PAGE 1
Registration No.: 811-07225
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. ___ / /
T. ROWE PRICE CAPITAL OPPORTUNITY 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)
Approximate Date of Proposed Public Offering November 30, 1994
__________________
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
PAGE 2
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
_________________________________________________________________
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate
Title of Securities Being Price Offering Amount of
Being Registered Registered Per Unit Price Registration
Fee
_________________________________________________________________
Capital Stock - Indefinite Varying prices $500
$.0001 par value Number calculated as set
per share forth in prospectus
_________________________________________________________________
The purpose of this Registration Statement is to register the
Registrant under the Investment Company Act of 1940, to register
the shares of the Registrant under the Securities Act of 1933 and
to declare pursuant to Section 24(f) of the Investment Company
Act of 1940 and Rule 24f-2 thereunder that an indefinite number
of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states the Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to Section 8(a) may determine.
SUBJECT TO COMPLETION
Information contained herein is subject to completion or
amendment. A Registration Statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell
PAGE 3
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
PAGE 4
CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ _________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial +
Information
Item 4. General Description of About the Fund; Fund,
Registrant Market, and Risk
Characteristics: What
to Expect;
Understanding Fund
Performance;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; The Fund's
Organization and
Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; The Fund's
Organization and
Management
Item 7. Purchase of Securities Pricing Shares and
Being Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Meeting
Requirements for New
Accounts; Shareholder
Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and +
History
Item 13. Investment Objectives and Investment Objectives
Policies and Policies; Risk
PAGE 5
Factors; Investment
Program; Investment
Restrictions;
Investment Performance
Item 14. Management of the Registrant Management of Fund
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Investment Management
Other Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio
Transactions; Code of
Ethics
Item 18. Capital Stock and Other Dividends and
Securities Distributions; Capital
Stock
Item 19. Purchase, Redemption and Pricing of Securities;
Pricing of Securities Being Net Asset Value Per
Offered Share; Redemptions in
Kind; Federal 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 +
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 6
Facts At A Glance T. Rowe Price
Capital Opportunity Fund,
Investment Goal Inc.
To provide superior capital November 30, 1994
appreciation by investing in the Prospectus
common stocks of small, medium and
large companies. As with any mutual CONTENTS
fund, there is no guarantee the fund ______________________
will achieve its goal. 1 About the Fund
Transaction and Fund
Strategy Expenses....
To establish a concentrated Fund, Market, and Risk
portfolio consisting of a relatively Characteristics ..
limited number of stocks, primarily _______________________
of U.S. companies believed to offer 2 About Your Account
the best opportunities for capital Pricing Shares;
appreciation. The Fund will use a Receiving Sale
flexible approach to stock Proceeds..........
selection, not limited by investment Distributions and
style, industry or a company's size. Taxes.............
Transaction Procedures
Risk/Reward Potential and Special
The assumption of higher risk for Requirements.....
the potential to achieve superior _______________________
capital appreciation. While taking 3 More About the Fund
large positions in a limited number Organization and
of companies involves greater risk Management.......
than investing in a more broadly Understanding Fund
diversified portfolio, the fund's Performance........
flexible investment approach may Investment Policies and
offer greater opportunity for Practices.....
superior capital growth. _______________________
4 Investing with T. Rowe
Investor Profile Price
Individuals seeking significant Meeting Requirements for
capital appreciation, who can accept New Accounts...........
the higher risks of an aggressively Opening a New Account...
managed portfolio of stocks. Purchasing Additional
Appropriate for both regular and Shares................
tax-deferred accounts, such as IRAs. Exchanging and
Redeeming..............
Fees and Charges Shareholder Services...
100% no-load. No fees or charges to
buy or sell shares or to reinvest This prospectus contains
dividends; no 12b-1 marketing fees; information you should know
free telephone exchange. before investing. Please
keep it for future
Investment Manager reference. A Statement of
Founded in 1937 by the late Thomas Additional Information
Rowe Price, Jr., T. Rowe Price about the fund, dated
PAGE 7
Associates, Inc. ("T. Rowe Price") November 30, 1994, has been
and its affiliates were managing filed with the Securities
over $54 billion for approximately and Exchange Commission and
three million individual and is incorporated by
institutional investor accounts as reference in this
of March 31, 1994. prospectus. To obtain a
free copy, call
THESE SECURITIES HAVE NOT BEEN 1-800-638-5660.
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION,
OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES
COMMISSION, PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAGE 8
1 About the Fund
Transaction and Fund Expenses
These tables should help you understand the
kinds of expenses you will bear directly or
indirectly as a fund shareholder.
_______________________
Like all T. Rowe Price
funds, the fund is 100%
no load. In Table 1 below, "Shareholder Transaction
Expenses" shows that you pay no sales
charges. All the money you invest in the
fund goes to work for you, subject to the
fees explained below. "Annual Fund
Expenses," provides an estimate of how much
it will cost to operate the fund for a
year, based on projected 1994 fiscal year
expenses (and any applicable expense
limitations). These are costs you pay
indirectly, because they are deducted from
the fund's total assets before the daily
share price is calculated and before
dividends and other distributions are made.
In other words, you will not see these
expenses on your account statement.
_____________________
For the fiscal period
ended December 31, 1994,
the fund is expected to
pay $_________ to T. Rowe
Price Services, Inc. for
transfer and dividend
disbursing functions and
shareholder services;
$____ to T. Rowe Price
Retirement Plan Services,
Inc. for certain
recordkeeping services
for certain retirement
plans; and $_________ to
T. Rowe Price for fund
accounting services. _______________________________________
Shareholder Transaction Expenses
___________________________________________
Sales charge "load" on
purchases None
___________________________________________
Sales charge "load" on
reinvested
dividends None
PAGE 9
___________________________________________
Redemption fees None
___________________________________________
Exchange fees None
___________________________________________
Percentage of Fiscal
Annual Fund 1995 Average Net
Expenses Assets
___________________________________________
Management fee _____%*
(after reduction)
___________________________________________
Total other (Shareholder
servicing, custodial
auditing, etc.) _____%
___________________________________________
Marketing fees
(12b-1) None
___________________________________________
Total fund
expenses (after
reduction) _____%*
___________________________________________
Note: The fund charges a $5 fee for wire
redemptions under $5,000, subject to change
without notice.
*To limit the fund's expenses during its
initial period of operations, T. Rowe Price
has agreed to waive its fees and bear any
expenses through December 31, 1996, to the
extent such fees or expenses would cause
the fund's ratio of expenses to average net
assets to exceed ______%. Fees waived or
expenses paid or assumed under this
agreement are subject to reimbursement to
T. Rowe Price by the fund whenever the
fund's expense ratio is below the
previously stated ratio; however, no
reimbursement will be made after December
31, 1998, or if it would result in the
expense ratio exceeding the ratio as
previously stated. Without this expense
limitation, it is estimated that the fund's
management fee and total expense ratio for
the first full year of operation would be
_____%. Organizational expenses will be
charged to the fund over a period not to
exceed 60 months.
___________________________________________
Table 1
PAGE 10
The main types of expenses, which all
mutual funds may charge against fund
assets, are:
o A management fee: the percent of fund
assets paid to the fund's investment
manager. The fund's fee is comprised of
a group fee, discussed later, and an
individual fund fee of _____%.
o "Other" administrative expenses:
primarily the servicing of shareholder
accounts, such as providing statements,
reports, disbursing dividends, as well
as custodial services.
o Marketing or distribution fees: an annual
charge ("12b-1") to existing shareholders
to defray the cost of selling shares to
new shareholders. T. Rowe Price funds do
not levy 12b-1 fees.
For further details on fund expenses,
please see "The Fund's Organization and
Management."
o Hypothetical example: Assume you invest
$1,000, the fund returns 5% annually,
expense ratios remain as previously
listed, and you close your account at the
end of the time periods shown. Your
expenses would be:
____________________
The table at right is
just an example; actual
expenses can be higher or
lower than those shown. __________________________________________
1 3
Year Years
__________________________________________
$_____ $____
________________________________________
Table 2
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether the fund is
appropriate for you, this section takes a
closer look at its investment objective and
approach.
PAGE 11
_________________________
The fund should not be
relied upon as a complete
investment program nor be
used for short-term
trading purposes. What is the fund's objective?
The investment objective is to provide
superior capital appreciation over time by
investing primarily in U.S. common stocks
of small, medium, and large companies.
Income is not an objective and, therefore,
is not a prerequisite in the selection of
securities.
What is the fund's overall investment
program?
The fund's primary focus will be on the
common stocks of U.S. companies appearing
to offer the best opportunities for capital
appreciation at any given time, based on T.
Rowe Price equity research. The portfolio
manager will pursue a flexible investment
strategy in the selection of stocks, not
limited by any particular investment style,
industry, or a company's size. When
attractive investments are identified, the
fund manager expects to follow a somewhat
aggressive approach by establishing
relatively large positions sometimes
representing 5% or more of total fund
assets. It would not be unusual for the
fund to emphasize the stocks of small and
medium-sized companies from time to time.
In addition to U.S. common stocks, the fund
may also purchase other types of
securities, for example, foreign
securities, convertible stocks and bonds,
junk bonds, private placements and
warrants, when considered consistent with
the fund's investment objective. The fund
may also engage in a variety of investment
management practices, such as buying and
selling futures and options.
How are securities for the portfolio
identified?
Drawing on its research, T. Rowe Price will
generally seek to invest in:
PAGE 12
0 companies expected to achieve
accelerating earnings growth, perhaps due
to strong demand for their products or
services;
0 companies whose securities appear
undervalued, based on various measures
such as price/earnings and price/book
value ratios, etc.;
0 companies undergoing financial
restructuring;
0 companies involved in takeover or
arbitrage situations;
0 companies expected to benefit from
evolving market cycles or changing
economic conditions; or
0 other special situations, such as changes
in management or favorable regulatory
developments, which are expected to lead
to higher earnings and share prices.
What distinguishes the fund from many other
stock funds?
Many stock funds follow a particular
investment approach or look for
opportunities in particular market sectors.
For example, some take a "growth" approach
based on the premise that, when a company's
earnings grow faster than inflation and the
economy in general, eventually the market
should reward it with a higher stock price.
Others pursue a "value" approach, seeking
to buy a stock when its price is low in
relation to what they believe to be its
intrinsic worth. Others yet will limit
their search to large- or small-cap stocks,
or to stocks in a particular sector such as
natural resources, health care or
technology.
This fund will not be limited in these
ways. Rather, it's flexible strategy will
allow it to look for opportunities --
sometimes growth or value, at different
times small-, medium- or large-cap stocks -
- across all areas of the market. This
PAGE 13
opportunistic approach may result in an
above-average level of trading activity,
buying and selling securities more
frequently than other funds do, in order to
pursue the best opportunities as they
present themselves. In addition, the fund's
portfolio will tend to be less diversified
than that of the average stock fund.
Will the fund attempt to time swings in the
market?
The fund will not make explicit calls on
the future direction of the general market.
Our intention is to be fully invested when
market conditions warrant it. However, if
the fund manager is unable to find
attractive situations offering the
potential for significant capital
appreciation, the fund may hold above-
average levels of cash reserves for
temporary defensive purposes.
_________________________
The fund's share price
will fluctuate. When you
sell your shares, their
price may be higher or
lower than when you
purchased them. What are the fund's potential risks?
The fund's risks fall into several
categories, including:
0 Market risk. Share prices of even the
best managed, most profitable
corporations are subject to market risk,
which means they can fluctuate widely.
Swings in investor psychology and/or
significant trading by large
institutional investors can also result
in price fluctuations.
0 Less diversification. The fund will
concentrate on fewer issues (perhaps 30
to 50) than is typical of most mutual
funds, and may establish relatively large
investment positions in them. Because of
this approach, the fund is classified as
a nondiversified fund and carries
potentially greater risk of share price
fluctuation than funds invested in a
broader variety of issues. See page ____
PAGE 14
for further information.
0 Flexible strategy. By having the
flexibility to invest heavily in
particular securities or industries, the
fund may underperform the market when
these sectors are declining faster than
the general stock market. Also, there is
no guarantee the fund's flexible approach
to investing will be successful.
0 Small stocks. At times, a substantial
portion of the portfolio may be in
securities of small to medium-sized
companies. The very nature of investing
in small companies involves greater risk
than is customarily associated with more
established companies. Small companies
often have limited product lines, markets
or financial resources, and they may be
dependent upon a small group of
inexperienced managers. The securities of
small companies may be subject to more
abrupt or erratic market movements than
securities of larger companies or the
market averages in general.
How can I decide if the fund is right for
me?
Common stocks in general offer a way to
invest for long-term growth of capital. As
the U.S. economy has expanded, corporate
profits have grown and share prices have
risen. Consider your investment goals, your
time horizon for achieving them, and your
tolerance level for risk. If you can accept
the greater risk of investing in an
aggressively managed, nondiversified fund
in an effort to achieve superior capital
appreciation, the fund can be an
appropriate part of your overall investment
strategy.
Is there additional information about the
fund to help me decide if it is appropriate
for me?
Be sure to review "Investment Policies and
Practices" in Section 3, which discusses
the following: Types of Portfolio
Securities common and preferred stocks,
PAGE 15
convertible securities and warrants,
foreign securities, fixed income
securities, high yield/high risk investing,
hybrid instruments, investment funds and
private placements; and Types of Fund
Management Practices cash position,
borrowing money and transferring assets,
futures and options, managing foreign
currency risk, lending of portfolio
securities and portfolio transactions.
2 About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know
when investing in the fund.
________________________
The various ways you can
buy, sell, and exchange
shares are explained at
the end of this
prospectus and on the New
Account Form. How and when shares are priced
The share price (also called "net asset
value" or NAV per share) for the fund is
calculated at 4 p.m. ET each day the New
York Stock Exchange is open for business.
To calculate the NAV, the fund's assets are
priced and totaled, liabilities are
subtracted, and the balance, called net
assets, is divided by the number of shares
outstanding.
How your purchase, sale, or exchange price
is determined
If we receive your request in correct form
before 4 p.m. ET, your transaction will be
priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next
business day's NAV.
We cannot accept orders that request a
particular day or price for your
transaction or any other special
conditions.
________________________
When filling out the New
Account Form, you may
wish to give yourself the
PAGE 16
widest range of options Note: The time at which transactions are
for receiving proceeds priced may be changed in case of an
from a sale. emergency or if the New York Stock Exchange
closes at a time other than 4 p.m. ET.
_________________________
If for some reason we
cannot accept your
request to sell shares,
we will contact you. How you can receive the proceeds from a
sale
If your request is received by 4 p.m. ET
in correct form, proceeds are usually sent
on the next business day. Proceeds can be
sent to you by mail, or to your bank
account by ACH transfer or bank wire.
Proceeds sent by bank wire should be
credited to your bank account the next
business day, and proceeds sent by ACH
transfer should be credited the second day
after the sale. ACH (Automated Clearing
House) is an automated method of initiating
payments from and receiving payments in
your financial institution account. ACH is
a payment system supported by over 20,000
banks, savings banks and credit unions,
which electronically exchanges the
transactions primarily through the Federal
Reserve Banks.
Exception:
o Under certain circumstances and when
deemed to be in the fund's best
interests, your proceeds may not be sent
for up to five business days after
receiving your sale or exchange request.
If you were exchanging into a bond or
money fund, your new investment would not
begin to earn dividends until the sixth
business day.
Useful Information on Distributions and
Taxes
________________________
The fund distributes all
net investment income and
realized capital gains to
shareholders. Dividends and other distributions
Dividend and capital gain distributions are
reinvested in additional fund shares in
PAGE 17
your account unless you select another
option on your New Account Form. The
advantage of reinvesting distributions
arises from compounding, that is, you
receive interest and capital gain
distributions on a rising number of shares.
Dividends not reinvested are paid by check
or transmitted to your bank account via
ACH. If the Post Office cannot deliver
your check, or if your check remains
uncashed for six months, the fund reserves
the right to reinvest your distribution
check in your account at the then current
NAV and to reinvest all subsequent
distributions in shares of the fund.
Income dividends
0 The fund declares and pays dividends (if
any) annually.
0 All or part of the fund's dividends will
be eligible for the 70% deduction for
dividends received by corporations.
Capital gains
0 A capital gain or loss is the difference
between the purchase and sale price of a
security.
0 If a fund has net capital gains for the
year (after subtracting any capital
losses), they are usually declared and
paid in December to shareholders of
record on a specified date that month.
Tax information
You need to be aware of the possible tax
consequences when
0 the fund makes a distribution to your
account, or
0 you sell fund shares, including an
exchange from one fund to another.
_______________________
The fund sends timely
information for your tax
filing needs. Taxes on fund redemptions. When you sell
shares in the fund, you may realize a gain
PAGE 18
or loss. An exchange from one fund to
another is still a sale for tax purposes.
In January, the fund will send you and the
IRS Form 1099-B, indicating the date and
amount of each sale you made in the fund
during the prior year. We will also tell
you the average cost of the shares you sold
during the year. Average cost information
is not reported to the IRS, and you do not
have to use it. You may calculate the cost
basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we
send you a confirmation immediately
following each transaction (except for
systematic purchases and redemptions) you
make and a year-end statement detailing all
your transactions in each fund account
during the year.
______________________
Distributions are taxable
whether reinvested in
additional shares or
received in cash. Taxes on fund distributions. The following
summary does not apply to retirement
accounts, such as IRAs, which are
tax-deferred until you withdraw money from
them.
In January, the fund will send you and the
IRS Form 1099-DIV indicating the tax status
of any dividend and capital gain
distribution made to you. All
distributions made by the fund are taxable
to you for the year in which they were
paid. The only exception is that
distributions declared during the last
three months of the year and paid in
January are taxed as though they were paid
by December 31. Dividends and
distributions are taxable to you regardless
of whether they are taken in cash or
reinvested. The fund will send you any
additional information you need to
determine your taxes on fund distributions,
such as the portion of your dividend, if
any, that may be exempt from state income
PAGE 19
taxes.
Short-term capital gains are taxable as
ordinary income and long-term gains are
taxable at the applicable long-term gain
rate. The gain is long or short term
depending on how long the fund held the
securities, not how long you held shares in
the fund. If you realize a loss on the
sale or exchange of fund shares held six
months or less, your short-term loss
recognized is reclassified to long-term to
the extent of any capital gain distribution
received.
Distributions resulting from the sale of
certain foreign currencies and debt
securities, to the extent of foreign
exchange gains, are taxed as ordinary
income. If the fund pays nonrefundable
taxes to foreign governments during the
year, the taxes will reduce the fund's
dividends.
Tax effect of buying shares before a
capital gain or dividend distribution. If
you buy shares shortly before or on the
"record date"--the date that establishes
you as the person to receive the upcoming
distribution--you will receive in the form
of a taxable distribution a portion of the
money you just invested. Therefore, you may
wish to find out the fund's record date
before investing. Of course, the fund's
share price may reflect undistributed
capital gains or income and unrealized
appreciation at any time.
Transaction Procedures and Special
Requirements
Purchase Conditions
________________________
Following these
procedures helps assure
timely and accurate
transactions. Nonpayment. If your payment is not received
or you pay with a check or ACH transfer
that does not clear, your purchase will be
cancelled. You will be responsible for any
PAGE 20
losses or expenses incurred by the fund or
transfer agent, and the fund can redeem
shares you own in this or another
identically registered T. Rowe Price fund
as reimbursement. The fund and its agents
have the right to reject or cancel any
purchase, exchange, or redemption due to
nonpayment.
U.S. dollars. All purchases must be paid
for in U.S. dollars; checks must be drawn
on U.S. banks.
Sale (Redemption) Conditions
10-day hold. If you sell shares that you
just purchased and paid for by check or ACH
transfer, the fund will process your
redemption but will generally delay sending
you the proceeds for up to 10 calendar days
to allow the check or transfer to clear.
If your redemption request was sent by mail
or mailgram, proceeds will be mailed no
later than the seventh calendar day
following receipt unless the check or ACH
transfer has not cleared. (The 10-day hold
does not apply to the following purchases
paid for by: bank wire; cashier's,
certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone transactions. 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 promptly five
business days after the telephone
transaction.
Redemptions over $250,000. Large sales can
adversely affect the portfolio manager's
PAGE 21
ability to implement a fund's investment
strategy by causing the premature sale of
securities that would otherwise be held.
If in any 90-day period, you redeem (sell)
more than $250,000, or your sale amounts to
more than 1% of the fund's net assets, the
fund has the right to delay sending your
proceeds for up to five business days after
receiving your request, or to pay the
difference between the redemption amount
and the lesser of the two previously
mentioned figures with securities from the
fund.
________________________
T. Rowe Price may bar
excessive traders from
purchasing shares. Excessive Trading
Frequent trades involving either
substantial fund assets or a substantial
portion of your account or accounts
controlled by you, can disrupt management
of the fund and raise its expenses. We
define "excessive trading" as exceeding one
purchase and sale involving the same fund
within any 120-day period.
For example, you are in fund A. You can
move substantial assets from A to fund B,
and, within the next 120 days, sell your
shares in fund B to return to fund A or
move to fund C.
If you exceed the number of trades
described above, you may be barred
indefinitely from further purchases of T.
Rowe Price funds.
Three types of transactions are exempt from
excessive trading guidelines: 1) trades
solely between money market funds, 2)
redemptions that are not part of exchanges,
and 3) systematic purchases or redemptions
(see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to the fund
of maintaining small accounts, we ask you
to maintain an account balance of at least
$1,000. If your balance is below $1,000 for
three months or longer, the fund has the
PAGE 22
right to close your account after giving
you 60 days in which to increase your
balance.
________________________
A signature guarantee is
designed to protect you
and the fund from fraud
by verifying your
signature. Signature Guarantees
You may need to have your signature
guaranteed in certain situations, such as:
0 Written requests 1) to redeem over
$50,000 or 2) to wire redemption
proceeds.
0 Remitting redemption proceeds to any
person, address, or bank account not on
record.
0 Transferring redemption proceeds to a
T. Rowe Price fund account with a
different registration from yours.
0 Establishing certain services after the
account is opened.
You can obtain a signature guarantee from
most banks, savings institutions,
broker/dealers and other guarantors
acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or
organizations that do not provide
reimbursement in the case of fraud.
3 More About the Fund
The Fund's Organization and Management
______________________
Shareholders benefit from
T. Rowe Price's 57 years
of investment management
experience. How is the fund organized?
The fund was incorporated in Maryland in
1994, is a diversified, open-end investment
company or mutual fund. Mutual funds pool
money received from shareholders and invest
it to try to achieve specific objectives.
What is meant by "shares"?
PAGE 23
As with all mutual funds, investors
purchase "shares" when they invest in a
fund. These shares are part of a fund's
authorized capital stock, but share
certificates are not issued.
Each share and fractional share entitles
the shareholder to:
0 receive a proportional interest in a
fund's income and capital gain
distributions;
0 cast one vote per share on
certain fund matters, including the
election of fund directors, changes in
fundamental policies, or approval of
changes in a fund's management contract.
Does the fund have an annual shareholder
meeting?
The fund is not required to hold annual
meetings and does not intend to do so
except when certain matters, such as a
change in a fund's fundamental policies,
are to be decided. In addition,
shareholders representing at least 10% of
all eligible votes may call a special
meeting if they wish for the purpose of
voting on the removal of any fund director.
If a meeting is held and you cannot attend,
you can vote by proxy. Before the meeting,
the fund will send you proxy materials that
explain the issues to be decided and
include a voting card for you to mail back.
________________________
All decisions regarding
the purchase and sale of
fund investments are made
by T. Rowe Price
Associates-specifically
by the fund's portfolio
managers. Who runs the fund?
General Oversight. The fund is governed by
a Board of Directors that meets regularly
to review the fund's investments,
performance, expenses, and other business
affairs. The Board elects the fund's
officers. The policy of the fund is that a
majority of Board members will be
independent of T. Rowe Price.
PAGE 24
Portfolio Management. The fund has an
Investment Advisory Committee composed of
the following members:________________,
Chairman,_________________________________.
The Committee Chairman has day-to-day
responsibility for managing the portfolio
and works with the Committee in developing
and executing the fund's investment
program. _______________ has been Chairman
of the fund's Committee since 1994.
_______________ joined T. Rowe Price in
19___ and has been managing investments
since 19____.
Marketing. T. Rowe Price Investment
Services, Inc., a wholly-owned subsidiary
of T. Rowe Price, distributes (sells)
shares of this and all other T. Rowe Price
funds.
Shareholder Services. T. Rowe Price
Services, Inc., another wholly-owned
subsidiary, acts as the fund's transfer and
dividend disbursing agent and provides
shareholder and administrative services.
Services for certain types of retirement
plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a
wholly-owned subsidiary. The address for
each is 100 East Pratt St., Baltimore, MD
21202.
How are fund expenses determined?
The management agreement spells out the
expenses to be paid by the fund. In
addition to the management fee, the fund
pays for the following: shareholder service
expenses; custodial, accounting, legal, and
audit fees; costs of preparing and printing
prospectuses and reports sent to
shareholders; registration fees and
expenses; proxy and annual meeting expenses
(if any); and director/trustee fees and
expenses.
The Management Fee. This fee has two parts
-- an "individual fund fee" (discussed on
page 2) which reflects the fund's
particular investment management costs, and
a "group fee." The group fee, which is
PAGE 25
designed to reflect the benefits of the
shared resources of the T. Rowe Price
investment management complex, is
calculated monthly based on the net
combined assets of all T. Rowe Price funds
(except Equity Index and both Spectrum
Funds and any institutional or private
label mutual funds). The group fee
schedule (shown below) is graduated,
declining as the asset total rises, so
shareholders benefit from the overall
growth in mutual fund assets.
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
The fund's portion of the group fee is
determined by the ratio of its daily net
assets to the daily net assets of all the
Price funds described above. Based on
combined Price fund's assets of
approximately $35.5 billion at June 30,
1994, the Group Fee was 0.34%.
Understanding Performance Information
This section should help you understand the
terms used to describe the fund's
performance. You will come across them in
shareholder reports you receive from us
four times a year, in our newsletters,
"Insights" reports, in T. Rowe Price
advertisements, and in the media.
_________________________
Total return is the most
widely used performance
measure. Detailed
performance information
is included in the fund's
annual reports and
PAGE 26
quarterly shareholder
reports. Total Return
This tells you how much an investment in
the fund has changed in value over a given
time period. It reflects any net increase
or decrease in the share price and assumes
that all dividends and capital gains (if
any) paid during the period were reinvested
in additional shares. Including reinvested
distributions means that total return
numbers include the effect of compounding,
i.e., you receive income and capital gain
distributions on a rising number of shares.
Advertisements for the fund may include
cumulative or compound average annual total
return figures, which may be compared with
various indices, other performance
measures, or other mutual funds.
Cumulative Total Return
This is the actual rate of return on an
investment for a specified period. A
cumulative return does not indicate how
much the value of the investment may have
fluctuated between the beginning and the
end of the period specified.
Average Annual Total Return
This is always hypothetical. Working
backward from the actual cumulative return,
it tells you what constant year-by-year
return would have produced the actual,
cumulative return. By smoothing out all the
variations in annual performance, it gives
you an idea of the investment's annual
contribution to your portfolio provided you
held it for the entire period in question.
Investing in the Stock Market
Common stocks offer a way to invest for
long-term growth of capital. As the U.S.
economy has expanded, corporate profits
have grown, and share values have risen.
However, economic growth has been
punctuated by periodic declines. Share
prices of even the best managed, most
profitable corporations are subject to
market risk, which means their stock prices
PAGE 27
can decline. For this reason, equity
investors should have a long-term
investment horizon and be willing to wait
out bear markets.
Investment Policies and Practices
This section takes a detailed look at some
of the types of securities the fund may
hold in its portfolio and the various kinds
of investment practices that may be used in
day-to-day portfolio management. The
fund's investment program is subject to
further restrictions and risks described in
the "Statement of Additional Information."
Shareholder approval is required to
substantively change the fund's objectives
and certain investment restrictions noted
in the following section as "fundamental
policies." The managers also follow
certain "operating policies" which can be
changed without shareholder approval.
However, significant changes are discussed
with shareholders in fund reports. The
fund adheres to applicable investment
restrictions and policies at the time it
makes an investment. A later change in
circumstances will not require the sale of
an investment if it was proper at the time
it was made.
The fund's holdings of certain kinds of
investments cannot exceed maximum
percentages of total assets, which are set
forth herein. For instance, this fund is
not permitted to invest more than 10% of
total assets in hybrid instruments. While
these restrictions provide a useful level
of detail about the fund's investment
program, investors should not view them as
an accurate gauge of the potential risk of
such investments. For example, in a given
period, a 5% investment in hybrid
securities could have significantly more
than a 5% impact on the fund's share price.
The net effect of a particular investment
depends on its volatility and the size of
PAGE 28
its overall return in relation to the
performance of all the fund's other
investments.
Changes in the fund's holdings, the
fund's performance, and the contribution of
various investments are discussed in the
shareholder reports we send each quarter.
Types of Portfolio Securities
_________________________
Fund managers have
considerable leeway in
choosing investment
strategies and selecting
securities they believe
will help the fund
achieve its objective. In seeking to meet its investment
objective, the fund may invest in any type
of security or instrument (including
certain potentially high risk derivatives)
whose investment characteristics are
consistent with the fund's investment
program. These and some of the other
investment techniques the fund may use are
described in the following pages.
Fundamental policy: The fund is registered
as a non-diversified mutual fund. This
means that the fund may invest a greater
portion of its assets in, and own a greater
amount of the voting securities of, a
single company than a diversified fund
which may subject the fund to greater risk
with respect to its portfolio securities.
However, because the fund intends to
qualify as a "regulated investment company"
under the Internal Revenue Code, it must
invest so that, with respect to 50% of its
total assets, not more than 5% of its
assets are invested in the securities of a
single issuer.
Common and Preferred Stocks. Stocks
represent shares of ownership in a company.
Generally, preferred stock has a specified
dividend and ranks after bonds and before
common stocks in its claim on income for
dividend payments and on assets should the
PAGE 29
company be liquidated. After other claims
are satisfied, common stockholders
participate in company profits on a pro
rata basis; profits may be paid out in
dividends or reinvested in the company to
help it grow. Increases and decreases in
earnings are usually reflected in a
company's stock price, so common stocks
generally have the greatest appreciation
and depreciation potential of all corporate
securities. While most preferred stocks
pay a dividend, the fund may purchase
preferred stock where the issuer has
omitted, or is in danger of omitting,
payment of its dividend. Such investments
would be made primarily for their capital
appreciation potential.
Convertible Securities and Warrants. The
fund may invest in debt or preferred equity
securities convertible into or exchangeable
for equity securities. Traditionally,
convertible securities have paid dividends
or interest at rates higher than common
stocks but lower than non- convertible
securities. They generally participate in
the appreciation or depreciation of the
underlying stock into which they are
convertible, but to a lesser degree. In
recent years, convertibles have been
developed which combine higher or lower
current income with options and other
features. Warrants are options to buy a
stated number of shares of common stock at
a specified price any time during the life
of the warrants (generally, two or more
years).
Foreign Securities. The fund may invest in
foreign securities. These include non-
dollar denominated securities traded
outside of the U.S. and dollar denominated
securities traded in the U.S. (such as
ADRs). Such investments increase a
portfolio's diversification and may enhance
return, but they also involve some special
risks such as exposure to potentially
adverse local political and economic
PAGE 30
developments; nationalization and exchange
controls; potentially lower liquidity and
higher volatility; possible problems
arising from accounting, disclosure,
settlement, and regulatory practices that
differ from U.S. standards; and the chance
that fluctuations in foreign exchange rates
will decrease the investment's value
(favorable changes can increase its value).
Operating policy: The fund may invest up to
30% of its total assets (excluding
reserves) in foreign securities.
Fixed Income Securities. The fund may
invest in debt securities of any type
without regard to quality or rating. Such
securities would be purchased in companies
which meet the investment criteria for the
fund. The price of a bond fluctuates with
changes in interest rates, rising when
interest rates fall and falling when
interest rates rise.
High Yield/High Risk Investing. The total
return and yield of lower quality (high
yield/high risk) bonds commonly referred to
as "junk bonds," can be expected to
fluctuate more than the total return and
yield of higher quality, shorter-term
bonds, but not as much as common stocks.
Junk bonds (those rated below BBB or in
default) are regarded as predominantly
speculative with respect to the issuer's
continuing ability to meet principal and
interest payments.
Operating policy: The fund will not
purchase a non-investment grade debt
security (or junk bond) if immediately
after such purchase the fund would have
more than 10% of its total assets invested
in such securities.
Hybrid Instruments. These instruments (a
type of derivative) can combine the
characteristics of securities, futures and
options. For example, the principal
amount, redemption or conversion terms of a
PAGE 31
security could be related to the market
price of some commodity, currency or
securities index. Such securities may bear
interest or pay dividends at below market
(or even relatively nominal) rates. Under
certain conditions, the redemption value of
such an investment could be zero. Hybrids
can have volatile prices and limited
liquidity and their use by the fund may not
be successful.
Operating policy: The fund may invest up
to 10% of its total assets in hybrid
instruments.
Investment Funds. The fund may invest in
other investment funds or companies,
primarily where such investments would be
the only practical means of investing in
certain foreign countries. Such
investments would result in the funds
paying additional or duplicative fees and
expenses. The risks of such investment
would reflect the risks of investing in the
types of securities in which the investment
funds or companies invest.
Operating policy: The fund may invest up
to 10% of its assets in other investment
funds and companies.
Private Placements (Restricted Securities).
These securities are sold directly to a
small number of investors, usually
institutions. Unlike public offerings, such
securities are not registered with the SEC.
Although certain of these securities may be
readily sold, for example under Rule 144A,
others may be illiquid and their sale may
involve substantial delays and additional
costs.
Operating policy: The fund will not invest
more than 15% of its net assets in illiquid
securities and no more than 5% of its total
assets in certain restricted securities.
Types of Management Practices
PAGE 32
_________________________
Cash reserves provide
flexibility and serve as
a short-term defense
during periods of unusual
market volatility. Cash position. The fund will hold a certain
portion of its assets in U.S. and foreign
dollar denominated money market securities,
including repurchase agreements, in the two
highest rating categories, maturing in one
year or less. For temporary, defensive
purposes, the fund may invest without
limitation in such securities. This reserve
position provides flexibility in meeting
redemptions, expenses, and the timing of
new investments, and serves as a short-term
defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a
temporary measure for emergency purposes,
to facilitate redemption requests, or for
other purposes consistent with the fund's
investment objective and program. Such
borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy: Borrowings may not
exceed 33 1/3% of the fund's total assets.
Operating policies: The fund may not
transfer as collateral any portfolio
securities except as necessary in
connection with permissible borrowings or
investments, and then such transfers may
not exceed 33 1/3% of the fund's total
assets. The fund may not purchase
additional securities when borrowings
exceed 5% of total assets.
_______________________
Futures are used to
manage risk; options give
the investor the option
to buy or sell an asset
at a predetermined price
in the future. Futures and Options. Futures (a type of
derivative) are often used to manage or
hedge risk, because they enable the
investor to buy or sell an asset in the
PAGE 33
future at an agreed upon price. Options (
another type of derivative) give the
investor the right, but not the obligation,
to buy or sell an asset at a predetermined
price in the future. The Fund may buy and
sell futures contracts (and options on such
contracts)for an number of reasons
including: to manage its exposure to
changes in securities prices and foreign
currencies; as an efficient means of
adjusting its overall exposure to certain
markets; and to protect portfolio value.
The fund may purchase, sell, or write call
and put options on securities, financial
indices, and foreign currencies.
Futures contracts and options may not
always be successful hedges; their prices
can be highly volatile; using them could
lower the fund's total return and the
potential loss from the use of futures can
exceed the fund's initial investment in
such contracts.
Operating policies: Futures: Initial
margin deposits and premiums on options
used for non-hedging purposes will not
equal more than 5% of a fund's net asset
value. Options on securities: The total
market value of securities against which a
fund has written call or put options may
not exceed 25% of its total assets. The
fund will not commit more than 5% of its
total assets to premiums when purchasing
call or put options.
Managing Foreign Currency Risk. Investors
in foreign securities may "hedge" their
exposure to potentially unfavorable
currency changes by purchasing a contract
to exchange one currency for another on
some future date at a specified exchange
rate. In certain circumstances, a "proxy
currency" may be substituted for the
currency in which the investment is
denominated, a strategy known as "proxy
hedging." Although foreign currency
transactions will be used primarily to
protect a fund's foreign securities from
adverse currency movements relative to the
PAGE 34
dollar, they involve the risk that
anticipated currency movements will not
occur and a fund's total return could be
reduced.
Lending of Portfolio Securities. Like other
mutual funds, the fund may lend securities
to broker-dealers, other institutions, or
other persons to earn additional income.
The principal risk is the potential
insolvency of the broker-dealer or other
borrower. In this event, the fund could
experience delays in recovering their
securities and possibly capital losses.
Fundamental policy: The value of loaned
securities may not exceed 33 1/3% of a
fund's total assets.
Portfolio Transactions. The fund will not
generally trade in securities (either
common stocks or bonds) for short-term
profits, but, when circumstances warrant,
securities may be purchased and sold
without regard to the length of time held.
The portfolio turnover rate of the fund is
not expected to exceed 150%.
4 Investing with T. Rowe
Price Meeting Requirements for New Accounts
________________________
Always verify your
transactions by carefully
reviewing the
confirmation we send
you. Please report any
discrepancies to
Shareholder Services. Tax Identification Number
We must have your correct social security
or corporate tax identification number and
a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds
to withhold a percentage (currently 31%) of
your dividends, capital gain distributions,
and redemptions, and may subject you to an
IRS fine. You will also be prohibited from
opening another account by exchange. If
this information is not received within 60
PAGE 35
days after your account is established,
your account may be redeemed, priced at the
NAV on the date of redemption.
Unless you request otherwise, one
shareholder report will be mailed to
multiple account owners with the same tax
identification number and same zip code and
to shareholders who have requested that
their account be combined with someone
else's for financial reporting.
Opening a New Account: $2,500 minimum
initial investment; $1,000 for retirement
or gifts or transfers to minors (UGMA/UTMA)
accounts
Account Registration
If you own other T. Rowe Price funds, be
sure to register any new account just like
your existing accounts so you can exchange
among them easily. (The name and account
type would have to be identical.)
________________________
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe
Price Funds otherwise it will be returned
(we do not accept third party checks to
open new accounts) and send it together
with the New Account Form to the address at
left.
By Wire
o Call Investor Services for an account
number and give the following wire
address to your bank: Morgan Guaranty
PAGE 36
Trust Co. of New York, ABA# 021000238, T.
Rowe Price [fund name], AC-00153938.
Provide fund name, account name(s), and
account number.
o Complete a New Account Form and mail it
to one of the appropriate addresses
listed at left.
Note: No services will be established and
IRS penalty withholding may occur until
asigned New Account Form is received.
Also, retirement plans cannot be opened
by wire.
By Exchange
Call Shareholder Services. The new account
will have the same registration as the
account from which you are exchanging.
Services for the new account may be carried
over by telephone request if preauthorized
on the existing account. (See explanation
of "Excessive Trading " under "Transaction
Procedures.")
In Person
Drop off your New Account Form at any of
the locations listed at left and obtain a
receipt.
Drop-off locations:
101 East Lombard St. T. Rowe Price
Baltimore, MD Financial Center
10090 Red Run. Blvd.
Owings Mills, MD
Farragut Square ARCO Tower
900 17th St., N.W. 31st Floor
Washington, D.C. 515 South Flower St.
Los Angeles, CA
Note: The fund and its agents reserve the
right to waive or lower investment
minimums; to accept initial purchases by
telephone or mailgram; cancel or rescind
any purchase or exchange upon notice to the
shareholder within five business days of
the trade or if the written confirmation
has not been received by the shareholder,
PAGE 37
whichever is sooner (for example, if an
account has been restricted due to
excessive trading or fraud); to otherwise
modify the conditions of purchase or any
services at any time; or to act on
instructions believed to be genuine.
Purchasing Additional Shares: $100 minimum
purchase; $50 minimum for retirement plans
and Automatic Asset Builder; $5,000 minimum
for telephone purchases.
By ACH Transfer
Use Tele*Access(registered trademark),
PC*Access(registered trademark) or call
Investor Services if you have established
electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire
address in "Opening a New Account."
________________________
Regular Mail
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500 By Mail
o Provide your account number and the fund
name on your check.
o Mail the check to us at the address shown
at left either with a reinvestment slip
or a note indicating the fund and account
number in which you wish to purchase
shares.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder
Services Form ($50 minimum).
By Phone
Call Shareholder Services to lock in that
day's closing price; payment is due within
five days ($5,000 minimum). Note: The
current collected balance in your account
PAGE 38
must equal at least 25% of your telephone
purchase for additional shares.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our
phones busy during unusually volatile
markets, please consider placing your order
by Tele*Access, PC*Access or mailgram (if
you have previously authorized telephone
services), or by express mail. For exchange
policies, please see "Transaction
Procedures and Special Requirements -
Excessive Trading."
Redemption proceeds can be mailed to your
account address, sent by ACH transfer, or
wired to your bank. For charges, see
"Electronic Transfers - By Wire" on the
next page.
___________________
Mailgram, Express,
Registered, or
Certified Mail
(See page 20.) By Mail
Provide account name(s) and numbers, fund
name(s), and exchange or redemption amount.
For exchanges, mail to the appropriate
address below or at left, indicate the fund
you are exchanging from and the fund(s) you
are exchanging into. T. Rowe Price requires
the signatures of all owners exactly as
registered, and possibly a signature
guarantee (see "Transaction Procedures and
Special Requirements--Signature
Guarantees").
Regular Mail
For non-retirement For employer-sponsored
and IRA accounts: retirement accounts:
T. Rowe Price T. Rowe Price Trust
Account Services Company
P.O. Box 89000 P.O. Box 89000
Baltimore, MD Baltimore, MD
21289-0220 21289-0300
___________________
T. Rowe Price Trust
PAGE 39
Company Note: Redemptions from retirement accounts,
1-800-492-7670 including IRAs, must be in writing. Please
1-410-625-6585 call Shareholder Services to obtain an IRA
Distribution Request Form. For
employer-sponsored retirement accounts,
call T. Rowe Price Trust Company or your
plan administrator for instructions.
________________________
Investor Services
1-800-638-5660
1-410-547-2308 Shareholder Services
Many services are available to you as a T.
Rowe Price shareholder; some you receive
automatically and others you must authorize
on the New Account Form. By signing up for
services on the New Account Form rather
than later, you avoid having to complete a
separate form and obtain a signature
guarantee. This section reviews some of the
principal services currently offered. Our
Services Guide contains detailed
descriptions of these and other services.
If you are a new T. Rowe Price investor,
you will receive a Services Guide with our
Welcome Kit. Note: Corporate and other
entity accounts require an original or
certified resolution to establish services
and to redeem by mail. For more
information, call Investor Services.
_________________________
If you are a new T. Rowe
Price investor, you will
receive a Services Guide
with our Welcome Kit. Retirement Plans
We offer a wide range of plans for
individuals and institutions, including
large and small businesses: IRAs, SEP-IRAs,
Keoghs (profit sharing, money purchase
pension), 401(k), and 403(b)(7). For
information on IRAs, call Investor
Services. For information on all other
retirement plans, please call our Trust
Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an
existing identically registered account, or
open a new identically registered account.
PAGE 40
Remember, exchanges are purchases and sales
for tax purposes. (Exchanges into a state
tax-free fund are limited to investors
living in states where the funds are
registered.) Some of the T. Rowe Price
funds may impose a redemption fee of .50%
to 2%, payable to such funds, on shares
held for less than one year, or in some
funds, six months.
Note: Shares purchased by telephone may not
be exchanged to another fund until payment
is received.
Automated Services
Tele*Access. 24-hour service via toll-free
number provides information such as yields,
prices, dividends, account balances, and
your latest transaction as well as the
ability to request prospectuses and account
forms and initiate purchase, redemption and
exchange orders in your accounts (see
"Electronic Transfers" below).
PC*Access. 24-hour service via dial-up
modem provides the same information as
Tele*Access, but on a personal computer.
Please call Investor Services for an
information guide.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling
one of our service representatives or by
visiting one of our four investor center
locations. For Investor Center addresses,
see "Drop-off locations" on page __.
Electronic Transfers
By ACH. With no charges to pay, you can
initiate a purchase or redemption for as
little as $100 or as much as $100,000
between your bank account and fund account
using the ACH network. Enter instructions
via Tele*Access, PC*Access or call
Shareholder Services.
By Wire. Electronic transfers can also be
conducted via bank wire. There is currently
PAGE 41
a $5 fee for wire redemptions under $5,000,
and your bank may charge for incoming or
outgoing wire transfers regardless of size.
Automatic Investing ($50 minimum) You can
invest automatically in several different
ways, including:
o Automatic Asset Builder. You instruct us
to move $50 or more once a month or less
often from your bank account, or you can
instruct your employer to send all or a
portion of your paycheck to the fund or
funds you designate.
o Automatic Exchange. Enables you to set up
systematic investments from one fund
account into another, such as from a
money fund into a stock fund.
Discount Brokerage
You can trade stocks, bonds, options,
precious metals and other securities at a
substantial savings over regular commission
rates. Call Investor Services for
information.
Note: If you buy or sell T. Rowe Price
Funds through anyone other than T. Rowe
Price, such as broker-dealers or banks, you
may be charged transaction or service fees
by those institutions. No such fees are
charged by T. Rowe Price Investment
Services or the fund for transactions
conducted directly with the fund.
PAGE 42
Prospectus
To Open an Account T. Rowe Price
Investor Services Capital
1-800-638-5660 Opportunity Fund
1-410-547-2308 To help you
achieve your
For Existing Accounts financial goals, ______________
Shareholder Services T. Rowe Price An
1-800-225-5132 offers a wide T. Rowe Price aggressively
1-410-625-6500 range of stock, Capital managed stock
bond, and money Opportunity fund for
For Yields & Prices market Fund, investors
Tele*Access(registered investments, as Inc. seeking
trademark) well as November 30, superior
1-800-638-2587 convenient 1994 capital
1-410-625-7676 services and appreciation
24 hours, 7 days timely, through a
informative flexible
reports. investment
Investor Centers strategy.
101 East Lombard St.
Baltimore, MD
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD
Farragut Square
900 17th Street, N.W.
Washington, D.C.
ARCO Tower
31st Floor
515 S. Flower St.
Los Angeles, CA
T. Rowe Price
Invest With
Confidence
(registered
trademark)
PAGE 43
STATEMENT OF ADDITIONAL INFORMATION
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE VALUE FUND, INC.
(collectively the "Funds" and individually the "Fund")
This Statement of Additional Information is not a
prospectus but should be read in conjunction with the appropriate
Fund's prospectus dated May 1, 1994,September 29, 1994, (or
November 30, 1994 for the Capital Opportunity Fund) which may be
obtained from T. Rowe Price Investment Services, Inc., 100 East
Pratt Street, Baltimore, Maryland 21202.
If you would like a prospectus for a Fund of which you are
not a shareholder, please call 1-800-638-5660. A prospectus with
more complete information, including management fees and expenses
will be sent to you. Please read it carefully.
The date of this Statement of Additional Information is
September 29, 1994 amended to November 30, 1994.
PAGE 44
TABLE OF CONTENTS
Page Page
Asset-Backed Securities . . Lending of Portfolio
Capital Stock . . . . . . . Securities . . . . . . .
Custodian . . . . . . . . . Management of Fund . . . .
Distributor for Fund . . . Mortgage-Related
Dividends and Securities . . . . . . .
Distributions . . . . . . Net Asset Value Per
Federal and State Share . . . . . . . . . .
Registration of Shares . . Options . . . . . . . . .
Foreign Currency Organization of the Fund .
Transactions . . . . . . . Portfolio Management
Foreign Futures and Practices . . . . . . . .
Options . . . . . . . . . Portfolio Transactions . .
Foreign Securities . . . . Pricing of Securities . .
Futures Contracts . . . . . Principal Holders of
Hybrid Instruments . . . . Securities . . . . . . .
Independent Accountants . . Ratings of Corporate
Illiquid or Restricted Debt Securities . . . . .
Securities . . . . . . . . Repurchase Agreements . .
Investment Management Risk Factors . . . . . . .
Services . . . . . . . . . Tax Status . . . . . . . .
Investment Objectives Taxation of Foreign
and Polices . . . . . . . Shareholders . . . . . .
Investment Performance . . Warrants . . . . . . . . .
Investment Program . . . . When-Issued Securities and
Investment Restrictions . . Forward Commitment
Legal Counsel . . . . . . . Contracts . . . . . . . .
Yield Information . . . .
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies discussed in each
Fund's prospectus. The Funds will not make a material change in
their investment objectives without obtaining shareholder
approval. Unless otherwise specified, the investment programs
and restrictions of the Funds are not fundamental policies. Each
Fund's operating policies are subject to change by each Board of
Directors/Trustees without shareholder approval. However,
shareholders will be notified of a material change in an
operating policy. Each Fund's fundamental policies may not be
changed without the approval of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares are represented.
PAGE 45
Throughout this Statement of Additional Information, "the
Fund" is intended to refer to each Fund listed on the cover page,
unless otherwise indicated.
RISK FACTORS
General
Because of its investment policy, the Fund may or may not be
suitable or appropriate for all investors. The Fund is not a
money market fund and is not an appropriate investment for those
whose primary objective is principal stability. The Fund will
normally have substantially all (for the Balanced Fund 50-70%) of
its assets in equity securities (e.g., common stocks). This
portion of the Fund's assets will be subject to all of the risks
of investing in the stock market. There is risk in all
investment. The value of the portfolio securities of the Fund
will fluctuate based upon market conditions. Although the Fund
seeks to reduce risk by investing in a diversified portfolio,
such diversification does not eliminate all risk. There can, of
course, be no assurance that the Fund will achieve its investment
objective. Reference is also made to the sections entitled
"Types of Securities" and "Portfolio Management Practices" for
discussions of the risks associated with the investments and
practices described therein as they apply to the Fund.
Debt Obligations
Although substantially all of the Fund's assets are invested
in common stocks (for the Balanced Fund 50-70%), the Fund may
invest in convertible securities, corporate debt securities and
preferred stocks which hold the prospect of contributing to the
achievement of the Fund's objectives. Yields on short,
intermediate, and long-term securities are dependent on a variety
of factors, including the general conditions of the money and
bond markets, the size of a particular offering, the maturity of
the obligation, and the credit quality and rating of the issue.
Debt securities with longer maturities tend to have higher yields
and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter
maturities and lower yields. The market prices of debt
securities usually vary, depending upon available yields. An
increase in interest rates will generally reduce the value of
portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments. The
ability of the Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the debt
securities in which the Fund invests to meet their obligations
for the payment of interest and principal when due. The Fund's
PAGE 46
investment program permits it to purchase below investment grade
securities. Since investors generally perceive that there are
greater risks associated with investment in lower quality
securities, the yields from such securities normally exceed those
obtainable from higher quality securities. However, the
principal value of lower-rated securities generally will
fluctuate more widely than higher quality securities. Lower
quality investments entail a higher risk of default--that is, the
nonpayment of interest and principal by the issuer than higher
quality investments. Such securities are also subject to special
risks, discussed below. Although the Fund seeks to reduce risk
by portfolio diversification, credit analysis, and attention to
trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be no
assurance that the Fund will achieve its investment objective.
After purchase by the Fund, a debt security may cease to be
rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require a sale of such
security by the Fund. However, T. Rowe Price will consider such
event in its determination of whether the Fund should continue to
hold the security. To the extent that the ratings given by
Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus.
Special Risks of High Yield Investing
The Fund may invest in low quality bonds commonly referred
to as "junk bonds." Junk bonds are regarded as predominantly
speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low
and lower-medium quality bonds involves greater investment risk,
to the extent the Fund invests in such bonds, achievement of its
investment objective will be more dependent on T. Rowe Price's
credit analysis than would be the case if the Fund was investing
in higher quality bonds. High yield bonds may be more
susceptible to real or perceived adverse economic conditions than
investment grade bonds. A projection of an economic downturn, or
higher interest rates, for example, could cause a decline in high
yield bond prices because the advent of such events could lessen
the ability of highly leverage issuers to make principal and
interest payments on their debt securities. In addition, the
secondary trading market for high yield bonds may be less liquid
than the market for higher grade bonds, which can adversely
affect the ability of a Fund to dispose of its portfolio
securities. Bonds for which there is only a "thin" market can be
more difficult to value inasmuch as objective pricing data may be
less available and judgment may play a greater role in the
PAGE 47
valuation process.
Foreign Securities
The Fund may invest in U.S. dollar-denominated and non U.S.
dollar-denominated securities of foreign issuers.
Risk Factors of Foreign Investing
There are special risks in foreign investing. Certain of
these risks are inherent in any international mutual fund while
others relate more to the countries in which the Funds will
invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries
of Southeast Asia, Latin America, Eastern Europe and the Middle
East. Although there is no universally accepted definition, a
developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a
per capita gross national product of less than $8,000.
Political and Economic Factors. Individual foreign
economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as
growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are
not as stable as in the United States. For example, in 1991, the
existing government in Thailand was overthrown in a military
coup. In 1992, there were two military coup attempts in
Venezuela and in 1992 the President of Brazil was impeached. In
addition, significant external political risks currently affect
some foreign countries. Both Taiwan and China still claim
sovereignty of one another and there is a demilitarized border
between North and South Korea.
Governments in certain foreign countries continue to
participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of
securities and payment of dividends. The economies of many
foreign countries are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and
economic conditions of their trading partners. The enactment by
these trading partners of protectionist trade legislation could
have a significant adverse effect upon the securities markets of
such countries.
Currency Fluctuations. The Funds will invest in securities
PAGE 48
denominated in various currencies. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Funds'
assets denominated in that currency. Such changes will also
affect the Funds' income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of
the Fund's securities denominated in that currency will rise.
When a given currency depreciates against the dollar (the dollar
strengthens) the value of the Funds' securities denominated in
that currency would be expected to decline.
Investment and Repatriation of Restrictions. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled in varying degrees. These
restrictions may limit at times and preclude investment in
certain of such countries and may increase the cost and expenses
of the Funds. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These
restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners,
and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Funds invest.
In addition, the repatriation of both investment income and
capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the
need for certain government consents. For example, capital
invested in Chile normally cannot be repatriated for one year.
Market Characteristics. It is contemplated that most
foreign securities, other than Latin American securities, will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. Currently, it is anticipated
that many Latin American investments will be made through ADRs
traded in the United States. Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they
usually have substantially less volume than U.S. markets and the
Funds' portfolio securities may be less liquid and subject to
more rapid and erratic price movements than securities of
comparable U.S. companies. Equity securities may trade at
price/earnings multiples higher than comparable United States
securities and such levels may not be sustainable. Fixed
commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the
Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
PAGE 49
and listed companies than in the United States. Moreover,
settlement practices for transactions in foreign markets may
differ from those in United States markets. Such differences may
include delays beyond periods customary in the United States and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to a Fund.
Investment Funds. The Funds may invest in investment funds
which have been authorized by the governments of certain
countries specifically to permit foreign investment in securities
of companies listed and traded on the stock exchanges in these
respective countries. If the Funds invest in such investment
funds, the Funds' shareholders will bear not only their
proportionate share of the expenses of the Funds (including
operating expenses and the fees of the investment manager), but
also will bear indirectly similar expenses of the underlying
investment funds. In addition, the securities of these
investment funds may trade at a premium over their net asset
value.
Information and Supervision. There is generally less
publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject
to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those
applicable to United States companies. It also may be more
difficult to keep currently informed of corporate actions which
affect the prices of portfolio securities.
Taxes. The dividends and interest payable on certain of the
Funds' foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Funds' shareholders. A
shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a
credit or deduction for U.S. federal income tax purposes for his
or her proportionate share of such foreign taxes paid by the
Funds. (See "Tax Status," page 57.)
Other. With respect to certain foreign countries,
especially developing and emerging ones, there is the possibility
of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Funds, political or
social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
PAGE 50
Eastern Europe and Russia. Changes occurring in Eastern
Europe and Russia today could have long-term potential
consequences. As restrictions fall, this could result in rising
standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment
in the countries of Eastern Europe and Russia is highly
speculative at this time. Political and economic reforms are too
recent to establish a definite trend away from centrally-planned
economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have
government exchange controls, currencies with no recognizable
market value relative to the established currencies of western
market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal
tradition which does not recognize rights in private property.
In addition, these countries may have national policies which
restrict investments in companies deemed sensitive to the
country's national interest. Further, the governments in such
countries may require governmental or quasi-governmental
authorities to act as custodian of a Fund's assets invested in
such countries and these authorities may not qualify as a foreign
custodian under the Investment Company Act of 1940 and exemptive
relief from such Act may be required. All of these
considerations are among the factors which could cause
significant risks and uncertainties to investment in Eastern
Europe and Russia. Each Fund will only invest in a company
located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk. To the extent
any securities issued by companies in Eastern Europe and Russia
are considered illiquid, each Fund will be required to include
such securities within its 15% restriction on investing in
illiquid securities.
INVESTMENT PROGRAM
Types of Securities
Set forth below is additional information about certain of
the investments described in the Fund's prospectus.
Illiquid or Restricted Securities
Restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933 (the "1933 Act"). Where registration is required,
the Fund may be obligated to pay all or part of the registration
PAGE 51
expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair
value as determined in accordance with procedures prescribed by
the Fund's Board of Directors/Trustees. If through the
appreciation of illiquid securities or the depreciation of liquid
securities, the Fund should be in a position where more than 15%
of the value of its net assets is invested in illiquid assets,
including restricted securities, the Fund will take appropriate
steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities
which, while privately placed, are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not
registered under the 1933 Act. T. Rowe Price under the
supervision of the Fund's Board of Directors/Trustees, will
consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing
no more than 15% of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, T. Rowe Price
will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A
security. In addition, T. Rowe Price could consider the (1)
frequency of trades and quotes, (2) number of dealers and
potential purchases, (3) dealer undertakings to make a market,
and (4) the nature of the security and of marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored, and if as a result of
changed conditions it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required
to assure that the Fund does not invest more than 15% of its net
assets in illiquid securities. Investing in Rule 144A securities
could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Hybrid Instruments
Hybrid Instruments have been developed and combine the
elements of futures contracts, options or other financial
instruments with those of debt, preferred equity or a depository
PAGE 52
instrument (hereinafter "Hybrid Instruments"). Generally, a
Hybrid Instrument will be a debt security, preferred stock,
depository share, trust certificate, certificate of deposit or
other evidence of indebtedness on which a portion of or all
interest payments, and/or the principal or stated amount payable
at maturity, redemption or retirement, is determined by reference
to prices, changes in prices, or differences between prices, of
securities, currencies, intangibles, goods, articles or
commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid
Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments
or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference
to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating
exposure to a particular market, or segment of a market, with the
objective of enhancing total return. For example, a Fund may
wish to take advantage of expected declines in interest rates in
several European countries, but avoid the transactions costs
associated with buying and currency-hedging the foreign bond
positions. One solution would be to purchase a U.S. dollar-
denominated Hybrid Instrument whose redemption price is linked to
the average three year interest rate in a designated group of
countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was
lower than a specified level, and payoffs of less than par if
rates were above the specified level. Furthermore, the Fund
could limit the downside risk of the security by establishing a
minimum redemption price so that the principal paid at maturity
could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this
arrangement, known as a structured security with an embedded put
option, would be to give the Fund the desired European bond
exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no
guarantee that the strategy will be successful and the Fund could
lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the
Hybrid.
The risks of investing in Hybrid Instruments reflect a
combination of the risks of investing in securities, options,
futures and currencies. Thus, an investment in a Hybrid
PAGE 53
Instrument may entail significant risks that are not associated
with a similar investment in a traditional debt instrument that
has a fixed principal amount, is denominated in U.S. dollars or
bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published
Benchmark. The risks of a particular Hybrid Instrument will, of
course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the
Benchmarks or the prices of Underlying Assets to which the
instrument is linked. Such risks generally depend upon factors
which are unrelated to the operations or credit quality of the
issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events,
the supply and demand for the Underlying Assets and interest rate
movements. In recent years, various Benchmarks and prices for
Underlying Assets have been highly volatile, and such volatility
may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for
a discussion of the risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry
greater market risks than traditional debt instruments.
Depending on the structure of the particular Hybrid Instrument,
changes in a Benchmark may be magnified by the terms of the
Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices
of the Hybrid Instrument and the Benchmark or Underlying Asset
may not move in the same direction or at the same time.
Hybrid Instruments may bear interest or pay preferred
dividends at below market (or even relatively nominal) rates.
Alternatively, Hybrid Instruments may bear interest at above
market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to
structure the Hybrid Instrument. Leverage risk occurs when the
Hybrid Instrument is structured so that a given change in a
Benchmark or Underlying Asset is multiplied to produce a greater
value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the
instruments are often "customized" to meet the portfolio needs of
a particular investor, and therefore, the number of investors
that are willing and able to buy such instruments in the
secondary market may be smaller than that for more traditional
debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market
without the guarantee of a central clearing organization or in a
transaction between the Fund and the issuer of the Hybrid
PAGE 54
Instrument, the creditworthiness of the counter party or issuer
of the Hybrid Instrument would be an additional risk factor which
the Fund would have to consider and monitor. Hybrid Instruments
also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which
regulates the offer and sale of securities by and to U.S.
persons, or any other governmental regulatory authority.
The various risks discussed above, particularly the market
risk of such instruments, may in turn cause significant
fluctuations in the net asset value of the Fund. Accordingly,
the Fund will limit its investments in Hybrid Instruments to 10%
of net assets. However, because of their volatility, it is
possible that the Fund's investment in Hybrid Instruments will
account for more than 10% of the Fund's return (positive or
negative).
Warrants
The Fund may acquire in warrants. Warrants are pure
speculation in that they have no voting rights, pay no dividends
and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may
be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.
<R/>Balanced, Blue Chip Growth, Capital Appreciation, Capital
Opportunity, Dividend Growth, Equity Income, Growth & Income, New
Era, OTC, Small-Cap Value and Value Funds<R/>
Fixed income securities in which the Fund may invest
include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the
length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by
U.S. Government sponsored enterprises and federal agencies.
These include securities issued by the Federal National Mortgage
PAGE 55
Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration,
Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business
Association, and the Tennessee Valley Authority. Some of these
securities are supported by the full faith and credit of the U.S.
Treasury; and the remainder are supported only by the credit of
the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates
of deposit are short-term obligations of commercial banks. A
bankers' acceptance is a time draft drawn on a commercial bank by
a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable
rates. The Fund may invest in U.S. banks, foreign branches of
U.S. banks, U.S. branches of foreign banks, and foreign branches
of foreign banks.
Short-Term Corporate Debt Securities. Outstanding
nonconvertible corporate debt securities (e.g., bonds and
debentures) which have one year or less remaining to maturity.
Corporate notes may have fixed, variable, or floating rates.
Commercial Paper. Short-term promissory notes issued by
corporations primarily to finance short-term credit needs.
Certain notes may have floating or variable rates.
Foreign Government Securities. Issued or guaranteed by a
foreign government, province, instrumentality, political
subdivision or similar unit thereof.
Savings and Loan Obligations. Negotiable certificates of
deposit and other short-term debt obligations of savings and loan
associations.
Supranational Agencies. Securities of certain supranational
entities, such as the International Development Bank.
When-Issued Securities and Forward Commitment Contracts
The Fund may purchase securities on a "when-issued" or
delayed delivery basis ("When-Issueds") and may purchase
securities on a forward commitment basis ("Forwards"). Any or
all of the Fund's investments in debt securities may be in the
form of When-Issueds and Forwards. The price of such securities,
which may be expressed in yield terms, is fixed at the time the
PAGE 56
commitment to purchase is made, but delivery and payment take
place at a later date. Normally, the settlement date occurs
within 90 days of the purchase for When-Issueds, but may be
substantially longer for Forwards. During the period between
purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. The purchase of
these securities will result in a loss if their value declines
prior to the settlement date. This could occur, for example, if
interest rates increase prior to settlement. The longer the
period between purchase and settlement, the greater the risks
are. At the time the Fund makes the commitment to purchase these
securities, it will record the transaction and reflect the value
of the security in determining its net asset value. The Fund
will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value
to commitments for them during the time between the purchase and
the settlement. Therefore, the longer this period, the longer
the period during which alternative investment options are not
available to the Fund (to the extent of the securities used for
cover). Such securities either will mature or, if necessary, be
sold on or before the settlement date.
To the extent the Fund remains fully or almost fully
invested (in securities with a remaining maturity or more than
one year) at the same time it purchases these securities, there
will be greater fluctuations in the Fund's net asset value than
if the Fund did not purchase them.
Collateralized Mortgage Obligations (CMOs)
CMOs are bonds that are collateralized by whole loan
mortgages or mortgage pass-through securities. The bonds issued
in a CMO deal are divided into groups, and each group of bonds is
referred to as a "tranche." Under the traditional CMO structure,
the cash flows generated by the mortgages or mortgage pass-
through securities in the collateral pool are used to first pay
interest and then pay principal to the CMO bondholders. The
bonds issued under a CMO structure are retired sequentially as
opposed to the pro rata return of principal found in traditional
pass-through obligations. Subject to the various provisions of
individual CMO issues, the cash flow generated by the underlying
collateral (to the extent it exceeds the amount required to pay
the stated interest) is used to retire the bonds. Under the CMO
structure, the repayment of principal among the different
tranches is prioritized in accordance with the terms of the
particular CMO issuance. The "fastest-pay" tranche of bonds, as
specified in the prospectus for the issuance, would initially
receive all principal payments. When that tranche of bonds is
retired, the next tranche, or tranches, in the sequence, as
PAGE 57
specified in the prospectus, receive all of the principal
payments until they are retired. The sequential retirement of
bond groups continues until the last tranche, or group of bonds,
is retired. Accordingly, the CMO structure allows the issuer to
use cash flows of long maturity, monthly-pay collateral to
formulate securities with short, intermediate and long final
maturities and expected average lives.
In recent years, new types of CMO structures have evolved.
These include floating rate CMOs, planned amortization classes,
accrual bonds and CMO residuals. These newer structures affect
the amount and timing of principal and interest received by each
tranche from the underlying collateral. Under certain of these
new structures, given classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages.
Therefore, depending on the type of CMOs in which the Fund
invests, the investment may be subject to a greater or lesser
risk of prepayment than other types of mortgage-related
securities.
The primary risk of any mortgage security is the uncertainty
of the timing of cash flows. For CMOs, the primary risk results
from the rate of prepayments on the underlying mortgages serving
as collateral. An increase or decrease in prepayment rates
(resulting from a decrease or increase in mortgage interest
rates) will affect the yield, average life and price of CMOs.
The prices of certain CMOs, depending on their structure and the
rate of prepayments, can be volatile. Some CMOs may also not be
as liquid as other securities.
Stripped Agency Mortgage-Backed Securities
Stripped Agency Mortgage-Backed securities represent
interests in a pool of mortgages, the cash flow of which has been
separated into its interest and principal components. "IOs"
(interest only securities) receive the interest portion of the
cash flow while "POs" (principal only securities) receive the
principal portion. Stripped Agency Mortgage-Backed Securities
may be issued by U.S. Government Agencies or by private issuers
similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates
rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of the other
mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared
to interest rates. Under the Internal Revenue Code of 1986, as
amended (the "Code"), POs may generate taxable income from the
current accrual of original issue discount, without a
corresponding distribution of cash to the Fund.
PAGE 58
The cash flows and yields on IO and PO classes are extremely
sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For
example, a rapid or slow rate of principal payments may have a
material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, an investor
may fail to recoup fully its initial investment in an IO class of
a stripped mortgage-backed security, even if the IO class is
rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets
experience slower than anticipated prepayments of principal, the
price on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security.
The staff of the Securities and Exchange Commission has
advised the Fund that it believes the Fund should treat IOs and
POs, other than government-issued IOs or POs backed by fixed rate
mortgages, as illiquid securities and, accordingly, limit its
investments in such securities, together with all other illiquid
securities, to 15% of the Fund's net assets. Under the Staff's
position, the determination of whether a particular
government-issued IO and PO backed by fixed rate mortgages may be
made on a case by case basis under guidelines and standards
established by the Fund's Board of Directors/Trustees. The
Fund's Board of Directors/Trustees has delegated to T. Rowe Price
the authority to determine the liquidity of these investments
based on the following guidelines: the type of issuer; type of
collateral, including age and prepayment characteristics; rate of
interest on coupon relative to current market rates and the
effect of the rate on the potential for prepayments; complexity
of the issue's structure, including the number of tranches; size
of the issue and the number of dealers who make a market in the
IO or PO. The Fund will treat non-government-issued IOs and POs
not backed by fixed or adjustable rate mortgages as illiquid
unless and until the Securities and Exchange Commission modifies
its position.
Asset-Backed Securities
The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated
from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support
provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of
principal payments received on the underlying assets which in
turn may be affected by a variety of economic and other factors.
As a result, the yield on any asset-backed security is difficult
PAGE 59
to predict with precision and actual yield to maturity may be
more or less than the anticipated yield to maturity. Asset-
backed securities may be classified as pass-through certificates
or collateralized obligations.
Pass-through certificates are asset-backed securities which
represent an undivided fractional ownership interest in an
underlying pool of assets. Pass-through certificates usually
provide for payments of principal and interest received to be
passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool.
Because pass-through certificates represent an ownership interest
in the underlying assets, the holders thereof bear directly the
risk of any defaults by the obligors on the underlying assets not
covered by any credit support. See "Types of Credit Support".
Asset-backed securities issued in the form of debt
instruments, also known as collateralized obligations, are
generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card
or automobile receivables. The assets collateralizing such
asset-backed securities are pledged to a trustee or custodian for
the benefit of the holders thereof. Such issuers generally hold
no assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments
on such asset-backed securities are obligations of the issuers,
in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support"), the issuing
entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
Methods of Allocating Cash Flows. While many asset-backed
securities are issued with only one class of security, many
asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed
securities are issued for two main reasons. First, multiple
classes may be used as a method of providing credit support.
This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining
class or classes. See "Types of Credit Support". Second,
multiple classes may permit the issuance of securities with
payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying
assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests
with respect to the allocation of interest and principal of the
assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of
PAGE 60
non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the
underlying assets are allocated in a manner different than those
described above may be issued in the future. The Fund may invest
in such asset-backed securities if such investment is otherwise
consistent with its investment objectives and policies and with
the investment restrictions of the Fund.
Types of Credit Support. Asset-backed securities are often
backed by a pool of assets representing the obligations of a
number of different parties. To lessen the effect of failures by
obligors on underlying assets to make payments, such securities
may contain elements of credit support. Such credit support
falls into two classes: liquidity protection and protection
against ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to
ensure that scheduled payments on the underlying pool are made in
a timely fashion. Protection against ultimate default ensures
ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained from
third parties, through various means of structuring the
transaction or through a combination of such approaches.
Examples of asset-backed securities with credit support arising
out of the structure of the transaction include "senior-
subordinated securities" (multiple class asset-backed securities
with certain classes subordinate to other classes as to the
payment of principal thereon, with the result that defaults on
the underlying assets are borne first by the holders of the
subordinated class) and asset-backed securities that have
"reserve funds" (where cash or investments, sometimes funded from
a portion of the initial payments on the underlying assets, are
held in reserve against future losses) or that have been "over
collateralized" (where the scheduled payments on, or the
principal amount of, the underlying assets substantially exceeds
that required to make payment of the asset-backed securities and
pay any servicing or other fees). The degree of credit support
provided on each issue is based generally on historical
information respecting the level of credit risk associated with
such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-
backed security.
Automobile Receivable Securities. The Fund may invest in
Asset Backed Securities which are backed by receivables from
PAGE 61
motor vehicle installment sales contracts or installment loans
secured by motor vehicles ("Automobile Receivable Securities").
Since installment sales contracts for motor vehicles or
installment loans related thereto ("Automobile Contracts")
typically have shorter durations and lower incidences of
prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to
prepayment risk.
Most entities that issue Automobile Receivable Securities
create an enforceable interest in their respective Automobile
Contracts only by filing a financing statement and by having the
servicer of the Automobile Contracts, which is usually the
originator of the Automobile Contracts, take custody thereof. In
such circumstances, if the servicer of the Automobile Contracts
were to sell the same Automobile Contracts to another party, in
violation of its obligation not to do so, there is a risk that
such party could acquire an interest in the Automobile Contracts
superior to that of the holders of Automobile Receivable
Securities. Also although most Automobile Contracts grant a
security interest in the motor vehicle being financed, in most
states the security interest in a motor vehicle must be noted on
the certificate of title to create an enforceable security
interest against competing claims of other parties. Due to the
large number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the Automobile
Contracts underlying the Automobile Receivable Security, usually
is not amended to reflect the assignment of the seller's security
interest for the benefit of the holders of the Automobile
Receivable Securities. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be
available to support payments on the securities. In addition,
various state and federal securities laws give the motor vehicle
owner the right to assert against the holder of the owner's
Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the Automobile Receivable
Securities.
Credit Card Receivable Securities. The Fund may invest in
Asset Backed Securities backed by receivables from revolving
credit card agreements ("Credit Card Receivable Securities").
Credit balances on revolving credit card agreements ("Accounts")
are generally paid down more rapidly than are Automobile
Contracts. Most of the Credit Card Receivable Securities issued
publicly to date have been Pass-Through Certificates. In order
to lengthen the maturity of Credit Card Receivable Securities,
most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through
to the security holder and principal payments received on such
PAGE 62
Accounts are used to fund the transfer to the pool of assets
supporting the related Credit Card Receivable Securities of
additional credit card charges made on an Account. The initial
fixed period usually may be shortened upon the occurrence of
specified events which signal a potential deterioration in the
quality of the assets backing the security, such as the
imposition of a cap on interest rates. The ability of the issuer
to extend the life of an issue of Credit Card Receivable
Securities thus depends upon the continued generation of
additional principal amounts in the underlying accounts during
the initial period and the non-occurrence of specified events.
An acceleration in cardholders' payment rates or any other event
which shortens the period during which additional credit card
charges on an Account may be transferred to the pool of assets
supporting the related Credit Card Receivable Security could
shorten the weighted average life and yield of the Credit Card
Receivable Security.
Credit cardholders are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such holder the right to set off certain amounts against
balances owed on the credit card, thereby reducing amounts paid
on Accounts. In addition, unlike most other Asset Backed
Securities, Accounts are unsecured obligations of the cardholder.
Other Assets. T. Rowe Price anticipates that Asset Backed
Securities backed by assets other than those described above will
be issued in the future. The Fund may invest in such securities
in the future if such investment is otherwise consistent with its
investment objective and policies.
There are, of course, other types of securities that are, or
may become available, which are similar to the foregoing and the
Fund reserves the right to invest in these securities.
PORTFOLIO MANAGEMENT PRACTICES
Lending of Portfolio Securities
Securities loans are made to broker-dealers or institutional
investors or other persons, pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted under its investment program.
While the securities are being lent, the Fund will continue to
receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment
PAGE 63
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
firms deemed by T. Rowe Price to be of good standing and will not
be made unless, in the judgment of T. Rowe Price, the
consideration to be earned from such loans would justify the
risk.
Other Lending/Borrowing
Subject to approval by the Securities and Exchange
Commission and certain state regulatory agencies, the Fund may
make loans to, or borrow funds from, other mutual funds sponsored
or advised by T. Rowe Price or Price-Fleming (collectively,
"Price Funds"). The Fund has no current intention of engaging
in these practices at this time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which
an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any
such dealer or bank will be on T. Rowe Price's approved list and
have a credit rating with respect to its short-term debt of at
least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by T. Rowe
Price. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus
specified interest. Repurchase agreements are generally for a
short period of time, often less than a week. Repurchase
agreements which do not provide for payment within seven days
will be treated as illiquid securities. The Fund will only enter
into repurchase agreements where (i) the underlying securities
are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly, (ii)
the market value of the underlying security, including interest
accrued, will be 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-
PAGE 64
entry transfer to the account of the custodian or a bank acting
as agent. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack
of access to income during this period; and (c) expenses of
enforcing its rights.
Reverse Repurchase Agreements
Although the Fund has no current intention, in the
foreseeable future, of engaging in reverse repurchase agreements,
the Fund reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Fund is
the seller of, rather than the investor in, securities, and
agrees to repurchase them at an agreed upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of the securities because it avoids
certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund,
subject to Investment Restriction (1). (See "Investment
Restrictions," page __.)
All Funds, Except Equity Index Fund
Options
Writing Covered Call Options
The Fund may write (sell) American or European style
"covered" call options and purchase options to close out options
previously written by a Fund. In writing covered call options,
the Fund expects to generate additional premium income which
should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved
in the option. Covered call options will generally be written on
securities or currencies which, in T. Rowe Price's opinion, are
not expected to have any major price increases or moves in the
near future but which, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the "right to
purchase" a security or currency at a specified price (the
exercise price) at expiration of the option (European style) or
at any time until a certain date (the expiration date) (American
PAGE 65
style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the
writer effects a closing purchase transaction by repurchasing an
option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the
case of a call option, a writer is required to deposit in escrow
the underlying security or currency or other assets in accordance
with the rules of a clearing corporation.
The Fund will write only covered call options. This means
that the Fund will own the security or currency subject to the
option or an option to purchase the same underlying security or
currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to the
fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may
be written will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objective.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, a Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the
underlying security or currency above the exercise price, but
conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over
when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any
time prior to the expiration of its obligation as a writer. If a
call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying
security or currency during the option period. If the call
option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security or currency. The Fund does
not consider a security or currency covered by a call to be
"pledged" as that term is used in the Fund's policy which limits
the pledging or mortgaging of its assets.
PAGE 66
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security or currency, the relationship of the exercise
price to such market price, the historical price volatility of
the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made,
T. Rowe Price, in determining whether a particular call option
should be written on a particular security or currency, will
consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This
liability will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which
the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale,
the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of
the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Fund to write another call
option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund
desires to sell a particular security or currency from its
portfolio on which it has written a call option, or purchased a
put option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security or currency.
There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the
Fund cannot enter into such a transaction, it may be required to
hold a security or currency that it might otherwise have sold.
When the Fund writes a covered call option, it runs the risk of
not being able to participate in the appreciation of the
underlying securities or currencies above the exercise price, as
well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in
higher transaction costs. The Fund will pay transaction costs in
connection with the writing of options to close out previously
written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have
expiration dates of less than nine months from the date written.
PAGE 67
The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities or
currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security or
currency from its portfolio. In such cases, additional costs may
be incurred.
The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by
appreciation of the underlying security or currency owned by the
Fund.
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 its 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.
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,
PAGE 68
which means that the Fund would maintain in a segregated account
cash, U.S. government securities or other liquid high-grade debt
obligations in an amount not less than the exercise price or the
Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all
times while the put option is outstanding. (The rules of a
clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in
circumstances where T. Rowe Price wishes to purchase the
underlying security or currency for the Fund's portfolio at a
price lower than the current market price of the security or
currency. In such event the Fund would write a put option at an
exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the
Fund would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods
of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security or currency
would decline below the exercise price less the premiums
received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it
does not own the specific securities or currencies which it may
be required to purchase in exercise of the put, cannot benefit
from appreciation, if any, with respect to such specific
securities or currencies.
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 its 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 (American style) or at the
expiration of the option (European style). The Fund may enter
into closing sale transactions with respect to such options,
PAGE 69
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 its
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
PAGE 70
transaction, or the delivery of the underlying security or
currency upon the exercise of the option.
Purchasing Call Options
The Fund may purchase American or European style call
options. As the holder of a call option, the Fund has the right
to purchase the underlying security or currency at the exercise
price at any time during the option period (American style) or at
the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may
purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its
current return. The Fund may also purchase call options in order
to acquire the underlying securities or currencies. Examples of
such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call
options enables the Fund to acquire the securities or currencies
at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities
or currencies directly. This technique may also be useful to the
Fund in purchasing a large block of securities or currencies that
would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the
premium paid for the option.
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 its
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 (Over-the-Counter) Options
PAGE 71
The Fund may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While
the Fund would look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer
option, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by
the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid
market while dealer options have none. Consequently, the Fund
will generally be able to realize the value of a dealer option it
has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the option.
While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a
closing purchase transaction, it will not be able to liquidate
securities (or other assets) or currencies used as cover until
the option expires or is exercised. In the event of insolvency
of the contra party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in
material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the
option. This requirement may impair a Fund's ability to sell
portfolio securities or currencies at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased
dealer options and the assets used to secure the written dealer
options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that
the Fund may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to
the extent the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Accordingly, the Fund will
treat dealer options as subject to the Fund's limitation on
illiquid securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment
PAGE 72
of such instrument accordingly.
Equity Index Fund
The only option activity the Fund currently may engage in is
the purchase of S&P 500 call options. Such activity is subject
to the same risks described above under "Purchasing Call
Options". The Fund reserves the right to engage in other options
activity, however.
All Funds
Futures Contracts
Transactions in Futures
The Fund may enter into futures contracts, including stock
index, interest rate and currency futures ("futures or futures
contracts"). The New Era Fund may also enter into futures on
commodities related to the types of companies in which it
invests, such as oil and gold futures. The Equity Index Fund may
only enter into stock index futures, such as the S&P 500 stock
index, to provide an efficient means of maintaining liquidity
while being invested in the market, to facilitate trading or to
reduce transaction costs. It will not use futures for hedging
purposes. Otherwise the nature of such futures and the
regulatory limitations and risks to which they are subject are
the same as those described below.
Stock index futures contracts may be used to provide a hedge
for a portion of the Fund's portfolio, as a cash management tool,
or as an efficient way for T. Rowe Price to implement either an
increase or decrease in portfolio market exposure in response to
changing market conditions. The Fund may purchase or sell
futures contracts with respect to any stock index. Nevertheless,
to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose
movements will have a significant correlation with movements in
the prices of the Fund's portfolio securities.
Interest rate or currency futures contracts may be used as a
hedge against changes in prevailing levels of interest rates or
currency exchange rates in order to establish more definitely the
effective return on securities or currencies held or intended to
be acquired by the Fund. In this regard, the Fund could sell
interest rate or currency futures as an offset against the effect
of expected increases in interest rates or currency exchange
rates and purchase such futures as an offset against the effect
of expected declines in interest rates or currency exchange
rates.
PAGE 73
The Fund will enter into futures contracts which are traded
on national or foreign futures exchanges, and are standardized as
to maturity date and underlying financial instrument. Futures
exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the CFTC. Futures are traded in
London, at the London International Financial Futures Exchange,
in Paris, at the MATIF, and in Tokyo, at the Tokyo Stock
Exchange. Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced
purposes, futures contracts offer an effective and relatively low
cost means of implementing the Fund's objectives in these areas.
Regulatory Limitations
The Fund will engage in futures contracts and options
thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.
The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
qualify as bona fide hedging under applicable CFTC rules, the sum
of the amounts of initial margin deposits and premiums paid on
those positions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded
on a commodities exchange will be considered "related options".
This policy may be modified by the Board of Directors/Trustees
without a shareholder vote and does not limit the percentage of
the Fund's assets at risk to 5%.
In accordance with the rules of the State of California, the
Fund may have to apply the above 5% test without excluding the
value of initial margin and premiums paid for bona fide hedging
positions.
The Fund's use of futures contracts will not result in
leverage. Therefore, to the extent necessary, in instances
involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, U.S.
government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover the
PAGE 74
position, or alternative cover (such as owning an offsetting
position) will be employed. Assets used as cover or held in an
identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced
with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could
impede portfolio management or the fund's ability to meet
redemption requests or other current obligations.
If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Fund
would comply with such new restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party
and purchase by another party of a specified amount of a specific
financial instrument (e.g., units of a stock index) for a
specified price, date, time and place designated at the time the
contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred
to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.
Unlike when the Fund purchases or sells a security, no price
would be paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a futures contract,
and to maintain the Fund's open positions in futures contracts,
the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.
PAGE 75
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the futures
contract.
For example, the Standard & Poor's 500 Stock Index is
composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index,
and the Index fluctuates with changes in the market values of
those common stocks. In the case of the S&P 500 Index, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
Index were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stock making up the index will take place.
Instead, settlement in cash occurs. Over the life of the
contract, the gain or loss realized by the Fund will equal the
difference between the purchase (or sale) price of the contract
and the price at which the contract is terminated. For example,
if the Fund enters into a futures contract to buy 500 units of
the S&P 500 Index at a specified future date at a contract price
of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund
enters into a futures contract to sell 500 units of the stock
index at a specified future date at a contract price of $150 and
the S&P 500 Index is at $152 on that future date, the Fund will
lose $1,000 (500 units x loss of $2).
PAGE 76
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts
are volatile and are influenced, among other things, by actual
and anticipated changes in the market and interest rates, which
in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
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 financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract 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
PAGE 77
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
to close a futures contract, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, market or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts
as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures
contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. T. Rowe Price
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging
purposes is also subject to T. Rowe Price's ability to correctly
predict movements in the direction of the market. It is possible
that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the
PAGE 78
futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a
certain degree, T. Rowe Price believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by T.
Rowe Price might not result in a successful hedging transaction
over a very short time period.
Options on Futures Contracts
The Fund may purchase and sell options on the same types of
futures in which it may invest.
Options on futures are similar to options on underlying
instruments except that options on futures give the purchaser the
PAGE 79
right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by the
delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds (in the case
of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. Purchasers of
options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put
options on stock index futures, the Fund may write or purchase
call and put options on stock indices. Such options would be
used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of
the Fund and other T. Rowe Price Funds. Such aggregated orders
would be allocated among the Funds and the other T. Rowe Price
Funds in a fair and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
PAGE 80
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders.
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in
futures or options transactions other than those described above,
it reserves the right to do so. Such futures and options trading
might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options
Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the
National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the
exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or
foreign options transaction occurs. For these reasons, when the
Fund trades foreign futures or foreign options contracts, it may
not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations and the rules
of the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In
particular, funds received from the Fund for foreign futures or
foreign options transactions may not be provided the same
protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any
foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance
in the foreign exchange rate between the time the Fund's order is
placed and the time it is liquidated, offset or exercised.
PAGE 81
All Funds, Except Equity Index Fund
Foreign Currency Transactions
A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are charged at any stage for trades.
The Fund may enter into forward contracts for a variety of
purposes in connection with the management of the foreign
securities portion of its portfolio. The Fund's use of such
contracts would include, but not be limited to, the following:
First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency
involved in the underlying security transactions, the Fund will
be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.
Second, when T. Rowe Price believes that one currency may
experience a substantial movement against another currency,
including the U.S. dollar, it may enter into a forward contract
to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively,
where appropriate, the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of
PAGE 82
those securities between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly
uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, T. Rowe Price believes that
it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of
the Fund will be served.
The Fund may enter into forward contacts for any other
purpose consistent with the Fund's investment objective and
program. However, the Fund will not enter into a forward
contract, or maintain exposure to any such contract(s), if the
amount of foreign currency required to be delivered thereunder
would exceed the Fund's holdings of liquid, high-grade debt
securities and currency available for cover of the forward
contract(s). In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the
portfolio security and make delivery of the foreign currency, or
it may retain the security and either extend the maturity of the
forward contract (by "rolling" that contract forward) or may
initiate a new forward contract.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange
contracts will generally be limited to the transactions described
above. However, the Fund reserves the right to enter into
forward foreign currency contracts for different purposes and
under different circumstances. Of course, the Fund is not
required to enter into forward contracts with regard to its
PAGE 83
foreign currency-denominated securities and will not do so unless
deemed appropriate by T. Rowe Price. It also should be realized
that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange at a
future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any
potential gain which might result from an increase in the value
of that currency.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts
The Fund may enter into certain option, futures, and forward
foreign exchange contracts, including options and futures on
currencies, which will be treated as Section 1256 contracts or
straddles.
Transactions which are considered Section 1256 contracts
will be considered to have been closed at the end of the Fund's
fiscal year and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses from the normal
closing or settlement of such transactions will be characterized
as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument.
The Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed
the transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts,
including options and futures on currencies, which offset a
foreign dollar denominated bond or currency position may be
considered straddles for tax purposes, in which case a loss on
any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding
period of the securities or currencies comprising the straddle
will be deemed not to begin until the straddle is terminated.
PAGE 84
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 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.
INVESTMENT RESTRICTIONS
Fundamental policies may not be changed without the approval
of the lesser of (1) 67% of the Fund's shares present at a
meeting of shareholders if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (2) more
than 50% of the Fund's outstanding shares. Other restrictions in
the form of operating policies are subject to change by the
Fund's Board of Directors/Trustees without shareholder approval.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated
PAGE 85
unless an excess over the percentage occurs immediately after,
and is caused by, an acquisition of securities or assets of, or
borrowings by, the Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money except that the Fund may
(i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse
repurchase agreements and make other investments
or engage in other transactions, which may involve
a borrowing, in a manner consistent with the
Fund's investment objective and program, provided
that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total
assets (including the amount borrowed) less
liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in
accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other
persons to the extent permitted by applicable law;
(2) Commodities. Purchase or sell physical
commodities; except that it may enter into futures
contracts and options thereon;
(3) 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 same
industry;
(4) Loans. Make loans, although the Fund may (i) lend
portfolio securities and participate in an
interfund lending program with other Price Funds
provided that no such loan may be made if, as a
result, the aggregate of such loans would
exceed 33 1/3% of the value of the Fund's total
assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii)
acquire publicly-distributed or privately-placed
debt securities and purchase debt;
(5) Percent Limit on Assets Invested in Any One Issuer
(All Funds except Capital Opportunity). Purchase
PAGE 86
a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the
value of the Fund's total assets would be invested
in the securities of a single issuer, except
securities issued or guaranteed by the U.S.
Government or any of its agencies or
instrumentalities;
(6) Percent Limit on Share Ownership of Any One Issuer
(All Funds except Capital Opportunity). Purchase
a security if, as a result, with respect to 75% of
the value of the Fund's total assets, more than
10% of the outstanding voting securities of any
issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities);
(7) Real Estate. Purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prevent the
Fund from investing in securities or other
instruments backed by real estate or in securities
of companies engaged in the real estate business);
(8) Senior Securities. Issue senior securities except
in compliance with the Investment Company Act of
1940; or
(9) Underwriting. Underwrite securities issued by
other persons, except to the extent that the Fund
may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in
connection with the purchase and sale of its
portfolio securities in the ordinary course of
pursuing its investment program.
NOTES
The following notes should be read in connection with
the above-described fundamental policies. The notes are
not fundamental policies.
With respect to investment restrictions (1) and (4), the
Fund will not borrow from or lend to any other Price
Fund unless each Fund applies for and receives an
exemptive order from the SEC or the SEC issues rules
permitting such transactions. The Fund has no current
intention of engaging in any such activity and there is
no assurance the SEC would grant any order requested by
PAGE 87
the Fund or promulgate any rules allowing the
transactions.
With respect to investment restriction (2), the Fund
does not consider currency contracts or hybrid
investments to be commodities.
For purposes of investment restriction (3), U.S., state
or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industries are determined by reference to the
classifications of industries set forth in the Fund's
semi-annual and annual reports.
For purposes of investment restriction (4), the Fund
will consider the acquisition of a debt security to
include the execution of a note or other evidence of an
extension of credit with a term of more than nine
months.
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing. The Fund will not purchase additional
securities when money borrowed exceeds 5% of its
total assets;
(2) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management
or control;
(3) Futures Contracts. Purchase a futures contract or
an option thereon if, with respect to positions in
futures or options on futures which do not
represent bona fide hedging, the aggregate initial
margin and premiums on such options would exceed
5% of the Fund's net asset value;
(4) Illiquid Securities. Purchase illiquid securities
and securities of unseasoned issuers if, as a
result, more than 15% of its net assets would be
invested in such securities, 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;
PAGE 88
(5) 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;
(6) Margin. Purchase securities on margin, except (i)
for use of short-term credit necessary for
clearance of purchases of portfolio securities and
(ii) it may make margin deposits in connection
with futures contracts or other permissible
investments;
(7) Mortgaging. Mortgage, pledge, hypothecate or, in
any manner, transfer any security owned by the
Fund as security for indebtedness except as may be
necessary in connection with permissible
borrowings or investments and then such
mortgaging, pledging or hypothecating may not
exceed 33 1/3% of the Fund's total assets at the
time of borrowing or investment;
(8) Oil and Gas Programs. Purchase participations or
other direct interests in or enter into leases
with respect to, oil, gas, or other mineral
exploration or development programs;
(9) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement
of Additional Information;
(10) Ownership of Portfolio Securities by Officers and
Directors/Trustees. Purchase or retain the
securities of any issuer if 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;
(11) Short Sales. Effect short sales of securities;
(12) Unseasoned Issuers. Purchase a security (other
than obligations issued or guaranteed by the U.S.,
any foreign, state or local 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
PAGE 89
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). This restriction does not apply to
securities of pooled investment vehicles or
mortgage or asset-backed securities; or
(13) Warrants. Invest in warrants if, as a result
thereof, more than 2% of the value of the net
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 net 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 and warrants acquired by the Fund in units
or attached to securities may be deemed to be
without value.
Blue Chip Growth, Capital Opportunity, and Value Funds<R/>
Notwithstanding anything in the above fundamental and
operating restrictions to the contrary, the Fund may invest all
of its assets in a single investment company or a series thereof
in connection with a "master-feeder" arrangement. Such an
investment would be made where the Fund (a "Feeder"), and one or
more other Funds with the same investment objective and program
as the Fund, sought to accomplish its investment objective and
program by investing all of its assets in the shares of another
investment company (the "Master"). The Master would, in turn,
have the same investment objective and program as the Fund. The
Fund would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make
investments in portfolio companies on behalf of a number of
Feeder funds. In the event that the Fund exercises its right to
convert to a Master Fund/Feeder Fund structure, it will do so in
compliance with the Guidelines for Registration of a Master
Fund/Feeder Fund as established by the North American Securities
Administrators Association, Inc. ("NASAA").
MANAGEMENT OF FUND
The officers and directors of the Fund are listed below.
Unless otherwise noted, the address of each is 100 East Pratt
PAGE 90
Street, Baltimore, Maryland 21202. Except as indicated, each has
been an employee of T. Rowe Price for more than five years. In
the list below, the Fund's directors who are considered
"interested persons" of T. Rowe Price as defined under
Section 2(a)(19) of the Investment Company Act of 1940 are noted
with an asterisk (*). These directors are referred to as inside
directors by virtue of their officership, directorship, and/or
employment with T. Rowe Price.
All Funds
Independent Directors/Trustees
LEO C. BAILEY, Retired; Address: 3396 South Placita Fabula, Green
PAGE 94
Valley, Arizona 85614
DONALD W. DICK, JR., Principal, Overseas Partners, Inc., a
financial investment firm; Director, Waverly Press, Inc.,
Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New
York, New York 10152
DAVID K. FAGIN, Chairman, Chief Executive Officer and Director,
Golden Star Resources, Ltd.; formerly (1986-7/91) President,
Chief Operating Officer and Director, Homestake Mining Company;
Address: One Norwest Center, 1700 Lincoln Street, Suite 1950,
Denver, Colorado 80203
ADDISON LANIER, 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, Chairman of the Board and President, KCMA
Incorporated, Tulsa, Oklahoma; Address: 126 E. 26 Place, Tulsa,
Oklahoma 74114-2422
HANNE M. MERRIMAN, Retail business consultant; formerly,
President and Chief Operating Officer, Nan Duskin, Inc., a
women's specialty store, Director and Chairman Federal Reserve
Bank of Richmond, and President and Chief Executive Officer,
Honeybee, Inc., a division of Spiegel, Inc; Director, Ann Taylor
Stores Corporation, Central Illinois Public Service Company,
CIPSCO
Incorporated, The Rouse Company, State Farm Mutual Automobile
Insurance Company and USAir Group, Inc., Member, National Women's
Forum; Trustee, American-Scandinavian Foundation; Address: One
James Center, 901 East Cary Street, Richmond, Virginia 23219-4030
HUBERT D. VOS, President, Stonington Capital Corporation, a
private investment company; Address: 1231 State Street, Suite
210, Santa Barbara, CA 93190-0409
PAUL M. WYTHES, Founding General Partner, Sutter Hill Ventures, a
venture capital limited partnership providing equity capital to
young high technology companies throughout the United States;
Director, Teltone Corporation, Interventional Technologies Inc.,
PAGE 91
and Stuart Medical, Inc.; Address: 755 Page Mill Road, Suite
A200, Palo Alto, California 94304
Officers
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.
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
EDWARD T. SCHNEIDER, Assistant Vice President--Assistant Vice
President, T. Rowe Price and Vice President, T. Rowe Price
Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
Balanced Fund
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
and T. Rowe Price Retirement Plan Services, Inc.; President and
Director, T. Rowe Price Investment Services, Inc; President and
Trust Officer, T. Rowe Price Trust Company; Director, Rowe Price-
Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Managing Director
of T. Rowe Price; Chairman of the Board, Rowe Price-Fleming
International, Inc.; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
RICHARD T. WHITNEY, President--Vice President of T. Rowe Price
and T. Rowe Price Trust Company
STEPHEN W. BOESEL, Vice President--Managing Director, T. Rowe
Price
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
JONATHAN M. GREENE, Vice President--Vice President of T. Rowe
Price and T. Rowe Price Trust Company
JAMES A.C. KENNEDY, III, Vice President--Managing Director of T.
Rowe Price
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company
DONALD J. PETERS, Vice President--Vice President, T. Rowe Price;
formerly portfolio manager, Geewax Terker and Company
PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price;
Vice President of Rowe Price-Fleming International, Inc. and T.
Rowe Price Trust Company
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
PAGE 92
Blue Chip Growth Fund
*THOMAS H. BROADUS, JR., President and Director--Managing
Director, T. Rowe Price; Chartered Financial Analyst and
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price
Retirement Plan Services, Inc., President and Trust Officer, T.
Rowe Price Trust Company; President and Director, T. Rowe Price
Investment Services, Inc; Director, Rowe Price- Fleming
International, Inc. and Rhone-Poulenc 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
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price
STEPHANIE C. CLANCY, Assistant Vice President--Employee, T. Rowe
Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Capital Appreciation Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Chief
Executive Officer and Managing Director, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Retirement
Plan Services, Inc. and T. Rowe Price Trust Company; Chartered
Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, Director--Managing Director and Chief Financial
Officer, T. Rowe Price; Vice President and Director, Rowe
Price-Fleming International, Inc.
RICHARD P. HOWARD, President--Vice President of T. Rowe Price;
Chartered Financial Analyst
ARTHUR B. CECIL, III, Vice President--Vice President of T. Rowe
Price
CHARLES A. MORRIS, Vice President--Vice President of T. Rowe
Price
DAVID A. REA, Vice President--Vice President, T. Rowe Price
ALAN R. STUART, Vice President--Vice President of T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Capital Opportunity Fund
*JAMES S. RIEPE, President and Director--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
and T. Rowe Price Retirement Plan Services, Inc., President and
PAGE 93
Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer,
Inc.<R/>
Dividend Growth Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer,
Inc.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
BRIAN C. ROGERS, President--Managing Director, T. Rowe Price
WILLIAM J. STROMBERG, Executive Vice President--Vice President,
T. Rowe Price
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price
ALAN R. STUART, Vice President--Vice President, T. Rowe Price
DAVID J. WALLACK, Vice President--Vice President; formerly (9/88-
7/90) Citibank, Private Banking Group
STEPHANIE C. CLANCY, Assistant Vice President--Employee, T. Rowe
Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Equity Income Fund
*THOMAS H. BROADUS, JR., Vice President and Trustee--Managing
Director, T. Rowe Price; Chartered Financial Analyst and
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer,
PAGE 94
Inc.Trustee--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
BRIAN C. ROGERS, President--Managing Director, T. Rowe Price
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
RICHARD P. HOWARD, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
DENISE S. JEVNE, Vice President--Vice President, T. Rowe Price
ROBERT W. SMITH, Vice President--Vice President, T. Rowe Price;
formerly (1987-1992) Investment Analyst, Massachusetts Financial
Services, Inc., Boston, Massachusetts
WILLIAM J. STROMBERG, Vice President--Vice President, T. Rowe
Price
MARK J. VASELKIV, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Growth & Income Fund
*STEPHEN W. BOESEL, President and Director--Vice President, T.
Rowe Price
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc 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
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
ARTHUR B. CECIL, III, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
BRENT W. CLUM, Vice President--Vice President, T. Rowe Price
GREGORY A. MCCRICKARD, Vice President--Vice President, T. Rowe
Price
LARRY J. PUGLIA, Vice President--Vice President, T. Rowe Price
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Growth Stock Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
PAGE 95
*M. DAVID TESTA, Chairman of the Board--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
JOHN D. GILLESPIE, President--Vice President, T. Rowe Price
CARTER O. HOFFMAN, Vice President--Managing Director, T. Rowe
Price; Chartered Investment Counselor
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price
JAMES A.C. KENNEDY, Vice President--Managing Director, T. Rowe
Price
DENISE S. JEVNE, Vice President--Vice President, T. Rowe Price
BRIAN C. ROGERS, Vice President--Managing Director, T. Rowe Price
ROBERT W. SMITH, Vice President--Vice President, T. Rowe Price;
formerly (1987-1992) Investment Analyst, Massachusetts Financial
Services, Inc.; Boston, Massachusetts
ALAN R. STUART, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Equity Index Fund
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc 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
RICHARD T. WHITNEY, President--Vice President, T. Rowe Price
KRISTEN D. FARROW, Vice President--Assistant Vice President, T.
Rowe Price
JONATHAN M. GREENE, Vice President--Vice President, T. Rowe Price
ALAN R. STUART, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Mid-Cap Growth Fund
*JOHN H. LAPORTE, JR., Director--Managing Director, T. Rowe
Price; Chartered Financial Analyst
*JAMES A. C. KENNEDY, III, Director--Managing Director, T. Rowe
Price
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
PAGE 96
BRIAN W. H. BERGHUIS, Executive Vice President--Vice President,
T. Rowe Price
BRENT W. CLUM, Vice President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JOSEPH KLEIN, III, Vice President--Vice President, T. Rowe Price
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
New America Growth Fund
*JOHN H. LAPORTE, JR., President and Trustee--Managing Director
of T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
BRIAN W. H. BERGHUIS, Executive Vice President--Vice President,
T. Rowe Price
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
JOHN WAKEMAN, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
New Era Fund
*GEORGE J. COLLINS, Director--President, Managing Director, and
Chief Executive Officer, T. Rowe Price; Director, Rowe
Price-Fleming International, Inc., T. Rowe Price Trust Company,
and T. Rowe Price Retirement Plan Services, Inc.; Chartered
Investment Counselor
*CARTER O. HOFFMAN, Director--Managing Director, T. Rowe Price;
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, President and Director--Managing Director and
Chief Financial Officer, T. Rowe Price; Vice President and
Director, Rowe Price-Fleming International, Inc.
STEPHEN W. BOESEL, Vice President--Vice President, T. Rowe Price
HUGH M. EVANS, III, Vice President--Employee, T. Rowe Price;
formerly (7/1/88-7/1/90) Analyst, Morgan Stanley & Co., Inc., New
York, New York
RICHARD P. HOWARD, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
PAGE 97
JAMES A.C. KENNEDY, III, Vice President--Managing Director, T.
Rowe Price
CHARLES M. OBER, Vice President--Vice President, T. Rowe Price;
Chartered Financial Analyst
DAVID L. REA, Vice President--Vice President, T. Rowe Price
ALAN R. STUART, Vice President--Vice President, T. Rowe Price
DAVID J. WALLACK, Vice President--Vice President, T. Rowe Price;
formerly (9/89-7/90) Citibank, Private Banking Group
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
New Horizons Fund
*JOHN H. LAPORTE, President and Director--Managing Director of T.
Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc 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
PRESTON G. ATHEY, Vice President--Vice President of T. Rowe Price
BRIAN W. H. BERGHUIS, Vice President--Vice President of T. Rowe
Price
LISE J. BUYER, Vice President--Vice President, T. Rowe Price;
formerly (4/91-4/92) PC Analyst, Cowen & Co., (2/90-4/92) PC
Analyst, Needham & Co., and (2/87-1/90) Analyst, Prudential Bache
Securities
BRENT W. CLUM, Vice President--Vice President, T. Rowe Price
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JILL L. HAUSER, Vice President--Vice President, T. Rowe Price
DENISE E. JEVNE, Vice President--Vice President, T. Rowe Price
JOSEPH KLEIN, III, Vice President--Vice President, T. Rowe Price
CHARLES A. MORRIS, Vice President--Vice President, T. Rowe Price
ROBERT W. SMITH, Vice President--Vice President, T. Rowe Price;
formerly (1987-1992) Investment Analyst, Massachusetts Financial
Services, Inc., Boston, Massachusetts
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price
JOHN F. WAKEMAN, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
OTC Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director
of T. Rowe Price; Chartered Financial Analyst
PAGE 98
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
GREGORY A. McCRICKARD, President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JAMES A. C. KENNEDY, III, Vice President--Managing Director of T.
Rowe Price
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe
Price; Chartered Financial Analyst
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Science & Technology Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director,
T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
CHARLES A. MORRIS, President--Vice President, T. Rowe Price
LISE J. BUYER, Vice President--Vice President, T. Rowe Price;
formerly (4/91-4/92) PC Analyst, Cowen & Co., (2/90-4/92) PC
Analyst, Needham & Co., and (2/87-1/90) Analyst, Prudential Bache
Securities
GREGORY V. DONOVAN, Vice President--Vice President, T. Rowe Price
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JILL L. HAUSER, Vice President--Vice President, T. Rowe Price
JOSEPH KLEIN, III, Vice President--Vice President, T. Rowe Price
BRIAN D. STANSKY, Vice President--Vice President, T. Rowe Price
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Small-Cap Value Fund
*JOHN H. LAPORTE, JR., Chairman of the Board--Managing Director
of T. Rowe Price; Chartered Financial Analyst
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc., President
and Trust Officer, T. Rowe Price Trust Company; President and
Director, T. Rowe Price Investment Services, Inc; Director, Rowe
PAGE 99
Price- Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*GEORGE A. ROCHE, Director--Managing Director and Chief Financial
Officer, T. Rowe Price; Vice President and Director, Rowe
Price-Fleming International, Inc.
PRESTON G. ATHEY, President--Vice President, T. Rowe Price
HUGH M. EVANS, III, Vice President--Employee, T. Rowe Price;
formerly (7/1/88-7/1/90) Analyst, Morgan Stanley & Co., Inc., New
York, New York
MARCY L. FISHER, Vice President--Assistant Vice President, T.
Rowe Price
JONATHAN M. GREENE, Vice President--Vice President of T. Rowe
Price and T. Rowe Price Trust Company
GREGORY A. MCCRICKARD, Vice President--Vice President, T. Rowe
Price
RICHARD T. WHITNEY, Vice President--Vice President, T. Rowe Price
and T. Rowe
Price Trust Company; Chartered Financial Analyst
ROGER L. FIERY, III, Assistant Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International, Inc.
Value Fund
BRIAN C. ROGERS, President--Managing Director, T. Rowe Price
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*M. DAVID TESTA, Vice President and Director--Managing Director
of T. Rowe Price; Chairman of the Board, Rowe Price-Fleming
International, Inc.; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
JOSEPH A. CRUMBLING, Assistant Vice President
The Fund's Executive Committee, consisting of the Fund's
interested directors/trustees, has been authorized by its
respective Board of Directors/Trustees to exercise all powers of
the Board to manage the 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.
PAGE 100
As of December 31, 1993, the following shareholders
beneficially owned more than 5% of the outstanding shares of the
Growth Stock, New Era, New Horizons and Growth & Income Funds,
respectively: Pirateline & Co., FBO Spectrum Growth Fund Acct.,
Attn.: Mark White, State Street Bank & Trust Co., 1776 Heritage
Drive - 4W, North Quincy, Massachusetts 02171-2197; Small Cap
Value and Science & Technology Funds, respectively: Charles
Schwab & Co. Inc., Reinvest. Account, Attn.: Mutual Fund Dept.,
101 Montgomery Street, San Francisco, California 94104-4122;
Equity Index Fund: Northern Trust Co. Tr., Intermountain
Healthcare, Savings Plan Trust, P.O. Box 92956, Chicago, Illinois
60690-9209; and the OTC Fund, Sigler & Co. CF Smithsonian Int.,
Wellington Trust Co., Chemical Bank, Attn.: Voila Diacumakos, 4
New York Plaza, 4th Floor, New York, New York 10004-2413.
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.
All Funds, Except Equity Index Fund
PAGE 101
Management Fee
The Fund pays T. Rowe Price a fee ("Fee") which consists of
two components: a Group Management Fee ("Group Fee") and an
Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to T.
Rowe Price on the first business day of the next succeeding
calendar month and is calculated as described below.
The monthly Group Fee ("Monthly Group Fee") is the sum of
the daily Group Fee accruals ("Daily Group Fee Accruals") for
each month. The Daily Group Fee Accrual for any particular day
is computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of the Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
0.480% First $1 billion
0.450% 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
PAGE 102
computed by multiplying the fraction of one (1) over the number
of calendar days in the year by the individual Fund Fee Rate and
multiplying this product by the net assets of the Fund for that
day, as determined in accordance with the Fund's prospectus as of
the close of business on the previous business day on which the
Fund was open for business. The individual fund fees for each
Fund are listed in the chart below:
Individual Fund Fees
Balanced Fund 0.15%
Blue Chip Growth Fund 0.30%
Capital Appreciation Fund 0.30%
Capital Opportunity Fund ____%
Dividend Growth Fund 0.20%
Equity Income Fund 0.25%
Growth & Income Fund 0.15%
Growth Stock Fund 0.25%
Equity Index Fund 0.20%
Mid-Cap Growth Fund 0.35%
New America Growth Fund 0.35%
New Era Fund 0.25%
New Horizons Fund 0.35%
OTC Fund 0.45%
Science & Technology Fund 0.35%
Small-Cap Value Fund 0.35%
Value Fund 0.35%
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by each Fund, during the last three
years:
Fund 1993 1992 1991
Balanced $ 1,169,038 $ 158,000 **
Blue Chip Growth ** * *
Capital Appreciation 2,740,545 1,539,000 1,119,000
Dividend Growth ** * *
Equity Income 15,154,800 10,430,000 6,829,000
Growth & Income 5,209,477 3,693,000 2,991,000
Growth Stock 11,117,706 11,217,000 9,367,000
Mid-Cap Growth 152,853 ** *
New America Growth 3,988,797 2,385,000 1,166,000
New Era 4,365,990 4,337,000 4,660,000
New Horizons 10,367,727 9,589,000 8,089,000
OTC 1,547,061 1,858,000 2,126,495
Science & Technology 2,841,791 1,479,000 809,000
Small-Cap Value 2,963,580 1,165,000 119,000
PAGE 103
* Prior to commencement of operations.
** Due to each Fund's expense limitation in effect at that time,
no management fees were paid by the Funds to T. Rowe Price.
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.
Balanced, Blue Chip Growth, Capital Appreciation, Capital
Opportunity, Dividend Growth, Equity Index, Mid-Cap Growth, New
America Growth, Science & Technology, Small-Cap Value, Value Fund
The following chart sets forth expense ratio limitations and
the periods for which they are effective. For each, T. Rowe
Price has agreed to bear any Fund expenses which would cause the
Fund's ratio of expenses to average net assets to exceed the
indicated percentage limitations. The expenses borne by T. Rowe
Price are subject to reimbursement by the Fund through the
indicated reimbursement date, provided no reimbursement will be
made if it would result in the Fund's expense ratio exceeding its
applicable limitation.
Expense
Limitation Ratio Reimbursement
Fund Period Limitation Date
Balanced+ January 1, 1993- 1.00% December 31, 1996
December 31, 1994
Blue Chip Growth June 30, 1993- 1.25% December 31, 1996
December 31, 1994
Capital
Appreciation January 1, 1990- 1.25% December 31, 1995
December 31, 1993
PAGE 104
Capital
Opportunity November 31, 1994- ____% December 31, 1998
December 31, 1996
Dividend Growth December 30, 1992- 1.00% December 31, 1996
December 31, 1994
Equity Index++ January 1, 1994- 0.45% December 31, 1997
December 31, 1995
Mid-Cap Growth* January 1, 1994- 1.25% December 31, 1997
December 31, 1995
New America
Growth January 1, 1990- 1.25% December 31, 1995
December 31, 1993
Science &
Technology January 1, 1992- 1.25% December 31, 1995
December 31, 1993
Small-Cap
Value January 1, 1992- 1.25% December 31, 1995
December 31, 1993
Value September 29, 1994- 1.10%December 31,
1998
December 31, 1996
+ The Balanced Fund previously operated under a 1.00%
limitation that expired December 31, 1992. The reimbursement
period for this limitation extends through December 31, 1994.
++ The Equity Index Fund previously operated under a 0.45%
limitation that expired December 31, 1993. The reimbursement
period for this limitation extends through December 31, 1995.
* The Mid-Cap Growth Fund previously operated under a 1.25%
limitation that expired December 31, 1993. The reimbursement
period for this limitation extends through December 31, 1995.
Each of the above-referenced Fund's Management Agreement also
provides that one or more additional expense limitation periods
(of the same or different time periods) may be implemented after
the expiration of the current expense limitation, and that with
respect to any such additional limitation period, the Fund may
reimburse T. Rowe Price, provided the reimbursement does not
result in the Fund's aggregate expenses exceeding the additional
expense limitation.
Pursuant to the Balanced Fund's current expense limitation,
$280,000 of management fees were not accrued by the Fund for the
year ended December 31, 1993. Pursuant to the previous expense
limitation, $571,000 remains subject to reimbursement through
December 31, 1994.
Pursuant to the Blue Chip Growth Fund's current expense
limitation, $53,000 of management fees were not accrued by the
PAGE 105
Fund for the period ended December 31, 1993, and $30,000 of other
expenses were borne by T. Rowe Price and subject to further
reimbursement.
Pursuant to the Dividend Growth Fund's current expense
limitation, $145,000 of management fees were not accrued by he
Fund for the period ended December 31, 1993, and $84,000 of other
Fund expenses borne by T. Rowe Price
and are subject to future reimbursement.
Pursuant to the Equity Index Fund's current expense
limitation, $293,000 of management fees were not accrued by the
Fund for the year ended December 31, 1993, and $20,000 of other
expenses were borne by T. Rowe Price. Additionally, $338,000 of
unaccrued fees and expenses remain subject to future
reimbursement. Pursuant to a previous expense limitation,
$421,000 of unaccrued fees and expenses from 1990-1991 have been
permanently waived.
Pursuant to Mid-Cap Growth Fund's current expense limitation,
$136,000 of management fees were not accrued by the Fund for the
year ended December 31, 1993. Additionally, $92,000 of unaccrued
fees and expenses from 1992 are subject to future reimbursement.
For New America Growth Fund, during the year ended December
31, 1987, $326,000 of management fees were not accrued by the
Fund pursuant to an annual state limitation. In 1988, the Fund
obtained a variance from this limitation which permitted the 1987
fees to be reimbursed to T. Rowe Price. The unaccrued fees from
1987 were to be reimbursed to T. Rowe Price only to the extent
that doing so would not cause the Fund's ratio of expenses to
average net assets to exceed any expense limitation then in
effect. Pursuant to these provisions, the remaining $278,000 of
fees were reimbursed to T. Rowe Price during the year ended
December 31, 1993.
Pursuant to Science & Technology Fund's previous expense
limitation, $264,000 of unaccrued 1990-1991 fees were repaid
during the year ended December 31, 1993, and $170,000 of 1990-
1991 fees have been permanently waived.
Pursuant to Small-Cap Value Fund's current and previous
expense limitations, $180,000 of unaccrued 1990-1991 fees,
representing the entire unaccrued balance, were reimbursed to the
Manager during the year ended December 31, 1993.
Capital Appreciation Fund
Management Fee
PAGE 106
The Fund pays T. Rowe Price a fee ("Fee") which consists of
three components: a Group Management Fee ("Group Fee"), an
Individual Fund Fee ("Fund Fee") and a performance fee adjustment
("Performance Fee Adjustment") based on the performance of the
Fund relative to the Standard & Poor's 500 Stock Index (the
"Index"). The Fee is paid monthly to T. Rowe Price on the first
business day of the next succeeding calendar month and is
calculated as described below. The performance adjustment for
the year ended December 31, 1993, decreased management fees by
$220,000.
The Monthly Group Fee and Monthly Fund Fee are combined (the
"Combined Fee") and are subject to a Performance Fee Adjustment,
depending on the total return investment performance of the Fund
relative to the total return performance of the Standard & Poor's
500 Stock Composite Index (the "Index") during the previous
thirty-six (36) months. The Performance Fee Adjustment is
computed as of the end of each month and if an adjustment
results, is added to, or subtracted from the Combined Fee. No
Performance Fee Adjustment is made to the Combined Fee unless the
investment performance ("Investment Performance") of the Fund
(stated as a percent) exceeds, or is exceeded by, the investment
record ("Investment Record") of the Index (stated as a percent)
by at least one full point. (The difference between the
Investment Performance and Investment Record will be referred to
as the Investment Performance Differential.) The Performance Fee
Adjustment for any month is calculated by multiplying the rate of
the Performance Fee Adjustment ("Performance Fee Adjustment") (as
determined below) achieved for the 36-month period, times the
average daily net assets of the Fund for such 36-month period and
dividing the product by 12. The Performance Fee Adjustment Rate
is calculated by multiplying the Investment Performance
Differential (rounded downward to the nearest full point) times a
factor of .02%. Regardless of the Investment Performance
Differential, the Performance Fee Adjustment Rate shall not
exceed .30%. the same period.
Example
For example, if the Investment Performance Differential
was 11.6, it would be rounded to 11. The Investment
Performance Differential of 11 would be multiplied by
.02% to arrive at the Performance Fee
Adjustment Rate of .22%. The .22% Performance Fee Adjustment
Rate would be multiplied by the fraction of 1/12 and that
product would be multiplied by the Fund's average daily net
assets for the 36-month period to arrive at the Performance
Fee Adjustment.
The computation of the Investment Performance of the Fund and
PAGE 107
the Investment Record of the Index will be made in accordance
with Rule 205-1 under the Investment Advisers Act of 1940 or any
other applicable rule as, from time to time, may be adopted or
amended. These terms are currently defined as follows:
The Investment Performance of the Fund is the sum of: (i) the
change in the Fund's net asset value per share during the period;
(ii) the value of the Fund's cash distributions per share having
an exdividend date occurring within the period; and (iii) the per
share amount of any capital gains taxes paid or accrued during
such period by the Fund for undistributed, realized long-term
capital gains.
The Investment Record of the Index is the sum of: (i) the
change in the level of the Index during the period; and (ii) the
value, computed consistently with the Index, of cash
distributions having an exdividend date occurring within the
period made by companies whose securities comprise the Index.
Equity Index Fund
Management Fee
The Fund pays T. Rowe Price an annual investment management
fee in monthly installments of .20% of the average daily net
asset value of the Fund. Due to the effect of the Fund's expense
limitation, for the years ended December 31, 1993, December 31,
1992, and December 31, 1991, the Fund did not pay T. Rowe Price
an investment management fee.
Equity Income, Growth & Income, Growth Stock, New Era, and New
Horizons Funds
T. Rowe Price Spectrum Fund, Inc.
The Fund is a party to a Special Servicing Agreement
("Agreement") between and among T. Rowe Price Spectrum Fund, Inc.
("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc.
and various other T. Rowe Price funds which, along with the Fund,
are funds in which Spectrum Fund invests (collectively all such
funds "Underlying Price Funds").
The Agreement provides that, if the Board of
Directors/Trustees of any Underlying Price Fund determines that
such Underlying Fund's share of the aggregate expenses of
Spectrum Fund is less than the estimated savings to the
Underlying Price Fund from the operation of Spectrum Fund, the
Underlying Price Fund will bear those expenses in proportion to
the average daily value of its shares owned by Spectrum Fund,
provided further that no Underlying Price Fund will bear such
PAGE 108
expenses in excess of the estimated savings to it. Such savings
are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been
invested directly in the Underlying Price Funds and the resulting
reduction in shareholder servicing costs. Although such cost
savings are not certain, the estimated savings to the Underlying
Price Funds generated by the operation of Spectrum Fund are
expected to be sufficient to offset most, if not all, of the
expenses incurred by Spectrum Fund.
All Funds
DISTRIBUTOR FOR FUND
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a wholly-
owned subsidiary of T. Rowe Price, serves as the Fund's
distributor. Investment Services is registered as a broker-
dealer under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. The
offering of the Fund's shares is continuous.
Investment Services is located at the same address as the
Fund and T. Rowe Price -- 100 East Pratt Street, Baltimore,
Maryland 21202.
Investment Services serves as distributor to the Fund
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that the Fund will pay all fees and expenses in
connection with: 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
PAGE 109
value. No sales charges are paid by investors or the Fund.
All Funds
CUSTODIAN
State Street Bank and Trust Company is the custodian for the
Fund's securities and cash, but it does not participate in the
Fund's investment decisions. Portfolio securities purchased in
the U.S. are maintained in the custody of the Bank and may be
entered into the Federal Reserve Book Entry System, or the
security depository system of the Depository Trust Corporation.
The Fund (other than Equity Index Fund) has entered into a
Custodian Agreement with The Chase Manhattan Bank, N.A., London,
pursuant to which portfolio
securities which are purchased outside the United States are
maintained in the custody of various foreign branches of The
Chase Manhattan Bank and such other custodians, including foreign
banks and foreign securities depositories as are approved by the
Fund's Board of Directors/Trustees in accordance with
regulations under the Investment Company Act of 1940. 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.
CODE OF ETHICS
The Fund's investment adviser (T. Rowe Price) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in any personal securities
transactions. In addition, all employees must report their
personal securities transactions within ten days of their
execution. Employees will not be permitted to effect
transactions in a security: If there are pending client orders in
the security; the security has been purchased or sold by a client
within seven calendar days; the security is being considered for
purchase for a client; a change has occurred in T. Rowe Price's
rating of the security within five days; or the security is
subject to internal trading restrictions. Any material violation
of the Code of Ethics is reported to the Board of the Fund. The
Board also reviews the administration of the Code of Ethics on an
annual basis.
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
PAGE 110
Decisions with respect to the purchase and sale of portfolio
securities on behalf of the Fund are made by T. Rowe Price. T.
Rowe Price is also responsible for implementing these decisions,
including the negotiation of commissions and the allocation of
portfolio brokerage and principal business.
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities, it
is T. Rowe Price's policy to obtain quality execution at the most
favorable prices through responsible brokers and dealers and, in
the case of agency transactions, at competitive commission rates.
However, under certain conditions, the Fund may pay higher
brokerage commissions in return for brokerage and research
services. As a general practice, over-the-counter orders are
executed with market-makers. In selecting among market-makers,
T. Rowe Price generally seeks to select those it believes to be
actively and effectively trading the security being purchased or
sold. In selecting broker-dealers to execute the Fund's
portfolio transactions, consideration is given to such factors as
the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity,
financial condition, general execution and operational
capabilities of competing brokers and dealers, and brokerage and
research services provided by them. It is not the policy of T.
Rowe Price to seek the lowest available commission rate where it
is believed that a broker or dealer charging a higher commission
rate would offer greater reliability or provide better price or
execution.
Fixed Income Securities
Fixed income securities are generally purchased from the
issuer or a primary market-maker acting as principal for the
securities on a net basis, with no brokerage commission being
paid by the client although the price usually includes an
undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the
bid and asked prices. Securities may also be purchased from
underwriters at prices which include underwriting fees.
With respect to equity and fixed income securities, T. Rowe
Price may effect principal transactions on behalf of the Fund
with a broker or dealer who furnishes brokerage and/or research
services, designate any such broker or dealer to receive selling
concessions, discounts or other allowances, or otherwise deal
with any such broker or dealer in connection with the acquisition
of securities in underwritings. T. Rowe Price may receive
PAGE 111
research services in connection with brokerage transactions,
including designations in fixed price offerings.
How Evaluations are Made of the Overall Reasonableness of
Brokerage Commissions Paid
On a continuing basis, T. Rowe Price seeks to determine what
levels of commission rates are reasonable in the marketplace for
transactions executed on behalf of the Fund. In evaluating the
reasonableness of commission rates, T. Rowe Price considers: (a)
historical commission rates, both before and since rates have
been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c)
rates quoted by brokers and dealers; (d) the size of a particular
transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular
transaction in terms of both execution and settlement; (f) the
level and type of business done with a particular firm over a
period of time; and (g) the extent to which the broker or dealer
has capital at risk in the transaction.
Description of Research Services Received from Brokers and
Dealers
T. Rowe Price receives a wide range of research services from
brokers and dealers. These services include information on the
economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio
securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance
analysis and analysis of corporate responsibility issues. These
services provide both domestic and international perspective.
Research services are received primarily in the form of written
reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such
services may be provided in the form of meetings arranged with
corporate and industry spokespersons, economists, academicians
and government representatives. In some cases, research services
are generated by third parties but are provided to T. Rowe Price
by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays
cash for certain research services received from external
PAGE 112
sources. T. Rowe Price also allocates brokerage for research
services which are available for cash. While receipt of research
services from brokerage firms has not reduced T. Rowe Price's
normal research activities, the expenses of T. Rowe Price could
be materially increased if it attempted to generate such
additional information through its own staff. To the extent that
research services of value are provided by brokers or dealers, T.
Rowe Price may be relieved of expenses which it might otherwise
bear.
T. Rowe Price has a policy of not allocating brokerage
business in return for products or services other than brokerage
or research services. In accordance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
Price may from time to time receive services and products which
serve both research and non-research functions. In such event,
T. Rowe Price makes a good faith determination of the anticipated
research and non-research use of the product or service and
allocates brokerage only with respect to the research component.
Commissions to Brokers who Furnish Research Services
Certain brokers and dealers who provide quality brokerage and
execution services also furnish research services to T. Rowe
Price. With regard to the payment of brokerage commissions, T.
Rowe Price has adopted a brokerage allocation policy embodying
the concepts of Section 28(e) of the Securities Exchange Act of
1934, which permits an investment adviser to cause an account to
pay commission rates in excess of those another broker or dealer
would have charged for effecting the same transaction, if the
adviser determines in good faith that the commission paid is
reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of
either the particular transaction involved or the overall
responsibilities of the adviser with respect to the accounts over
which it exercises investment discretion. Accordingly, while T.
Rowe Price cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect
the value of their research services, T. Rowe Price would expect
to assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular
broker. T. Rowe Price may receive research, as defined in
Section 28(e), in connection with selling concessions and
designations in fixed price offerings in which the Funds
participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific
amount of business to any broker or dealer over any specific time
PAGE 113
period. Historically, the majority of brokerage placement has
been determined by the needs of a specific transaction such as
market-making, availability of a buyer or seller of a particular
security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for
that portion of its discretionary client brokerage business where
special needs do not exist, or where the business may be
allocated among several brokers or dealers which are able to meet
the needs of the transaction.
Each year, T. Rowe Price assesses the contribution of the
brokerage and research services provided by brokers or dealers,
and attempts to allocate a portion of its brokerage business in
response to these assessments. Research analysts, counselors,
various investment committees, and the Trading Department each
seek to evaluate the brokerage and research services they receive
from brokers or dealers and make judgments as to the level of
business which would recognize such services. In addition,
brokers or dealers sometimes suggest a level of business they
would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any
firm may be less than the suggested allocations but can, and
often does, exceed the suggestions, because the total business is
allocated on the basis of all the considerations described above.
In no case is a broker or dealer excluded from receiving business
from T. Rowe Price because it has not been identified as
providing research services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently
applied to all its fully discretionary accounts, which represent
a substantial majority of all assets under management. Research
services furnished by brokers or dealers through which T. Rowe
Price effects securities transactions may be used in servicing
all accounts (including non-Fund accounts) managed by T. Rowe
Price. Conversely, research services received from brokers or
dealers which execute transactions for the Fund are not
necessarily used by T. Rowe Price exclusively in connection with
the management of the Fund.
From time to time, orders for clients may be placed through a
computerized transaction network.
The Fund does not allocate business to any broker-dealer on
the basis of its sales of the Fund's shares. However, this does
not mean that broker-dealers who purchase Fund shares for their
clients will not receive business from the Fund.
PAGE 114
Some of T. Rowe Price's other clients have investment
objectives and programs similar to those of the Fund. T. Rowe
Price may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
of those securities. It is T. Rowe Price's policy not to favor
one client over another in making recommendations or in placing
orders. T. Rowe Price frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. T. Rowe
Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if,
as a result of such purchases, 10% or more of the outstanding
common stock of such company would be held by its clients in the
aggregate.
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
PAGE 115
indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary,
owns 25% of the common stock of Rowe Price-Fleming International,
Inc. ("RPFI"), an investment adviser registered under the
Investment Advisers Act of 1940. Fifty percent of the common
stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by
Jardine Fleming Holdings Limited, a subsidiary of JFG. JFG is
50% owned by Robert Fleming Holdings and 50% owned by Jardine
Matheson Holdings Limited. Orders for the Fund's portfolio
transactions placed with affiliates of Robert Fleming Holdings
and JFG will result in commissions being received by such
affiliates.
The Board of Directors/Trustees of the Fund has authorized T.
Rowe Price to utilize certain affiliates of Robert Fleming and
JFG in the capacity of broker in connection with the execution of
the Fund's portfolio transactions. 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 Holding and JFG also may be used.
Although it does not believe that the Fund's use of these brokers
would be subject to Section 17(e) of the Investment Company Act
of 1940, the Board of Directors/Trustees of the Fund has agreed
that the procedures set forth in Rule 17e-1 under that Act will
be followed when using such brokers.
Other
For the years 1993, 1992, and 1991, the total brokerage
commissions paid by each Fund, including the discounts received
by securities dealers in connection with underwritings, and the
percentage of these commissions paid to firms which provided
research, statistical, or other services to T. Rowe Price in
connection with the management of each Fund, or, in some cases,
to each Fund, was as shown below.
1993 1992 1991
Fund Commissions % Commissions % Commissions %
Balanced $ 91,678 46.1%$ 162,000 46% $ 122,000 65%
Blue Chip
Growth 177,317 10% * * * *
Capital
Apprec-
iation 1,141,732 45.28% 439,000 55% 478,000 59%
Dividend
PAGE 116
Growth 282,409 22% * * * *
Equity
Income 4,660,406 42.12% 3,419,000 37% 3,087,000 36%
Growth &
Income 2,814,544 26.9% 2,218,000 24% 2,051,000 31%
Growth
Stock 3,983,572 40.4% 3,392,000 41% 1,753,000 65%
Equity
Index 20,978 8.6% 39,000 2.8% 10,000 *
Mid-Cap
Growth 441,166 18.9% 119,000 39% * *
New America
Growth 2,345,540 17.6% 1,349,00 20% 1,435,000 24%
New Era 1,758,270 28.03% 299,000 95% 451,000 63%
New
Horizons 7,336,582 8.2% 4,810,000 13% 4,239,000 14%
OTC 776,333 6.68% 120,000 35.83% 51,000 None
Science &
Tech-
nology 2,186,853 23.97% 861,000 19% 909,000 16%
Small-Cap
Value 995,993 11.4% 661,000 26.2% 117,00012.8%
* Prior to commencement of operations.
On December 31, 1993, the Balanced Fund held 38,200 shares of
the common stock of J.P. Morgan with a value of $2,650,000. In
1993, J.P. Morgan was among the Fund's regular brokers or dealers
as defined in Rule 10b-1 under the Investment Company Act of
1940.
On December 31, 1993, the Capital Appreciation Fund held
commercial paper of the following regular brokers or dealers of
the Fund Bear Stearns, BT Securities, Goldman Sachs Group,
Merrill Lynch, and Morgan Stanley Group, respectively, with a
value of $5,000,000, $5,834,000, $5,000,000, $5,000,000, and
$5,012,000, respectively. In 1993, Bear Stearns, BT Securities,
Goldman Sachs Group, Merrill Lynch, and Morgan Stanley Group were
among the Fund's regular brokers or dealers as defined in Rule
10b-1 under the Investment Company Act of 1940.
On December 31, 1993, the Equity Income Fund held 250,000
shares of the common stock of J.P. Morgan with a value of
$17,344,000. In 1993, J.P. Morgan was among the Fund's regular
brokers or dealers as defined in Rule 10b-1 under the Investment
Company Act of 1940.
On December 31, 1993, the Growth Stock Fund held 150,000
shares of the common stock of J.P. Morgan with a value of
PAGE 117
$10,406,000. In 1993, J.P. Morgan was among the Fund's regular
brokers or dealers as defined in Rule 10b-1 under the Investment
Company Act of 1940.
On December 31, 1993, the New Era Fund held commercial paper
of the following regular brokers or dealers of the Fund BT
Securities, Citicorp, Goldman Sachs Group, Merrill Lynch, and
Morgan Stanley Group, respectively, with a value of $639,000,
$4,997,000, $5,000,000, $5,000,000, and $5,000,000, respectively.
In 1993, Bear Stearns, BT Securities, Goldman Sachs Group,
Merrill Lynch, and Morgan Stanley Group were among the Fund's
regular brokers or dealers as defined in Rule 10b-1 under the
Investment Company Act of 1940.
On December 31, 1993, the Science & Technology Fund held
commercial paper of the following regular brokers or dealers of
the Fund Bankers Trust Company with a value of $5,598,000. In
1993, Bankers Trust Company was among the Fund's regular brokers
or dealers as defined in Rule 10b-1 under the Investment Company
Act of 1940.
The portfolio turnover rate for each Fund for the years ended
1993, 1992, and 1991, was as follows:
Fund 1993 1992 1991
Balanced 8.7% 207.7% 239.9%
Blue Chip Growth 89.0% * *
Capital Appreciation 39.4% 30.3% 50.7%
Dividend Growth 51.2% * *
Equity Income 31.2% 30.0% 33.5%
Growth & Income 22.4% 29.9% 47.9%
Growth Stock 35.3% 27.4% 31.8%
Equity Index 0.8% 0.1% 5.8%
Mid-Cap Growth 62.4% 51.9% *
New America Growth 43.7% 26.4% 42.3%
New Era 24.7% 16.9% 9.0%
New Horizons 49.4% 49.6% 32.5%
OTC 40.8% 30.7% 31.2%
Science & Technology 163.4% 144.3% 148.2%
Small-Cap Value 11.8% 12.1% 30.5%
* Prior to commencement of operations.
All Funds
PRICING OF SECURITIES
Equity securities listed or regularly traded on a securities
exchange (including NASDAQ for all Funds except Growth Stock, New
PAGE 118
Horizons, New Era, Growth & Income and OTC) are valued at the
last quoted sales price on the day the valuations are made. For
the Growth Stock, New Horizons, New Era and Growth & Income
Funds, securities regularly traded in the over-the-counter market
are valued at the latest bid price. For the OTC Fund, such
securities are valued at the mean of the latest bid and asked
prices. 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 (for all Funds other than OTC) 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/Trustees, or by persons delegated by the Board, best
to reflect fair value. For the OTC Fund, listed securities not
traded on a particular day are valued at the mean of the latest
bid and asked prices.
Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in these securities
or by an independent pricing service. Short-term debt securities
are valued at their cost 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/Trustees.
All Funds
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is
equal to the Fund's net asset value per share or share price.
The Fund determines its net asset value per share by subtracting
the Fund's liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
share of the Fund is normally calculated as of the close of
PAGE 119
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.
DIVIDENDS AND DISTRIBUTIONS
Unless you elect otherwise, the Fund's annual dividend and
capital gain distribution, if any, and final quarterly dividend
(Balanced, Dividend Growth, Equity Income, Equity Index, Growth &
Income and Value Funds) will be reinvested on the reinvestment
date using the NAV per share of that date. The reinvestment date
normally precedes the payment date by about 10 days although the
exact timing is subject to change.
TAX STATUS
The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
A portion of the dividends paid by the Fund may be eligible
for the dividends-received deduction for corporate shareholders.
For tax purposes, it does not make any difference whether
dividends and capital gain distributions are paid in cash or in
additional shares. The Fund must declare dividends 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.
PAGE 120
At the time of your purchase, the Fund's net asset value may
reflect undistributed capital gains or net unrealized
appreciation of securities held by the Fund. A subsequent
distribution to you of such amounts, although constituting a
return of your investment, would be taxable. For federal income
tax purposes, the Fund is permitted to carry forward its net
realized capital losses, if any, for eight years and realize net
capital gains up to the amount of such losses without being
required to pay taxes on, or distribute such gains. On March 31,
1994, the books of each Fund indicated that each Fund's aggregate
net assets included undistributed net income, net realized
capital gains or losses, and unrealized appreciation or
depreciation which are listed below.
Net Realized
Undistributed Capital Gain Unrealized
Fund Net Income (Losses) Appreciation
Balanced $ 168,831 $ 2,802,039 $ 17,856,325
Blue Chip Growth 51,458 311,602 75,095
Capital Appreciation 4,307,655 9,614,383 34,679,989
Dividend Growth 10,975 968,483 3,500,445
Equity Income 132,075 36,563,108 153,387,691
Growth & Income 565,481 22,384,390 111,591,142
Growth Stock 5,622,452 77,136,174 504,675,454
Equity Index (20,432) (59,655) 0,653,704
Mid-Cap Growth (6,712) 287,896 6,617,753
New America Growth (687,076) 10,628,216 133,099,050
New Era 4,107,074 3,625,090 180,184,982
New Horizons (2,305,793) 27,512,703 447,645,857
OTC 33,240 8,428,739 39,383,793
Science & Technology (1,119,465) (906,871) 60,918,139
Small-Cap Value 1,625,923 10,031,400 78,296,913
If, in any taxable year, the Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income, if any, without deduction for dividends or other
distributions to shareholders; and (ii) the Fund's distributions
to the extent made out of the Fund's current or accumulated
earnings and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been
considered capital gain dividends).
Taxation of Foreign Shareholders
The Code provides that dividends from net income will be
subject to U.S. tax. For shareholders who are not engaged in a
business in the U.S., this tax would be imposed at the rate of
PAGE 121
30% upon the gross amount of the dividends in the absence of a
Tax Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized
by the Fund are not subject to tax unless the foreign shareholder
is a nonresident alien individual who was physically present in
the U.S. during the tax year for more than 182 days.
All Funds Except Equity Index Fund
To the extent the Fund invests in foreign securities, the
following would apply:
Passive Foreign Investment Companies
The Fund may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies. Capital gains on the sale of such holdings will be
deemed to be ordinary income regardless of how long the Fund
holds its investment. In addition to bearing their proportionate
share of the funds expenses (management fees and operating
expenses) shareholders will also indirectly bear similar expenses
of such funds. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and
capital gains earned from these investments, regardless of
whether such income and gains were distributed to shareholders.
In accordance with tax regulations, the Fund intends to
treat these securities as sold on the last day of the Fund's
fiscal year and recognize any gains for tax purposes at that
time; losses will not be recognized. Such gains will be
considered ordinary income which the Fund will be required to
distribute even though it has not sold the security and received
cash to pay such distributions.
Foreign Currency Gains and Losses
Foreign currency gains and losses, including the portion of
gain or loss on the sale of debt securities attributable to
foreign exchange rate fluctuations, are taxable as ordinary
income. If the net effect of these transactions is a gain, the
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.
Balanced Fund
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure
PAGE 122
calculated in the following manner:
An income factor is calculated for each security in the
portfolio, which in the case of bonds is based upon the
security's market value at the beginning of the period and yield-
to-maturity as determined in conformity with regulations of the
Securities and Exchange Commission, and in the case of stocks is
based upon the stated dividend rate. The income factors are then
totalled for all securities in the portfolio. Next, expenses of
the Fund for the period net of expected reimbursements are
deducted from the income to arrive at net income, which is then
converted to a per-share amount by dividing net income by the
average number of shares outstanding during the period. The net
income per share is divided by the net asset value on the last
day of the period to produce a monthly yield which is then
annualized. Quoted yield factors are for comparison purposes
only, and are not intended to indicate future performance or
forecast the dividend per share of the Fund.
All Funds
INVESTMENT PERFORMANCE
Total Return Performance
The Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in the Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in the Fund and the ending value of that
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of the Fund.
Each average annual compound rate of return is derived from the
cumulative performance of the Fund over the time period
specified. The annual compound rate of return for the Fund over
any other period of time will vary from the average.
Cumulative Performance Percentage Change
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
12/31/93 12/31/93 12/31/93 12/31/93
S&P 500 10.07% 97.34% 301.77%
Dow Jones
PAGE 123
Industrial Avg. 16.99 105.25 333.86
CPI 2.75 21.00 43.93
Equity Index Fund 9.42 52.02%
(3/30/90)
Lehman Brothers Aggregate Index 50.18
Salomon Brothers Broad Investment
Grade Index 50.76
Dividend Growth Fund 19.41 19.41
(12/30/92)
Blue Chip Growth Fund
14.32
(6/30/93)
Growth Stock Fund 15.56 96.73 251.42 10,472.21
(4/11/50)
New America Growth Fund 17.44 153.87 269.31
(9/30/85)
Lipper Growth
Fund Index 14.19 102.77 248.11 219.09
Equity Income Fund 14.84 74.08 220.77
(10/31/85)
Lipper Equity Income
Fund Average 13.38 78.00 160.86
Growth & Income Fund 12.96 81.64 186.93 292.39
(12/21/82)
Lipper Growth and Income
Fund Index 14.86 87.67 252.07 334.61
Capital Appreciation Fund 15.66 84.41 156.43
(6/30/86)
Lipper Capital Appreciation
Funds Average 15.16 107.86 120.81
New Era Fund 15.33 53.18 194.60 1,040.50
(1/20/69)
Lipper Natural Resources
Funds Average 22.94 55.30 119.33 N/A
Science & Technology Fund 24.25 228.01 199.48
(9/30/87)
Lipper Science and
Technology Index 23.55 130.75 88.59
Russell 2000 18.90 92.39 181.47 70.46
PAGE 124
Balanced Fund 13.35% 92.62% 253.40% 20,369.52%
(12/31/39)
Lipper Balanced
Fund Index 11.70 82.55 219.63 N/A
Lehman Brothers
Aggregate Index 9.75 70.64 206.56 N/A
Salomon Brothers Broad
Investment Grade Index 9.92 71.22 207.91 N/A
New Horizons Fund 22.01 134.34 178.05 3,587.41
(6/3/60)
OTC Fund 18.40 77.10 172.23% 14,347.80
(6/1/56)
Small-Cap Value Fund 23.30 109.51 101.51
(6/30/88)
Russell 2000 18.90 92.39 181.47 89.31
S&P 400 Mid-Cap 13.96 146.18 364.69 149.54
NASDAQ Composite 14.75 103.68 178.82 N/A
Lipper Small Company
Growth Funds Average 16.93 121.43 228.73 N/A
Mid-Cap Growth Fund 26.24 57.21
(6/30/92)
Russell 2000 18.90 92.39 181.47 40.56
S&P 400 Mid-Cap Index 13.96 146.18 364.69 32.29
NASDAQ 14.75 37.83
Lipper Growth
Fund Index 14.19 26.77
Lipper Growth Fund
Category Average 10.61 24.43
Average Annual Compound Rates of Return
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
12/31/93 12/31/93 12/31/93 12/31/93
S&P 500 10.07% 14.56% 14.92%
Dow Jones
Industrial Avg. 16.99 15.47 15.81
CPI 2.75 3.89 3.71
Equity Index Fund 9.42 11.81%
(3/30/90)
PAGE 125
Lehman Brothers Aggregate Index 11.44
Salomon Brothers Broad Investment
Grade Index 11.56
Dividend Growth Fund 19.41 19.41
(12/30/92)
Blue Chip Growth Fund 14.32
(6/30/93)
Growth Stock Fund 15.56 14.49 13.39 11.25
(4/11/50)
New America Growth Fund 17.44 20.48 17.16
(9/30/85)
Lipper Growth
Fund Index 14.19 15.19 13.28 N/A
Equity Income Fund 14.84 11.72 15.34
(10/31/85)
Lipper Equity Income
Fund Average 13.38 12.14 12.17
Growth & Income Fund 12.96 12.68 11.12 13.20
(12/21/82)
Lipper Growth and Income
Fund Index 14.86 13.42 13.41 14.29
Capital Appreciation Fund 15.66 13.02 13.37
(6/30/86)
Lipper Capital Appreciation
Funds Average 15.16 15.24 10.59
New Era Fund 15.33 8.90 11.41 10.25
(1/20/69)
Lipper Natural Resources
Funds Average 22.94 8.98 7.72 N/A
Science & Technology Fund 24.25 26.82 19.18
(9/30/87)
Lipper Science and
Technology Index 23.55 18.20 10.68
Russell 2000 13.98 10.90 8.91
Balanced Fund 13.35 14.01 13.45 10.36
(12/31/39)
Lipper Balanced
Fund Index 11.70 12.79 12.32 N/A
Lehman Brothers
Aggregate Index 9.75 11.28 11.85 N/A
PAGE 126
Salomon Brothers Broad
Investment Grade Index 9.92 11.36 11.90 N/A
New Horizons Fund 22.01 18.57 10.77 11.34
(6/3/60)
OTC Fund 18.40 12.11 10.53 14.15
(6/1/56)
Small-Cap Value Fund 23.30 15.94 13.58
(6/30/88)
Russell 2000 13.98 10.90 12.30
S&P 400 Mid-Cap 19.74 16.60 18.08
NASDAQ Composite 14.75 15.29 10.80 N/A
Lipper Small Company
Growth Funds Average 16.93 16.76 12.16 N/A
Mid-Cap Growth Fund 26.24 35.06
(6/30/92)
Russell 2000 13.98 10.90 25.38
S&P 400 Mid-Cap Index 19.74 16.60 20.43
NASDAQ 14.75 23.78
Lipper Growth
Fund Index 14.19 17.13
Lipper Growth Fund
Category Average 10.61 15.57
Outside Sources of Information
From time to time, in reports and promotions literature: (1)
the Fund's total return performance or P/E ratio may be compared
to any one or 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 ranks
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
PAGE 127
statistics such as GNP, and net import and export figures derived
from governmental publications, e.g., The Survey of 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) various financial,
economic and market statistics developed by brokers, dealers and
other persons may be used to illustrate aspects of the Fund's
performance; (5) 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 (6) 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. The Balanced Fund may also
compare its performance or yield to a variety of fixed income
investments (e.g., repos, CDs, Treasury bills) and other measures
of performance set forth in financial publications maintained by
persons such as the Donoghue Organization, Merrill Lynch, Pierce
Fenner & Smith, Inc., Salomon Brothers, Inc. etc. In connection
with (5) above, information derived from the following chart may
be used:
In addition to the above, from time to time, in reports and
promotional literature, one or more of the T. Rowe Price funds,
including this Fund, may compare its performance to Overnight
Government Repurchase Agreements, Treasury bills, notes, and
bonds, certificates of deposit, and six-month money market
certificates. Performance may also be compared to (1) indices of
broad groups of managed or unmanaged securities considered to be
representative of or similar to Fund portfolio holdings; (2)
other mutual funds; or (3) other measures of performance set
forth in publications such as:
Advertising News Service, Inc., "Bank Rate Monitor+ - The
Weekly Financial Rate Reporter" is a weekly publication which
lists the yields on various money market instruments offered to
the public by 100 leading banks and thrift institutions in the
U.S., including loan rates offered by these banks. Bank
certificates of deposit differ from mutual funds in several
ways: the interest rate established by the sponsoring bank is
fixed for the term of a CD; there are penalties for early
withdrawal from CDs; and the principal on a CD is insured.
PAGE 128
Donoghue Organization, Inc., "Donoghue's Money Fund Report" is
a weekly publication which tracks net assets, yield, maturity
and portfolio holdings on approximately 380 money market mutual
funds offered in the U.S. These funds are broken down into
various categories such as U.S. Treasury, Domestic Prime and
Euros, Domestic Prime and Euros and Yankees, and Aggressive.
First Boston High Yield Index. It shows statistics on the
Composite Index and analytical data on new issues in the
marketplace and low-grade issuers.
Lipper Analytical Services, Inc., "Lipper-Fixed Income Fund
Performance Analysis" is a monthly publication which tracks net
assets, total return, principal return and yield on
approximately 950 fixed income mutual funds offered in the
United States.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices" is a monthly publication which lists principal, coupon
and total return on over 100 different taxable bond indices
tracked by Merrill Lynch, together with the par weighted
characteristics of each Index. The index used as a benchmark
for the High Yield Fund is the High Yield Index. The two
indices used as benchmarks for the Short-Term Bond Fund are the
91-Day Treasury Bill Index and the 1-2.99 Year Treasury Note
Index.
Morningstar, Inc., is a widely used independent research firm
which rates mutual funds by overall performance, investment
objectives and assets.
Salomon Brothers Inc., "Analytical Record of Yields and Yield
Spreads" is a publication which tracks historical yields and
yield spreads on short-term market rates, public obligations of
the U.S. Treasury and agencies of the U.S. government, public
corporate debt obligations, municipal debt obligations and
preferred stocks.
Salomon Brothers Inc., "Bond Market Round-up" is a weekly
publication which tracks the yields and yield spreads on a
large, but select, group of money market instruments, public
corporate debt obligations, and public obligations of the U.S.
Treasury and agencies of the U.S. Government.
Salomon Brothers Inc., "High Yield Composite Index" is an index
which provides performance and statistics for the high yield
market place.
Salomon Brothers Inc., "Market Performance" is a monthly
publication which tracks principal return, total return and
PAGE 129
yield on the Salomon Brothers Broad investment - Grade Bond
Index and the components of the Index.
Shearson Lehman Brothers, Inc., "The Bond Market Report" is a
monthly publication which tracks principal, coupon and total
return on the Shearson Lehman Govt./Corp. Index and Shearson
Lehman Aggregate Bond Index, as well as all the components of
these Indices.
Telerate Systems, Inc., is a market data distribution network
which tracks a broad range of financial markets including, the
daily rates on money market instruments, public corporate debt
obligations and public obligations of the U.S. Treasury and
agencies of the U.S. Government.
Wall Street Journal, is a national daily financial news
publication which lists the yields and current market values on
money market instruments, public corporate debt obligations,
public obligations of the U.S. Treasury and agencies of the
U.S. government as well as common stocks, preferred
stocks, convertible preferred stocks, options and commodities;
in addition to indices prepared by the research departments of
such financial organizations as Shearson Lehman/American
Express Inc., and Merrill Lynch, Pierce, Fenner and Smith,
Inc., including information provided by the Federal Reserve
Board.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, etc. will also 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
PAGE 130
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) includes a detailed workbook to determine how much money
you may need for retirement and suggests how you might invest to
achieve your objectives; 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 and the Personal
Strategy Planner simplifies investment decision making by helping
investors define personal financial goals, established length of
time the investor intends to invest, determine risk "comfort
zone" and select a diversified investment mix. 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.
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 12/31/93
50 years 20 years 10 years 5 years
Small-Company Stocks 15.3% 18.8% 10.0% 13.3%
PAGE 131
Large-Company Stocks 12.3 12.8 14.9 14.5
Foreign Stocks N/A 14.4 17.9 2.3
Long-Term Corporate Bonds 5.6 10.2 14.0 13.0
Intermediate-Term U.S.
Gov't. Bonds 5.7 9.8 11.4 11.3
Treasury Bills 4.6 7.5 6.4 5.6
U.S. Inflation 4.3 5.9 3.7 3.9
Sources: Ibbotson Associates, Morgan Stanley. 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, or the annualized return
of, 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 on the next page.
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/93 $10,000
Investment
After Period
________________ ______________________ ____________
Nominal Real Best Worst
PortfolioGrowth Income Safety Return Return** Year Year
I. Low
Risk 40% 40% 20% 11.3% 5.4% 24.9%-9.3%$ 79,775
II. Moderate
Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6%$ 90,248
III. High
Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9%$100,031
PAGE 132
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates, and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1993 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East
[EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index
from 1976-93 and Lehman Brothers Government/Corporate Bond
Index from 1974-75), and 30-day Treasury bills from January
1974 through December 1993. Past performance does not
guarantee future results. Figures include changes in
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.9% for the 20-year period ended
12/31/93.
Insights
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.
Other Publications
From time to time, in newsletters and other publications
issued by T. Rowe Price Investment Services, Inc., reference may
be made to economic, financial and political developments in the
U.S. and abroad and their effect on securities prices. Such
discussions may take the form of commentary on these developments
by T. Rowe Price mutual fund portfolio managers and their views
and analysis on how such developments could affect investments in
mutual funds.
Dividend Growth Fund
Growing income from rising dividends
Chart 1
PAGE 133
A line graph titled "Growing income from rising dividends" which
depicts hypothetical income and yield on a original investment of
$10,000 in a stock currently yielding 3% and whose dividends grow
8% a year. The chart shows a range of yields from 0% to 15% and
income from $0 to $1,500, for five year periods from zero to 20.
The yield and income for each of the periods are approximately as
listed below.
5 Years 10 Years 15 Years 20 Years
Yield 4% 6% 9% 14%
Income $400 $600 $900 $1,400
Chart depicts hypothetical income and yield on an original
investment of $10,000 in a stock currently yielding 3% and whose
dividends grow 8% a year.
Example is for illustrative purposes only and is not indicative
of an investment in the T. Rowe Price Dividend Growth Fund.
New Horizons, OTC and Small-Cap Value Funds
PERFORMANCE OF LARGE VS. SMALL COMPANY
STOCKS FOLLOWING RECESSIONS
(Total Return For 12 Months After Recession)
Chart 2
Bar graph appears here comparing large and small company
stocks during eight post-recession periods.
Large Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
________________________________________________________________
36% 38% 13% 11% 28% 14% 26% 11%
_________________________________________________________________
Small Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
_________________________________________________________________
PAGE 134
51% 53% 18% 12% 58% 45% 44% 28%
_________________________________________________________________
Source: T. Rowe Price Associates, Inc.
Data supplied by Ibbotson Associates
The average price-earnings (p/e) ratio of the T. Rowe Price
New Horizons Fund is a valuation measure widely used by the
investment community with respect to small company stocks, and,
in the opinion of T. Rowe Price, has been a good indicator of
future small-cap stock performance. The following chart is
intended to show the history of the average (unweighted) p/e
ratio of the New Horizons Fund's portfolio companies compared
with the p/e ratio of the Standard & Poor's 500 Index. Of
course, the portfolio of the OTC and Small-Cap Value Funds will
differ from the portfolio of the New Horizons Fund. Earnings per
share are estimated by T. Rowe Price for each quarter end.
T. ROWE PRICE NEW HORIZONS FUND, INC.
P/E Ratio of Fund's Portfolio Securities
Relative To The S & P "500" P/E Ratio
(12 Months Forward) January 31, 1993
Chart 3
This is a one line chart that shows the p/e ratio of the New
Horizons Fund relative to the p/e ratio of the S&P 500 Stock
Index. The ratio between the two p/e's is depicted quarterly
from 3/61 to 12/31/93.
The horizontal axis is divided into two year periods. The
vertical axis indicates the relative p/e ratio with 0.5, 1,
1.5, 2 and 2.5 indicated by horizontal lines. The ratio at
3/61 is approximately 2, is at the lowest point in the
first quarter of 1977 at approximately 0.95, is at the
highest point near the end of 1983 at approximately 2.2,
and is at 1.4 on December 31, 1993.
Source: T. Rowe Price Associates, Inc.
No-Load Versus Load and 12b-1 Funds
Unlike the T. Rowe Price funds, many mutual funds charge
sales fees to investors or use fund assets to finance
distribution activities. These fees are in addition to the
normal advisory fees and expenses charged by all mutual funds.
There are several types of fees charged which vary in magnitude
PAGE 135
and which may often be used in combination. A sales charge (or
"load") can be charged at the time the fund is purchased
(front-end load) or at the time of redemption (back-end load).
Front-end loads are charged on the total amount invested.
Back-end loads or "redemption fees" are charged either on the
amount originally invested or on the amount redeemed. 12b-1
plans allow for the payment of marketing and sales expenses from
fund assets. These expenses are usually computed daily as a
fixed percentage of assets.
The Fund is a no-load fund which imposes no sales charges
or 12b-1 fees. No-load funds are generally sold directly to the
public without the use of commissioned sales representatives.
This means that 100% of your purchase is invested for you.
The examples in the attached table show the impact on
investment performance of the most common types of sales charges.
For each example the investor has $10,000 to invest and each fund
performs at a compound annual rate of 6% per year (net of fund
expenses, including management fees) for ten years. The "Total
After 10 Years" shows the amount the investor would receive from
the fund after ten years. Net charges are the total sales fee(s)
paid by the investor or charged to the fund's assets. Figures
for total return are net of Fund expenses including management
fees.
The table is for illustrative purposes and is not intended
to reflect the anticipated performance of the Fund.
If a $10,000 investment produced a 6% annual total return for
ten years in a mutual fund that has . . .
A Sales 1 1.00%
Charge 12b-1
No A of 2% A Plan
Sales Redemp- With a Sales Distri-
Charge tion Fee 1% Redemp- Charge bution
"No-Load" of 1% tion Fee of 8.5% Fee
_________ ________ __________ _______ _______
Original
Investment $10,000 $10,000 $10,000 $10,000 $10,000
(Sales Charge) N/C 2 N/C (200) (850) N/C
_______ _______ _______ _______ _______
Amount Credited
to Account $10,000 $10,000 $ 9,800 $ 9,150 $10,000
Compounded at 6%
For Ten Years $17,908 $17,908 $17,550 $16,386 $16,196
Less Redemption Fee N/C (179) (176) N/C N/C
PAGE 136
_______ _______ _______ _______ _______
Total After
10 Years $17,908 $17,729 $17,374 $16,386 $16,196
Net Charges $0 ($179) ($376) ($850)($1,332)
1 Figures have been rounded
2 N/C - No charge
3 Net of 12b-1 plan distribution charges
Redemptions in Kind
In the unlikely event a shareholder were to receive an in
kind redemption of portfolio securities of the Fund, brokerage
fees could be incurred by the shareholder in a subsequent sale of
such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of Fund shares for
securities or assets other than cash will be limited to (1) bona
fide reorganizations; (2) statutory mergers; or (3) other
acquisitions of portfolio securities that: (a) meet the
investment objective and policies of the Fund; (b) are acquired
for investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international exchange or market; and (d) are not illiquid.
Balanced Fund
On August 31, 1992, the T. Rowe Price Balanced Fund acquired
substantially all of the assets of the Axe-Houghton Fund B, a
series of Axe-Houghton Funds, Inc. As a result of this
acquisition, the Securities & Exchange Commission requires that
the historical performance information of the Balanced Fund be
based on the performance of Fund B. Therefore, all performance
information of the Balanced Fund prior to September 1, 1992,
reflects the performance of Fund B and investment managers other
than T. Rowe Price. Performance information after August 31,
1992, reflects the combined assets of the Balanced Fund and Fund
B.
All Funds, Except Capital Appreciation, Equity Income and New
America Growth Funds
CAPITAL STOCK
The Fund's Charter authorizes the Board of Directors to
classify and reclassify any and all shares which are then
PAGE 137
unissued, including unissued shares of capital stock into any
number of classes or series, each class or series consisting of
such number of shares and having such designations, such powers,
preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board subject to the
Investment Company Act and other applicable law. The shares of
any such additional classes or series might therefore differ from
the shares of the present class and series of capital stock and
from each other as to preferences, conversions or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the
capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease
the aggregate number of shares of stock or the number of shares
of stock of any class or series that the Fund has authorized to
issue without shareholder approval.
Except to the extent that the Fund's Board of Directors
might provide by resolution that holders of shares of a
particular class are entitled to vote as a class on specified
matters presented for a vote of the holders of all shares
entitled to vote on such matters, there would be no right of
class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Charter contains no
provision entitling the holders of the present class of capital
stock to a vote as a class on any matter. Accordingly, the
preferences, rights, and other characteristics attaching to any
class of shares, including the present class of capital stock,
might be altered or eliminated, or the class might be combined
with another class or classes, by action approved by the vote of
the holders of a majority of all the shares of all classes
entitled to be voted on the proposal, without any additional
right to vote as a class by the holders of the capital stock or
of another affected class or classes.
Shareholders are entitled to one vote for each full share
held (and fractional votes for fractional shares held) and will
vote in the election of or removal of directors (to the extent
hereinafter provided) and on other matters submitted to the vote
of shareholders. There will normally be no meetings of
shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding
office have been elected by shareholders, at which time the
directors then in office will call a shareholders' meeting for
the election of directors. Except as set forth above, the
directors shall continue to hold office and may appoint successor
directors. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in the election of
PAGE 138
directors can, if they choose to do so, elect all the directors
of the Fund, in which event the holders of the remaining shares
will be unable to elect any person as a director. As set forth
in the By-Laws of the Fund, a special meeting of shareholders of
the Fund shall be called by the Secretary of the Fund on the
written request of shareholders entitled to cast at least 10% of
all the votes of the Fund entitled to be cast at such meeting.
Shareholders requesting such a meeting must pay to the Fund the
reasonably estimated costs of preparing and mailing the notice of
the meeting. The Fund, however, will otherwise assist the
shareholders seeking to hold the special meeting in communicating
to the other shareholders of the Fund to the extent required by
Section 16(c) of the Investment Company Act of 1940.
Capital Appreciation, Equity Income and New America Growth Funds
ORGANIZATION OF THE FUND
For tax and business reasons, the Funds' were organized as
Massachusetts Business Trusts (1985 for the Equity Income and New
America Growth Funds and 1986 for the Capital Appreciation Fund),
and are registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as diversified, open-end
investment companies, commonly known as "mutual funds."
The Declaration of Trust permits the Board of Trustees to
issue an unlimited number of full and fractional shares of a
single class. The Declaration of Trust also provides that the
Board of Trustees may issue additional series or classes of
shares. Each share represents an equal proportionate beneficial
interest in the Fund. In the event of the liquidation of the
Fund, each share is entitled to a pro rata share of the net
assets of the Fund.
Shareholders are entitled to one vote for each full share
held (and fractional votes for fractional shares held) and will
vote in the election of or removal of trustees (to the extent
hereinafter provided) and on other matters submitted to the vote
of shareholders. There will normally be no meetings of
shareholders for the purpose of electing trustees unless and
until such time as less than a majority of the trustees holding
office have been elected by shareholders, at which time the
trustees then in office will call a shareholders' meeting for the
election of trustees. Pursuant to Section 16(c) of the
Investment Company Act of 1940, holders of record of not less
than two-thirds of the outstanding shares of the Fund may remove
a trustee by a vote cast in person or by proxy at a meeting
called for that purpose. Except as set forth above, the trustees
shall continue to hold office and may appoint successor trustees.
Voting rights are not cumulative, so that the holders of more
PAGE 139
than 50% of the shares voting in the election of trustees can, if
they choose to do so, elect all the trustees of the Trust, in
which event the holders of the remaining shares will be unable to
elect any person as a trustee. No amendments may be made to the
Declaration of Trust without the affirmative vote of a majority
of the outstanding shares of the Trust.
Shares have no preemptive or conversion rights; the right of
redemption and the privilege of exchange are described in the
prospectus. Shares are fully paid and nonassessable, except as
set forth below. The Trust may be terminated (i) upon the sale
of its assets to another diversified, open-end management
investment company, if approved by the vote of the holders of
two-thirds of the outstanding shares of the Trust, or (ii) upon
liquidation and distribution of the assets of the Trust, if
approved by the vote of the holders of a majority of the
outstanding shares of the Trust. If not so terminated, the Trust
will continue indefinitely.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Fund or a Trustee. The Declaration of Trust provides for
indemnification from Fund property for all losses and expenses of
any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations,
a possibility which T. Rowe Price believes is remote. Upon
payment of any liability incurred by the Fund, the shareholders
of the Fund paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way so as
to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of such Fund.
FEDERAL 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
PAGE 140
Shereff, Friedman, Hoffman, & Goodman, whose address is 919
Third Avenue, New York, New York 10022, is legal counsel to the
Fund.
INDEPENDENT ACCOUNTANTS
Blue Chip Growth, Dividend Growth, Equity Income, Growth &
Income, Mid-Cap Growth, New America Growth, and New Era Funds
Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore,
Maryland 21202, are independent accountants to the Fund.
Balanced, Capital Appreciation, Growth Stock, Equity Index Fund,
New Horizons, OTC, Science & Technology, and Small-Cap Value, and
Value Funds
Coopers & Lybrand, 217 East Redwood Street, Baltimore,
Maryland 21202, are independent accountants to the Fund.
Capital Opportunity Fund
_____________________________________, Baltimore, Maryland
21202, are independent accountants to the Fund.
All Funds, except Blue Chip Growth and Dividend Growth Funds
The financial statements of the Fund for the year ended
December 31, 1993, and the report of independent accountants are
included in the Fund's Annual Report for the year ended December
31, 1993. 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 year ended December 31, 1993 are incorporated into
this Statement of Additional Information by reference:
CAPITAL EQUITY EQUITY GROWTH &
APPRECIATION INCOME INDEX INCOME
_______________________ __________________
Report of Independent
Accountants 16 15 15 15
Statement of Net Assets,
December 31, 1993 7-10 5-9 6-11 6-9
Statement of Operations, year
ended December 31, 1993 11 10 11 10
Statement of Changes in Net
Assets, years ended December
31, 1993 and December 31, 1992 12 11 1211
PAGE 141
Notes to Financial Statements,
December 31, 1993 13-14 12-13 12-14 12-13
Financial Highlights 15 14 14 14
NEW
GROWTH AMERICA NEW
STOCK GROWTH ERA OTC
__________ _____________________ ________
Report of Independent
Accountants 15 13 14 11
Statement of Net Assets,
December 31, 1993 6-10 7-8 7-8 4-6
Statement of Operations, year
ended December 31, 1993 10 9 9 7
Statement of Changes in Net
Assets, years ended December
31, 1993 and December 31, 1992 11 10 108
Notes to Financial Statements,
December 31, 1993 11-13 10-11 11-12 8-9
Financial Highlights 14 12 13 10
SCIENCE
NEW & SMALL-CAP
HORIZONS TECHNOLOGY VALUE
________ _________ _______
Report of Independent
Accountants 18 14 15
Portfolio of Investments,
December 31, 1993 8-11 7-8 5-8
Statement of Assets and
Liabilities, December 31, 1993 12 89
Statement of Operations, year
ended December 31, 1993 13 9 10
Statement of Changes in Net
Assets, years ended December
31, 1993 and December 31, 1992 14 1011
Notes to Financial Statements,
December 31, 1993 15-16 11-12 12-13
Financial Highlights 17 13 14
BALANCED
____________
Report of Independent Accountants 18
Statement of Net Assets, December 31, 1993 6-12
PAGE 142
Statement of Operations, December 31, 1993 13
Statement of Changes in Net Assets,
year ended December 31, 1993, two-months
ended December 31, 1992 and year ended
October 31, 1992 14
Notes to Financial Statements, December 31, 1993 15-16
Financial Highlights 17
MID-CAP
GROWTH
___________
Report of Independent Accountants 11
Statement of Net Assets, December 31, 1993 5-7
Statement of Operations, December 31, 1993 7
Statement of Changes in Net Assets,
year ended December 31, 1993 and
June 30, 1992 (Commencement of Operations)
to December 31, 1992 8
Notes to Financial Statements, December 31, 1993 8-10
Financial Highlights, year ended December 31, 1993
and June 30, 1992 (Commencement of Operations)
to December 31, 1992 10
Blue Chip Growth and Dividend Growth Funds
The financial statements of the Fund for the period ended
December 31, 1993, and the report of independent accountants are
included in the Fund's Annual Report for the period ended
December 31, 1993. 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:
BLUE CHIP
GROWTH
___________
Report of Independent Accountants 11
Statement of Net Assets, December 31, 1993 5-7
Statement of Operations, June 30, 1993
(Commencement of Operations) to December 31, 1993 7
Statement of Changes in Net Assets, June 30,
1993 (Commencement of Operations) to December 31, 19938
PAGE 143
Notes to Financial Statements, December 31, 1993 8-9
Financial Highlights, June 30, 1993 (Commencement
of Operations) to December 31, 1993 10
DIVIDEND
GROWTH
____________
Report of Independent Accountants 11
Statement of Net Assets, December 31, 1993 4-6
Statement of Operations, December 30, 1992
(Commencement of Operations) to December 31, 1993 7
Statement of Changes in Net Assets, December 30,
1992 (Commencement of Operations) to December 31, 19938
Notes to Financial Statements, December 31, 1993 8-10
Financial Highlights, December 30, 1992 (Commencement
of Operations) to December 31, 1993 10
RATINGS OF CORPORATE DEBT SECURITIES
Moody's Investors Services, Inc. (Moody's)
Aaa-Bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge."
Aa-Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A-Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Baa-Bonds rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterize
bonds in this class.
B-Bonds rated B generally lack the characteristics of a
PAGE 144
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with
respect to principal or interest.
Ca-Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked short-comings.
C-Lowest-rated; extremely poor prospects of ever attaining
investment standing.
Standard & Poor's Corporation (S&P)
AAA-This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to
pay principal and interest.
AA-Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A-Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, C, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
D-In default.
Fitch Investors Service, Inc.
PAGE 145
AAA-High grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The prime feature of a "AAA" bond is the showing of earnings
several times or many times interest requirements for such
stability of applicable interest that safety is beyond reasonable
question whenever changes occur in conditions. Other features
may enter, such as a wide margin of protection through
collateral, security or direct lien on specific property.
Sinking funds or voluntary reduction of debt by call or purchase
or often factors, while guarantee or assumption by parties other
than the original debtor may influence their rating.
AA-Of safety virtually beyond question and readily salable.
Their merits are not greatly unlike those of "AAA" class but a
bond so rated may be junior though of strong lien, or the margin
of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured,
but influenced as to rating by the lesser financial power of the
enterprise and more local type of market.
PAGE 146
T. ROWE PRICE VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 26, 1994
Assets
Receivable for Fund shares sold $100,000
Deferred organizational expenses 51,613
________
Total assets 151,613
Liabilities
Amount due Manager 47,686
Accrued expenses 3,927
________
Total liabilities 51,613
________
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 10,000 shares
outstanding $100,000
_________
_________
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
T. Rowe Price Value Fund, Inc. (the "Corporation") was
organized on September 21, 1994, as a Maryland corporation and is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The
Corporation has had no operations other than those matters
related to organization and registration as an investment
company, the registration of shares for sale under the Securities
Act of 1933, and the sale of 10,000 shares of the T. Rowe Price
Value Fund at $10.00 per share on September 26, 1994 to T. Rowe
Price Associates, Inc. The Fund's receivable for fund shares
sold was funded by T. Rowe Price Associates, Inc. on September
27, 1994. The Fund has entered into an investment management
agreement with T. Rowe Price Associates, Inc. (the Manager) which
is described in the Statement of Additional Information under the
heading "Investment Management Services."
Organizational expenses of $51,613 for the fund have been
accrued at September 26, 1994, and will be amortized on a
straight-line basis over a period not to exceed sixty months.
The Manager has agreed to advance certain organizational expenses
incurred by the Fund and will be reimbursed for such expenses
PAGE 147
approximately six months after the commencement of the Fund's
operations.
The Manager has agreed that in the event any of its initial
shares are redeemed during the 60-month amortization period of
the deferred organizational expenses, proceeds from a redemption
of the shares representing the initial capital will be reduced by
a pro rata portion of any unamortized organizational expenses.
PAGE 148
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
T. Rowe Price Value Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities of the T. Rowe Price Value Fund, Inc. (the "Fund")as
of September 26, 1994. This financial statement is the
responsibility of the Funds' management. Our responsibility is
to express an opinion of this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects, the
financial position of the T. Rowe Price Value Fund, Inc. as of
September 26, 1994, in conformity with generally accepted
accounting principles.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Baltimore, Maryland
September 27, 1994
PAGE 149
APPENDIX A
Chart 1
A line graph titled "Growing income from rising dividends" which
depicts hypothetical income and yield on a original investment of
$10,000 in a stock currently yielding 3% and whose dividends grow
8% a year. The chart shows a range of yields from 0% to 15% and
income from $0 to $1,500, for five year periods from zero to 20.
The yield and income for each of the periods are approximately as
listed below.
5 Years 10 Years 15 Years 20 Years
Yield 4% 6% 9% 14%
Income $400 $600 $900 $1,400
Chart depicts hypothetical income and yield on an original
investment of $10,000 in a stock currently yielding 3% and whose
dividends grow 8% a year. Example is for illustrative purposes
only and is not indicative of an investment in the T. Rowe Price
Dividend Growth Fund.
Chart 2
Bar graph appears here comparing large and small company
stocks during eight post-recession periods.
Large Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
_________________________________________________________________
36% 38% 13% 11% 28% 14% 26% 11%
_________________________________________________________________
Small Company Stocks
Post- 5/54- 4/58- 2/61- 11/70- 3/75- 7/80- 11/82- 3/91-
Recession5/55 4/59 2/62 11/71 3/76 7/81 11/83 3/92
Periods
_________________________________________________________________
51% 53% 18% 12% 58% 45% 44% 28%
_________________________________________________________________
Source: T. Rowe Price Associates, Inc.
PAGE 150
Data supplied by Ibbotson Associates
The average price-earnings (p/e) ratio of the T. Rowe Price
New Horizons Fund is a valuation measure widely used by the
investment community with respect to small company stocks, and,
in the opinion of T. Rowe Price, has been a good indicator of
future small-cap stock performance. The following chart is
intended to show the history of the average (unweighted) p/e
ratio of the New Horizons Fund's portfolio companies compared
with the p/e ratio of the Standard & Poor's 500 Index. Of
course, the portfolio of the OTC and Small-Cap Value Funds will
differ from the portfolio of the New Horizons Fund. Earnings per
share are estimated by T. Rowe Price for each quarter end.
Chart 3
This is a one line chart that shows the p/e ratio of the New
Horizons Fund relative to the p/e ratio of the S&P 500 Stock
Index. The ratio between the two p/e's is depicted quarterly
from 3/61 to 12/31/93.
The horizontal axis is divided into two year periods. The
vertical axis indicates the relative p/e ratio with 0.5, 1,
1.5, 2 and 2.5 indicated by horizontal lines. The ratio at
3/61 is approximately 2, is at the lowest point in the
first quarter of 1977 at approximately 0.95, is at the
highest point near the end of 1983 at approximately 2.2,
and is at 1.4 on December 31, 1993.
Source: T. Rowe Price Associates, Inc.
PAGE 151
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements. A Statement of Assets and Liabilities
of Registrant as of________, 1994, appears in the Statement
of Additional Information. Such Statement has been examined
by _____________________, independent accountants, and has
been included in the Statement of Additional Information in
reliance on the report of such accountants appearing in the
Statement of Additional Information given upon their
authority as experts in auditing and account.+ All other
financial statements, schedules and historical information
have been omitted as the subject matter is not required, not
present, or not present in amounts sufficient to require
submission.
(b) Exhibits.
(1) Articles of Incorporation of Registrant, dated
October 7, 1994
(2) By-Laws of Registrant
(3) Inapplicable
(4) See Article SIXTH, Capital Stock, subparagraphs
(b)-(g) of the Articles of Incorporation and Article
II, Shareholders, in its entirety, and Article VIII,
Capital Stock, in its entirety, of the Bylaws
electronically filed as exhibits to this
Registration Statement.
(5) Investment Management Agreement between Registrant,
and T. Rowe Price Associates, Inc. (to be filed by
amendment)
(6) Underwriting Agreement between Registrant, and T.
Rowe Price Investment Services, Inc. (to be filed by
amendment)
(7) Inapplicable
+Omitted from Registration Statement as initially filed
since Registrant has no assets or liabilities and has never
had any assets or liabilities. Registrant proposes to raise
its minimum capital through an initial private offering of
shares at $______ per share.
PAGE 152
(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, April 22, 1993 September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994 and July 27,
1994 (to be filed by amendment)
(8)(b) Global Custody Agreement between The Chase Manhattan
Bank, N.A., and T. Rowe Price Funds, dated January
3, 1994, (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, 1994, as amended March 1, 1994,
April 21, 1994 and July 27, 1994 (to be filed by
amendment)
(9)(b) Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services
dated January 1, 1994, as amended March 1, 1994,
April 21, 1994 and July 27, 1994 (to be filed by
amendment)
(9)(c) Agreement between T. Rowe Price Retirement Plan
Services, Inc. and the Taxable funds, dated January
1, 1994, as amended July 27, 1994
(10) Opinion of Counsel, dated October__, 1994
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Financial Data Schedule as of October 13, 1994
PAGE 153
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None.
Item 26. Number of Holders of Securities
As of _________, 1994, there were zero shareholders in
the T. Rowe Price Capital Opportunity 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-eight 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 Blue Chip Growth Fund,
Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price Summit
Municipal Funds, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price International Series, Inc., T. Rowe Price Fixed Income
Series, T. Rowe Price Personal Strategy Funds, Inc. and T. Rowe
Price Value Fund, Inc. The Registrant and the thirty-nine
investment companies listed above, with the exception of T. Rowe
Price Equity Series, Inc., T. Rowe Price Fixed-Income Series,
Inc., T. Rowe Price International Series, Inc., and Institutional
PAGE 154
International Funds, Inc., will be collectively referred to as
the Price Funds. The investment manager for the Price Funds,
including T. Rowe Price Fixed Income Series, Inc. and T. Rowe
Price Equity Series, Inc., is the Manager. Price-Fleming is the
manager to T. Rowe Price International Funds, Inc., T. Rowe Price
International Series, Inc. and Institutional International Funds,
Inc. and is 50% owned by TRP Finance, Inc., a 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 Maryland law. The
Corporation shall pay any reasonable expenses so incurred by
PAGE 155
such Indemnitee in defending a Proceeding in advance of the
final disposition thereof to the fullest extent that such
advance payment may be lawful under Maryland law. Subject
to any applicable limitations and requirements set forth in
the Corporation's Articles of Incorporation and in these
By-Laws, any payment of indemnification or advance of
expenses shall be made in accordance with the procedures set
forth in Maryland law.
Notwithstanding the foregoing, nothing herein shall
protect or purport to protect any Indemnitee against any
liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office ("Disabling Conduct").
Anything in this Article X to the contrary
notwithstanding, no indemnification shall be made by the
Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court
or other body before whom the Proceeding was
brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a
reasonable determination, based upon a review of
the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, which determination
shall be made by:
(i) the vote of a majority of a quorum of
directors who are neither "interested
persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company
Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Anything in this Article X to the contrary
notwithstanding, any advance of expenses by the Corporation
to any Indemnitee shall be made only upon the undertaking by
such Indemnitee to repay the advance unless it is ultimately
determined that such Indemnitee is entitled to
indemnification as above provided, and only if one of the
following conditions is met:
(a) the Indemnitee provides a security for his
undertaking; or
PAGE 156
(b) the Corporation shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review of
readily available facts, that there is reason to
believe that the Indemnitee will ultimately be
found entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of directors who are
neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of
the Investment Company Act, nor parties to
the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Section 10.02 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, 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 under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
PAGE 157
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.
PAGE 158
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., 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.
PAGE 159
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 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
PAGE 160
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
PAGE 161
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.
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.
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, Roger L. Fiery, III, 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.
Nolan L. North, who is a Vice President and Assistant Treasurer
of the Manager, is Assistant Treasurer of Price-Fleming.
Leah P. Holmes, who is an Assistant Vice President of the
Manager, is a Vice President of Price-Fleming.
Barbara A. Van Horn, who is Assistant Secretary of the Manager,
is Assistant Secretary of Price-Fleming.
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.
PAGE 162
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-seven Price
Funds. Investment Services is a wholly-owned subsidiary
of the Manager is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc.
Investment Services has been formed for the limited
purpose of distributing the shares of the Price Funds
and will not engage in the general securities business.
Since the Price Funds are sold on a no-load basis,
Investment Services will not receive any 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.
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James Sellers Riepe President and Director Vice President
and Director
Henry Holt 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
Laura H. Chasney Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President 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
PAGE 163
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
David L. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Charles S. Peterson Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Monica R. Tucker Vice President None
William F. Wendler, II Vice President None
Terrie L. Westren Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Mark S. Finn Controller None
Richard J. Barna Assistant Vice President None
Catherine L. Berkenkemper Assistant Vice President None
Ronae M. Brock Assistant Vice President None
Brenda E. Buhler Assistant Vice President None
Patricia S. Butcher Assistant Vice President None
John A. Galateria Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Kristin E. Seeberger Assistant Vice President None
Arthur J. Silber 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 Value Fund, Inc. under Section
31(a) of the Investment Company Act of 1940 and the rules
thereunder will be maintained by T. Rowe Price Equity
Series, Inc., at its offices at 100 East Pratt Street,
PAGE 164
Baltimore, Maryland 21202. Transfer agent, 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 Value Fund, Inc. are performed at State Street Bank
and Trust Company's Service Center (State Street South),
1776 Heritage Drive, Quincy, Massachusetts 02171.
Item 31. Management Services.
The Registrant is not a party to any management-related
service contract, other than as set forth in the Prospectus.
Item 32. Undertakings.
(a) The undersigned Registrant hereby undertakes to file an
amendment to the Registration Statement with certified
financial statements showing the initial capital
received before accepting subscriptions from any
persons in excess of 25 if it raises its initial
capital pursuant to Section 14(a)(3) of the 1940 Act.
(b) The Fund will file, within four to six months from the
effective date of its registration statement, a
post-effective amendment using financial statements
which need not be certified.
(c) If requested to do so by the holders of at least 10% of
all votes entitled to be cast, the Registrant will call
a meeting of shareholders for the purpose of voting on
the question of removal of a director or directors and
will assist in communications with other shareholders
to the extent required by Section 16(c).
(d) Each series of the Registrant agrees to furnish, upon
request and without charge, a copy of its latest Annual
Report to each person to whom as prospectus is
delivered.
PAGE 165
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, this
13th day of October, 1994.
T. ROWE PRICE CAPITAL
OPPORTUNITY FUND, INC.
/s/James S. Riepe
By: ____________________________
James S. Riepe
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/James S. Riepe
__________________ President and Director
James S. Riepe (Principal Executive Officer)October 13, 1994
/s/Carmen F. Deyesu
__________________ Treasurer
Carmen F. Deyesu (Principal Financial Officer)October 13, 1994
PAGE 1
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Henry H. Hopkins, whose address
is 100 East Pratt Street, Baltimore, Maryland 21202, being at
least eighteen years of age, acting as incorporator, does hereby
form a corporation under the General Laws of the State of
Maryland.
SECOND: (a) The name of the corporation (which is
hereinafter called the "Corporation") is:
T. Rowe Price Capital Opportunity Fund, Inc.
(b) The Corporation acknowledges that it is adopting its
corporate name through permission of T. Rowe Price Associates,
Inc., a Maryland corporation (hereinafter referred to as "Price
Associates"), and acknowledges that Price Associates has the sole
and exclusive right to use or license the use of the name "T.
Rowe Price" in commerce. The Corporation agrees that if at any
time and for any cause, the investment adviser or distributor of
the Corporation ceases to be Price Associates or an affiliate of
Price Associates, the Corporation shall at the written request of
Price Associates take all requisite action to amend its charter
to eliminate the name "T. Rowe Price" from the Corporation's
corporate name and from the designations of its shares of capital
stock. The Corporation further acknowledges that Price
Associates reserves the right to grant the non-exclusive right to
use the name "T. Rowe Price" to any other corporation, including
other investment companies, whether now in existence or hereafter
created.
THIRD: (a) The purposes for which the Corporation is
formed and the business and objects to be carried on and promoted
by it are:
(1) To engage generally in the business of investing,
reinvesting, owning, holding or trading in securities, as
defined in the Investment Company Act of 1940, as from time
to time amended (hereinafter referred to as the "Investment
Company Act"), as an investment company classified under the
Investment Company Act as a management company.
PAGE 2
(2) To engage in any one or more businesses or
transactions, or to acquire all or any portion of any entity
engaged in any one or more businesses or transactions, which
the Board of Directors may from time to time authorize or
approve, whether or not related to the business described
elsewhere in this Article or to any other business at the
time or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be
in no way limited or restricted by reference to, or inference
from, the terms of any other clause of this or any other Article
of the charter of the Corporation, and each shall be regarded as
independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of
Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is:
100 East Pratt Street
Baltimore, Maryland 21202
FIFTH: The name and address of the resident agent of the
Corporation in this State are:
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
Said resident agent is a citizen of the State of Maryland,
and actually resides therein.
SIXTH: (a) The total number of shares of stock of all
classes and series which the Corporation initially has authority
to issue is One Billion (1,000,000,000) shares of capital stock
(par value $.0001 per share), amounting in aggregate par value to
One Hundred Thousand Dollars ($100,000). All of such shares are
initially classified as "Common Stock" of the "Value" series.
The Board of Directors may classify and reclassify any unissued
shares of capital stock (whether or not such shares have been
previously classified or reclassified) by setting or changing in
any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such
shares of stock.
(b) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions,
PAGE 3
limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of Common Stock classified
as the "Value" series and any additional series of Common Stock
of the Corporation (unless provided otherwise by the Board of
Directors with respect to any such additional series at the time
it is established and designated):
(1) Assets Belonging to Series. All consideration
received by the Corporation from the issue or sale of shares
of a particular series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
investment or reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to that series for
all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings,
profits and proceeds, together with any General Items
allocated to that series as provided in the following
sentence, are herein referred to collectively as "assets
belonging to" that series. In the event that there are any
assets, income, earnings, profits or proceeds which are not
readily identifiable as belonging to any particular series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General Items
so allocated to a particular series shall belong to that
series. Each such allocation by the Board of Directors
shall be conclusive and binding for all purposes.
(2) Liabilities of Series. The assets belonging to
each particular series shall be charged with the liabilities
of the Corporation in respect of that series and all
expenses, costs, charges and reserves attributable to that
series, and any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily
identifiable as pertaining to any particular series, shall
be allocated and charged by or under the supervision of the
Board of Directors to and among any one or more of the
series established and designated from time to time in such
manner and on such basis as the Board of Directors, in its
sole discretion, deems fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so
charged to a series are herein referred to collectively as
"liabilities of" that series. Each allocation of
PAGE 4
liabilities, expenses, costs, charges and reserves by or
under the supervision of the Board of Directors shall be
conclusive and binding for all purposes.
(3) Dividends and Distributions. Dividends and
capital gains distributions on shares of a particular series
may be paid with such frequency, in such form and in such
amount as the Board of Directors may determine by resolution
adopted from time to time, or pursuant to a standing
resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities of that series.
All dividends on shares of a particular series shall be paid
only out of the income belonging to that series and all
capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to
that series. All dividends and distributions on shares of a
particular series shall be distributed pro rata to the
holders of that series in proportion to the number of shares
of that series held by such holders at the date and time of
record established for the payment of such dividends or
distributions, except that in connection with any dividend
or distribution program or procedure, the Board of Directors
may determine that no dividend or distribution shall be
payable on shares as to which the shareholder's purchase
order and/or payment have not been received by the time or
times established by the Board of Directors under such
program or procedure.
Dividends and distributions may be paid in cash,
property or additional shares of the same or another series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
shareholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the
shareholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the series thereof, and all
shares of all series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any series is
required by the Investment Company Act or by the Maryland
General Corporation Law, such requirement as to a separate
vote by that series shall apply in lieu of Single Class
Voting; (ii) in the event that the separate vote requirement
referred to in (i) above applies with respect to one or more
PAGE 5
series, then, subject to (iii) below, the shares of all
other series shall vote as a single class; and (iii) as to
any matter which does not affect the interest of a
particular series, including liquidation of another series
as described in subsection (7) below, only the holders of
shares of the one or more affected series shall be entitled
to vote.
(5) Redemption by Shareholders. Each holder of shares
of a particular series shall have the right at such times as
may be permitted by the Corporation to require the
Corporation to redeem all or any part of his shares of that
series, at a redemption price per share equal to the net
asset value per share of that series next determined after
the shares are properly tendered for redemption, less such
redemption fee or sales charge, if any, as may be
established by the Board of Directors in its sole
discretion. Payment of the redemption price shall be in
cash; provided, however, that if the Board of Directors
determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or
undesirable, the Corporation may, to the extent and in the
manner permitted by the Investment Company Act, make payment
wholly or partly in securities or other assets belonging to
the series of which the shares being redeemed are a part, at
the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Corporation may
postpone payment of the redemption price and may suspend the
right of the holders of shares of any series to require the
Corporation to redeem shares of that series during any
period or at any time when and to the extent permissible
under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors
may cause the Corporation to redeem at net asset value the
shares of any series from a holder (i) if the Board of
Directors of the Corporation determines in its sole
discretion that failure to so redeem such shares may have
materially adverse consequences to the holders of shares of
the Corporation or any series, or (ii) upon such other
conditions with respect to the maintenance of shareholder
accounts of a minimum amount as may from time to time be
established by the Board of Directors in its sole
discretion.
(7) Liquidation. In the event of the liquidation of a
particular series, the shareholders of the series that is
being liquidated shall be entitled to receive, as a class,
PAGE 6
when and as declared by the Board of Directors, the excess
of the assets belonging to that series over the liabilities
of that series. The holders of shares of any particular
series shall not be entitled thereby to any distribution
upon liquidation of any other series. The assets so
distributable to the shareholders of any particular series
shall be distributed among such shareholders in proportion
to the number of shares of that series held by them and
recorded on the books of the Corporation. The liquidation
of any particular series in which there are shares then
outstanding may be authorized by vote of a majority of the
Board of Directors then in office, subject to the approval
of a majority of the outstanding voting securities of that
series, as defined in the Investment Company Act, and
without the vote of the holders of shares of any other
series. The liquidation of a particular series may be
accomplished, in whole or in part, by the transfer of assets
of such series to another series or by the exchange of
shares of such series for the shares of another series.
(8) Net Asset Value Per Share. The net asset value
per share of any series shall be the quotient obtained by
dividing the value of the net assets of that series (being
the value of the assets belonging to that series less the
liabilities of that series) by the total number of shares of
that series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with
generally accepted accounting principles and the Investment
Company Act. Subject to the applicable provisions of the
Investment Company Act, the Board of Directors, in its sole
discretion, may prescribe and shall set forth in the By-Laws
of the Corporation or in a duly adopted resolution of the
Board of Directors such bases and times for determining the
value of the assets belonging to, and the net asset value
per share of outstanding shares of, each series, or the net
income attributable to such shares, as the Board of
Directors deems necessary or desirable. The Board of
Directors shall have full discretion, to the extent not
inconsistent with the Maryland General Corporation Law and
the Investment Company Act, to determine which items shall
be treated as income and which items as capital and whether
any item of expense shall be charged to income or capital.
Each such determination and allocation shall be conclusive
and binding for all purposes.
The Board of Directors may determine to maintain the
net asset value per share of any series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act
for the continuing declaration of income attributable to
PAGE 7
that series as dividends and for the handling of any losses
attributable to that series. Such procedures may provide
that in the event of any loss, each shareholder shall be
deemed to have contributed to the capital of the Corporation
attributable to that series his pro rata portion of the
total number of shares required to be canceled in order to
permit the net asset value per share of that series to be
maintained, after reflecting such loss, at the designated
constant dollar amount. Each shareholder of the Corporation
shall be deemed to have agreed, by his investment in any
series with respect to which the Board of Directors shall
have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any
such loss.
(9) Equality. All shares of each particular series
shall represent an equal proportionate interest in the
assets belonging to that series (subject to the liabilities
of that series), and each share of any particular series
shall be equal to each other share of that series. The
Board of Directors may from time to time divide or combine
the shares of any particular series into a greater or lesser
number of shares of that series without thereby changing the
proportionate interest in the assets belonging to that
series or in any way affecting the rights of holders of
shares of any other series.
(10) Conversion or Exchange Rights. Subject to
compliance with the requirements of the Investment Company
Act, the Board of Directors shall have the authority to
provide that holders of shares of any series shall have the
right to convert or exchange said shares into shares of one
or more other classes or series of shares in accordance with
such requirements and procedures as may be established by
the Board of Directors.
(c) The shares of Common Stock of the Corporation, or of
any series of Common Stock of the Corporation to the extent such
Common Stock is divided into series, may be further subdivided
into classes (which may, for convenience of reference be referred
to a term other than "class"). Unless otherwise provided in the
Articles Supplementary establishing such classes, all such
shares, or all shares of a series of Common Stock in a series,
shall have identical voting, dividend, and liquidation rights.
Shares of the classes shall also be subject to such front-end
sales loads, contingent deferred sales charges, expenses
(including, without limitation, distribution expenses under a
Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other arrangement,
however designated), conversion rights, and class voting rights
PAGE 8
as shall be consistent with Maryland law, the Investment Company
Act of 1940, and the rules and regulations of the National
Association of Securities Dealers and shall be contained in
Articles Supplementary establishing such classes.
(d) For the purposes hereof and of any articles
supplementary to the charter providing for the classification or
reclassification of any shares of capital stock or of any other
charter document of the Corporation (unless otherwise provided in
any such articles or document), any class or series of stock of
the Corporation shall be deemed to rank:
(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class
or series shall be entitled to the receipt of dividends or
of amounts distributable on liquidation, dissolution or
winding up, as the case may be, in preference or priority to
holders of such other class or series;
(2) on a parity with another class or series either as
to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation price per share thereof be different from those
of such others, if the holders of such class or series of
stock shall be entitled to receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective
dividend rates or redemption or liquidation prices, without
preference or priority over the holders of such other class
or series; and
(3) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders
of such class or series shall be subject or subordinate to
the rights of the holders of such other class or series in
respect of the receipt of dividends or the amounts
distributable upon liquidation, dissolution or winding up,
as the case may be.
(e) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end management investment
company under the Investment Company Act, the Board of Directors
shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the
number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has
authority to issue.
(f) The Corporation may issue and sell fractions of shares
of capital stock having pro rata all the rights of full shares,
PAGE 9
including, without limitation, the right to vote and to receive
dividends, and wherever the words "share" or "shares" are used in
the charter or By-Laws of the Corporation, they shall be deemed
to include fractions of shares, where the context does not
clearly indicate that only full shares are intended.
(g) The Corporation shall not be obligated to issue
certificates representing shares of any class or series of
capital stock. At the time of issue or transfer of shares
without certificates, the Corporation shall provide the
shareholder with such information as may be required under the
Maryland General Corporation Law.
SEVENTH: The number of directors of the Corporation shall
initially be one (1), which number may be increased or decreased
pursuant to the By-Laws of the Corporation, but shall never be
less than the minimum number permitted by the General Laws of the
State of Maryland now or hereafter in force. James S. Riepe
shall serve as director until the first annual meeting and until
his successor is elected and qualified.
EIGHTH: (a) The following provisions are hereby adopted
for the purpose of defining, limiting, and regulating the powers
of the Corporation and of the directors and shareholders:
(1) The Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of its
stock of any class or series, whether now or hereafter
authorized, or securities convertible into shares of its
stock of any class or series, whether now or hereafter
authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action
by the shareholders.
(2) No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall
have any preemptive right to subscribe for or purchase any
stock or any other securities of the Corporation other than
such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and
upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which
the Board of Directors may determine to offer for
subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any
class, series or type of stock or other securities at the
time outstanding to the exclusion of the holders of any or
all other classes, series or types of stock or other
securities at the time outstanding.
PAGE 10
(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole
discretion to determine from time to time in accordance with
sound accounting practice or other reasonable valuation
methods what constitutes annual or other net profits,
earnings, surplus, or net assets in excess of capital; to
determine that retained earnings or surplus shall remain in
the hands of the Corporation; to set apart out of any funds
of the Corporation such reserve or reserves in such amount
or amounts and for such proper purpose or purposes as it
shall determine and to abolish any such reserve or any part
thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus
or any other funds or amounts legally available therefor, at
such times and to the shareholders of record on such dates
as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and
under what conditions and regulations the books, accounts
and documents of the Corporation, or any of them, shall be
open to the inspection of shareholders, except as otherwise
provided by statute or by the By-Laws, and, except as so
provided, no shareholder shall have any right to inspect any
book, account or document of the Corporation unless
authorized so to do by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a
majority of the total number of shares of all classes and
series of capital stock or of the total number of shares of
any class or series of capital stock entitled to vote as a
separate class, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a
majority of the total number of shares of all classes and
series outstanding and entitled to vote thereon, or of the
class or series entitled to vote thereon as a separate
class, as the case may be, except as otherwise provided in
the charter of the Corporation.
(5) The Corporation shall indemnify (i) its directors
and officers, whether serving the Corporation or at its
request any other entity, to the full extent required or
permitted by the General Laws of the State of Maryland now
or hereafter in force, including the advance of expenses
under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as
shall be authorized by the Board of Directors or the By-Laws
and as permitted by law. Nothing contained herein shall be
construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by
PAGE 11
reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct
of his office. The foregoing rights of indemnification
shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered
to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or
such further indemnification arrangements as may be
permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit
or eliminate the right of indemnification provided hereunder
with respect to acts or omissions occurring prior to such
amendment or repeal.
(6) To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and
the Investment Company Act, no director or officer of the
Corporation shall be personally liable to the Corporation or
its shareholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment of the
charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such
amendment or repeal.
(7) The Corporation reserves the right from time to
time to make any amendments of its charter which may now or
hereafter be authorized by law, including any amendments
changing the terms or contract rights, as expressly set
forth in its charter, of any of its outstanding stock by
classification, reclassification or otherwise.
(b) The enumeration and definition of particular powers of
the Board of Directors included in the foregoing shall in no way
be limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of the
charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General
Laws of the State of Maryland now or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
PAGE 12
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation, acknowledging the same to be my act, on this 7th
day of October, 1994.
Witness:
/s/Lenora V. Hornung /s/Henry H. Hopkins
_________________________ ________________________________
Lenora V. Hornung Henry H. Hopkins
PAGE 1
BY-LAWS
OF
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
PAGE 2
TABLE OF CONTENTS
Page
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND
SEAL . . . . . . . . . . . . . . . . . . . . 1
1.01. Name . . . . . . . . . . . . . . . . . . . . 1
1.02. Principal Office . . . . . . . . . . . . . . 1
1.03. Seal . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS . . . . . . . . . . . . . . . . 1
2.01. Annual Meetings . . . . . . . . . . . . . . 1
2.02. Special Meetings . . . . . . . . . . . . . . 2
2.03. Place of Meetings . . . . . . . . . . . . . 2
2.04. Notice of Meetings . . . . . . . . . . . . . 2
2.05. Voting - in General . . . . . . . . . . . . 2
2.06. Shareholders Entitled to Vote . . . . . . . 3
2.07. Voting - Proxies . . . . . . . . . . . . . . 3
2.08. Quorum . . . . . . . . . . . . . . . . . . . 3
2.09. Absence of Quorum . . . . . . . . . . . . . 3
2.10. Stock Ledger and List of Shareholders . . . 4
2.11. Informal Action by Shareholders . . . . . . 4
ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . . 4
3.01. Number and Term of Office . . . . . . . . . 4
3.02. Qualification of Directors . . . . . . . . . 4
3.03. Election of Directors . . . . . . . . . . . 5
3.04. Removal of Directors . . . . . . . . . . . . 5
3.05. Vacancies and Newly Created Directorships . 5
3.06. General Powers . . . . . . . . . . . . . . . 5
3.07. Power to Issue and Sell Stock . . . . . . . 6
3.08. Power to Declare Dividends . . . . . . . . . 6
3.09. Annual and Regular Meetings . . . . . . . . 6
3.10. Special Meetings . . . . . . . . . . . . . . 6
3.11. Notice . . . . . . . . . . . . . . . . . . . 7
3.12. Waiver of Notice . . . . . . . . . . . . . . 7
3.13. Quorum and Voting . . . . . . . . . . . . . 7
3.14. Conference Telephone . . . . . . . . . . . . 7
3.15. Compensation . . . . . . . . . . . . . . . . 7
3.16. Action without a Meeting . . . . . . . . . . 7
3.17. Director Emeritus . . . . . . . . . . . . . 7
PAGE 3
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES . . 8
4.01. How Constituted . . . . . . . . . . . . . . 8
4.02. Powers of the Executive Committee . . . . . 8
4.03. Other Committees of the Board of Directors . 8
4.04. Proceedings, Quorum and Manner of Acting . . 8
4.05. Other Committees . . . . . . . . . . . . . . 8
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . 9
5.01. General . . . . . . . . . . . . . . . . . . 9
5.02. Election, Term of Office and Qualifications 9
5.03. Resignation . . . . . . . . . . . . . . . . 9
5.04. Removal . . . . . . . . . . . . . . . . . . 9
5.05. Vacancies and Newly Created Offices . . . . 9
5.06. Chairman of the Board . . . . . . . . . . . 9
5.07. President . . . . . . . . . . . . . . . . . 10
5.08. Vice President . . . . . . . . . . . . . . . 10
5.09. Treasurer and Assistant Treasurers . . . . . 10
5.10. Secretary and Assistant Secretaries . . . . 11
5.11. Subordinate Officers . . . . . . . . . . . . 11
5.12. Remuneration . . . . . . . . . . . . . . . . 11
5.13. Surety Bond . . . . . . . . . . . . . . . . 11
ARTICLE VI. CUSTODY OF SECURITIES AND CASH . . . . . . . 11
6.01. Employment of a Custodian . . . . . . . . . 11
6.02. Central Certificate Service . . . . . . . . 12
6.03. Cash Assets . . . . . . . . . . . . . . . . 12
6.04. Free Cash Accounts . . . . . . . . . . . . . 12
6.05. Action Upon Termination of Custodian Agreement12
6.06. Other Arrangements . . . . . . . . . . . . . 12
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES13
7.01. Execution of Instruments . . . . . . . . . . 13
7.02. Voting of Securities . . . . . . . . . . . . 13
ARTICLE VIII. CAPITAL STOCK . . . . . . . . . . . . . . . 13
8.01. Ownership of Shares . . . . . . . . . . . . 13
8.02. Transfer of Capital Stock . . . . . . . . . 13
8.03. Transfer Agents and Registrars . . . . . . . 14
8.04. Transfer Regulations . . . . . . . . . . . . 14
8.05. Fixing of Record Date . . . . . . . . . . . 14
PAGE 4
ARTICLE IX. FISCAL YEAR, ACCOUNTANT . . . . . . . . . . 14
9.01. Fiscal Year . . . . . . . . . . . . . . . . 14
9.02. Accountant . . . . . . . . . . . . . . . . . 14
ARTICLE X. INDEMNIFICATION AND INSURANCE . . . . . . . 15
10.01. Indemnification and Payment of Expenses in
Advance . . . . . . . . . . . . . . . . . . 15
10.02. Insurance of Officers, Directors, Employees
and Agents . . . . . . . . . . . . . . . . . 16
10.03. Amendment . . . . . . . . . . . . . . . . . 17
ARTICLE XI. AMENDMENTS . . . . . . . . . . . . . . . . . 17
11.01. General . . . . . . . . . . . . . . . . . . 17
11.02. By Shareholders Only . . . . . . . . . . . . 17
ARTICLE XII. MISCELLANEOUS . . . . . . . . . . . . . . . 17
12.01 Use of the Term "Annual Meeting" . . . . . . 17
PAGE 5
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
(A Maryland Corporation)
BY-LAWS
ARTICLE I
NAME OF CORPORATION,
LOCATION OF OFFICES AND SEAL
Section 1.01. Name: The name of the Corporation is T.
ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
Section 1.02. Principal Office: The principal office of
the Corporation in the State of Maryland shall be located in the
City of Baltimore. The Corporation may, in addition, establish
and maintain such other offices and places of business, within or
outside the State of Maryland, as the Board of Directors may from
time to time determine. [MGCL, Sections 2-103(4), 2-108(a)(1)]*
* Bracketed citations are to the General Corporation Law of
the State of Maryland ("MGCL") or to the United States
Investment Company Act of 1940, as amended (the "Investment
Company Act"), or to Rules of the United States Securities
and Exchange Commission thereunder ("SEC Rules"). The
citations are inserted for reference only and do not
constitute a part of the By-Laws.
Section 1.03. Seal: The corporate seal of the Corporation
shall be circular in form, and shall bear the name of the
Corporation, the year of its incorporation, and the words
"Corporate Seal, Maryland." The form of the seal shall be
subject to alteration by the Board of Directors and the seal may
be used by causing it or a facsimile to be impressed or affixed
or printed or otherwise reproduced. In lieu of affixing the
corporate seal to any document it shall be sufficient to meet the
requirements of any law, rule, or regulation relating to a
corporate seal to affix the word "(Seal)" adjacent to the
signature of the authorized officer of the Corporation. Any
officer or Director of the Corporation shall have authority to
affix the corporate seal of the Corporation to any document
requiring the same. [MGCL, Sections 1-304(b), 2-103(3)]
PAGE 6
ARTICLE II
SHAREHOLDERS
Section 2.01. Annual Meetings: The Corporation shall not
be required to hold an annual meeting of its shareholders in any
year unless the Investment Company Act of 1940 requires an
election of directors by shareholders. In the event that the
Corporation shall be so required to hold an annual meeting, such
meeting shall be held at a date and time set by the Board of
Directors, which date shall be no later than 120 days after the
occurrence of the event requiring the meeting. Any shareholders'
meeting held in accordance with the preceding sentence shall for
all purposes constitute the annual meeting of shareholders for
the fiscal year of the corporation in which the meeting is held.
At any such meeting, the shareholders shall elect directors to
hold the offices of any directors who have held office for more
than one year or who have been elected by the Board of Directors
to fill vacancies which result from any cause. Except as the
Articles of Incorporation or statute provides otherwise,
Directors may transact any business within the powers of the
Corporation as may properly come before the meeting. Any
business of the Corporation may be transacted at the annual
meeting without being specially designated in the notice, except
such business as is specifically required by statute to be stated
in the notice. [MGCL, Section 2-501]
Section 2.02. Special Meetings: Special meetings of the
shareholders may be called at any time by the Chairman of the
Board, the President, any Vice President, or by the Board of
Directors. Special meetings of the shareholders shall be called
by the Secretary on the written request of shareholders entitled
to cast at least ten (10) percent of all the votes entitled to be
cast at such meeting, provided that (a) such request shall state
the purpose or purposes of the meeting and the matters proposed
to be acted on, and (b) the shareholders requesting the meeting
shall have paid to the Corporation the reasonably estimated cost
of preparing and mailing the notice thereof, which the Secretary
shall determine and specify to such shareholders. Unless
requested by shareholders entitled to cast a majority of all the
votes entitled to be cast at the meeting, a special meeting need
not be called to consider any matter which is substantially the
same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve (12) months. [MGCL,
Section 2-502]
Section 2.03. Place of Meetings: All shareholders'
meetings shall be held at such place within the United States as
PAGE 7
may be fixed from time to time by the Board of Directors. [MGCL,
Section 2-503]
Section 2.04. Notice of Meetings: Not less than ten (10)
days, nor more than ninety (90) days before each shareholders'
meeting, the Secretary or an Assistant Secretary of the
Corporation shall give to each shareholder entitled to vote at
the meeting, and each other shareholder entitled to notice of the
meeting, written notice stating (1) the time and place of the
meeting, and (2) the purpose or purposes of the meeting if the
meeting is a special meeting or if notice of the purpose is
required by statute to be given. Such notice shall be personally
delivered to the shareholder, or left at his residence or usual
place of business, or mailed to him at his address as it appears
on the records of the Corporation. Notice shall be deemed to be
given when deposited in the United States mail addressed to the
shareholders as aforesaid. No notice of a shareholders' meeting
need be given to any shareholder who shall sign a written waiver
of such notice, whether before or after the meeting, which is
filed with the records of shareholders' meetings, or to any
shareholder who is present at the meeting in person or by proxy.
Notice of adjournment of a shareholders' meeting to another time
or place need not be given if such time and place are announced
at the meeting, unless the adjournment is for more than one
hundred twenty (120) days after the original record date.
Irregularities in the notice of any meeting to, or the nonreceipt
of any such notice by, any of the stockholders shall not
invalidate any action otherwise properly taken by or at any such
meeting. [MGCL, Sections 2-504, 2-511(d)]
Section 2.05. Voting - In General: Except as otherwise
specifically provided in the Articles of Incorporation or these
By-Laws, or as required by provisions of the Investment Company
Act with respect to the vote of a series, if any, of the
Corporation, at every shareholders' meeting, each shareholder
shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and held by such
shareholder, except that no shares held by the Corporation shall
be entitled to a vote. Fractional shares shall be entitled to
fractional votes. Except as otherwise specifically provided in
the Articles of Incorporation, or these By-Laws, or as required
by provisions of the Investment Company Act, a majority of all
the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the
meeting. The vote upon any question shall be by ballot whenever
requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by
the meeting. [MGCL, Sections 2-214(a)(i), 2-506(a)(2), 2-507(a),
2-509(b)]
PAGE 8
At any meeting at which there is an election of Directors,
the Chairman of the meeting may, and upon the request of the
holders of ten (10) percent of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall
first subscribe an oath or affirmation to execute faithfully the
duties of inspectors at such election with strict impartiality
and according to the best of their ability, and shall, after the
election, make a certificate of the result of the vote taken. No
candidate for the office of Director shall be appointed as an
inspector.
Section 2.06. Shareholders Entitled to Vote: If, pursuant
to Section 8.05 hereof, a record date has been fixed for the
determination of shareholders entitled to notice of or to vote at
any shareholders' meeting, each shareholder of the Corporation
shall be entitled to vote in person or by proxy, each share or
fraction of a share of stock outstanding in his name on the books
of the Corporation on such record date. If no record date has
been fixed for the determination of shareholders, the record date
for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of
business on the day on which notice of the meeting is mailed or
the 30th day before the meeting, whichever is the closer date to
the meeting, or, if notice is waived by all shareholders, at the
close of business on the tenth (10th) day next preceding the date
of the meeting. [MGCL, Sections 2-507, 2-511]
Section 2.07. Voting - Proxies: The right to vote by
proxy shall exist only if the instrument authorizing such proxy
to act shall have been executed in writing by the shareholder
himself, or by his attorney thereunto duly authorized in writing.
No proxy shall be valid more than eleven (11) months after its
date unless it provides for a longer period. All proxies shall
be delivered to the Secretary of the Corporation or to the person
acting as Secretary of the meeting before being voted, who shall
decide all questions concerning qualification of voters, the
validity of proxies, and the acceptance or rejection of votes.
If inspectors of election have been appointed by the chairman of
the meeting, such inspectors shall decide all such questions. A
proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a shareholder
shall be deemed valid unless challenged at or prior to its
exercise. [MGCL, Section 2-507(b)]
Section 2.08. Quorum: The presence at any shareholders'
meeting, in person or by proxy, of shareholders entitled to cast
PAGE 9
a majority of the votes entitled to be cast at the meeting shall
constitute a quorum. [MGCL, Section 2-506(a)]
Section 2.09. Absence of Quorum: In the absence of a
quorum, the holders of a majority of shares entitled to vote at
the meeting and present thereat in person or by proxy, or, if no
shareholder entitled to vote is present in person or by proxy,
any officer present who is entitled to preside at or act as
Secretary of such meeting, may adjourn the meeting sine die or
from time to time. Any business that might have been transacted
at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.10. Stock Ledger and List of Shareholders: It
shall be the duty of the Secretary or Assistant Secretary of the
Corporation to cause an original or duplicate stock ledger to be
maintained at the office of the Corporation's transfer agent,
containing the names and addresses of all shareholders and the
number of shares of each class held by each shareholder. Such
stock ledger may be in written form, or any other form capable of
being converted into written form within a reasonable time for
visual inspection. Any one or more persons, who together are and
for at least six (6) months have been shareholders of record of
at least five percent (5%) of the outstanding capital stock of
the Corporation, may submit (unless the Corporation at the time
of the request maintains a duplicate stock ledger at its
principal office) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the
shareholders of the Corporation. Within twenty (20) days after
such a request, there shall be prepared and filed at the
Corporation's principal office a list, verified under oath by an
officer of the Corporation or by its stock transfer agent or
registrar, which sets forth the name and address of each
shareholder and the number of shares of each class which the
shareholder holds. [MGCL, Sections 2-209, 2-513]
Section 2.11. Informal Action By Shareholders: Any action
required or permitted to be taken at a meeting of shareholders
may be taken without a meeting if the following are filed with
the records of shareholders' meetings:
(a) A unanimous written consent which sets forth the action
and is signed by each shareholder entitled to vote on
the matter; and
(b) A written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting, but not
entitled to vote at it.
[MGCL, Section 2-505]
PAGE 10
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of
Directors shall consist of one (1) Director, which number may be
increased by a resolution of a majority of the entire Board of
Directors, provided that the number of Directors shall not be
more than fifteen (15) nor less than the lesser of (i) three
(3)or (ii) the number of shareholders of the Corporation. Each
Director (whenever elected) shall hold office until the next
annual meeting of shareholders and until his successor is elected
and qualifies or until his earlier death, resignation, or
removal. [MGCL, Sections 2-402, 2-404, 2-405]
Section 3.02. Qualification of Directors: No member of
the Board of Directors need be a shareholder of the Corporation,
but at least one member of the Board of Directors shall be a
person who is not an interested person (as such term is defined
in the Investment Company Act) of the investment adviser of the
Corporation, nor an officer or employee of the Corporation.
[MGCL, Section 2-403; Investment Company Act, Section 10(d)]
Section 3.03. Election of Directors: Until the first
annual meeting of shareholders, or until successors are duly
elected and qualified, the Board of Directors shall consist of
the persons named as such in the Articles of Incorporation.
Thereafter, except as otherwise provided in Sections 3.04 and
3.05 hereof, at each annual meeting, the shareholders shall elect
Directors to hold office until the next annual meeting and/or
until their successors are elected and qualify. In the event
that Directors are not elected at an annual shareholders'
meeting, then Directors may be elected at a special shareholders'
meeting. Directors shall be elected by vote of the holders of a
plurality of the shares present in person or by proxy and
entitled to vote. [MGCL, Section 2-404]
Section 3.04. Removal of Directors: At any meeting of
shareholders, duly called and at which a quorum is present, the
shareholders may, by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any
Director or Directors from office, either with or without cause,
and may elect a successor or successors to fill any resulting
vacancies for the unexpired terms of removed Directors. [MGCL,
Sections 2-406, 2-407]
PAGE 11
Section 3.05. Vacancies and Newly Created Directorships:
If any vacancies occur in the Board of Directors by reason of
resignation, removal or otherwise, or if the authorized number of
Directors is increased, the Directors then in office shall
continue to act, and such vacancies (if not previously filled by
the shareholders) may be filled by a majority of the Directors
then in office, whether or not sufficient to constitute a quorum,
provided that, immediately after filling such vacancy, at least
two-thirds of the Directors then holding office shall have been
elected to such office by the shareholders of the Corporation.
In the event that at any time, other than the time preceding the
first meeting of shareholders, less than a majority of the
Directors of the Corporation holding office at that time were so
elected by the shareholders, a meeting of the shareholders shall
be held promptly and in any event within sixty (60) days for the
purpose of electing Directors to fill any existing vacancies in
the Board of Directors unless the Securities and Exchange
Commission shall by order extend such period. Except as provided
in Section 3.04 hereof, a Director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of shareholders or until his successor is
elected and qualifies. [MGCL, Section 2-407; Investment Company
Act, Section 16(a)]
Section 3.06. General Powers:
(a) The property, business, and affairs of the Corporation
shall be managed under the direction of the Board of
Directors which may exercise all the powers of the
Corporation except such as are by law, by the Articles
of Incorporation, or by these By-Laws conferred upon or
reserved to the shareholders of the Corporation.
[MGCL, Section 2-401]
(b) All acts done by any meeting of the Directors or by any
person acting as a Director, so long as his successor
shall not have been duly elected or appointed, shall,
notwithstanding that it be afterwards discovered that
there was some defect in the election of the Directors
or such person acting as a Director or that they or any
of them were disqualified, be as valid as if the
Directors or such person, as the case may be, had been
duly elected and were or was qualified to be Directors
or a Director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The Board of
Directors may from time to time authorize by resolution the
issuance and sale of any of the Corporation's authorized shares
to such persons as the Board of Directors shall deem advisable
and such resolution shall set the minimum price or value of
PAGE 12
consideration for the stock or a formula for its determination,
and shall include a fair description of any consideration other
than money and a statement of the actual value of such
consideration as determined by the Board of Directors or a
statement that the Board of Directors has determined that the
actual value is or will be not less than a certain sum. [MGCL,
Section 2-203]
Section 3.08. Power to Declare Dividends:
(a) The Board of Directors, from time to time as it may
deem advisable, may declare and the Corporation pay dividends, in
cash, property, or shares of the Corporation available for
dividends out of any source available for dividends, to the
shareholders according to their respective rights and interests.
[MGCL, Section 2-309]
(b) The Board of Directors shall cause to be accompanied by
a written statement any dividend payment wholly or partly from
any source other than the Corporation's accumulated undistributed
net income (determined in accordance with good accounting
practice and the rules and regulations of the Securities and
Exchange Commission then in effect) not including profits or
losses realized upon the sale of securities or other properties.
Such statement shall adequately disclose the source or sources of
such payment and the basis of calculation and shall be otherwise
in such form as the Securities and Exchange Commission may
prescribe. [Investment Company Act, Section 19; SEC Rule 19a-1;
MGCL, Section 2-309(c)]
(c) Notwithstanding the above provisions of this Section
3.08, the Board of Directors may at any time declare and
distribute pro rata among the shareholders a stock dividend out
of the Corporation's authorized but unissued shares of stock,
including any shares previously purchased by the Corporation,
provided that such dividend shall not be distributed in shares of
any class with respect to any shares of a different class. The
shares so distributed shall be issued at the par value thereof,
and there shall be transferred to stated capital, at the time
such dividend is paid, an amount of surplus equal to the
aggregate par value of the shares issued as a dividend and there
may be transferred from earned surplus to capital surplus such
additional amount as the Board of Directors may determine. [MGCL,
Section 2-309]
Section 3.09. Annual and Regular Meetings: The annual
meeting of the Board of Directors for choosing officers and
transacting other proper business shall be held after the annual
shareholders' meeting at such time and place as may be specified
in the notice of such meeting of the Board of Directors or, in
PAGE 13
the absence of such annual shareholders' meeting, at such time
and place as the Board of Directors may provide. The Board of
Directors from time to time may provide by resolution for the
holding of regular meetings and fix their time and place (within
or outside the State of Maryland). [MGCL, Section 2-409(a)]
Section 3.10. Special Meetings: Special meetings of the
Board of Directors shall be held whenever called by the Chairman
of the Board, the President (or, in the absence or disability of
the President, by any Vice President), the Treasurer, or two or
more Directors, at the time and place (within or outside the
State of Maryland) specified in the respective notices or waivers
of notice of such meetings.
Section 3.11. Notice: Notice of annual, regular, and
special meetings shall be in writing, stating the time and place,
and shall be mailed to each Director at his residence or regular
place of business or caused to be delivered to him personally or
to be transmitted to him by telegraph, cable, or wireless at
least two (2) days before the day on which the meeting is to be
held. Except as otherwise required by the By-Laws or the
Investment Company Act, such notice need not include a statement
of the business to be transacted at, or the purpose of, the
meeting. [MGCL, Section 2-409(b)]
Section 3.12. Waiver of Notice: No notice of any meeting
need be given to any Director who is present at the meeting or to
any Director who signs a waiver of the notice of the meeting
(which waiver shall be filed with the records of the meeting),
whether before or after the meeting. [MGCL, Section 2-409(c)]
Section 3.13. Quorum and Voting: At all meetings of the
Board of Directors the presence of one-third of the total number
of Directors authorized, but not less than two (2) Directors if
there are at least two directors, shall constitute a quorum. In
the absence of a quorum, a majority of the Directors present may
adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the Directors present at a
meeting at which a quorum is present shall be the action of the
Board of Directors unless the concurrence of a greater proportion
is required for such action by law, by the Articles of
Incorporation or by these By-Laws. [MGCL, Section 2-408]
Section 3.14. Conference Telephone: Members of the Board
of Directors or of any committee designated by the Board, may
participate in a meeting of the Board or of such committee by
means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear
each other at the same time, and participation by such means
PAGE 14
shall constitute presence in person at such meeting. [MGCL,
Section 2-409(d)]
Section 3.15. Compensation: Each Director may receive
such remuneration for his services as shall be fixed from time to
time by resolution of the Board of Directors.
Section 3.16. Action Without a Meeting: Except as
otherwise provided under the Investment Company Act, any action
required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting
if a unanimous written consent which sets forth the action is
signed by all members of the Board or of such committee and such
written consent is filed with the minutes of proceedings of the
Board or committee. [MGCL, Section 2-408(c)]
Section 3.17. Director Emeritus: Upon the retirement of a
Director of the Corporation, the Board of Directors may designate
such retired Director as a Director Emeritus. The position of
Director Emeritus shall be honorary only and shall not confer
upon such Director Emeritus any responsibility, or voting
authority, whatsoever with respect to the Corporation. A
Director Emeritus may, but shall not be required to, attend the
meetings of the Board of Directors and receive materials normally
provided Directors relating to the Corporation. The Board of
Directors may establish such compensation as it may deem
appropriate under the circumstances to be paid by the Corporation
to a Director Emeritus.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by
the Board of Directors, the Board may appoint from among its
members one or more committees, including an Executive Committee,
each consisting of at least two (2) Directors. Each member of a
committee shall hold office during the pleasure of the Board.
[MGCL, Section 2-411]
Section 4.02. Powers of the Executive Committee: Unless
otherwise provided by resolution of the Board of Directors, the
Executive Committee, in the intervals between meetings of the
Board of Directors, shall have and may exercise all of the powers
of the Board of Directors to manage the business and affairs of
the Corporation except the power to:
(a) Declare dividends or distributions on stock;
PAGE 15
(b) Issue stock other than as provided in Section 2-411(b)
of Corporations and Associations Article of the
Annotated Code of Maryland;
(c) Recommend to the shareholders any action which requires
shareholder approval;
(d) Amend the By-Laws; or
(e) Approve any merger or share exchange which does not
require shareholder approval. [MGCL, Section 2-411(a)]
Section 4.03. Other Committees of the Board of Directors:
To the extent provided by resolution of the Board, other
committees shall have and may exercise any of the powers that may
lawfully be granted to the Executive Committee. [MGCL, Section
2-411(a)]
Section 4.04. Proceedings, Quorum, and Manner of Acting:
In the absence of appropriate resolution of the Board of
Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum shall
not be less than two (2) Directors. In the absence of any member
of any such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Directors to act in the place of such
absent member. [MGCL, Section 2-411(c)]
Section 4.05. Other Committees: The Board of Directors
may appoint other committees, each consisting of one or more
persons who need not be Directors. Each such committee shall
have such powers and perform such duties as may be assigned to it
from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the
Board of Directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation
shall be a President, one or more Vice Presidents (one or more of
whom may be designated Executive Vice President), a Secretary,
and a Treasurer, and may include one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 5.11 hereof. The
PAGE 16
Board of Directors may elect, but shall not be required to elect,
a Chairman of the Board. [MGCL, Section 2-412]
Section 5.02. Election, Term of Office and Qualifications:
The officers of the Corporation (except those appointed pursuant
to Section 5.11 hereof) shall be elected by the Board of
Directors at its first meeting and thereafter at each annual
meeting of the Board. If any officer or officers are not elected
at any such meeting, such officer or officers may be elected at
any subsequent regular or special meeting of the Board. Except
as provided in Sections 5.03, 5.04, and 5.05 hereof, each officer
elected by the Board of Directors shall hold office until the
next annual meeting of the Board of Directors and until his
successor shall have been chosen and qualified. Any person may
hold two or more offices of the Corporation, except that neither
the Chairman of the Board, nor the President, may hold the office
of Vice President, but no person shall execute, acknowledge, or
verify any instrument in more than one capacity if such
instrument is required by law, the Articles of Incorporation, or
these By-Laws to be executed, acknowledged, or verified by two or
more officers. The Chairman of the Board shall be selected from
among the Directors of the Corporation and may hold such office
only so long as he continues to be a Director. No other officer
need be a Director. [MGCL, Sections 2-412, 2-413 and 2-415]
Section 5.03. Resignation: Any officer may resign his
office at any time by delivering a written resignation to the
Board of Directors, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from
office by the Board of Directors whenever in the judgment of the
Board of Directors the best interests of the Corporation will be
served thereby. [MGCL, Section 2-413(c)]
Section 5.05 Vacancies and Newly Created Offices: If any
vacancy shall occur in any office by reason of death,
resignation, removal, disqualification or other cause, or if any
new office shall be created, such vacancies or newly created
offices may be filled by the Board of Directors at any meeting
or, in the case of any office created pursuant to Section 5.11
hereof, by any officer upon whom such power shall have been
conferred by the Board of Directors. [MGCL, Section 2-413(d)]
Section 5.06. Chairman of the Board: Unless otherwise
provided by resolution of the Board of Directors, the Chairman of
the Board, if there be such an officer, shall be the chief
executive and operating officer of the Corporation, shall preside
at all shareholders' meetings, and at all meetings of the Board
PAGE 17
of Directors. He shall be ex officio a member of all standing
committees of the Board of Directors. Subject to the supervision
of the Board of Directors, he shall have general charge of the
business, affairs, property, and operation of the Corporation and
its officers, employees, and agents. He may sign (unless the
President or a Vice President shall have signed) certificates
representing stock of the Corporation authorized for issuance by
the Board of Directors and shall have such other powers and
perform such other duties as may be assigned to him from time to
time by the Board of Directors.
Section 5.07. President: Unless otherwise provided by
resolution of the Board of Directors, the President shall, at the
request of or in the absence or disability of the Chairman of the
Board, or if no Chairman of the Board has been chosen, he shall
preside at all shareholders' meetings and at all meetings of the
Board of Directors and shall in general exercise the powers and
perform the duties of the Chairman of the Board. He may sign
(unless the Chairman or a Vice President shall have signed)
certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. Except as the Board of
Directors may otherwise order, he may sign in the name and on
behalf of the Corporation all deeds, bonds, contracts, or
agreements. He shall exercise such other powers and perform such
other duties as from time to time may be assigned to him by the
Board of Directors.
Section 5.08. Vice President: The Board of Directors
shall,from time to time, designate and elect one or more Vice
Presidents (one or more of whom may be designated Executive Vice
President) who shall have such powers and perform such duties as
from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or
disability of the President, the Vice President (or, if there are
two or more Vice Presidents, the Vice President in order of
seniority of tenure in such office or in such other order as the
Board of Directors may determine) may perform all the duties of
the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any
Vice President may sign (unless the Chairman, the President, or
another Vice President shall have signed) certificates
representing stock of the Corporation authorized for issuance by
the Board of Directors.
Section 5.09. Treasurer and Assistant Treasurers: The
Treasurer shall be the principal financial and accounting officer
of the Corporation and shall have general charge of the finances
and books of account of the Corporation. Except as otherwise
provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of
PAGE 18
the performance by the custodian of its duties with respect
thereto. He may countersign (unless an Assistant Treasurer or
Secretary or Assistant Secretary shall have countersigned)
certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. He shall render to the Board
of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his
transactions as Treasurer; and as soon as possible after the
close of each fiscal year he shall make and submit to the Board
of Directors a like report for such fiscal year. He shall cause
to be prepared annually a full and correct statement of the
affairs of the Corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year,
which shall be submitted at the annual meeting of shareholders
and filed within twenty (20) days thereafter at the principal
office of the Corporation. He shall perform all the acts
incidental to the office of the Treasurer, subject to the control
of the Board of Directors. Any Assistant Treasurer may perform
such duties of the Treasurer as the Treasurer or the Board of
Directors may assign, and, in the absence of the Treasurer, he
may perform all the duties of the Treasurer.
Section 5.10. Secretary and Assistant Secretaries: The
Secretary shall attend to the giving and serving of all notices
of the Corporation and shall record all proceedings of the
meetings of the shareholders and Directors in one or more books
to be kept for that purpose. He shall keep in safe custody the
seal of the Corporation and shall have charge of the records of
the Corporation, including the stock books and such other books
and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be
kept, all of which shall at all reasonable times be open to
inspection by any Director. He shall countersign (unless the
Treasurer, an Assistant Treasurer or an Assistant Secretary shall
have countersigned) certificates representing stock of the
Corporation authorized for issuance by the Board of Directors.
He shall perform such other duties as appertain to his office or
as may be required by the Board of Directors. Any Assistant
Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the
absence of the Secretary, he may perform all the duties of the
Secretary.
Section 5.11. Subordinate Officers: The Board of
Directors from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The
Board of Directors from time to time may delegate to one or more
officers or agents the power to appoint any such subordinate
PAGE 19
officers or agents and to prescribe their respective rights,
terms of office, authorities, and duties. Any officer or agent
appointed in accordance with the provisions of this Section 5.11
may be removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the Board
of Directors. [MGCL, Section 2-412(b)]
Section 5.12. Remuneration: The salaries or other
compensation of the officers of the Corporation shall be fixed
from time to time by resolution of the Board of Directors, except
that the Board of Directors may by resolution delegate to any
person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in
accordance with the provisions of Section 5.11 hereof.
Section 5.13. Surety Bond: The Board of Directors may
require any officer or agent of the Corporation to execute a bond
(including, without limitation, any bond required by the
Investment Company Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder) to the
Corporation in such sum and with such surety or sureties as the
Board of Directors may determine, conditioned upon the faithful
performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting for any of
the Corporation's property, funds or securities that may come
into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES AND CASH
Section 6.01. Employment of a Custodian: The Corporation
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
funds, securities, and similar investments owned by the
Corporation. The Custodian shall be a bank having an aggregate
capital, surplus, and undivided profits of not less than
$10,000,000. Subject to such rules, regulations, and orders as
the Securities and Exchange Commission may adopt as necessary or
appropriate for the protection of investors, the Corporation's
Custodian may deposit all or a part of the securities owned by
the Corporation in a sub-custodian or sub-custodians situated
within or without the United States. The Custodian shall be
appointed and its remuneration fixed by the Board of Directors.
[Investment Company Act, Section 17(f)]
Section 6.02. Central Certificate Service: Subject to
such rules, regulations, and orders as the Securities and
PAGE 20
Exchange Commission may adopt as necessary or appropriate for the
protection of investors, the Corporation's Custodian may deposit
all or any part of the securities owned by the Corporation in a
system for the central handling of securities established by a
national securities exchange or national securities association
registered with the Commission under the Securities Exchange Act
of 1934, or such other person as may be permitted by the
Commission, pursuant to which system all securities of any
particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged
by bookkeeping entry without physical delivery of such
securities. [Investment Company Act, Section 17(f)]
Section 6.03. Cash Assets: The cash proceeds from the
sale of securities and similar investments and other cash assets
of the Corporation shall be kept in the custody of a bank or
banks appointed pursuant to Section 6.01 hereof, or in accordance
with such rules and regulations or orders as the Securities and
Exchange Commission may from time to time prescribe for the
protection of investors, except that the Corporation may maintain
a checking account or accounts in a bank or banks, each having an
aggregate capital, surplus, and undivided profits of not less
than $10,000,000, provided that the balance of such account or
the aggregate balances of such accounts shall at no time exceed
the amount of the fidelity bond, maintained pursuant to the
requirements of the Investment Company Act and rules and
regulations thereunder, covering the officers or employees
authorized to draw on such account or accounts. [Investment
Company Act, Section 17(f)]
Section 6.04. Free Cash Accounts: The Corporation may,
upon resolution of its Board of Directors, maintain a petty cash
account free of the foregoing requirements of this Article VI in
an amount not to exceed $500, provided that such account is
operated under the imprest system and is maintained subject to
adequate controls approved by the Board of Directors over
disbursements and reimbursements including, but not limited to,
fidelity bond coverage for persons having access to such funds.
[Investment Company Act, Rule 17f-3]
Section 6.05. Action Upon Termination of Custodian
Agreement: Upon resignation of a custodian of the Corporation or
inability of a custodian to continue to serve, the Board of
Directors shall promptly appoint a successor custodian, but in
the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special meeting of
the shareholders to determine whether the Corporation shall
function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding
PAGE 21
shares of stock of the Corporation, the custodian shall deliver
and pay over all property of the Corporation held by it as
specified in such vote.
Section 6.06. Other Arrangements: The Corporation may
make such other arrangements for the custody of its assets
(including deposit arrangements) as may be required by any
applicable law, rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. Execution of Instruments: All deeds,
documents, transfers, contracts, agreements, requisitions or
orders, promissory notes, assignments, endorsements, checks and
drafts for the payment of money by the Corporation, and other
instruments requiring execution by the Corporation shall be
signed by the Chairman, the President, a Vice President, or the
Treasurer, or as the Board of Directors may otherwise, from time
to time, authorize. Any such authorization may be general or
confined to specific instances.
Section 7.02. Voting of Securities: Unless otherwise
ordered by the Board of Directors, the Chairman, the President,
or any Vice President shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any
meeting of shareholders of any company in which the Corporation
may hold stock. At any such meeting such officer shall possess
and may exercise (in person or by proxy) any and all rights,
powers, and privileges incident to the ownership of such stock.
The Board of Directors may by resolution from time to time confer
like powers upon any other person or persons. [MGCL, Section
2-509]
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Ownership of Shares:
(a) Certificates certifying the ownership of shares will
not be issued for shares purchased or otherwise acquired. The
ownership of shares, full or fractional, shall be recorded on the
books of the Corporation or its agent. The record books of the
PAGE 22
Corporation as kept by the Corporation or its agent, as the case
may be, shall be conclusive as to the number of shares held from
time to time by each such shareholder.
Section 8.02. Transfer of Capital Stock:
(a) Shares of stock of the Corporation shall be
transferable only upon the books of the Corporation kept for such
purpose.
(b) The Corporation shall be entitled to treat the holder
of record of any share of stock as the absolute owner thereof for
all purposes, and accordingly shall not be bound to recognize any
legal, equitable, or other claim or interest in such share on the
part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by
the statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The Board
of Directors may, from time to time, appoint or remove transfer
agents and registrars of transfers of shares of stock of the
Corporation, and it may appoint the same person as both transfer
agent and registrar.
Section 8.04. Transfer Regulations: The shares of stock
of the Corporation may be freely transferred, and the Board of
Directors may, from time to time, adopt lawful rules and
regulations with reference to the method of transfer of the
shares of stock of the Corporation.
Section 8.05. Fixing of Record Date: The Board of
Directors may fix in advance a date as a record date for the
determination of the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof,
or to express consent to corporate action in writing without a
meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of
stock, or for any other proper purpose, provided that such record
date shall be a date not more than sixty (60) days nor, in the
case of a meeting of shareholders, less than ten (10) days prior
to the date on which the particular action, requiring such
determination of shareholders, is to be taken. In such case,
only such shareholders as shall be shareholders of record on the
record date so fixed shall be entitled to such notice of, and to
vote at, such meeting or adjournment, or to give such consent, or
to receive payment of such dividend or other distribution, or to
receive such allotment of rights, or to exercise such rights, or
to take other action, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any
PAGE 23
such record date. A meeting of shareholders convened on the date
for which it was called may be adjourned from time to time
without notice to a date not more than one hundred twenty (120)
days after the original record date. [MGCL, Section 2-511]
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year: The fiscal year of the
Corporation shall be the twelve (12) calendar months beginning on
the 1st day of January in each year and ending on the last day of
the following December, or such other period of twelve (12)
calendar months as the Board of Directors may by resolution
prescribe.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent public
accountant or firm of independent public accountants for each
series of the Corporation to examine the accounts of the
Corporation with respect to such series and to sign and certify
financial statements filed by the Corporation with respect to
such series. The certificates and reports of the accountant(s)
shall be addressed both to the Board of Directors and to the
shareholders. The Corporation may employ a different accountant
with respect to each series.
(b) A majority of the members of the Board of Directors who
are not interested persons (as such term is defined in the
Investment Company Act) of the Corporation shall select the
accountant for each series, by vote cast in person, at any
meeting held within such period of time as may be allowed under
the Investment Company Act. Such selection shall be submitted
for ratification or rejection at the next succeeding annual
shareholders' meeting for such series. If such meeting shall
reject such selection, the accountant for such series shall be
selected by majority vote of the Corporation's outstanding voting
securities of such series, either at the meeting at which the
rejection occurred or at a subsequent meeting of shareholders for
such series called for the purpose.
(c) Any vacancy occurring between annual meetings, due to
the death or resignation of the accountant of a series, may be
filled by the vote of a majority of those members of the Board of
Directors who are not interested persons (as so defined) of the
Corporation, cast in person at a meeting called for the purpose
of voting on such action.
PAGE 24
(d) The employment of the accountant of a series shall be
conditioned upon the right of such series of the Corporation by
vote of a majority of the outstanding voting securities of such
series at any meeting called for the purpose to terminate such
employment forthwith without any penalty. [Investment Company
Act, Section 32(a)]
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. Indemnification and Payment of Expenses in
Advance: The Corporation shall indemnify any individual
("Indemnitee") who is a present or former director, officer,
employee, or agent of the Corporation, or who is or has been
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, who, by reason of his
position was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against
any judgments, penalties, fines, settlements, and reasonable
expenses (including attorneys' fees) incurred by such Indemnitee
in connection with any Proceeding, to the fullest extent that
such indemnification may be lawful under Maryland law. The
Corporation shall pay any reasonable expenses so incurred by such
Indemnitee in defending a Proceeding in advance of the final
disposition thereof to the fullest extent that such advance
payment may be lawful under Maryland law. Subject to any
applicable limitations and requirements set forth in the
Corporation's Articles of Incorporation and in these By-Laws, any
payment of indemnification or advance of expenses shall be made
in accordance with the procedures set forth in Maryland law.
Notwithstanding the foregoing, nothing herein shall protect
or purport to protect any Indemnitee against any liability to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office ("Disabling
Conduct").
Anything in this Article X to the contrary notwithstanding,
no indemnification shall be made by the Corporation to any
Indemnitee unless:
(a) there is a final decision on the merits by a court or
other body before whom the Proceeding was brought that
PAGE 25
the Indemnitee was not liable by reason of Disabling
Conduct; or
(b) in the absence of such a decision, there is a
reasonable determination, based upon a review of the
facts, that the Indemnitee was not liable by reason of
Disabling Conduct, which determination shall be made
by:
(i) the vote of a majority of a quorum of directors
who are neither "interested persons" of the
Corporations defined in Section 2(a)(19) of the
Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Anything in this Article X to the contrary notwithstanding,
any advance of expenses by the Corporation to any Indemnitee
shall be made only upon the undertaking by such Indemnitee to
repay the advance unless it is ultimately determined that such
Indemnitee is entitled to indemnification as above provided, and
only if one of the following conditions is met:
(a) the Indemnitee provides a security for his undertaking;
or
(b) the Corporation shall be insured against losses arising
by reason of any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that
the Indemnitee will ultimately be found entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of directors who are
neither "interested persons" of the Corporation
as defined in Section 2(a)(19) of the Investment
Company Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Section 10.02.Insurance of Officers, Directors, Employees
and Agents: To the fullest extent permitted by applicable
Maryland law and by Section 17(h) of the Investment Company Act,
as from time to time amended, the Corporation may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation, or who
PAGE 26
is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against
any liability asserted against him and incurred by him in or
arising out of his position, whether or not the Corporation would
have the power to indemnify him against such liability. [MGCL,
Section 2-418(k)]
Section 10.03.Amendment: No amendment, alteration or repeal
of this Article or the adoption, alteration or amendment of any
other provision of the Articles of Incorporation or By-Laws
inconsistent with this Article shall adversely affect any right
or protection of any person under this Article with respect to
any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
ARTICLE XI
AMENDMENTS
Section 11.01.General: Except as provided in Section 11.02
hereof, all By-Laws of the Corporation, whether adopted by the
Board of Directors or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be made, by
the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of
the Corporation entitled to vote, at any annual or special
meeting the notice or waiver of notice of which shall have
specified or summarized the proposed amendment, alteration,
repeal, or new By-Law; or
(b) the Directors present at any regular or special
meeting at which a quorum is present if the notice or waiver
of notice thereof or material sent to the Directors in
connection therewith on or prior to the last date for the
giving of such notice under these By-Laws shall have
specified or summarized the proposed amendment, alteration,
repeal, or new By-Law.
Section 11.02.By Shareholders Only:
(a) No amendment of any section of these By-Laws shall be
made except by the shareholders of the Corporation if the
shareholders shall have provided in the By-Laws that such section
may not be amended, altered, or repealed except by the
shareholders.
PAGE 27
(b) From and after the issue of any shares of the Capital
Stock of the Corporation, no amendment of this Article XI shall
be made except by the shareholders of the Corporation.
ARTICLE XII
MISCELLANEOUS
Section 12.01.Use of the Term "Annual Meeting:" The use of
the term "annual meeting" in these By-Laws shall not be construed
as implying a requirement that a shareholder meeting be held
annually.
October 13, 1994
T. Rowe Price Capital
Opportunity Fund, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dear Sirs:
In connection with the proposed registration of an
indefinite number of shares of Capital Stock of your Company, I
have examined certified copies of your Company's Articles of
Incorporation dated October 7, 1994, and the By-Laws of your
Company as presently in effect.
I am of the opinion that:
(i) your Company is a corporation duly organized and
existing under the laws of Maryland; and
(ii) each of such authorized shares of Capital Stock of your
Company, upon payment in full of the price fixed by the
Board of Directors of your Company, will be legally and
validly issued and will be fully paid and
non-assessable.
I hereby consent to the use of this opinion as an exhibit to
the Company's Registration Statement on Form N-1A to be filed
with the Securities and Exchange Commission for the registration
under the Securities Act of 1933 of an indefinite number of
shares of Capital Stock of your Company.
Sincerely,
/s/Henry H. Hopkins
Henry H. Hopkins
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