
statements which are included in the Fund's
annual report and incorporated by reference
into the Statement of Additional
Information, which is available to
shareholders. The financial statements in
the annual report have been audited by
Price Waterhouse, independent accountants,
whose unqualified report covers the period
shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset ized Gain from
Value, Net (Loss) Invest- Net Net
Period Begin- Invest- on ment Invest-Real- Total
Ended, ning of ment Invest- Activi- ment lized Distri-
December 31 Period Income ments ties Income Gain butions
_________________________________________________________________
1993 $10.00 $.05 $1.38 $1.43 $(.05) $(.14) $(.19)
_________________________________________________________________
PAGE 8
End of Period
Ratio
of
Ratio Net
of Invest-
Net Expenses ment Port-
Asset to Income
folio
Value, Net Average to Aver- Turn-
Year Ended, End of Total Assets (in Net age Net over
December 31 Period Return thousands) Assets Assets Rate
_________________________________________________________________
1993 $11.24 14.3% $24,651 $1.25%+*0.80%+ 152.5%+
_________________________________________________________________
+ Annualized
* Excludes expenses in excess of a 1.25% voluntary expense
limitation in effect through December 31, 1994.
________________________ ___________________________________________
INVESTMENT POLICIES AND The Fund's investment program and policies
RISK CONSIDERATIONS are subject to further restrictions and
risks which are described in the Statement
of Additional Information. The Fund will
not make a material change in its
investment objectives or a change in its
fundamental policies without obtaining
shareholder approval. The Fund's
investment program, unless otherwise
specified, is not a fundamental policy and
may be changed without shareholder
approval. Shareholders will be notified of
any material change in the investment
program. In addition to the investments
described under Investment Program, the
Fund's investments may include, but are not
limited to, those described below.
Cash Reserves. While the Fund will
generally be fully invested with cash
reserves typically less than 10% of total
assets, it may, for temporary, defensive
purposes, invest in reserves without
limitation. The Fund may also establish
and maintain reserves as T. Rowe Price
believes is advisable to facilitate the
Fund's cash flow needs (e.g., redemptions,
expenses, and purchases of portfolio
securities). The Fund's reserves will be
PAGE 9
invested in domestic and foreign money
market instruments rated within the top two
credit categories by a national rating
organization or, if unrated, the T. Rowe
Price equivalent.
Convertible Securities, Preferred Stocks,
and Warrants. The Fund may invest in debt
or preferred equity securities convertible
into or exchangeable for equity securities.
Preferred stocks are securities that
represent an ownership interest in a
corporation providing the owner with claims
on the company's earnings and assets before
common stock owners, but after bond owners.
Warrants are options to buy a stated number
of shares of common stock at a specified
price any time during the life of the
warrants (generally, two or more years).
Foreign Securities. The Fund may invest up
to 10% of its total assets in securities
principally traded in markets outside the
United States. While investments in
foreign securities are intended to reduce
risk by providing further diversification,
such investments involve sovereign risk in
addition to credit and market risks.
Sovereign risk includes local political or
economic developments, potential
nationalization, withholding taxes on
dividend or interest payments, and currency
blockage (which would prevent cash from
being brought back to the United States).
Foreign investments may be affected
favorably or unfavorably by changes in
currency rates and exchange control
regulations. Foreign companies may have
less public or less reliable information
available about them and may be subject to
less governmental regulation than U.S.
companies. Securities of foreign companies
may be less liquid or more volatile than
securities of U.S. companies.
Foreign Currency Transactions. Foreign
securities of the Fund are subject to
PAGE 10
currency risk, that is, the risk that the
U.S. dollar value of these securities may
be affected favorably or unfavorably by
changes in foreign currency exchange rates
and exchange control regulations. To
manage this risk and facilitate the
purchase and sale of foreign securities,
the Fund will engage in foreign currency
transactions involving the purchase and
sale of forward foreign currency exchange
contracts. Although foreign currency
transactions will be used primarily to
protect the Fund from adverse currency
movements, they also involve the risk that
anticipated currency movements will not be
accurately predicted and the Fund's total
return could be adversely affected as a
result.
Futures and Options. The Fund may enter
into futures contracts (or options thereon)
to hedge all or a portion of its portfolio,
as a hedge against changes in prevailing
levels of currency exchange rates, or as an
efficient means of adjusting its exposure
to the stock and currency markets. The
Fund will not use futures contracts for
speculation. The Fund will limit its use
of futures contracts so that no more than
5% of the Fund's total assets would be
committed to initial margin deposits or
premiums on such contracts. The Fund may
also write covered call and put options and
purchase put and call options on
securities, financial indices, and
currencies. The aggregate market value of
the Fund's portfolio securities or
currencies covering call or put options
will not exceed 25% of the Fund's net
assets. Futures contracts and options can
be highly volatile and could result in
reduction of the Fund's total return, and
the Fund's attempt to use such investments
for hedging purposes may not be successful.
Successful futures strategies require the
ability to predict future movements in
PAGE 11
securities prices, interest rates and other
economic factors. The Fund's potential
losses from the use of futures extends
beyond its initial investment in such
contracts. Also, losses from options and
futures could be significant if the Fund is
unable to close out its position due to
disruptions in the market or lack of
liquidity.
Illiquid Securities. The Fund may acquire
illiquid securities and securities of
unseasoned issuers (limited in total to not
more than 15% of net assets). Because an
active trading market does not exist for
all such securities, their sale may be
subject to delay and additional costs. The
Fund will not invest more than 5% of its
total assets in restricted securities and
not more than 5% in securities of
unseasoned issuers. Securities eligible
for resale under Rule 144A of the
Securities Act of 1933 are not included in
the 5% limitation but are subject to the
15% limitation.
Lending of Portfolio Securities. As a
fundamental policy, for the purpose of
realizing additional income, the Fund may
lend securities with a value of up to 30%
of its total assets to broker-dealers,
institutional investors, or other persons.
Any such loan will be continuously secured
by collateral at least equal to the value
of the security loaned. Such lending could
result in delays in receiving additional
collateral or in the recovery of the
securities or possible loss of rights in
the collateral should the borrower fail
financially.
Repurchase Agreements. The Fund may enter
into repurchase agreements with a
well-established securities dealer or a
bank which is a member of the Federal
Reserve System. In the event of a
PAGE 12
bankruptcy or default of certain sellers of
repurchase agreements, the Fund could
experience costs and delays in liquidating
the underlying security, which is held as
collateral, and the Fund might incur a loss
if the value of the collateral held
declines during this period.
Portfolio Turnover. The Fund will not
generally trade in securities for
short-term profits but, when circumstances
warrant, securities may be purchased and
sold without regard to the length of time
held. The Fund cannot accurately predict
its annual portfolio turnover rate;
however, the rate is generally expected to
be below that of the average growth stock
mutual fund, and is not expected to exceed
100% for the first year.
Fundamental Investment Policies. As a
matter of fundamental policy, the Fund will
not, among other things: (1) purchase a
security of any issuer if, as a result, it
would (a) cause the Fund to have more than
25% of its total assets concentrated in any
one industry, or (b) with respect to 75% of
its assets, cause the Fund's holdings of
that issuer to amount to more than 5% of
the Fund's total assets or cause the Fund
to own more than 10% of the outstanding
voting securities of any issuer; (2) borrow
money except for temporary non-leveraging
purposes from banks (a) in amounts not
exceeding 30% of its total assets to
facilitate redemption requests, or (b) in
amounts not exceeding 5% of its total
assets for emergency, administrative or
other proper purposes.
Other Investment Policies. As a matter of
operating policy, the Fund will not, among
other things: (1) purchase a security of
any issuer if, as a result, more than 5% of
the value of the Fund's total assets would
be invested in the securities of unseasoned
issuers which at the time of purchase have
PAGE 13
been in operation for less than three
years, including predecessors and
unconditional guarantors; (2) in any manner
transfer as collateral for indebtedness any
securities owned by the Fund except in
connection with permissible borrowings or
investments but no such transfer will
exceed 30% of the Fund's total assets; and
(3) purchase additional securities when
money borrowed exceeds 5% of the Fund's
total assets.
________________________ ___________________________________________
PERFORMANCE INFORMATION The Fund may advertise total return figures
on both a cumulative and compound average
annual basis and compare them to various
indices (e.g., the S&P 500), other mutual
funds or other performance measures. (The
total return of the Fund consists of the
change in its net asset value per share and
the net income it earns.) Cumulative total
return compares the amount invested at the
beginning of a period with the amount
redeemed at the end of the period, assuming
the reinvestment of all dividends and
capital gain distributions. The compound
average annual total return indicates a
yearly compound average of the Fund's
performance, derived from the cumulative
total return. The annual compound rate of
return for the Fund may vary from any
average. Further information about the
Fund's performance is contained in its
annual report which is available free of
charge.
________________________ ___________________________________________
CAPITAL STOCK The Fund is a Maryland corporation
organized in 1993 and registered with the
Securities and Exchange Commission under
the Investment Company Act of 1940 as a
diversified, open-end investment company,
commonly known as a "mutual fund." A
mutual fund, such as the Fund, enables
shareholders to: (1) obtain professional
management of investments, including T.
Rowe Price's proprietary research; (2)
diversify their portfolio to a greater
degree than would be generally possible if
PAGE 14
they were investing as individuals and
thereby reduce, but not eliminate risks;
and (3) simplify the recordkeeping and
reduce transaction costs associated with
investments.
The Fund has an Investment Advisory
Committee composed of the following
members: Thomas H. Broadus, Jr., Chairman,
Brian W. H. Berghuis, John D. Gillespie,
Larry J. Puglia, Brian C. Rogers, Robert W.
Smith, and William J. Stromberg. The
Committee Chairman has day-to-day
responsibility for managing the Fund and
works with the Committee in developing and
executing the Fund's investment program.
Mr. Broadus has been Chairman of the
Committee since its inception in 1993. He
has been managing investments since joining
T. Rowe Price in 1966.
Shareholder Rights. The Fund issues one
class of capital stock, all shares of which
have equal rights with regard to voting,
redemptions, dividends, distributions, and
liquidations. Fractional shares have
voting rights and participate in any
distributions and dividends. Shareholders
have no preemptive or conversion rights;
nor do they have cumulative voting rights.
When the Fund's shares are issued, they are
fully paid and nonassessable. The Fund
does not routinely hold annual meetings of
shareholders. However, if shareholders
representing at least 10% of all votes of
the Fund entitled to be cast so desire,
they may call a special meeting of
shareholders of the Fund for the purpose of
voting on the question of the removal of
any director(s). The total authorized
capital stock of the Fund consists of
1,000,000,000 shares, each having a par
value of $.0001. As of the date of this
prospectus, T. Rowe Price owned 10,000
shares of the Fund which represented all of
PAGE 15
the Fund's outstanding shares. As of March
31, 1993, there were 2,629,547 shareholders
in the other 49 T. Rowe Price Funds.
________________________ ___________________________________________
FUND OPERATIONS AND The following sections apply to this Fund
SERVICES and all T. Rowe Price Equity Funds.
________________________ ___________________________________________
NAV, PRICING, AND Net Asset Value Per Share (NAV). The NAV
EFFECTIVE DATE per share, or share price, for the Fund is
normally determined as of 4:00 pm Eastern
Time (ET) each day the New York Stock
Exchange is open. The Fund's share price
is calculated by subtracting its
liabilities from its total assets and
dividing the result by the total number of
shares outstanding. Among other things,
the Fund's liabilities include accrued
expenses and dividends payable, and its
total assets include portfolio securities
valued at market as well as income accrued
but not yet received.
If your order is received Purchased shares are priced at that day's
in good order before 4:00 NAV if your request is received before 4:00
pm ET, you will receive pm ET in good order. (See Completing the
that day's NAV. New Account Form and Opening a New
Account.) If received later than 4:00 pm
ET, shares will be priced at the next
business day's NAV.
Redemptions are priced at that day's NAV
if your request is received before 4:00 pm
ET in good order at the transfer agent's
offices at T. Rowe Price Account Services,
P.O. Box 89000, Baltimore, MD 21289-0220.
If received after 4:00 pm ET, shares will
be priced at the next business day's NAV.
Also, we cannot accept requests which
specify a particular date for purchase or
redemption or which specify any special
conditions. If your redemption request
cannot be accepted, you will be notified
and given further instructions.
Exchanges are normally priced in the same
manner as purchases and redemptions.
PAGE 16
However, if you are exchanging into a bond
or money fund and the release of your
exchange proceeds is delayed for the
allowable five business days (see Receiving
Your Proceeds), you will not begin to earn
dividends until the sixth business day
after the exchange.
The Fund reserves the right to change the
time at which purchases, redemptions, and
exchanges are priced if the New York Stock
Exchange closes at a time other than 4:00
pm ET or an emergency exists.
________________________ ___________________________________________
RECEIVING YOUR PROCEEDS Redemption proceeds are mailed to the
address or sent by wire or ACH transfer to
the bank account designated on your New
Account Form. They are generally sent the
next business day after your redemption
request is received in good order.
Proceeds sent by bank wire will be credited
to your bank account the next business day
and proceeds sent by ACH transfer will be
credited the second day after the sale. In
addition, under unusual conditions, or when
deemed to be in the best interests of the
Fund, redemption proceeds may not be sent
for up to five business days after your
request is received to allow for the
orderly liquidation of securities.
Requests by mail for wire redemptions
(unless previously authorized) must have a
signature guarantee.
________________________ ___________________________________________
DIVIDENDS AND The Fund distributes all net investment
DISTRIBUTIONS income and capital gains to shareholders.
Dividends from net investment income and
distributions from capital gains, if any,
are normally declared in December and paid
in January. However, dividends from net
investment income for the Balanced, Growth
& Income, Equity Income, and Dividend
Growth Funds will be declared and paid
quarterly. Dividends and distributions
declared by the Fund will be reinvested
unless you choose an alternative payment
option on the New Account Form. Dividends
PAGE 17
not reinvested are paid by check or
transmitted to your bank account via ACH.
If the U.S. Postal Service cannot deliver
your check, or if your check remains
uncashed for six months, the Fund reserves
the right to reinvest your distribution
check in your account at the then current
NAV and to reinvest all subsequent
distributions in shares of the Fund.
________________________ ___________________________________________
TAXES Dividends and Distributions. In January,
the Fund will mail you Form 1099-DIV
indicating the federal tax status of your
dividends and capital gain distributions.
Form 1099-DIV will be Generally, dividends and distributions are
mailed to you in January. taxable in the year they are paid.
However, any dividends and distributions
paid in January but declared during the
prior three months are taxable in the year
they are declared. Dividends and
distributions are taxable to you regardless
of whether they are taken in cash or
reinvested. Dividends and short-term
capital gain distributions are taxable as
ordinary income; long-term capital gain
distributions are taxable as long-term
capital gains. The capital gain holding
period is determined by the length of time
the Fund has held the securities, not the
length of time you have owned Fund shares.
Shares Sold. A redemption or exchange of
Fund shares is treated as a sale for tax
purposes which will result in a short or
long-term capital gain or loss, depending
on how long you have owned the shares. In
January, the Fund will mail you Form 1099-B
indicating the trade date and proceeds from
all sales and exchanges.
Undistributed Income and Gains. At the
time of purchase, the share price of the
Fund may reflect undistributed income,
capital gains or unrealized appreciation of
securities. Any income or capital gains
from these amounts which are later
distributed to you are fully taxable.
PAGE 18
Foreign Transactions (All Funds other than
New America Growth Fund). Distributions
resulting from the sale of certain foreign
currencies and debt securities, to the
extent of foreign exchange gains, are taxed
as ordinary income or loss. If the Fund
pays nonrefundable taxes to foreign
governments during the year, the taxes will
reduce the Fund's dividends.
Corporations. All or part of the Fund's
dividends will be eligible for the 70%
deduction for dividends received by
corporations.
Tax-Qualified Retirement Plans. Tax-
qualified retirement plans generally will
not be subject to federal tax liability on
either distributions from the Fund or
redemption of shares of the Fund. Rather,
participants in such plans will be taxed
when they begin taking distributions from
the plans.
________________________ ___________________________________________
MANAGEMENT OF THE FUND Investment Manager. T. Rowe Price is
responsible for selection and management of
the Fund's portfolio investments. T. Rowe
Price serves as investment manager to a
variety of individual and institutional
investors, including limited and real
estate partnerships and other mutual funds.
Board of Directors/Trustees. The
management of the Fund's business and
affairs is the responsibility of the Fund's
Board of Directors/Trustees.
Portfolio Transactions. Decisions with
respect to the purchase and sale of the
Fund's portfolio securities are made by T.
Rowe Price. The Fund's Board of
Directors/Trustees has authorized T. Rowe
Price to utilize certain brokers indirectly
related to T. Rowe Price in the capacity of
broker in connection with the execution of
the Fund's portfolio transactions.
PAGE 19
Investment Services. T. Rowe Price
Investment Services, Inc., a wholly-owned
subsidiary of T. Rowe Price, is the
distributor for this Fund as well as all
other T. Rowe Price Funds.
Transfer and Dividend Disbursing Agent,
Shareholder Servicing and Administrative.
TRP Services, a wholly-owned subsidiary of
T. Rowe Price, serves the Fund as transfer
and dividend disbursing agent. T. Rowe
Price Retirement Plan Services, Inc., a
wholly-owned subsidiary of T. Rowe Price,
performs subaccounting and recordkeeping
services for shareholder accounts in
certain retirement plans investing in the
Price Funds. T. Rowe Price calculates the
daily share price and maintains the
portfolio and general accounting records of
the Fund. The address for TRP Services and
T. Rowe Price Retirement Plan Services,
Inc. is 100 East Pratt Street, Baltimore,
Maryland 21202.
________________________ ___________________________________________
EXPENSES AND The Fund bears all expenses of its
MANAGEMENT FEE operations other than those incurred by T.
Rowe Price under its Investment Management
Agreement with T. Rowe Price. Fund
expenses include: the management fee;
shareholder servicing fees and expenses;
custodian and accounting fees and expenses;
legal and auditing fees; expenses of
preparing and printing prospectuses and
shareholder reports; registration fees and
expenses; proxy and annual meeting
expenses, if any; and directors'/trustees'
fees and expenses.
Management Fee. The Fund pays T. Rowe
Price an investment management fee
consisting of an Individual Fund Fee and a
Group Fee. See Summary of Fund Fees and
Expenses for the Individual Fund Fee. The
Group Fee varies and is based on the
combined net assets of all mutual funds
sponsored and managed by T. Rowe Price and
Rowe Price-Fleming International, Inc.,
PAGE 20
excluding T. Rowe Price Spectrum Fund,
Inc., and any institutional or private
label mutual funds, and distributed by T.
Rowe Price Investment Services, Inc.
The 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. The table
below shows the annual Group Fee rate at
various asset levels of the combined Price
Funds:
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
Based on combined Price Funds' assets of
approximately $34.7 billion at December 31,
1993, the Group Fee was 0.35%.
________________________ ___________________________________________
SHAREHOLDER SERVICES The following is a brief summary of
services available to shareholders in the
T. Rowe Price Funds, some of which may be
restricted or unavailable to retirement
plan accounts. You must authorize most of
these services on a New Account or
Shareholder Services Form. Services may be
modified or withdrawn at any time without
notice. Please verify all transactions on
your confirmation statements promptly after
receiving them. Any discrepancies must be
reported to Shareholder Services
immediately.
Automatic Asset Builder. You can have us
move $50 or more on the same day each month
from your bank account or invest $50 or
PAGE 21
more from your paycheck into any T. Rowe
Price Fund.
Investor Services Discount Brokerage Service. You can trade
1-800-638-5660 stocks, bonds, options, CDs, Treasury
1-410-547-2308 Bills, and precious metals at substantial
savings through our Discount Brokerage
Service. Call Investor Services for more
information.
Exchange Service. You can move money from
one account to an existing identically
registered account or open a new
identically registered account. Remember
that, for tax purposes, an exchange is
treated as a redemption and a new purchase.
Exchanges into a state tax-free fund are
limited to investors residing in states
where those funds are qualified for sale.
Some of the T. Rowe Price Funds may impose
a redemption fee of 1-2%, payable to such
Funds, on shares held for less than twelve
months.
Retirement Plans. For details on IRAs,
please call Investor Services. For details
on all other retirement plans, please call
our Trust Company at 1-800-492-7670.
Shareholder Telephone Services. The following services
Services are explained fully in the Services Guide,
1-800-225-5132 which is mailed to new T. Rowe Price
1-410-625-6500 investors. If you don't have a copy,
please call Shareholder Services. (All
telephone calls to Shareholder Services and
Investor Services are recorded in order to
protect you, the Fund, and its agents.)
24-Hour Service. Tele*AccessR provides
information on yields, prices, latest
dividends, account balances, and last
transaction as well as the ability to
initiate purchase, redemption and
exchange orders (if you have established
Telephone Services). Just call 1-800-
638-2587 and press the appropriate codes
into your touch-tone phone. PC*AccessR
PAGE 22
provides the same information as
Tele*Access, but on a personal computer.
Electronic Transfers. We offer three
free methods for purchasing or redeeming
Fund shares in amounts of $100 to
$100,000 through ACH transfers between
your bank checking and Fund accounts:
-- By calling Shareholder Services
during business hours (Tele-
ConnectR);
-- By touch-tone phone any day,
any time (Tele*Access);
-- By personal computer any day,
any time (PC*Access).
If your bank checking and Fund account
are not identically registered, you will
need a signature guarantee to establish
this service.
Wire Transfers. Wire transfers can be
processed through bank wires (a $5 charge
applies to redemption amounts under
$5,000, and your bank may charge you for
receiving wires). While this is usually
the quickest transfer method, the Fund
reserves the right to temporarily suspend
wires under unusual circumstances.
________________________ ___________________________________________
CONDITIONS OF YOUR Account Balance (All Funds other than New
PURCHASE Era Fund). If your account drops below
$1,000 for three months or more, the Fund
has the right to close your account, after
giving 60 days' notice, unless you make
additional investments to bring your
account value to $1,000 or more.
Broker-Dealers. Purchases or redemptions
through broker-dealers, banks, and other
institutions may be subject to service fees
imposed by those entities. No such fees
are charged by T. Rowe Price Investment
Services or the Fund if shares are
purchased or redeemed directly from the
Fund.
PAGE 23
Excessive Trading and Exchange Limitations.
To protect Fund shareholders against
disruptions in portfolio management which
might occur as a result of too frequent buy
and sell activity and to minimize Fund
expenses associated with such transaction
activity, the Fund prohibits excessive
trading in any account (or group of
accounts managed by the same person).
Within any 120 consecutive-day period,
investors may not exchange between Price
Funds more than twice or buy and sell the
Price Funds more than once, if the
transactions involve substantial assets or
a substantial portion of the assets in the
account or accounts. This policy is
applied on a multi-fund basis. Any
transactions above and beyond these
guidelines will be considered to be
excessive trading, and the investor may be
prohibited from making additional purchases
or exercising the exchange privilege.
This policy does not apply to exchanges
solely between, or purchases and sales
solely of, the Price Money Funds, nor does
it apply to simple redemptions from any
Fund.
Nonpayment. If your check, wire or ACH
transfer does not clear, or if payment is
not received for any telephone purchase,
the transaction will be cancelled and you
will be responsible for any loss the Fund
or Investment Services incurs. If you are
already a shareholder, the Fund can redeem
shares from any identically registered
account in this Fund or any other T. Rowe
Price Fund as reimbursement for any loss
incurred. You may be prohibited or
restricted from making future purchases in
any of the T. Rowe Price Funds.
U.S. Dollars. All purchases must be paid
for in U.S. dollars, and checks must be
drawn on U.S. banks.
PAGE 24
Redemptions in Excess of $250,000.
Redemption proceeds are normally paid in
cash. However, if you redeem more than
$250,000, or 1% of the Fund's net assets,
in any 90-day period, the Fund may in its
discretion: (1) pay the difference between
the redemption amount and the lesser of
these two figures with securities of the
Fund or (2) delay the transmission of your
proceeds for up to five business days after
your request is received.
Signature Guarantees. A signature
guarantee is designed to protect you and
the Fund by verifying your signature. You
will need one to:
(1) Establish certain services after the
_____
account is opened.
(2) Redeem over $50,000 by written
request (unless you have authorized
Telephone Services).
(3) Redeem shares when proceeds are: (i)
being mailed to an address other
than the address of record, (ii)
made payable to other than the
registered owner(s), or (iii) being
sent to a bank account other than
the bank account listed on your fund
account.
(4) Transfer shares to another owner.
(5) Send us written instructions asking
us to wire redemption proceeds
(unless previously authorized).
(6) Establish Electronic Transfers when
your bank checking and fund account
are not identically registered.
These requirements may be waived or
modified in certain instances.
Acceptable guarantors are all eligible
guarantor institutions as defined by the
Securities Exchange Act of 1934 such as:
commercial banks which are FDIC members,
PAGE 25
trust companies, firms which are members of
a domestic stock exchange, and foreign
branches of any of the above. We cannot
accept guarantees from institutions or
individuals who do not provide
reimbursement in the case of fraud, such as
notaries public.
Telephone Exchange and Redemption.
Telephone exchange and redemption are
established automatically when you sign the
New Account Form unless you check the box
which states that you do not want these
services. The Fund uses reasonable
procedures (including shareholder identity
verification) to confirm that instructions
given by telephone are genuine. If these
procedures are not followed, it is the
opinion of certain regulatory agencies that
the Fund may be liable for any losses that
may result from acting on the instructions
given. All conversations are recorded, and
a confirmation is sent within five business
days after the telephone transaction.
Ten-Day Hold. The mailing of proceeds for
redemption requests involving any shares
purchased by personal, corporate or
government check, or ACH transfer is
generally subject to a 10-day delay to
allow the check or transfer to clear. The
10-day clearing period does not affect the
trade date on which your purchase or
redemption order is priced, or any
dividends and capital gain distributions to
which you may be entitled through the date
of redemption. If your redemption request
was sent by mail or mailgram, proceeds will
be mailed no later than the seventh
calendar day following receipt unless the
check or ACH transfer has not cleared. The
10-day hold does not apply to purchases
made by wire, Automatic Asset Builder-
Paycheck, or cashier's, treasurer's, or
certified checks.
PAGE 26
The Fund and its agents reserve the right
to: (1) reject any purchase or exchange,
cancel any purchase due to nonpayment, or
reject any exchange or redemption where the
Fund has not received payment; (2) waive or
lower the investment minimums; (3) accept
initial purchases by telephone or mailgram;
(4) waive the limit on subsequent purchases
by telephone; (5) reject any purchase or
exchange prior to receipt of the
confirmation statement; (6) redeem your
account (see Tax Identification Number);
(7) modify the conditions of purchase at
any time; and (8) reject any check not made
directly payable to the Fund or T. Rowe
Price (call Shareholder Services for more
information).
________________________ ___________________________________________
COMPLETING THE NEW Tax Identification Number. We must have
ACCOUNT FORM your correct social security or corporate
tax identification number and a signed New
Account Form or W-9 Form. Otherwise,
federal law requires the Fund to withhold a
percentage (currently 31%) of your
dividends, capital gain distributions, and
redemptions, and may subject you to a fine.
You also will be prohibited from opening
another account by exchange. If this
information is not received within 60 days
You must provide your tax after your account is established, your
ID number and sign the account may be redeemed, priced at the NAV
New Account Form. on the date of redemption.
Unless you otherwise request, one
shareholder report will be mailed to
multiple account owners with the same tax
identification number and same zip code and
to those shareholders who have requested
that their accounts be combined with
someone else's for financial reporting.
Account Registration. If you own other T.
Rowe Price Funds, make certain the
registration (name and account type) is
identical to your other funds for easy
exchange. Remember to sign the form
PAGE 27
exactly as the name appears in the
registration section.
Services. By signing up for services on
the New Account Form, rather than after the
account is opened, you will avoid having to
complete a separate form and obtain a
signature guarantee (see Conditions of Your
Purchase).
________________________ ___________________________________________
OPENING A NEW ACCOUNT Minimum initial investment: 2,500 ($1,000
for retirement
plans and
UGMA/UTMA and
IRA accounts;
$50 per month
for Automatic
Asset Builder
accounts--see
Shareholder
Services)
By Mail Send your New Account Form and
check to:
Checks payable to T. Rowe Regular Mail Mailgram,
Price Funds. Express,
Registered, or
Certified Mail
T. Rowe Price T. Rowe Price
Account Services Account Services
P.O. Box 17300 10090 Red Run
Baltimore, MD Boulevard
21298-9353 Owings Mills, MD
21117
___________________________________________
Investor Services By Wire Call Investor Services for an
1-800-638-5660 account number and use Wire Address
1-410-547-2308 below. Then, complete the New
Account Form and mail it to one of
the addresses above. (Not
applicable to retirement plans.)
Wire Address Morgan Guaranty
(to give to your Trust Company of
bank): New York
PAGE 28
ABA #021000238
T. Rowe Price
(fund name)/
AC-00153938
Account name(s)
and account
number
Shareholder Services ___________________________________________
1-800-225-5132 By Exchange Call Shareholder Services. The
1-410-625-6500 new account will have the same
registration as the account
from which you are exchanging.
Services for the new account
may be carried over by
telephone request if
preauthorized on the existing
account. See Excessive Trading
and Exchange Limitations under
Conditions of Your Purchase.
___________________________________________
In Person Drop off your New Account Form
and obtain a receipt at a
T. Rowe Price Investor Center:
101 East T. Rowe Price
Lombard StreetFinancial Center
First Floor First Floor
Baltimore, MD 10090 Red Run
Boulevard
Owings Mills, MD
Farragut ARCO Tower
Square 31st Floor
First Floor 515 South
900 17th Flower Street
Street, NW Los Angeles,
Washington, CA
DC
________________________ ___________________________________________
PURCHASING ADDITIONAL Minimum: $100 ($50 for retirement plans)
SHARES
By Wire Call Shareholder Services or
use the Wire Address (see
Opening a New Account).
___________________________________________
By Mail Indicate your account number
and the Fund name on your
PAGE 29
Shareholder Services check. Mail it to us at the
1-800-225-5132 address below with the stub
1-410-625-6500 from a statement confirming a
prior transaction or a note
stating that you want to
purchase shares in that Fund
and giving us the account
number.
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD 21289-1500
___________________________________________
By ACH Use Tele*Access, PC*Access or
Transfer call Shareholder Services (if
you have established Telephone
Services) for ACH transfers.
___________________________________________
By Fill out the Automatic Asset
Automatic Builder section on the New
Asset Account or Shareholder Services
Builder Form.
___________________________________________
Minimum: $5,000
By Phone Call Shareholder Services.
________________________ ___________________________________________
EXCHANGING AND REDEEMING By Phone Call Shareholder Services. If
SHARES you find our phones busy during
unusually volatile markets,
please consider placing your
order by express mail,
mailgram, Tele*Access or
PC*Access if you have
authorized Telephone Services.
For exchange policy, see
Excessive Trading and Exchange
Limitations under Conditions of
Your Purchase.
Redemption proceeds can be
mailed, sent by electronic
transfer, or wired to your
bank. The Fund charges a $5.00
fee for wire redemptions under
$5,000, subject to change
without notice. Your bank may
PAGE 30
also charge you for receiving
wires.
___________________________________________
Shareholder Services By Mail Indicate account name(s) and
1-800-225-5132 numbers, fund name(s), and
1-410-625-6500 exchange or redemption amount.
For exchanges, indicate the
accounts you are exchanging
from and to along with the
amount. We require the
signature of all owners exactly
as registered, and possibly a
signature guarantee (see
Signature Guarantees under
Conditions of Your Purchase).
Note: Distributions from
retirement accounts, including
T. Rowe Price Trust IRAs, must be in writing.
Company Please call Shareholder
1-800-492-7670 Services to obtain an IRA
1-410-625-6585 Distribution Request Form. For
employer-sponsored retirement
accounts, call T. Rowe Price
Trust Company or your plan
administrator for instructions.
Shareholders holding previously
issued certificates must
conduct transactions by mail.
If you lose a stock
certificate, you may incur an
expense to replace it. Call
Shareholder Services for
further information.
Mailing addresses:
Regular Mail Mailgram,
Express,
Registered, or
Certified Mail
Non-Retirement
and IRA
Accounts All Accounts
______________ _____________
T. Rowe Price T. Rowe Price
PAGE 31
Account ServicesAccount
P.O. Box 89000 Services
Baltimore, MD 10090 Red Run
21289-0220 Boulevard
Owings Mills,
MD 21117
Employer-Sponsored
Retirement Accounts
______________________
T. Rowe Price Trust Company
P.O. Box 89000
Baltimore, MD 21289-0300
PAGE 32
Prospectus
To Open an Account:
Investor Services T. Rowe Price Blue Chip Growth
1-800-638-5660 Fund
547-2308 in Baltimore
Yields & Prices: February __, 1994
Tele*AccessR
24 hours, 7 days a week
1-800-638-2587
625-7676 in Baltimore
Existing Account:
Shareholder Services
1-800-225-5132
625-6500 in Baltimore
Investor Centers:
101 East Lombard Street
First Floor
Baltimore, Maryland
Farragut Square
First Floor
900 17th Street, NW
Washington, DC
T. Rowe Price Financial Center
First Floor
10090 Red Run Boulevard
Owings Mills, Maryland
ARCO Tower
31st Floor
515 South Flower Street
Los Angeles, California
T. ROWE PRICE
Invest With ConfidenceR
PAGE 5
STATEMENT OF ADDITIONAL INFORMATION
T. Rowe Price Blue Chip Growth Fund, Inc.
(the "Fund")
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Fund's prospectus dated February __, 1994,
which may be obtained from T. Rowe Price Investment Services, Inc., 100 East
Pratt Street, Baltimore, Maryland 21202.
The date of this Statement of Additional Information is February __,
1994.
PAGE 6
TABLE OF CONTENTS
Page Page
Call and Put Options . . . . . . .3 Investment Objectives and Policies . 2
Capital Stock. . . . . . . . . . 39 Investment Performance . . . . . . .35
Custodian. . . . . . . . . . . . 28 Investment Program . . . . . . . . . 3
Dealer Options . . . . . . . . . .7 (pages 2 and 3 in Prospectus)
Distributor for Fund . . . . . . 28 Investment Restrictions. . . . . . .20
Dividends. . . . . . . . . . . . 34 Legal Counsel. . . . . . . . . . . .40
Federal and State Registration Lending of Portfolio Securities. . .14
of Shares. . . . . . . . . . . 40 Management of Fund . . . . . . . . .24
Foreign Currency Transactions. . 15 Net Asset Value Per Share. . . . . .33
Foreign Securities . . . . . . . 15 Portfolio Transactions . . . . . . .29
Futures Contracts. . . . . . . . .8 Pricing of Securities. . . . . . . .33
Illiquid Securities. . . . . . . 19 Principal Holders of Securities. . .25
Independent Accountants. . . . . 40 Repurchase Agreements. . . . . . . .19
Investment Management Services . 26 Taxation of Foreign Shareholders . .35
(pages 9 and 10 in Prospectus) Tax Status . . . . . . . . . . . . .34
Investment Objectives. . . . . . .2 (page 9 in Prospectus)
(pages 2 and 3 in Prospectus)
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's
investment objectives and policies discussed on pages 2 and 3 and 4 through 6
of the prospectus. Unless otherwise specified, the investment program and
restrictions of the Fund are not fundamental policies. The operating policies
of the Fund are subject to change by its Board of Directors without
shareholder approval. However, shareholders will be notified of a material
change in an operating policy. The fundamental policies of the Fund may not
be changed without the approval of at least a majority of the outstanding
shares of the Fund or, if it is less, 67% of the shares represented at a
meeting of shareholders at which the holders of 50% or more of the shares are
represented.
INVESTMENT OBJECTIVES
The Fund's investment objective is to provide long-term growth of
capital. While current income is a secondary objective, most of the stocks in
the Fund's portfolio are expected to pay dividends.
The Fund's share price will fluctuate with changing market conditions,
and your investment may be worth more or less when redeemed than when
purchased. The Fund should not be relied upon as a complete investment
program, nor used to play short-term swings in the stock market. The Fund
cannot guarantee it will achieve its investment objectives.
INVESTMENT PROGRAM
The Fund will invest primarily (at least 65% of its total assets) in the
common stocks of Blue Chip companies as determined by T. Rowe Price. These
companies will have the potential for above-average growth in earnings and be
well-established in their respective industries. As a result, the Fund will
generally invest in large and medium sized companies.
PAGE 7
In addition to the investments described in the Fund's prospectus, the
Fund may invest in the following:
Writing Covered Call Options
The Fund may write (sell) "covered" call options and purchase options to
close out options previously written by the Fund. In writing covered call
options, the Fund expects to generate additional premium income which should
serve to enhance the Fund's total return and reduce the effect of any price
decline of the security or currency involved in the option. Covered call
options will generally be written on securities or currencies which, in the
opinion of the Fund's investment manager, T. Rowe Price Associates, Inc. ("T.
Rowe Price"), are not expected to make any major price increases or moves in
the near future but which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security or currency at a specified price (the exercise price), at expiration
of the option (European style) or at any time until a certain date (the
expiration date) (American style). So long as the obligation of the writer of
a call option continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by
repurchasing an option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the case of a
call option, a writer is required to deposit in escrow the underlying security
or currency or other assets in accordance with the rules of a clearing
corporation. The Fund will write only covered call options. This means that
the Fund will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other liquid high
grade debt obligations having a value equal to the fluctuating market value of
the optioned securities or currencies. In order to comply with the
requirements of several states, the Fund will not write a covered call option
if, as a result, the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market value of the
Fund's net assets. Should these state laws change or should the Fund obtain a
waiver of their application, the Fund reserves the right to increase this
percentage. In calculating the 25% limit, the Fund will offset, against the
value of assets covering written calls and puts, the value of purchased calls
and puts on identical securities or currencies with identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objectives. The writing of covered call options is
a conservative investment technique believed to involve relatively little risk
(in contrast to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When writing a
covered call option, the Fund, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security or
currency above the exercise price, but conversely retains the risk of loss
should the price of the security or currency decline. Unlike one who owns
securities or currencies not subject to an option, the Fund has no control
over when it may be required to sell the underlying securities or currencies,
since it may be assigned an exercise notice at any time prior to the
PAGE 8
expiration of its obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security or currency during the option period. If the call option
is exercised, the Fund will realize a gain or loss from the sale of the
underlying security or currency. The Fund does not consider a security or
currency covered by a call to be "pledged" as that term is used in the Fund's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the
option period. Once the decision to write a call option has been made, T.
Rowe Price, in determining whether a particular call option should be written
on a particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will
exist for those options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This liability will
be adjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of the
Fund is computed (close of the New York Stock Exchange), or, in the absence of
such sale, the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security or currency upon the
exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to
sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security
or currency. There is, of course, no assurance that the Fund will be able to
effect such closing transactions at a favorable price. If the Fund cannot
enter into such a transaction, it may be required to hold a security or
currency that it might otherwise have sold. When the Fund writes a covered
call option, it runs the risk of not being able to participate in the
appreciation of the underlying securities or currencies above the exercise
price, as well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in higher
transaction costs. The Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Fund may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to
it, rather than delivering such security or currency from its portfolio. In
such cases, additional costs may be incurred.
PAGE 9
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market
price of a call option will generally reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of
a call option is likely to be offset in whole or in part by appreciation of
the underlying security or currency owned by the Fund.
Writing Covered Put Options
The Fund may write American or European style covered put options and
purchase options to close out options previously written by the Fund. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) has the obligation to buy, the underlying security or currency at the
exercise price during the option period (American style) or at the expiration
of the option (European style). So long as the obligation of the writer
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to make payment of the exercise price
against delivery of the underlying security or currency. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
The Fund would write put options only on a covered basis, which means
that the Fund would maintain in a segregated account cash, U.S. government
securities or other liquid high-grade debt obligations in an amount not less
than the exercise price or the Fund will own an option to sell the underlying
security or currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all times while
the put option is outstanding. (The rules of a clearing corporation currently
require that such assets be deposited in escrow to secure payment of the
exercise price.) The Fund would generally write covered put options in
circumstances where T. Rowe Price wishes to purchase the underlying security
or currency for the Fund's portfolio at a price lower than the current market
price of the security or currency. In such event the Fund would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Fund would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Fund. In
addition, the Fund, because it does not own the specific securities or
currencies which it may be required to purchase in the exercise of the put,
can not benefit from appreciation, if any, with respect to such specific
securities or currencies. In order to comply with the requirements of several
states, the Fund will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put
or call options exceeds 25% of the market value of the Fund's net assets.
Should these state laws change or should the Fund obtain a waiver of their
application, the Fund reserves the right to increase this percentage. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options
The Fund may purchase American or European style put options. As the
holder of a put option, the Fund has the right to sell the underlying security
or currency at the exercise price at any time during the option period
PAGE 10
(American style) or at the expiration of the option (European style). The
Fund may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase put options for
defensive purposes in order to protect against an anticipated decline in the
value of its securities or currencies. An example of such use of put options
is provided below.
The Fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the Fund as a defensive technique in order to
protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the put
option when the Fund, as the holder of the put option, is able to sell the
underlying security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's exchange
value. For example, a put option may be purchased in order to protect
unrealized appreciation of a security or currency where T. Rowe Price deems it
desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
The Fund may also purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option
is not sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than the exercise
price during the life of the put option, the Fund will lose its entire
investment in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale
transaction.
To the extent required by the laws of certain states, the Fund may not
be permitted to commit more than 5% of its assets to premiums when purchasing
put and call options. Should these state laws change or should the Fund
obtain a waiver of their application, the Fund may commit more than 5% of its
assets to premiums when purchasing call and put options. The premium paid by
the Fund when purchasing a put option will be recorded as an asset of the
Fund. This asset will be adjusted daily to the option's current market value,
which will be the latest sale price at the time at which the net asset value
per share of the Fund is computed (close of New York Stock Exchange), or, in
the absence of such sale, the latest bid price. This asset will be terminated
upon expiration of the option, the selling (writing) of an identical option in
a closing transaction, or the delivery of the underlying security or currency
upon the exercise of the option.
Purchasing Call Options
The Fund may purchase American or European call options. As the holder
of a call option, the Fund has the right to purchase the underlying security
or currency at the exercise price at any time during the option period
(American style) or at the expiration of the option (European style). The
Fund may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase call options
for the purpose of increasing its current return or avoiding tax consequences
which could reduce its current return. The Fund may also purchase call
options in order to acquire the underlying securities or currencies. Examples
of such uses of call options are provided below.
PAGE 11
Call options may be purchased by the Fund for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the
securities or currencies at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities or
currencies directly. This technique may also be useful to the Fund in
purchasing a large block of securities or currencies that would be more
difficult to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself, the Fund
is partially protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
To the extent required by the laws of certain states, the Fund may not
be permitted to commit more than 5% of its assets to premiums when purchasing
call and put options. Should these state laws change or should the Fund
obtain a waiver of their application, the Fund may commit more than 5% of its
assets to premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it owns in order
to protect unrealized gains on call options previously written by it. A call
option would be purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer Options
The Fund may engage in transactions involving dealer options. Certain
risks are specific to dealer options. While the Fund would look to a clearing
corporation to exercise exchange-traded options, if the Fund were to purchase
a dealer option, it would rely on the dealer from whom it purchased the option
to perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. While the Fund will
seek to enter into dealer options only with dealers who will agree to and
which are expected to be capable of entering into closing transactions with
the Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used as cover until the option expires or is exercised. In the event
of insolvency of the contra party, the Fund may be unable to liquidate a
dealer option. With respect to options written by the Fund, the inability to
enter into a closing transaction may result in material losses to the Fund.
For example, since the Fund must maintain a secured position with respect to
any call option on a security it writes, the Fund may not sell the assets
which it has segregated to secure the position while it is obligated under the
option. This requirement may impair the Fund's ability to sell portfolio
securities at a time when such sale might be advantageous.
PAGE 12
The Staff of the SEC has taken the position that purchased dealer
options and the assets used to secure the written dealer options are illiquid
securities. The Fund may treat the cover used for written OTC options as
liquid if the dealer agrees that the Fund may repurchase the OTC option it has
written for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to the extent the
maximum repurchase price under the formula exceeds the intrinsic value of the
option. Accordingly, the Fund will treat dealer options as subject to the
Fund's limitation on unmarketable securities. If the SEC changes its position
on the liquidity of dealer options, the Fund will change its treatment of such
instrument accordingly.
Futures Contracts
Transactions in Futures
The Fund may enter into financial futures contracts, including stock
index, interest rate and currency futures ("futures or futures contracts").
Stock index futures contracts may be used to provide a hedge for a
portion of the Fund's portfolio, as a cash management tool, or as an efficient
way for T. Rowe Price to implement either an increase or decrease in portfolio
market exposure in response to changing market conditions. Stock index
futures contracts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index. The Fund may,
however, purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose movements will
have a significant correlation with movements in the prices of the Fund's
portfolio securities.
Interest rate or currency futures contracts may be used as a hedge
against changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on securities
or currencies held or intended to be acquired by the Fund. In this regard,
the Fund could sell interest rate or currency futures as an offset against the
effect of expected increases in interest rates or currency exchange rates and
purchase such futures as an offset against the effect of expected declines in
interest rates or currency exchange rates. Futures can also be used as an
efficient means of regulating the Fund's exposure to the market.
The Fund will enter into futures contracts which are traded on national
or foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal financial futures exchanges in
the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board
of Trade. Futures exchanges and trading in the United States are regulated
under the Commodity Exchange Act by the Commodity Futures Trading Commission
("CFTC"). Futures are traded in London at the London International Financial
Futures Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock
Exchange. Although techniques other than the sale and purchase of futures
contracts could be used for the above-referenced purposes, futures contracts
offer an effective and relatively low cost means of implementing the Fund's
objectives in these areas.
Regulatory Limitations
The Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging, yield enhancement and risk management
PAGE 13
purposes, in each case in accordance with the rules and regulations of the
CFTC, and not for speculation.
The Fund may not enter into futures contracts or options thereon if
immediately thereafter the sum of the amounts of initial margin deposits on
the Fund's existing futures and premiums paid for options on futures would
exceed 5% of the market value of the Fund's total assets; provided, however,
that in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5% limitation.
In instances involving the purchase of futures contracts or call options
thereon or the writing of put options thereon by the Fund, an amount of cash,
U.S. government securities or other liquid, high-grade debt obligations, equal
to the market value of the futures contracts and options thereon (less any
related margin deposits), will be deposited in a segregated account with the
Fund's custodian to cover the position, or alternative cover will be employed
thereby insuring that the use of such futures contracts and options is
unleveraged.
In addition, CFTC regulations may impose limitations on the Fund's
ability to engage in certain yield enhancement and risk management strategies.
If the CFTC or other regulatory authorities adopt different (including less
stringent) or additional restrictions, the Fund would comply with such new
restrictions.
Trading in Futures
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., units of a stock index) for a specified price, date, time
and place designated at the time the contract is made. Brokerage fees are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred to as buying
or purchasing a contract or holding a long position. Entering into a contract
to sell is commonly referred to as selling a contract or holding a short
position.
Unlike when the Fund purchases or sells a security, no price would be
paid or received by the Fund upon the purchase or sale of a futures contract.
Upon entering into a futures contract, and to maintain the Fund's open
positions in futures contracts, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount
of cash, U.S. government securities, suitable money market instruments, or
liquid, high-grade debt securities, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on
the futures contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying
PAGE 14
assets fluctuate making the long and short positions in the futures contract
more or less valuable, a process known as "marking to the market." The Fund
expects to earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual
future delivery of and payment for the underlying instruments, in practice
most futures contracts are usually closed out before the delivery date.
Closing out an open futures contract purchase or sale is effected by entering
into an offsetting futures contract purchase or sale, respectively, for the
same aggregate amount of the identical securities and the same delivery date.
If the offsetting purchase price is less than the original sale price, the
Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if
the offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction
costs must also be included in these calculations. There can be no assurance,
however, that the Fund will be able to enter into an offsetting transaction
with respect to a particular futures contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures
contract.
For example, the Standard & Poor's 500 Stock Index is composed of 500
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 500 Index, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were
$150, one contract would be worth $75,000 (500 units x $150). The stock index
futures contract specifies that no delivery of the actual stock making up the
index will take place. Instead, settlement in cash occurs. Over the life of
the contract, the gain or loss realized by the Fund will equal the difference
between the purchase (or sale) price of the contract and the price at which
the contract is terminated. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date,
the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future
date at a contract price of $150 and the S&P 500 Index is at $152 on that
future date, the Fund will lose $1,000 (500 units x loss of $2).
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile
and are influenced, among other things, by actual and anticipated changes in
the market and interest rates, which in turn are affected by fiscal and
monetary policies and national and international policies and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
a trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
PAGE 15
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be
certain that the Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund earmarks to the futures contract money market
instruments equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to
reduce exposure represented by long futures positions or increase exposure
represented by short futures positions. The Fund may close its positions by
taking opposite positions which would operate to terminate the Fund's position
in the futures contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or released to the
Fund, and the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid
market on an exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible to close a
futures contract, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge the underlying
instruments, the Fund would continue to hold the underlying instruments
subject to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures contract. However,
as described below, there is no guarantee that the price of the underlying
instruments will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves
skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of unexpected market behavior, market or interest rate
trends. There are several risks in connection with the use by the Fund of
futures contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the futures contracts
and movements in the prices of the underlying instruments which are the
subject of the hedge. T. Rowe Price will, however, attempt to reduce this
risk by entering into futures contracts whose movements, in its judgment, will
have a significant correlation with movements in the prices of the Fund's
underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to T. Rowe Price's ability to correctly predict movements in the
direction of the market. It is possible that, when the Fund has sold futures
PAGE 16
to hedge its portfolio against a decline in the market, the index, indices, or
underlying instruments on which the futures are written might advance and the
value of the underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the futures and
also would experience a decline in value in its underlying instruments.
However, while this might occur to a certain degree, T. Rowe Price believes
that over time the value of the Fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the underlying instruments sought to be hedged. It is also
possible that if the Fund were to hedge against the possibility of a decline
in the market (adversely affecting the underlying instruments held in its
portfolio) and prices instead increased, the Fund would lose part or all of
the benefit of increased value of those underlying instruments that it has
hedged, because it would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin requirements.
Such sales of underlying instruments might be, but would not necessarily be,
at increased prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be disadvantageous
to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements
of futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors might close futures contracts through offsetting
transactions which could distort the normal relationship between the
underlying instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements in the
securities markets, and as a result the futures market might attract more
speculators than the securities markets do. Increased participation by
speculators in the futures market might also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and also because of the imperfect correlation between price movements in the
underlying instruments and movements in the prices of futures contracts, even
a correct forecast of general market trends by T. Rowe Price might not result
in a successful hedging transaction over a very short time period.
Options on Futures Contracts
Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put), rather than
to purchase or sell the futures contract, at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option will be accompanied by the delivery of the accumulated balance in
the writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option
on the futures contract. Alternatively, settlement may be made totally in
cash. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put options on stock
index futures, the Fund may write or purchase call and put options on stock
PAGE 17
indices. Such options would be used in a manner similar to the use of options
on futures contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of the Fund and
other T. Rowe Price Funds. Such aggregated orders would be allocated among
the Fund and the other T. Rowe Price Funds in a fair and non-discriminatory
manner.
Special Risks of Transactions in Options on Futures Contracts
The Fund may seek to close out an option position by writing or buying
an offsetting option covering the same index, underlying instruments, or
contract and having the same exercise price and expiration date. The ability
to establish and close out positions on such options will be subject to the
maintenance of a liquid secondary market. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options, or underlying
instruments; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on the exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue to
be exercisable in accordance with their terms. There is no assurance that
higher than anticipated trading activity or other unforeseen events might not,
at times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in financial
futures or options transactions other than those described above, it reserves
the right to do so. Such futures or options trading might involve risks which
differ from those involved in the futures and options described above.
Foreign Futures and Options
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may be liquidated
by a transaction on another market. Moreover, such laws or regulations will
vary depending on the foreign country in which the foreign futures or foreign
options transaction occurs. For these reasons, customers who trade foreign
futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. In particular, funds received
PAGE 18
from customers for foreign futures or foreign options transactions may not be
provided the same protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any foreign
futures or foreign options contract and, therefore, the potential profit and
loss thereon may be affected by any variance in the foreign exchange rate
between the time your order is placed and the time it is liquidated, offset or
exercised.
Lending of Portfolio Securities
For the purpose of realizing additional income, the Fund may make
secured loans of portfolio securities amounting to not more than 30% of its
total assets. This policy is a fundamental policy. Securities loans are made
to broker-dealers, institutional investors, or other persons pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market
on a daily basis. The collateral received will consist of cash, U.S.
government securities, letters of credit or such other collateral as may be
permitted under its investment program. While the securities are being lent,
the Fund will continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the investment of
the collateral or a fee from the borrower. The Fund has a right to call each
loan and obtain the securities on five business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Fund will not have the right to
vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. Loans will only be made to persons deemed by T. Rowe Price to be
of good standing and will not be made unless, in the judgment of T. Rowe
Price, the consideration to be earned from such loans would justify the risk.
Other Lending/Borrowing
Subject to approval by the Securities and Exchange Commission, the Fund
may make loans to, or borrow funds from, other mutual funds sponsored or
advised by T. Rowe Price or Rowe Price-Fleming International, Inc.
(collectively, "Price Funds"). The Fund has no current intention of engaging
in these practices at this time.
Foreign Securities
The Fund may invest in U.S. dollar-denominated and non U.S. dollar-
denominated securities of foreign issuers in developed countries. The Fund
currently intends to limit any such investment to not more than 10% of its
assets. Because the Fund may invest in foreign securities, investment in the
Fund involves risks that are different in some respects from an investment in
a fund which invests only in securities of U.S. domestic issuers. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing, and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
There may be less governmental supervision of securities markets, brokers and
issuers of securities. Securities of some foreign companies are less liquid
or more volatile than securities of U.S. companies, and foreign brokerage
PAGE 19
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject
to other risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or nationalization of
assets, restrictions on foreign investment and repatriation of capital,
imposition of withholding taxes on dividend or interest payments, currency
blockage (which would prevent cash from being brought back to the United
States), and difficulty in enforcing legal rights outside the U.S.
Foreign Currency Transactions
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are principally traded
in the interbank market conducted directly between currency traders (usually
large, commercial banks) and their customers. A forward contract generally
has no deposit requirement, and no commissions are charged at any stage for
trades.
The Fund will generally enter into forward foreign currency exchange
contracts under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in the
underlying security transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date on which
payment is made or received.
Second, when T. Rowe Price believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Fund's portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, the Fund may hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. In such a case, the Fund may enter into a forward contract
where the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, and immediately
below, the Fund will also not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. The Fund, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess
of the value of the Fund's portfolio securities or other assets to which the
PAGE 20
forward contracts relate (including accrued interest to the maturity of the
forward on such securities), provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency, at least
equal at all times to the amount of such excess. For these purposes, "the
securities or other assets to which the forward contracts relate" may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, T. Rowe Price believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of the Fund will be served.
At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction costs, the
Fund may use liquid, high-grade debt securities denominated in any currency,
to cover the amount by which the value of a forward contract exceeds the value
of the securities to which it relates.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent of the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Of course, the Fund is
not required to enter into forward contracts with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate
by T. Rowe Price. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result from an increase in the value of that currency.
PAGE 21
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts
The Fund may enter into certain option, futures, and forward foreign
exchange contracts, including options and futures on currencies, which will be
treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Fund's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains
or losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Fund
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay
such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in
which case a loss on any position in a straddle will be subject to deferral to
the extent of unrealized gain in an offsetting position. The holding period
of the securities or currencies comprising the straddle will be deemed not to
begin until the straddle is terminated. For securities offsetting a purchased
put, this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity
security will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may
be long-term capital loss, if the security covering the option was held for
more than twelve months prior to the writing of the option.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward exchange contracts
on currencies is qualifying income for purposes of the 90% requirement. In
addition, gains realized on the sale or other disposition of securities,
including option, futures or foreign forward exchange contracts on securities
or securities indexes and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of the Fund's annual gross income.
In order to avoid realizing excessive gains on securities or currencies held
less than three months, the Fund may be required to defer the closing out of
option, futures or foreign forward exchange contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
PAGE 22
gains on Section 1256 option, futures and foreign forward exchange contracts,
which have been open for less than three months as of the end of the Fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test.
Hybrid Commodity and Security Instruments
Recently, instruments have been developed which combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument (hereinafter "Hybrid Instruments"). Often these Hybrid
Instruments are indexed to the price of a commodity or particular currency.
Hybrid Instruments may take a variety of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity at a future
point in time, preferred stock with dividend rates determined by reference to
the value of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in Hybrid Instruments reflect a combination of
the risks from investing in securities, futures and currencies, including
volatility and lack of liquidity. Reference is made to the discussion of
futures on page 8, forward contracts on page 15 and options on page 3 for a
discussion of these risks. Further, the prices of the Hybrid Instrument and
the related commodity or currency may not move in the same direction or at the
same time. Hybrid Instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. In addition, because the
purchase and sale of Hybrid Instruments could take place in an over-the-
counter market or in a private transaction between the Fund and the seller of
the Hybrid Instrument, the creditworthiness of the contra party to the
transaction would be a risk factor which the Fund would have to consider.
Hybrid Instruments also may not be subject to regulation of the CFTC, which
generally regulates the trading of commodity futures by U.S. persons, the SEC,
which regulates the offer and sale of securities by and to U.S. persons, or
any other governmental regulatory authority.
Illiquid Securities
The Fund may invest in illiquid securities, including repurchase
agreements which do not provide for payment within seven days, but will not
acquire such securities if, as a result, they would comprise more than 15% of
the value of the Fund's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act").
Where registration is required, the Fund may be obligated to pay all or part
of the registration expenses and a considerable period may elapse between the
time of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Board of Directors. If through the appreciation of illiquid
securities or the depreciation of liquid securities, the Fund should be in a
position where more than 15% of the value of its net assets are invested in
illiquid assets, including restricted securities, the Fund will take
appropriate steps to protect liquidity.
PAGE 23
The Fund may purchase securities which while privately placed, are
eligible for purchase and sale under Rule 144A under the 1933 Act. This rule
permits certain qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. T. Rowe Price, under the supervision of the Fund's Board
of Directors, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing no more than
15% of its assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, T. Rowe Price will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, T. Rowe Price could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchases, (3) dealer
undertakings to make a market, and (4) the nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored, and if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the Fund does not invest more than 15%
of its assets in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of the Fund's assets invested in
illiquid securities if qualified institutional buyers are unwilling to
purchase such securities.
Repurchase Agreements
The Fund may enter into repurchase agreements through which an investor
(such as the Fund) purchases a security (known as the "underlying security")
from a well-established securities dealer or a bank which is a member of the
Federal Reserve System. Any such dealer or bank will be on T. Rowe Price's
approved list and have a credit rating with respect to its short-term debt of
at least A1 by Standard & Poor's Corporation, P1 by Moody's Investors Service,
Inc., or the equivalent rating by T. Rowe Price. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus specified interest. Repurchase agreements are generally for a
short period of time, often less than a week. The Fund will not enter into a
repurchase agreement which does not provide for payment within seven days if,
as a result, more than 10% of the value of its net assets would then be
invested in such repurchase agreements. The Fund will only enter into
repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Fund's investment guidelines would
allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as agent. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
the Fund could experience both delays in liquidating the underlying securities
and losses, including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto;
(b) possible subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
Other Investments
Although the Fund's assets are invested primarily in common stocks, the
Fund may invest in convertible securities, corporate debt securities and
preferred stocks which hold the prospect of contributing to the achievement of
PAGE 24
the Fund's objectives. The Fund may purchase corporate debt securities within
the four highest credit categories assigned by established rating agencies,
which include both high and medium quality investment grade corporate debt
securities. Medium quality securities (rated BBB by Moody's Investors
Service, Inc. ("Moody's" or Baa by Standard & Poor's Corporation ("S&P"), or
unrated securities of equivalent quality) are regarded as having an adequate
capacity to pay principal and interest, although adverse economic conditions
or changing circumstances are more likely to lead to a weakening of such
capacity than for bonds in the A category. The Fund may invest up to 5% of
its total assets in non-investment grade debt securities. The above described
quality standards will not be applied to the Fund's investments in convertible
securities.
INVESTMENT RESTRICTIONS
Fundamental policies of the Fund may not be changed without the approval
of the lesser of (1) 67% of the Fund's shares present at a meeting of
shareholders if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (2) more than 50% of the Fund's outstanding
shares. Other restrictions, in the form of operating policies, are subject to
change by the Fund's Board of Directors without shareholder approval. Any
investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowings by, the Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money, except the Fund may borrow for non-
leveraging, temporary purposes from banks or other Price
Funds (1) in amounts not exceeding 30% of its total assets to
meet redemption requests which might otherwise require
untimely disposition of portfolio securities; or (2) in
amounts not exceeding 5% of its total assets for emergency,
administrative or other proper purposes. Interest paid on
any such borrowings will reduce net investment income. The
Fund may enter into futures contracts as set forth in (3)
below;
(2) Commodities. Purchase or sell commodities or commodity
contracts; except that it may (i) enter into futures
contracts and options on futures contracts, subject to (3)
below; (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;
(3) Futures Contracts. 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;
(4) Industry Concentration. Purchase the securities of any
issuer if, as a result, more than 25% of the value of the
Fund's total assets would be invested in the securities of
issuers having their principal business activities in the
PAGE 25
same industry (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities);
(5) Loans. 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
placements; (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;
(6) Margin. Purchase securities on margin, except (i) for use of
short-term credit necessary for clearance of purchases of
portfolio securities and (ii) it may make margin deposits in
connection with futures contracts or other permissible
investments;
(7) Percent Limit on Assets Invested in Any One Issuer. Purchase
a security if, as a result, with respect to 75% of the value
of its total assets, more than 5% of the value of the Fund's
total assets would be invested in the securities of a single
issuer, except securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities;
(8) Percent Limit on Share Ownership of Any One Issuer. Purchase
a security if, as a result, with respect to 75% of the value
of the Fund's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund
(other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
(9) Real Estate. Purchase or sell real estate or real estate
limited partnerships (although it may purchase securities
secured by real estate or interests therein, or issued by
companies or investment trusts which invest in real estate or
interests therein);
(10) Senior Securities. Issue senior securities except in
compliance with the Investment Company Act of 1940; or
(11) Underwriting. Underwrite securities issued by other persons,
except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933
in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment
program.
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing. The Fund will not purchase additional securities
when money borrowed exceeds 5% of the Fund's total assets.
(2) Control of Portfolio Companies. Invest in companies for the
purpose of exercising management or control;
PAGE 26
(3) Illiquid Securities. Purchase illiquid securities and
securities of unseasoned issuers if, as a result, in total
more than 15% of its net assets would be invested in such
securities, including repurchase agreements which do not
provide for payment within seven days, provided that the Fund
will not invest more than 5% of its total assets in
restricted securities and not more than 5% in securities of
unseasoned issuers. Securities eligible for resale under
Rule 144A of the Securities Act of 1933 are not included in
the 5% limitation but are subject to the 15% limitation;
(4) Investment Companies. Purchase securities of open-end or
closed-end investment companies except in compliance with the
Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases;
(5) Mortgaging. Mortgage, pledge, hypothecate or, in any manner,
transfer any security owned by the Fund as security for
indebtedness except (i) as may be necessary in connection
with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 30% of
the Fund's total assets valued at market at the time of the
borrowing or investment and (ii) it may enter into futures
contracts;
(6) Oil and Gas Programs. Purchase participations or other
direct interests or enter into leases with respect to, oil,
gas, other mineral exploration or development programs;
(7) Options, Etc. Invest in puts, calls, straddles, spreads, or
any combination thereof, except that the Fund may invest in
or commit its assets to purchasing and selling call and put
options to the extent permitted by the prospectus and
Statement of Additional Information;
(8) Ownership of Portfolio Securities by Officers and Directors.
Purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, those officers and
directors of the Fund, and of its investment manager, who
each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more
than 5% of such securities;
(9) Short Sales. Effect short sales of securities;
(10) Unseasoned Issuers. Purchase a security (other than
obligations issued or guaranteed by the U.S. Government or
any foreign government, their agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's
total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less
than three years (for this purpose, the period of operation
of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer); or
(11) Warrants. Invest in warrants, except that the Fund may
invest, hold, or sell warrants or other rights ("warrants")
where the grantor of the warrants is the issuer of the
underlying securities, provided that the Fund will not
purchase a warrant if, as a result thereof, more than 2% of
PAGE 27
the value of the total assets of the Fund would be invested
in warrants which are not listed on the New York Stock
Exchange, the American Stock Exchange, or a recognized
foreign exchange, or more than 5% of the value of the total
assets of the Fund would be invested in warrants whether or
not so listed. For purposes of these percentage limitations,
the warrants will be valued at the lower of cost or market.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, the Fund may invest all of its assets in a
single investment company or a series thereof in connection with a "master-
feeder" arrangement. Such an investment would be made where the Fund (a
"Feeder"), and one or more other Funds with the same investment objective and
program as the Fund, sought to accomplish its investment objective and program
by investing all of its assets in the shares of another investment company
(the "Master"). The Master would, in turn, have the same investment objective
and program as the Fund. The Fund would invest in this manner in an effort to
achieve the economies of scale associated with having a Master fund make
investments in portfolio companies on behalf of a number of Feeder funds.
Under the 1940 Act, the Fund may not invest in any securities of any
issuer which, in its most recent fiscal year, derived more than 15% of its
gross revenues from "securities related activities," as defined by rules of
the 1940 Act, unless certain conditions are met. As a result of these
restrictions, the Fund may not invest in the securities of certain banks,
broker-dealers and other companies in foreign countries. If the Fund finds
that this restriction prevents it from pursuing its investment objectives, it
may apply to the Securities and Exchange Commission for an order which would
permit it to acquire such securities, but no assurance can be given that any
such order will be granted. It is also possible the law in this area will
change, in which case the Fund could have greater flexibility in the purchase
of the securities of foreign banks, broker-dealers, and other companies.
Redemptions in Kind
In the unlikely event a shareholder were to receive an in kind
redemption of portfolio securities of the Fund, brokerage fees could be
incurred by the shareholder in a subsequent sale of such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of a fund's shares for securities or
assets other than cash will be limited to (1) bona fide reorganizations; (2)
statutory mergers; or (3) other acquisitions of portfolio securities that: (a)
meet the investment objectives and policies of the Fund; (b) are acquired for
investment and not for resale except in accordance with applicable law; (c)
have a value that is readily ascertainable via listing on or trading in a
recognized United States or international exchange or market; and (d) are not
illiquid.
MANAGEMENT OF FUND
The officers and directors of the Fund are listed below. Unless
otherwise noted, the address of each is 100 East Pratt Street, Baltimore,
Maryland 21202. Except as indicated, each has been an employee of T. Rowe
Price for more than five years. In the list below, the Fund's directors who
are considered "interested persons" of T. Rowe Price or the Fund as defined
PAGE 28
under Section 2(a)(19) of the Investment Company Act of 1940 are noted with an
asterisk (*). These directors are referred to as inside directors by virtue
of their officership, directorship, and/or employment with T. Rowe Price.
THOMAS H. BROADUS, JR., President and Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst and Chartered Investment Counselor
LEO C. BAILEY, Retired; Address: 3396 South Placita Fabula, Green Valley,
Arizona 85614
DONALD W. DICK, JR., Director--Partner, Overseas Partners, Inc., a financial
investment firm; formerly (6/65-3/89) Director and Vice President-Consumer
Products Division, McCormick & Company, Inc., international food
processors; Director, Waverly Press, Inc., Baltimore, Maryland; Address:
375 Park Avenue, Suite 3505, New York, New York 10152
DAVID K. FAGIN, Director--Chairman, Chief Executive Officer and Director,
Golden Star Resources, Ltd.; formerly (1986-7/91) President, Chief
Operating Officer and Director, Homestake Mining Company; Address: One
Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado 80203
ADDISON LANIER, Director--Financial management; President and Director, Thomas
Emery's Sons, Inc., and Emery Group, Inc.; Director, Scinet Development and
Holdings, Inc.; Address: 441 Vine Street, #2310, Cincinnati, Ohio 45202-
2913
JOHN K. MAJOR, Director--Chairman of the Board and President, KCMA
Incorporated, Tulsa, Oklahoma; Address: 126 E. 26 Place, Tulsa, Oklahoma
74114-2422
*JAMES S. RIEPE, Vice President and Director--Managing Director, T. Rowe
Price; Chairman of the Board, T. Rowe Price Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price Trust Company; President
and Director, T. Rowe Price Investment Services, Inc; Director, Rhone-
Paulenc Rorer, Inc.
*M. DAVID TESTA, Director--Managing Director, T. Rowe Price; Chairman of the
Board, Rowe Price-Fleming International, Inc.; Vice President and Director,
T. Rowe Price Trust Company; Chartered Financial Analyst
HUBERT D. VOS, Director--President, Stonington Capital Corporation, a private
investment company; Address: 1231 State Street, Suite 210, Santa Barbara,
CA 93190-0409
PAUL M. WYTHES, Director--Founding General Partner, Sutter Hill Ventures, a
venture capital limited partnership providing equity capital to young high
technology companies throughout the United States; Director, Teltone
Corporation, Interventional Technologies Inc., and Stuart Medical, Inc.;
Address: 755 Page Mill Road, Suite A200, Palo Alto, California 94304
HENRY H. HOPKINS, Vice President--Managing Director, T. Rowe Price; Vice
President and Director, T. Rowe Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price Trust Company; Vice President, Rowe
Price-Fleming International, Inc. and T. Rowe Price Retirement Plan
Services, Inc.
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T. Rowe Price
Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T. Rowe Price
Services, Inc. and T. Rowe Price Trust Company
ROGER L. FIERY, Assistant Vice President--Vice President, Rowe Price-Fleming
International, Inc.
EDWARD T. SCHNEIDER, Assistant Vice President--Vice President, T. Rowe Price
Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T. Rowe Price
The Fund's Executive Committee, comprised of Messrs. Broadus, Riepe and
Testa, has been authorized by the Board of Directors to exercise all of the
PAGE 29
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.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors of the Fund,
as a group, owned less than 1% of the outstanding shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement, T. Rowe Price provides the Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of the Fund in accordance with
the Fund's investment objectives, program, and restrictions as provided in its
prospectus and this Statement of Additional Information. T. Rowe Price is
also responsible for effecting all security transactions on behalf of the
Fund, including the negotiation of commissions and the allocation of principal
business and portfolio brokerage. In addition to these services, T. Rowe
Price provides the Fund with certain corporate administrative services,
including: maintaining the Fund's corporate existence and corporate records;
registering and qualifying Fund shares under federal and state laws;
monitoring the financial, accounting, and administrative functions of the
Fund; maintaining liaison with the agents employed by the Fund such as the
Fund's custodian and transfer agent; assisting the Fund in the coordination of
such agents' activities; and permitting T. Rowe Price's employees to serve as
officers, directors, and committee members of the Fund without cost to the
Fund.
The Management Agreement also provides that T. Rowe Price, its directors,
officers, employees, and certain other persons performing specific functions
for the Fund will only be liable to the Fund for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Management Fee
The Fund pays T. Rowe Price a fee ("Fee") which consists of two
components: a Group Management Fee ("Group Fee") and an Individual Fund Fee
("Fund Fee"). The Fee is paid monthly to T. Rowe Price on the first business
day of the next succeeding calendar month and is calculated as described
below.
The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group
Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee
Accrual for any particular day is computed by multiplying the Price Funds'
group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual")
by the ratio of the Fund's net assets for that day to the sum of the aggregate
net assets of the Price Funds for that day. The Daily Price Funds' Group Fee
Accrual for any particular day is calculated by multiplying the fraction of
one (1) over the number of calendar days in the year by the annualized Daily
Price Funds' Group Fee Accrual for that day as determined in accordance with
the following schedule:
PAGE 30
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
For the purpose of calculating the Group Fee, the Price Funds include all
the mutual funds distributed by T. Rowe Price Investment Services, Inc.,
(excluding T. Rowe Price Spectrum Fund, Inc. and any institutional or private
label mutual funds). For the purpose of calculating the Daily Price Funds'
Group Fee Accrual for any particular day, the net assets of each Price Fund
are determined in accordance with the Fund's prospectus as of the close of
business on the previous business day on which the Fund was open for business.
The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund
Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee
Accrual for any particular day is computed by multiplying the fraction of one
(1) over the number of calendar days in the year by the individual Fund Fee
Rate of 0.30% and multiplying this product by the net assets of the Fund for
that day, as determined in accordance with the Fund's prospectus as of the
close of business on the previous business day on which the Fund was open for
business.
Limitation on Fund Expenses
The Management Agreement between the Fund and T. Rowe Price provides that
the Fund will bear all expenses of its operations not specifically assumed by
T. Rowe Price. However, in compliance with certain state regulations, T. Rowe
Price will reimburse the Fund for certain expenses which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified
for sale. Presently, the most restrictive expense ratio limitation imposed by
any state is 2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million of the Fund's assets, and 1.5% of net
assets in excess of $100 million. Reimbursement by the Fund to T. Rowe Price
of any expenses paid or assumed under a state expense limitation may not be
made more than two years after the end of the fiscal year in which the
expenses were paid or assumed.
In the interest of limiting the expenses of the Fund during its initial
period of operations, T. Rowe Price agreed to bear any expenses through
December 31, 1994, which would cause the Fund's ratio of expenses to average
net assets to exceed 1.25%. Expenses paid or assumed under this agreement are
subject to reimbursement to T. Rowe Price by the Fund whenever the Fund's
expense ratio is below 1.25%; however, no reimbursement will be made after
December 31, 1996, or if it would result in the expense ratio exceeding 1.25%.
The Management Agreement also provides that one or more additional expense
limitation periods (of the same or different levels and time periods) may be
implemented after the expiration of the current one on December 31, 1994, and
that with respect to any such additional limitation period, the Fund may
PAGE 31
reimburse T. Rowe Price, provided the reimbursement does not result in the
Fund's aggregate expenses exceeding the additional expense limitation.
DISTRIBUTOR FOR FUND
T. Rowe Price Investment Services, Inc. ("Investment Services"), a
Maryland corporation formed in 1980 as a wholly-owned subsidiary of T. Rowe
Price, serves as the Fund's distributor. Investment Services is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. The offering of the
Fund's shares is continuous.
Investment Services is located at the same address as the Fund and T.
Rowe Price -- 100 East Pratt Street, Baltimore, Maryland 21202.
Investment Services serves as distributor to the Fund pursuant to an
Underwriting Agreement ("Underwriting Agreement"), which provides that the
Fund will pay all fees and expenses in connection with: registering and
qualifying its shares under the various state "blue sky" laws; preparing,
setting in type, printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of confirming
purchase orders.
The Underwriting Agreement provides that Investment Services will pay all
fees and expenses in connection with: printing and distributing prospectuses
and reports for use in offering and selling Fund shares; preparing, setting in
type, printing, and mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and offering and
selling Fund shares, except for those fees and expenses specifically assumed
by the Fund. Investment Services' expenses are paid by T. Rowe Price.
Investment Services acts as the agent of the Fund in connection with the
sale of its shares in all states in which the shares are qualified and in
which Investment Services is qualified as a broker-dealer. Under the
Underwriting Agreement, Investment Services accepts orders for Fund shares at
net asset value. No sales charges are paid by investors or the Fund.
CUSTODIAN
State Street Bank and Trust Company (the "Bank") is the custodian for the
Fund's securities and cash, but it does not participate in the Fund's
investment decisions. Portfolio securities purchased in the U.S. are
maintained in the custody of the Bank and may be entered into the Federal
Reserve Book Entry System, or the security depository system of the Depository
Trust Corporation. The Bank and Fund have entered into a Sub-Custodian
Agreement with The Chase Manhattan Bank, N.A., London, pursuant to which
portfolio securities which are purchased outside the United States are
maintained in the custody of various foreign branches and affiliates of The
Chase Manhattan Bank and such other custodians, including foreign banks and
foreign securities depositories, in accordance with regulations under the
Investment Company Act of 1940. The Bank's main office is at 225 Franklin
Street, Boston, Massachusetts 02110. The address for The Chase Manhattan
Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD,
England.
PAGE 32
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio securities
on behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also
responsible for implementing these decisions, including the negotiation of
commissions and the allocation of portfolio brokerage and principal business.
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities, it is T. Rowe
Price's policy to obtain quality execution at the most favorable prices
through responsible brokers and dealers and, in the case of agency
transactions, at competitive commission rates. However, under certain
conditions, the Fund may pay higher brokerage commissions in return for
brokerage and research services. As a general practice, over-the-counter
orders are executed with market-makers. In selecting among market-makers, T.
Rowe Price generally seeks to select those it believes to be actively and
effectively trading the security being purchased or sold. In selecting
broker-dealers to execute the Fund's portfolio transactions, consideration is
given to such factors as the price of the security, the rate of the
commission, the size and difficulty of the order, the reliability, integrity,
financial condition, general execution and operational capabilities of
competing brokers and dealers, and brokerage and research services provided by
them. It is not the policy of T. Rowe Price to seek the lowest available
commission rate where it is believed that a broker or dealer charging a higher
commission rate would offer greater reliability or provide better price or
execution.
Fixed Income Securities
Fixed income securities are generally purchased from the issuer or a
primary market-maker acting as principal for the securities on a net basis,
with no brokerage commission being paid by the client. 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.
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
PAGE 33
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm
over a period of time; and (g) the extent to which the broker or dealer has
capital at risk in the transaction.
Description of Research Services Received from Brokers and Dealers
T. Rowe Price receives a wide range of research services from brokers
and dealers. These services include information on the economy, industries,
groups of securities, individual companies, statistical information,
accounting and tax law interpretations, political developments, legal
developments affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement analysis,
performance analysis and analysis of corporate responsibility issues. These
services provide both domestic and international perspective. Research
services are received primarily in the form of written reports, computer
generated services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form of meetings
arranged with corporate and industry spokespersons, economists, academicians
and government representatives. In some cases, research services are
generated by third parties but are provided to T. Rowe Price by or through
broker-dealers.
Research services received from brokers and dealers are supplemental to
T. Rowe Price's own research effort and, when utilized, are subject to
internal analysis before being incorporated by T. Rowe Price into its
investment process. As a practical matter, it would not be possible for T.
Rowe Price's Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays cash for
certain research services received from external sources. T. Rowe Price also
allocates brokerage for research services which are available for cash. While
receipt of research services from brokerage firms has not reduced T. Rowe
Price's normal research activities, the expenses of T. Rowe Price could be
materially increased if it attempted to generate such additional information
through its own staff. To the extent that research services of value are
provided by brokers or dealers, T. Rowe Price may be relieved of expenses
which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in
return for products or services other than brokerage or research services. In
accordance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934, T. Rowe Price may from time to time receive services and products
which serve both research and non-research functions. In such event, T. Rowe
Price makes a good faith determination of the anticipated research and non-
research use of the product or service and allocates brokerage only with
respect to the research component.
Commissions to Brokers who Furnish Research Services
Certain brokers 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
PAGE 34
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.
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
PAGE 35
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution which
generally results in lower commission rates being attained. In certain cases,
where the aggregate order is executed in a series of transactions at various
prices on a given day, each participating client's proportionate share of such
order reflects the average price paid or received with respect to the total
order. T. Rowe Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a company for
its clients (including the T. Rowe Price Funds) if, as a result of such
purchases, 10% or more of the outstanding common stock of such company would
be held by its clients in the aggregate.
To the extent possible, T. Rowe Price intends to recapture solicitation
fees paid in connection with tender offers through T. Rowe Price Investment
Services, Inc., the Fund's distributor. At the present time, T. Rowe Price
does not recapture commissions or underwriting discounts or selling group
concessions in connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate elimination of
all or a portion of the selling-group concession or underwriting discount when
purchasing tax-exempt municipal securities on behalf of its clients in
underwritten offerings.
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between the Fund and
T. Rowe Price, T. Rowe Price is responsible not only for making decisions with
respect to the purchase and sale of the Fund's portfolio securities, but also
for implementing these decisions, including the negotiation of commissions and
the allocation of portfolio brokerage and principal business. It is expected
that T. Rowe Price may place orders for the Fund's portfolio transactions with
broker-dealers through the same trading desk T. Rowe Price uses for portfolio
transactions in domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities are located.
These brokers and dealers may include certain affiliates of Robert Fleming
Holdings Limited ("Robert Fleming Holdings"), and Jardine Fleming Group
Limited ("JFG"), persons indirectly related to T. Rowe Price. Robert Fleming
Holdings, through Copthall Overseas Limited, a wholly-owned subsidiary, owns
25% of the common stock of Rowe Price-Fleming International, Inc. ("RPFI"), an
investment adviser registered under the Investment Advisers Act of 1940.
Fifty percent of the common stock of RPFI is owned by TRP Finance, Inc., a
wholly-owned subsidiary of T. Rowe Price, and the remaining 25% is owned by
Jardine Fleming Holdings Limited, a subsidiary of JFG. JFG is 50% owned by
Robert Fleming Holdings and 50% owned by Jardine Matheson Holdings Limited.
Orders for the Fund's portfolio transactions placed with affiliates of Robert
Fleming Holdings and JFG will result in commissions being received by such
affiliates.
The Board of Directors of the Fund has authorized T. Rowe Price to
utilize certain affiliates of Robert Fleming and JFG in the capacity of broker
in connection with the execution of the Fund's portfolio transactions. 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 Investment Company Act
of 1940, the Board of Directors of the Fund has agreed that the procedures set
forth in Rule 17(e)(1) under that Act will be followed when using such
brokers.
PAGE 36
PRICING OF SECURITIES
Equity securities listed or regularly traded on a securities exchange
(including NASDAQ) are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Other equity securities and those listed
securities that are not traded on a particular day are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their cost in local currency which,
when combined with accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at the mean of the bid and offer prices of such currencies
against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
Fund, as authorized by the Board of Directors.
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is equal to the
Fund's net asset value per share or share price. The Fund determines its net
asset value per share by subtracting its liabilities (including accrued
expenses and dividends payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including income accrued
but not yet received) and dividing the result by the total number of shares
outstanding. The net asset value per share of the Fund is calculated as of
the close of trading on the New York Stock Exchange ("NYSE") every day the
NYSE is open for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, sale, redemption and
repurchase of shares) for the Fund may be suspended at times (a) during which
the NYSE is closed, other than customary weekend and holiday closings, (b)
during which trading on the NYSE is restricted (c) during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during which a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange Commission (or
any succeeding governmental authority) shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
PAGE 37
DIVIDENDS
Unless you elect otherwise, dividends and capital gain distributions
will be reinvested on the reinvestment date using the NAV per share of that
date. The reinvestment date normally precedes the payment date by about 10
days although the exact timing is subject to change.
TAX STATUS
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code").
A portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. For tax purposes, it
does not make any difference whether dividends and capital gain distributions
are paid in cash or in additional shares. The Fund must declare dividends
equal to at least 98% of ordinary income (as of December 31) and capital
gains (as of October 31) in order to avoid a federal excise tax and distribute
100% of ordinary income and capital gains as of December 31 to avoid federal
income tax.
At the time of your purchase, the Fund's net asset value may reflect
undistributed income, capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to you of such
amounts, although constituting a return of your investment, would be taxable
as either dividends or capital gain distributions. For federal income tax
purposes, the Fund is permitted to carry forward its net realized capital
losses, if any, for eight years, and realize net capital gains up to the
amount of such losses without being required to pay taxes on, or distribute
such gains.
If, in any taxable year, the Fund should not qualify as a regulated
investment company under the Code: (i) the Fund would be taxable at the
normal corporate rates on the entire amount of its taxable income, if any,
without deduction for dividends or other distributions to shareholders and
(ii) the Fund's distributions to the extent made out of the Fund's current or
accumulated earnings and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been considered
capital gain dividends).
Taxation of Foreign Shareholders
The Code provides that dividends from net income will be subject to U.S.
tax. For shareholders who are not engaged in a business in the U.S., this tax
would be imposed at the rate of 30% upon the gross amount of the dividends in
the absence of a Tax Treaty providing for a reduced rate or exemption from
U.S. taxation. Distributions of net long-term capital gains realized by the
Fund are not subject to tax unless the foreign shareholder is a nonresident
alien individual who was physically present in the U.S. during the tax year
for more than 182 days.
To the extent the Fund invests in foreign securities, the following
would apply:
Foreign Currency Gains and Losses
Foreign currency gains and losses, including the portion of gain or loss
on the sale of debt securities attributable to foreign exchange rate
fluctuations, are taxable as ordinary income. If the net effect of these
PAGE 38
transactions is a gain, the dividend paid by the Fund will be increased; if
the result is a loss, the income dividend paid by the Fund will be decreased.
Adjustments to reflect these gains and losses will be made at the end of the
Fund's taxable year.
Passive Foreign Investment Companies (PFICs)
The Fund may purchase the securities of certain foreign investment funds
or trusts called passive foreign investment companies. Capital gains on the
sale of such holdings will be deemed to be ordinary income regardless of how
long the Fund holds its investment. In addition to bearing their
proportionate share of the fund's expenses (management fees and operating
expenses) shareholders will also indirectly bear similar expenses of such
funds. In addition, the Fund may be subject to corporate income tax and an
interest charge on certain dividends and capital gains earned from these
investments, regardless of whether such income and gains were distributed to
shareholders.
In accordance with tax regulations, the Fund treats these securities as
sold on the last day of the Fund's fiscal year and recognizes any gains for
tax purposes at that time thereby avoiding corporate income tax and/or an
interest charge; losses will not be recognized. Such gains will be considered
ordinary income which the Fund will be required to distribute even though it
has not sold the security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
Total Return Performance
The Fund's calculation of total return performance includes the
reinvestment of all capital gain distributions and income dividends for the
period or periods indicated, without regard to tax consequences to a
shareholder in the Fund. Total return is calculated as the percentage change
between the beginning value of a static account in the Fund and the ending
value of that account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital gains
dividends. The results shown are historical and should not be considered
indicative of the future performance of the Fund. Each average annual
compound rate of return is derived from the cumulative performance of the Fund
over the time period specified. The annual compound rate of return for the
Fund over any other period of time will vary from the average.
From time to time, in reports and promotions literature: (1) the Fund's
total return performance or P/E ratio may be compared with any one or a
combination of the following: (i) the Standard & Poor's 500 Stock Index so
that you may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the stock market
in general; (ii) other groups of mutual funds, including T. Rowe Price Funds,
tracked by: (A) Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds by overall performance, investment
objectives, and assets; (B) Morningstar, Inc., another widely used independent
research firm which rates mutual funds; or (C) other financial or business
publications, such as Business Week, Money Magazine, Forbes and Barron's,
which provide similar information; (iii) indices of stocks comparable to those
in which the Fund invests; (2) the Consumer Price Index (measure for
inflation) may be used to assess the real rate of return from an investment in
the Fund; (3) other government statistics such as GNP, and net import and
export figures derived from governmental publications, e.g. The Survey of
PAGE 39
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (4) the effect of tax-deferred compounding on the
Fund's investment returns, or on returns in general, may be illustrated by
graphs, charts, etc. where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (5) the sectors or industries in which the Fund invests may be
compared to relevant indices or surveys (e.g. S&P Industry Surveys) in order
to evaluate the Fund's historical performance or current or potential value
with respect to the particular industry or sector. In connection with (4)
above, information derived from the following chart may be used:
IRA Versus Taxable Return
Assuming 9% annual rate of return, $2,000 annual contribution and 28% tax
bracket.
Year Taxable Tax Deferred
10 $28,700 $33,100
15 51,400 64,000
20 82,500 111,500
25 125,100 184,600
30 183,300 297,200
IRAs
An IRA is a long-term investment whose objective is to accumulate
personal savings for retirement. Due to the long-term nature of the
investment, even slight differences in performance will result in
significantly different assets at retirement. Mutual funds, with their
diversity of choice, can be used for IRA investments. Generally, individuals
may need to adjust their underlying IRA investments as their time to
retirement and tolerance for risk changes.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of Funds and may help
investors achieve various long-term investment goals, such as investing money
for retirement, saving for a down payment on a home, or paying college costs.
To explain how the Fund could be used to assist investors in planning for
these goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc. and/or T.
Rowe Price Investment Services, Inc. may be made available. These currently
include: the Asset Mix Worksheet which is designed to show shareholders how to
reduce their investment risk by developing a diversified investment plan; the
College Planning Guide which discusses various aspects of financial planning
to meet college expenses and assists parents in projecting the costs of a
college education for their children; the Retirement Planning Kit (also
available in a PC version) which includes a detailed workbook to determine how
much money you may need for retirement and suggests how you might invest to
reach your goal; and the Retirees Financial Guide which includes a detailed
workbook to determine how much money you can afford to spend and still
preserve your purchasing power and suggests how you might invest to reach your
goal. From time to time, other worksheets and guides may be made available as
well. Of course, an investment in the Fund cannot guarantee that such goals
will be met.
PAGE 40
To assist investors in understanding the different returns and risk
characteristics of various investments, the aforementioned guides will include
presentation of historical returns of various investments using published
indices. An example of this is shown below.
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/92
50 years 25 years 10 years 5 years
Small-Company Stocks 16.3% 12.4% 11.6% 13.6%
Large-Company Stocks 12.6 10.6 16.2 15.9
Foreign Stocks N/A N/A 17.1 1.6
Long-Term Corporate Bonds 5.4 8.8 13.1 12.5
Intermediate-Term U.S.
Gov't. Bonds 5.6 9.0 11.0 10.3
Treasury Bills 4.6 7.2 6.9 6.3
U.S. Inflation 4.3 5.9 3.8 4.2
Sources: Ibbotson Associates. Foreign stocks reflect performance of The
Morgan Stanley Capital International EAFE Index, which includes some 1,000
companies representing the stock markets of Europe, Australia, New Zealand,
and the Far East. This chart is for illustrative purposes only and should not
be considered as performance for any T. Rowe Price Fund. Past performance
does not guarantee future results.
Also included will be various portfolios demonstrating how these
historical indices would have performed in various combinations over a
specified time period in terms of return. An example of this is shown below.
Performance of Retirement Portfolios*
Asset Mix Annualized Returns Number Value
20 Years Ending of Years of
12/31/92 with $10,000
Negative Investment
Returns After Period
_____________________ _______________________ ________ __________
Best Worst
Portfolio Growth Income Safety Average Year Year
I. Low
Risk 15% 35% 50% +9.0% +19.0% -0.2% 1 $ 56,451
II. Moderate
Risk 55% 30% 15% +10.4% +25.7% - 7.5% 2 $ 72,918
III. High
Risk 85% 15% 0% +11.2% +34.5% -16.2% 5 $ 83,382
PAGE 41
Source: T. Rowe Price Associates; data supplied by Ibbotson Associates.
* Based on actual performance of stocks (Wilshire 5000), Lehman Brothers
Government/Corporate Bond Index, and Treasury bills from January 1973
through December 1992. Past performance does not guarantee future
results. Figures include changes in principal value and reinvested
dividends. This Exhibit is for illustrative purposes only and is not
representative of the performance of any T. Rowe Price Fund.
From time to time, Insights, a T. Rowe Price publication of reports on
specific investment topics and strategies, may be included in the Fund's
fulfillment kit. Such reports may include information concerning:
calculating taxable gains and losses on mutual fund transactions, coping with
stock market volatility, benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds, growth stock
investing, conservative stock investing, value investing, investing in small
companies, tax-free investing, fixed income investing, investing in mortgage-
backed securities, as well as other topics and strategies.
CAPITAL STOCK
The Fund's Charter authorizes the Board of Directors to classify and
reclassify any and all shares which are then unissued, including unissued
shares of capital stock into any number of classes or series, each class or
series consisting of such number of shares and having such designations, such
powers, preferences, rights, qualifications, limitations, and restrictions, as
shall be determined by the Board subject to the Investment Company Act and
other applicable law. The shares of any such additional classes or series
might therefore differ from the shares of the present class and series of
capital stock and from each other as to preferences, conversions or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to applicable
law, and might thus be superior or inferior to the capital stock or to other
classes or series in various characteristics. The Board of Directors may
increase or decrease the aggregate number of shares of stock or the number of
shares of stock of any class or series that the Fund has authorized to issue
without shareholder approval.
Except to the extent that the Fund's Board of Directors might provide by
resolution that holders of shares of a particular class are entitled to vote
as a class on specified matters presented for a vote of the holders of all
shares entitled to vote on such matters, there would be no right of class vote
unless and to the extent that such a right might be construed to exist under
Maryland law. The Charter contains no provision entitling the holders of the
present class of capital stock to a vote as a class on any matter.
Accordingly, the preferences, rights, and other characteristics attaching to
any class of shares, including the present class of capital stock, might be
altered or eliminated, or the class might be combined with another class or
classes, by action approved by the vote of the holders of a majority of all
the shares of all classes entitled to be voted on the proposal, without any
additional right to vote as a class by the holders of the capital stock or of
another affected class or classes.
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of
or removal of directors (to the extent hereinafter provided) and on other
matters submitted to the vote of shareholders. There will normally be no
meetings of shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding office have
PAGE 42
been elected by shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Except as set
forth above, the directors shall continue to hold office and may appoint
successor directors. Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in the election of directors can, if they
choose to do so, elect all the directors of the Fund, in which event the
holders of the remaining shares will be unable to elect any person as a
director. As set forth in the By-Laws of the Fund, a special meeting of
shareholders of the Fund shall be called by the Secretary of the Fund on the
written request of shareholders entitled to cast at least 10% of all the votes
of the Fund entitled to be cast at such meeting. Shareholders requesting such
a meeting must pay to the Fund the reasonably estimated costs of preparing and
mailing the notice of the meeting. The Fund, however, will otherwise assist
the shareholders seeking to hold the special meeting in communicating to the
other shareholders of the Fund to the extent required by Section 16(c) of the
Investment Company Act of 1940.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the Securities Act of
1933, and the Fund or its shares are registered under the laws of all states
which require registration, as well as the District of Columbia and Puerto
Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, whose address is 919 Third Avenue,
New York, New York 10022, is legal counsel to the Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore, Maryland
21202, are independent accountants to the Fund. The Statement of Assets and
Liabilities of the Fund as of June 25, 1993, included in the Statement of
Additional Information has been so included in reliance on the report of Price
Waterhouse, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Blue Chip Growth Fund for the period June
30, 1993 (commencement of operations) to December 31, 1993, are included in
the Fund's Annual Report on pages 6 through 14. A copy of the Annual Report
accompanies this Statement of Additional Information. The following financial
statements and the report of independent accountants appearing in the Annual
Report for the period ended December 31, 1993, are incorporated into this
Statement of Additional Information by reference:
PAGE 43
Annual
Report Page
Report of Independent Accountants 14
Statement of Net Assets, December 31, 1993 6-8
Statement of Operations, June 30, 1993 9
(Commencement of Operations) to
December 31, 1993
Statement of Changes in Net Assets, June 30, 10
1993 (Commencement of Operations) to
December 31, 1993
Notes to Financial Statements, December 31, 1993 11-12
Financial Highlights, June 30, 1993 13
(Commencement of Operations) to December 31, 1993
PAGE 44
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Condensed Financial Information (Financial Highlights) is included in
Part A of the Registration Statement.
Statement of Net Assets, Statement of Operations, and Statement of
Changes in Net Assets are included in the Annual Report to
Shareholders, the pertinent portions of which are incorporated by
reference in Part B of the Registration Statement.
(b) Exhibits
(1) Articles of Incorporation of Registrant, dated April 21, 1993
(filed with initial Registration Statement)
(2) By-Laws of Registrant (filed with initial Registration
Statement)
(3) Inapplicable
(4) Inapplicable
(5) Investment Management Agreement between Registrant and T.
Rowe Price Associates, Inc., dated April 22, 1993 (filed with
initial Registration Statement)
(6) Underwriting Agreement between Registrant and T. Rowe Price
Investment Services, Inc., dated April 22, 1993 (filed with
initial Registration Statement)
(7) Inapplicable
(8)(a) Custodian Agreement between T. Rowe Price Funds and State
Street Bank and Trust Company, dated September 28, 1987, as
amended to June 24, 1988, October 19, 1988, February 22,
1989, July 19, 1989, September 15, 1989, December 15, 1989,
December 20, 1989, January 25, 1990, February 21, 1990, June
12, 1990, July 18, 1990, October 15, 1990, February 13, 1991,
March 6, 1991, September 12, 1991, November 6, 1991, April
23, 1992, September 2, 1992, November 3, 1992, December 16,
1992, December 21, 1992, January 28, 1993, and April 22, 1993
(filed with initial Registration Statement)
(8)(b) Subcustodian Agreement between the Registrant, State Street
Bank and Trust Company, and The Chase Manhattan Bank, N.A.
(to be filed by amendment)
(9)(a) Transfer Agency and Service Agreement between T. Rowe Price
Services, Inc. and T. Rowe Price Funds, dated January 1,
1993, as amended to January 28, 1993, and April 22, 1993
(filed with initial Registration Statement)
(9)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe
Price Funds for Fund Accounting Services, dated January 1,
1993, as amended to January 28, 1993, and April 22, 1993
(filed with initial Registration Statement)
PAGE 45
(9)(c) Agreement between T. Rowe Price Retirement Plan Services,
Inc. and the Taxable Funds, dated January 1, 1993, as amended
to April 22, 1993 (filed with initial Registration Statement)
(10) Opinion of Counsel, dated February 14, 1994
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
Item 25. Persons Controlled by or Under Common Control.
None.
Item 26. Number of Holders of Securities
As of December 31, 1993, there were 3,000 shareholders in the T. Rowe Price
Blue Chip Growth Fund, Inc.
Item 27. Indemnification
The Registrant maintains comprehensive Errors and Omissions and Officers
and Directors insurance policies written by the Evanston Insurance Company,
The Chubb Group and ICI Mutual. These policies provide coverage for the named
insureds, which include T. Rowe Price Associates, Inc. ("Manager"), Rowe
Price-Fleming International, Inc. ("Price-Fleming"), T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust Company, T.
Rowe Price Stable Asset Management, Inc., RPF International Bond Fund and
thirty-three other investment companies, namely, T. Rowe Price Growth Stock
Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund,
Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund,
Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price Tax-Exempt Money
Fund, Inc., T. Rowe Price International Funds, Inc., T. Rowe Price Growth &
Income Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., T.
Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T.
Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth
Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price
Capital Appreciation Fund, T. Rowe Price State Tax-Free Income Trust, T. Rowe
Price California Tax-Free Income Trust, T. Rowe Price Science & Technology
Fund, Inc., T. Rowe Price Small-Cap Value Fund, Inc., Institutional
International Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe
Price Index Trust, Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price
Balanced Fund, Inc., T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.,
T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price OTC Fund, Inc., T. Rowe
Price Tax-Free Insured Intermediate Bond Fund, Inc., T. Rowe Price Dividend
Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., and T. Rowe Price Summit
Municipal Funds, Inc. The Registrant and the thirty-three investment
companies listed above, with the exception of T. Rowe Price Index Trust, Inc.
and Institutional International Funds, Inc., will be collectively referred to
as the Price Funds. The investment manager for the Price Funds, including T.
PAGE 46
Rowe Price Index Trust, Inc., is the Manager. Price-Fleming is the manager to
T. Rowe Price International Funds, Inc. and Institutional International Funds,
Inc. and is 50% owned by TRP Finance, Inc., a wholly-owned subsidiary of the
Manager, 25% owned by Copthall Overseas Limited, a wholly-owned subsidiary of
Robert Fleming Holdings Limited, and 25% owned by Jardine Fleming
International Holdings Limited. In addition to the corporate insureds, the
policies also cover the officers, directors, and employees of each of the
named insureds. The premium is allocated among the named corporate insureds
in accordance with the provisions of Rule 17d-1(d)(7) under the Investment
Company Act of 1940.
General. The Charter of the Corporation provides that to the fullest
extent permitted by Maryland or federal law, no director of officer of the
Corporation shall be personally liable to the Corporation or the holders of
Shares for money damages and each director and officer shall be indemnified by
the Corporation; provided, however, that nothing herein shall be deemed to
protect any director or officer of the Corporation against any liability to
the Corporation of the holders of Shares to which such director or officer
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office.
Article X, Section 10.01 of the Registrant's By-Laws provides as follows:
Section 10.01 Indemnification and Payment of Expenses in Advance. The
Corporation shall indemnify any individual ("Indemnitee") who is a present or
former director, officer, employee, or agent of the Corporation, or who is or
has been serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, who, by reason of his position was, is, or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any
judgments, penalties, fines, settlements, and reasonable expenses (including
attorneys' fees) incurred by such Indemnitee in connection with any
Proceeding, to the fullest extent that such indemnification may be lawful
under applicable Maryland law, as from time to time amended. The Corporation
shall pay any reasonable expenses so incurred by such Indemnitee in defending
a Proceeding in advance of the final disposition thereof to the fullest extent
that such advance payment may be lawful under applicable Maryland law, as from
time to time amended. Subject to any applicable limitations and requirements
set forth in the Corporation's Articles of Incorporation and in these By-Laws,
any payment of indemnification or advance of expenses shall be made in
accordance with the procedures set forth in applicable Maryland law, as from
time to time amended.
Notwithstanding the foregoing, nothing herein shall protect or
purport to protect any Indemnitee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct
of his office ("Disabling Conduct").
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee
unless:
(a) there is a final decision on the merits by a court or other body
before whom the Proceeding was brought that the Indemnitee was not
liable by reason of Disabling Conduct; or
PAGE 47
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the Indemnitee
was not liable by reason of Disabling Conduct, which determination
shall be made by:
(i) the vote of a majority of a quorum of directors who are
neither "interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act of 1940, nor
parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Anything in this Article X to the contrary notwithstanding, any
advance of expenses by the Corporation to any Indemnitee shall be made
only upon the undertaking by such Indemnitee to repay the advance unless
it is ultimately determined that such Indemnitee is entitled to
indemnification as above provided, and only if one of the following
conditions is met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by
reason of any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that the
Indemnitee will ultimately be found entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of directors who are neither
"interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act of
1940, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.02 of the Registrant's By-Laws provides as follows:
Section 10.02 Insurance of Officers, Directors, Employees and Agents.
To the fullest extent permitted by applicable Maryland law and by Section
17(h) of the Investment Company Act of 1940, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or who is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise, against any liability asserted against him and incurred
by him in or arising out of his position, whether or not the Corporation would
have the power to indemnify him against such liability.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit proceeding) is
asserted by such director, officer or controlling person in connection with
PAGE 48
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
Rowe Price-Fleming International, Inc. ("Price-Fleming"), a Maryland
corporation, is a corporate joint venture 50% owned by TRP Finance, Inc., a
wholly-owned subsidiary of the Manager and was organized in 1979 to provide
investment counsel service with respect to foreign securities for
institutional investors in the United States. Price-Fleming, in addition to
managing private counsel client accounts, also sponsors registered investment
companies which invest in foreign securities, serves as general partner of
RPFI International Partners, Limited Partnership, and provides investment
advice with respect to its shares in the International Common Trust Fund
maintained by T. Rowe Price Trust Company.
T. Rowe Price Investment Services, Inc. ("Investment Services"), a wholly-
owned subsidiary of the Manager, is a Maryland corporation organized in 1980
for the purpose of acting as the principal underwriter and distributor for the
Price Funds. Investment Services is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. In 1984, Investment Services expanded its activities
to include a discount brokerage service.
TRP Distribution, Inc., a wholly-owned subsidiary of Investment Services, is a
Maryland corporation organized in 1991. It was organized for and engages in
the sale of certain investment related products prepared by Investment
Services.
T. Rowe Price Associates Foundation, Inc., was organized in 1981 for the
purpose of making charitable contributions to religious, charitable,
scientific, literary and educational organizations.
The Foundation (which is not a subsidiary of the Manager) is funded solely by
contributions from the Manager and income from investments.
T. Rowe Price Services, Inc. ("Price Services"), a wholly-owned subsidiary of
the Manager, is a Maryland corporation organized in 1982 and is registered as
a transfer agent under the Securities Exchange Act of 1934. Price Services
provides transfer agent, dividend disbursing, and certain other services,
including shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a wholly-owned
subsidiary of the Manager, was incorporated in Maryland in 1991 and is
registered as a transfer agent under the Securities Exchange Act of 1934. RPS
provides administrative, recordkeeping, and subaccounting services to
administrators of employee benefit plans.
T. Rowe Price Trust Company ("Trust Company"), a wholly-owned subsidiary of
the Manager, is a Maryland chartered limited purpose trust company, organized
in 1983 for the purpose of providing fiduciary services. The Trust Company
serves as trustee/custodian for employee benefit plans, common trust funds and
a few trusts.
T. Rowe Price Threshold Fund, L.P., a Delaware limited partnership, was
organized in 1983 by the Manager, and invests in private financings of small
companies with high growth potential. T. Rowe Price Threshold Fund II, L.P.,
PAGE 49
a similar Delaware partnership, was organized in 1986. The Manager is the
General Partner of each partnership.
RPFI International Partners, Limited Partnership, is a Delaware limited
partnership organized in 1985 for the purpose of investing in a diversified
group of small and medium-sized rapidly growing non-U.S. companies.
Price-Fleming is the general partner of this partnership, and certain clients
of Price-Fleming are its limited partners.
T. Rowe Price Real Estate Group, Inc. ("Real Estate Group"), is a Maryland
corporation and a wholly-owned subsidiary of the Manager established in 1986
to provide real estate services. Subsidiaries of Real Estate Group are: T.
Rowe Price Realty Income Fund I Management, Inc., a Maryland corporation
(General Partner of T. Rowe Price Realty Income Fund I, A No-Load Limited
Partnership), T. Rowe Price Realty Income Fund II Management, Inc., a Maryland
corporation (General Partner of T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership), T. Rowe Price Realty
Income Fund III Management, Inc., a Maryland corporation (General Partner of
T. Rowe Price Realty Income Fund III, America's Sales-Commission-Free Real
Estate Limited Partnership, a Delaware limited partnership), and T. Rowe Price
Realty Income Fund IV Management, Inc., a Maryland corporation (General
Partner of T. Rowe Price Realty Income Fund IV, America's
Sales-Commission-Free Real Estate Limited Partnership). Real Estate Group
serves as investment manager to T. Rowe Price Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment, established in 1989 as a
Maryland corporation which qualifies as a REIT.
T. Rowe Price Stable Asset Management, Inc. ("Stable Asset Management") is a
Maryland corporation organized in 1988 as a wholly-owned subsidiary of the
Manager. Stable Asset Management, which is registered as an investment
adviser under the Investment Advisers Act of 1940, specializes in the
management of investment portfolios which seek stable and consistent
investment returns through the use of guaranteed investment contracts, book
investment contracts, structured or synthetic investment contracts, and
short-term fixed-income securities.
T. Rowe Price Recovery Fund Associates, Inc., a Maryland corporation, is a
wholly-owned subsidiary of the Manager organized in 1988 for the purpose of
serving as the General Partner of T. Rowe Price Recovery Fund, L.P., a
Delaware limited partnership which invests in financially distressed
companies.
T. Rowe Price (Canada), Inc. is a Maryland corporation organized in 1988 as a
wholly-owned subsidiary of the Manager. This entity is registered as an
investment adviser under the Investment Advisers Act of 1940, and may apply
for registration as an investment manager under the Securities Act of Ontario
in order to be eligible to provide certain services to the RPF
International Bond Fund, a trust (whose shares are sold in Canada) which
Price-Fleming serves as investment adviser.
Since 1983, the Manager has organized several distinct Maryland limited
partnerships, which are informally called the Pratt Street Ventures
partnerships, for the purpose of acquiring interests in growth-oriented
businesses.
Tower Venture, Inc., a wholly-owned subsidiary of the Manager, is a Maryland
corporation organized in 1989 for the purpose of serving as a general partner
of 100 East Pratt St., L.P., a Maryland limited partnership whose limited
partners also include the Manager. The purpose of the partnership is to
PAGE 50
further develop and improve the property at 100 East Pratt Street, the site of
the Manager's headquarters, through the construction of additional office,
retail and parking space.
T. Rowe Price Frontier Limited ("Frontier") is a Bermuda corporation organized
in 1989 as an investment vehicle for foreign investors who wish to invest in
small U.S. public companies with high growth potential. Frontier is the
limited partner of T. Rowe Price New Frontier Fund II (Netherlands Antilles),
C.V., a limited partnership whose general partners are T. Rowe Price New
Frontier Management Associates (Netherlands Antilles) N.V. ("Management
Associates") and T. Rowe Price New Frontier Investment Associates (Netherlands
Antilles), C.V. ("Investment Associates"). Management Associates is a
corporation which is a wholly-owned subsidiary of the Manager. Investment
Associates is a limited partnership whose general partners are Management
Associates and T. Rowe Price Associates Frontiers, Inc., a Maryland
corporation which is a wholly-owned subsidiary of the Manager.
TRP Suburban, Inc. is a Maryland corporation organized in 1990 as a
wholly-owned subsidiary of the Manager. TRP Suburban has entered into
agreements with McDonogh School and CMANE-McDonogh-Rowe Limited Partnership to
construct an office building in Owings Mills, Maryland, which houses the
Manager's transfer agent, plan administrative services, retirement plan
services and operations support functions.
TRP Finance, Inc. and TRP Finance MRT, Inc., wholly-owned subsidiaries of the
Manager, are Delaware corporations organized in 1990 to manage certain passive
corporate investments and other intangible assets.
T. Rowe Price Strategic Partners Fund, L.P. is a Delaware limited partnership
organized in 1990 for the purpose of investing in small public and private
companies seeking capital for expansion or undergoing a restructuring of
ownership. The general partner of the Fund is T. Rowe Price Strategic
Partners, L.P., a Delaware limited partnership whose general partner is T.
Rowe Price Strategic Partners Associates, Inc., ("Strategic Associates"), a
Maryland corporation which is a wholly-owned subsidiary of the Manager.
Strategic Associates also serves as the general partner of T. Rowe Price
Strategic Partners II, L.P., a Delaware limited partnership established in
1992, which in turn serves as general partner of T. Rowe price Strategic
Partners Fund II, L.P., a Delaware limited partnership organized in 1992.
Listed below are the directors of the Manager who have other substantial
businesses, professions, vocations, or employment aside from that of Director
of the Manager:
JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is President of
U.S. Monitor Corporation, a provider of public response systems. Mr. Halbkat's
address is: P.O. Box 23109, Hilton Head Island, South Carolina 29925.
JOHN W. ROSENBLUM, Director of the Manager. Mr. Rosenblum 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. Rosenblum's address is: P.O. Box 6550,
Charlottesville, Virginia 22906.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland is Chairman of
Lowe's Companies, Inc., a retailer of specialty home supplies. Mr.
Strickland's address is 604 Two Piedmont Plaza Building, Winston-Salem, North
Carolina 27104.
PAGE 51
PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a Consultant to Cyprus
Amax Minerals Company, Englewood, Colorado, and a director of Piedmont Mining
Company, Inc., Charlotte, North Carolina. Mr. Walsh's address is: Blue Mill
Road, Morristown, New Jersey 07960.
With the exception of Messrs. Halbkat, Rosenblum, Strickland, and Walsh, all
of the directors of the Manager are employees of the Manager.
George J. Collins, who is Chief Executive Officer, President, and a Managing
Director of the Manager, is a Director of Price-Fleming.
George A. Roche, who is Chief Financial Officer and a Managing Director of the
Manager, is a Vice President and a Director of Price-Fleming.
M. David Testa, who is a Managing Director of the Manager, is Chairman of the
Board of Price-Fleming.
Charles H. Salisbury, Jr., who is a Managing Director of the Manager, is a
Vice President and a Director of Price-Fleming.
Henry H. Hopkins, Charles P. Smith, and Peter Van Dyke, who are Managing
Directors of the Manager, are Vice Presidents of Price-Fleming.
Robert P. Campbell, Robert C. Howe, Veena A. Kutler, George A. Murnaghan,
William F. Wendler, II, and Edward A. Wiese, who are Vice Presidents of the
Manager, are Vice Presidents of Price-Fleming.
Alvin M. Younger, Jr., who is a Managing Director and the Secretary and
Treasurer of the Manager, is Secretary and Treasurer of Price-Fleming.
Joseph P. Croteau, who is a Vice President of the Manager, is Controller of
Price-Fleming.
Nolan L. North, who is a Vice President of the Manager, is Assistant Treasurer
of Price-Fleming.
Leah P. Holmes, who is an Assistant Vice President of the Manager, is a Vice
President of Price-Fleming.
Barbara A. Van Horn, who is Assistant Secretary of the Manager, is Assistant
Secretary of Price-Fleming.
Certain directors and officers of the Manager are also officers and/or
directors of one or more of the Price Funds and/or one or more of the
affiliated entities listed herein.
See also "Management of Fund," in Registrant's Statement of Additional
Information.
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is Investment Services.
Investment Services acts as the principal underwriter for the other thirty-
three Price Funds. Investment Services, a wholly-owned subsidiary of the
Manager, is registered as a broker-dealer under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc.
Investment Services was formed for the limited purpose of distributing the
shares of the Price Funds and will not engage in the general securities
business. Since the Price Funds are sold on a no-load basis, Investment
PAGE 52
Services does not receive any commission or other compensation for acting as
principal underwriter.
(b) The address of each of the directors and officers of Investment Services
listed below is 100 East Pratt Street, Baltimore, Maryland 21202.
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
James S. Riepe President and Director Director and
Vice President
Henry H. Hopkins Vice President and Vice President
Director
Mark E. Rayford Director None
Charles E. Vieth Vice President and None
Director
Patricia M. Archer Vice President None
Edward C. Bernard Vice President None
Joseph C. Bonasorte Vice President None
Meredith C. Callanan Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Mark S. Finn Vice President and
Assistant Controller None
Forrest R. Foss Vice President None
Patricia O. Goodyear Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
Thomas Grizzard Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
David A. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Charles S. Peterson Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
William F. Wendler, II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Joseph P. Croteau Controller None
Catherine L. Berkenkemper Assistant Vice President None
S. Brooks Biggs Assistant Vice President None
Patricia S. Butcher Assistant Vice President None
Laura H. Chasney Assistant Vice President None
George H. Finney Assistant Vice President None
John A. Galateria Assistant Vice President None
Cheryl A. Gustitus Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
PAGE 53
Tom J. Mauer Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Arthur J. Siber Assistant Vice President None
Mary A. Tamberrino Assistant Vice President None
Monica R. Tucker Assistant Vice President None
Linda C. Wright Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive any compensation
with respect to its activities as underwriter for the Price Funds since the
Price Funds are sold on a no-load basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by T. Rowe
Price Blue Chip Growth Fund, Inc. under Section 31(a) of the Investment
Company Act of 1940 and the rules thereunder will be maintained by T. Rowe
Price Blue Chip Growth Fund, Inc., at its offices at 100 East Pratt Street,
Baltimore, Maryland 21202. Transfer, dividend disbursing, and shareholder
service activities are performed by T. Rowe Price Services, Inc., at 100 East
Pratt Street, Baltimore, Maryland 21202. Custodian activities for T. Rowe
Price Blue Chip Growth Fund, Inc. are performed at State Street Bank and Trust
Company's Service Center (State Street South), 1776 Heritage Drive, Quincy,
Massachusetts 02171. Custody of Fund portfolio securities which are purchased
outside the United States is maintained by The Chase Manhattan Bank, N.A.,
London in its foreign branches or with other U.S. banks. The Chase Manhattan
Bank, N.A., London is located at Woolgate House, Coleman Street, London EC2P
2HD, England.
Item 31. Management Services.
The Registrant is not a party to any management-related service contract,
other than as set forth in the Prospectus.
Item 32. Undertakings.
(a) Inapplicable.
(b) Inapplicable.
(c) If requested to do so by the holders of at least 10% of all votes
entitled to be cast, the Fund will call a meeting of shareholders for
the purpose of voting on the question of removal of a director or
directors and will assist in communications with other shareholders
to the extent required by Section 16(c).
(d) The Fund agrees to furnish, upon request and without charge, a copy
of its latest Annual Report to each person to whom a prospectus is
delivered.
PAGE 54
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) and the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, this 14th day of February, 1994.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
/s/Thomas H. Broadus, Jr.
By: Thomas H. Broadus, Jr., President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
_________ _____ ____
/s/Thomas H. Broadus, Jr. President and Director February 14, 1994
Thomas H. Broadus, Jr. (Principal Executive Officer)
/s/Carmen F. Deyesu Treasurer February 14, 1994
Carmen F. Deyesu (Principal Financial Officer)
/s/Leo C. Bailey Director February 14, 1994
Leo C. Bailey
/s/Donald W. Dick, Jr. Director February 14, 1994
Donald W. Dick, Jr.
/s/David K. Fagin Director February 14, 1994
David K. Fagin
/s/Addison Lanier Director February 14, 1994
Addison Lanier
/s/John K. Major Director February 14, 1994
John K. Major
/s/James S. Riepe Vice President and Director February 14, 1994
James S. Riepe
/s/M. David Testa Director February 14, 1994
M. David Testa
/s/Hubert D. Vos Director February 14, 1994
Hubert D. Vos
/s/Paul M. Wythes Director February 14, 1994
Paul M. Wythes
February 14, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: T. Rowe Price Blue Chip Growth Fund, Inc.
("Registrant")
File Nos.: 033-49581/811-7059
Dear Sirs:
We are counsel to the above-reference registrant which proposes to file,
pursuant to paragraph (b) of Rule 485 (the "Rule"), Post-Effective Amendment
No. 1 (the "Amendment") to its Registration Statement under the Securities Act
of 1933, as amended.
Pursuant to paragraph (e) of the Rule, we represent that the Amendment
does not contain disclosures which would render it ineligible to become
effective pursuant to paragraph (b) of the Rule.
Sincerely,
/s/Shereff, Friedman, Hoffman & Goodman
Shereff, Friedman, Hoffman & Goodman
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated January 19, 1994, relating to the financial
statements and selected per share data and ratios appearing in the December
31, 1993 Annual Report to Shareholders of the T. Rowe Price Blue Chip Growth
Fund, Inc., which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the heading
"Financial Highlights" in the Prospectus and under the heading "Independent
Accountants" in the Statement of Additional Information.
PRICE WATERHOUSE
Baltimore, Maryland
February 14, 1994
