STATEMENT OF ADDITIONAL INFORMATION
   The date of this Statement of Additional Information is May 1, 1999.
 
 
 
         T. ROWE PRICE BALANCED FUND, INC.
         T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
         T. ROWE PRICE CAPITAL APPRECIATION FUND
         T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
         T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
         T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
         T. ROWE PRICE EQUITY INCOME FUND
         T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
         T. ROWE PRICE GROWTH & INCOME FUND, INC.
         T. ROWE PRICE GROWTH STOCK FUND, INC.
         T. ROWE PRICE HEALTH SCIENCES FUND, INC.
         T. ROWE PRICE INDEX TRUST, INC.
              T. Rowe Price Equity Index 500 Fund
              T. Rowe Price Extended Equity Market Index Fund
              T. Rowe Price Total Equity Market Index Fund
         T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
         T. ROWE PRICE MID-CAP GROWTH FUND, INC.
         T. ROWE PRICE MID-CAP VALUE FUND, INC.
         T. ROWE PRICE NEW AMERICA GROWTH FUND
         T. ROWE PRICE NEW ERA FUND, INC.
         T. ROWE PRICE NEW HORIZONS FUND, INC.
         T. ROWE PRICE REAL ESTATE FUND, INC.
         T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
         T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
         T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
         T. ROWE PRICE VALUE FUND, INC.
                                       and
         INSTITUTIONAL EQUITY FUNDS, INC.
              Mid-Cap Equity Growth Fund
 
______________________________________________________________________________
 
 
   Mailing Address:
   T. Rowe Price Investment Services, Inc.
   100 East Pratt Street
   Baltimore, Maryland 21202
   1-800-638-5660
 
   
   This Statement of Additional Information is not a prospectus but should be
   read in conjunction with the appropriate Fund prospectus dated May 1, 1999,
   which may be obtained from T. Rowe Price Investment Services, Inc.
   ("Investment Services").
 
   Each Fund's financial statements for the year ended December 31, 1998, and
   the report of independent accountants are included in each Fund's Annual
   Report and incorporated by reference into this Statement of Additional
   Information.    
 
   If you would like a prospectus or an annual or semiannual shareholder report
   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.
 
                                                                  C20-043 5/1/99

 
   


                              TABLE OF CONTENTS
                              -----------------
                            Page                                         Page
                            ----                                         ----
                                                             
Capital Stock                 65       Legal Counsel                         67
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Code of Ethics                53       Management of the Funds               28
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Custodian                     53       Net Asset Value Per Share             60
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Distributor for the Funds     52       Organization of the Funds             66
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Dividends and                 60       Portfolio Management Practices        14
Distributions
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Federal Registration of       67       Portfolio Transactions                54
Shares
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Independent Accountants       67       Pricing of Securities                 59
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Investment Management         47       Principal Holders of Securities       46
Services
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Investment Objectives and      2       Ratings of Corporate Debt             70
Policies                               Securities
- ----------------------------------     ----------------------------------------
Investment Performance        61       Risk Factors                           2
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Investment Program             5       Shareholder Services by Outside       53
                                       Parties
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Investment Restrictions       26       Tax Status                            60
- ----------------------------------     ----------------------------------------

 
    
 
 
 
 
 INVESTMENT OBJECTIVES AND POLICIES
 -------------------------------------------------------------------------------
   The following information supplements the discussion of each Fund's
   investment objectives and policies discussed in the Funds' 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. References to the following are as
   indicated:
 
                  Investment Company Act of 1940 ("1940 Act")
                  Securities and Exchange Commission ("SEC")
                  T. Rowe Price Associates, Inc. ("T. Rowe Price")
                  Moody's Investors Service, Inc. ("Moody's")
                  Standard & Poor's Corporation ("S&P")
                  Internal Revenue Code of 1986 ("Code")
   
                  Rowe Price-Fleming International, Inc. ("Price-Fleming")    
 
   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
 -------------------------------------------------------------------------------
   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.
 
 

 
   Because of its investment policy, the Fund may or may not be suitable or
   appropriate for all investors. The Fund is not a money market fund and is not
   an appropriate investment for those whose primary objective is principal
   stability. The Fund will normally have substantially all (for the Balanced
   Fund 50-70% and for the Capital Appreciation Fund at least 50%) of its assets
   in equity securities (e.g., common stocks). This portion of the Fund's assets
   will be subject to all of the risks of investing in the stock market. There
   is risk in every 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.
 
   Foreign Securities (All Funds other than Equity Index 500, Extended Equity
   Market, and Total Equity Market Funds)
   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 mutual fund while
   others relate more to the countries in which the Fund will invest.
 
  . Political and Economic Factors Individual foreign economies of certain
   countries 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 1994-1995,
   the Mexican peso plunged in value setting off a severe crisis in the Mexican
   economy. Asia is still coming to terms with its own crisis and recessionary
   conditions sparked off by widespread currency weakness in late 1997. In 1998,
   there was substantial turmoil in markets throughout the world. 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 and hostile relations between North and South Korea.
 
   Governments in certain foreign countries continue to participate to a
   significant degree, through ownership interest or regulation, in their
   respective economies. Action by these governments could have a significant
   effect on market prices of securities and payment of dividends. The economies
   of many foreign countries are heavily dependent upon international trade and
   are accordingly affected by protective trade barriers and economic conditions
   of their trading partners. The enactment by these trading partners of
   protectionist trade legislation could have a significant adverse effect upon
   the securities markets of such countries.
 
  . Currency Fluctuations The Fund invests in securities denominated in various
   currencies. Accordingly, a change in the value of any such currency against
   the U.S. dollar will result in a corresponding change in the U.S. dollar
   value of the Fund's assets denominated in that currency. Such changes will
   also affect the Fund's income. Generally, when a given currency appreciates
   against the dollar (the dollar weakens) the value of the Fund's securities
   denominated in that currency will rise. When a given currency depreciates
   against the dollar (the dollar strengthens) the value of the Fund's
   securities denominated in that currency would be expected to decline.
 
  . Investment and Repatriation of Restrictions Foreign investment in the
   securities markets of certain foreign countries is restricted or controlled
   in varying degrees. These restrictions limit at times and preclude investment
   in certain of such countries and increase the cost and expenses of the Fund.
   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. In 1998, the
   government of Malaysia imposed currency controls which effectively made it
   impossible for foreign investors to convert Malaysian ringgits to foreign
   currencies.
 
 

 
   
  . Market Characteristics It is contemplated that most foreign securities will
   be purchased in over-the-counter markets or on securities exchanges located
   in the countries in which the respective principal offices of the issuers of
   the various securities are located, if that is the best available market.
   Investments in certain markets may be made through American Depository
   Receipts ("ADRs") traded in the United States. Foreign securities markets are
   generally not as developed or efficient as, and more volatile than, those in
   the United States. While growing in volume, they usually have substantially
   less volume than U.S. markets and the Fund's portfolio securities may be less
   liquid and subject to more rapid and erratic price movements than securities
   of comparable U.S. companies. Securities may trade at price/earnings
   multiples higher than comparable United States securities and such levels may
   not be sustainable. Commissions on foreign securities are generally higher
   than commissions on United States exchanges, and while there is an increasing
   number of overseas securities markets that have adopted a system of
   negotiated rates, a number are still subject to an established schedule of
   minimum commission rates. There is generally less government supervision and
   regulation of foreign securities exchanges, brokers, and listed companies
   than in the United States. Moreover, settlement practices for transactions in
   foreign markets may differ from those in United States markets. Such
   differences 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 the Fund.    
 
  . Investment Funds The Fund may invest in investment funds which have been
   authorized by the governments of certain countries specifically to permit
   foreign investment in securities of companies listed and traded on the stock
   exchanges in these respective countries. The Fund's investment in these funds
   is subject to the provisions of the 1940 Act. If the Fund invests in such
   investment funds, the Fund's shareholders will bear not only their
   proportionate share of the expenses of the Fund (including operating expenses
   and the fees of the investment manager), but also will bear indirectly
   similar expenses of the underlying investment funds. In addition, the
   securities of these investment funds may trade at a premium over their net
   asset value.
 
  . Information and Supervision There is generally less publicly available
   information about foreign companies comparable to reports and ratings that
   are published about companies in the United States. Foreign companies are
   also generally not subject to uniform accounting, auditing and financial
   reporting standards, practices, and requirements comparable to those
   applicable to United States companies. It also is often more difficult to
   keep currently informed of corporate actions which affect the prices of
   portfolio securities.
 
  . Taxes The dividends and interest payable on certain of the Fund's foreign
   portfolio securities may be subject to foreign withholding taxes, thus
   reducing the net amount of income available for distribution to the Fund's
   shareholders.
 
  . Other With respect to certain foreign countries, especially developing and
   emerging ones, there is the possibility of adverse changes in investment or
   exchange control regulations, expropriation or confiscatory taxation,
   limitations on the removal of Funds or other assets of the Funds, political
   or social instability, or diplomatic developments which could affect
   investments by U.S. persons in those countries.
 
  . Eastern Europe and Russia Changes occurring in Eastern Europe and Russia
   today could have long-term potential consequences. As restrictions fall, this
   could result in rising standards of living, lower manufacturing costs,
   growing consumer spending, and substantial economic growth. However,
   investment in the countries of Eastern Europe and Russia is highly
   speculative at this time. Political and economic reforms are too recent to
   establish a definite trend away from centrally planned economies and
   state-owned industries. The collapse of the ruble from its crawling peg
   exchange rate against the U.S. dollar has set back the path of reform for
   several years. In many of the countries of Eastern Europe and Russia, there
   is no stock exchange or formal market for securities. Such countries may also
   have government exchange controls, currencies with no recognizable market
   value relative to the established currencies of western market economies,
   little or no experience in trading in securities, no financial reporting
   standards, a lack of a banking and securities infrastructure to handle such
   trading, and a legal tradition which does not recognize rights in private
   property. In addition, these countries may have national policies which
   restrict investments in companies deemed sensitive to the country's national
   interest. Further, the governments in such countries may require governmental
   or quasi-governmental authorities to act as custodian of the Fund's assets
   invested in such
 
 

 
   countries, and these authorities may not qualify as a foreign custodian under
   the 1940 Act 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. The 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.
 
  . Latin America
 
   Inflation Most Latin American countries have experienced, at one time or
   another, severe and persistent levels of inflation, including, in some cases,
   hyperinflation. This has, in turn, led to high interest rates, extreme
   measures by governments to keep inflation in check, and a generally
   debilitating effect on economic growth. Although inflation in many countries
   has lessened, there is no guarantee it will remain at lower levels.
 
   Political Instability The political history of certain Latin American
   countries has been characterized by political uncertainty, intervention by
   the military in civilian and economic spheres, and political corruption. Such
   developments, if they were to reoccur, could reverse favorable trends toward
   market and economic reform, privatization, and removal of trade barriers, and
   result in significant disruption in securities markets.
 
   Foreign Currency Certain Latin American countries may have managed currencies
   which are maintained at artificial levels to the U. S. dollar rather than at
   levels determined by the market. This type of system can lead to sudden and
   large adjustments in the currency which, in turn, can have a disruptive and
   negative effect on foreign investors. For example, in late 1994 the value of
   the Mexican peso lost more than one-third of its value relative to the
   dollar. Certain Latin American countries also restrict the free conversion of
   their currency into foreign currencies, including the U.S. dollar. There is
   no significant foreign exchange market for many currencies and it would, as a
   result, be difficult for the Fund to engage in foreign currency transactions
   designed to protect the value of the Fund's interests in securities
   denominated in such currencies.
 
   Sovereign Debt A number of Latin American countries are among the largest
   debtors of developing countries. There have been moratoria on, and
   reschedulings of, repayment with respect to these debts. Such events can
   restrict the flexibility of these debtor nations in the international markets
   and result in the imposition of onerous conditions on their economies.
 
 
 
 INVESTMENT PROGRAM
 -------------------------------------------------------------------------------
 
                               Types of Securities
 
   Set forth below is additional information about certain of the investments
   described in the Fund's prospectus.
 
 
                               Hybrid Instruments
 
   Hybrid Instruments (a type of potentially high-risk derivative) have been
   developed and combine the elements of futures contracts or options with those
   of debt, preferred equity, or a depository instrument (hereinafter "Hybrid
   Instruments"). Generally, a Hybrid Instrument will be a debt security,
   preferred stock, depository share, trust certificate, certificate of deposit,
   or other evidence of indebtedness on which a portion of or all interest
   payments, and/or the principal or stated amount payable at maturity,
   redemption, or retirement, is determined by reference to prices, changes in
   prices, or differences between prices, of securities, currencies,
   intangibles, goods, articles, or commodities (collectively "Underlying
   Assets") or by another objective index, economic factor, or other measure,
   such as interest rates, currency exchange rates, commodity indices, and
   securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may
   take a variety of forms, including, but not limited to, debt instruments with
   interest or principal payments or redemption terms determined by reference to
   the value of a currency or commodity or securities index at a future point in
   time, preferred stock with dividend rates determined by reference to the
   value of a currency, or convertible securities with the conversion terms
   related to a particular commodity.
 
 

 
   Hybrid Instruments can be an efficient means of creating exposure to a
   particular market, or segment of a market, with the objective of enhancing
   total return. For example, a Fund may wish to take advantage of expected
   declines in interest rates in several European countries, but avoid the
   transaction 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 Instrument may entail significant risks that are not
   associated with a similar investment in a traditional debt instrument that
   has a fixed principal amount, is denominated in U.S. dollars, or bears
   interest either at a fixed rate or a floating rate determined by reference to
   a common, nationally published benchmark. The risks of a particular Hybrid
   Instrument will, of course, depend upon the terms of the instrument, but may
   include, without limitation, the possibility of significant changes in the
   Benchmarks or the prices of Underlying Assets to which the instrument is
   linked. Such risks generally depend upon factors which are unrelated to the
   operations or credit quality of the issuer of the Hybrid Instrument and which
   may not be readily foreseen by the purchaser, such as economic and political
   events, the supply and demand for the Underlying Assets, and interest rate
   movements. In recent years, various Benchmarks and prices for Underlying
   Assets have been highly volatile, and such volatility may be expected in the
   future. Reference is also made to the discussion of futures, options, and
   forward contracts herein for a discussion of the risks associated with such
   investments.
 
   Hybrid Instruments are potentially more volatile and carry greater market
   risks than traditional debt instruments. Depending on the structure of the
   particular Hybrid Instrument, changes in a Benchmark may be magnified by the
   terms of the Hybrid Instrument and have an even more dramatic and substantial
   effect upon the value of the Hybrid Instrument. Also, the prices of the
   Hybrid Instrument and the Benchmark or Underlying Asset may not move in the
   same direction or at the same time.
 
   Hybrid Instruments may bear interest or pay preferred dividends at below
   market (or even relatively nominal) rates. Alternatively, Hybrid Instruments
   may bear interest at above market rates but bear an increased risk of
   principal loss (or gain). The latter scenario may result if "leverage" is
   used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
   Instrument is structured so that a given change in a Benchmark or Underlying
   Asset is multiplied to produce a greater value change in the Hybrid
   Instrument, thereby magnifying the risk of loss as well as the potential for
   gain.
 
   Hybrid Instruments may also carry liquidity risk since the instruments are
   often "customized" to meet the portfolio needs of a particular investor, and
   therefore, the number of investors that are willing and able to buy such
   instruments in the secondary market may be smaller than that for more
   traditional debt securities. In addition, because the purchase and sale of
   Hybrid Instruments could take place in an over-the-counter market without the
   guarantee of a central clearing organization or in a transaction between the
   Fund and the issuer of the Hybrid Instrument, the creditworthiness of the
   counter party of issuer of the Hybrid Instrument would be an additional risk
   factor which the Fund would have to consider and monitor. Hybrid Instruments
   also may not be subject to regulation of the Commodities Futures Trading
   Commission ("CFTC"), which generally regulates the trading of commodity
   futures by U.S. persons, the SEC, which regulates the offer and sale of
   securities by and to U.S. persons, or any other governmental regulatory
   authority.
 
   The various risks discussed above, particularly the market risk of such
   instruments, may in turn cause significant fluctuations in the net asset
   value of the Fund. Accordingly, the Fund will limit its investments in
 
 

 
   Hybrid Instruments to 10% of total assets. However, because of their
   volatility, it is possible that the Fund's investment in Hybrid Instruments
   will account for more than 10% of the Fund's return (positive or negative).
 
 
                        Illiquid or Restricted Securities
 
   Restricted securities may be sold only in privately negotiated transactions
   or in a public offering with respect to which a registration statement is in
   effect under the Securities Act of 1933 (the "1933 Act"). Where registration
   is required, the Fund may be obligated to pay all or part of the registration
   expenses, and a considerable period may elapse between the time of the
   decision to sell and the time the Fund may be permitted to sell a security
   under an effective registration statement. If, during such a period, adverse
   market conditions were to develop, the Fund might obtain a less favorable
   price than prevailed when it decided to sell. Restricted securities will be
   priced at fair value as determined in accordance with procedures prescribed
   by the Fund's Board of Directors/Trustees. If, through the appreciation of
   illiquid securities or the depreciation of liquid securities, the Fund should
   be in a position where more than 15% of the value of its net assets is
   invested in illiquid assets, including restricted securities, the Fund will
   take appropriate steps to protect liquidity.
 
   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 following: (1) frequency of trades and quotes; (2)
   number of dealers and potential purchases; (3) dealer undertakings to make a
   market; and (4) the nature of the security and of marketplace trades (e.g.,
   the time needed to dispose of the security, the method of soliciting offers,
   and the mechanics of transfer). The liquidity of Rule 144A securities would
   be monitored and, if as a result of changed conditions it is determined that
   a Rule 144A security is no longer liquid, the Fund's holdings of illiquid
   securities would be reviewed to determine what, if any, steps are required to
   assure that the Fund does not invest more than 15% of its net assets in
   illiquid securities. Investing in Rule 144A securities could have the effect
   of increasing the amount of the Fund's assets invested in illiquid securities
   if qualified institutional buyers are unwilling to purchase such securities.
 
 
                                    Warrants
 
   The Fund may acquire warrants. Warrants are pure speculation in that they
   have no voting rights, pay no dividends, and have no rights with respect to
   the assets of the corporation issuing them. Warrants basically are options to
   purchase equity securities at a specific price valid for a specific period of
   time. They do not represent ownership of the securities, but only the right
   to buy them. Warrants differ from call options in that warrants are issued by
   the issuer of the security which may be purchased on their exercise, whereas
   call options may be written or issued by anyone. The prices of warrants do
   not necessarily move parallel to the prices of the underlying securities.
 
 
                                 Debt Securities
 
   Balanced, Blue Chip Growth, Capital Appreciation, Capital Opportunity,
   Dividend Growth, Equity Income, Financial Services, Growth & Income, Health
   Sciences, Media & Telecommunications, Mid-Cap Value, New Era, Real Estate,
   Small-Cap Stock, Small-Cap Value, and Value Funds
 
   Debt Obligations Although a majority of the Fund's assets are invested in
   common stocks, the Fund may invest in convertible securities, corporate debt
   securities, and preferred stocks which hold the prospect of contributing to
   the achievement of the Fund's objectives. Yields on short-, intermediate-,
   and long-term securities are dependent on a variety of factors, including the
   general conditions of the money and bond markets, the size of a particular
   offering, the maturity of the obligation, and the credit quality and rating
   of the issuer. Debt securities with longer maturities tend to have higher
   yields and are generally subject to
 
 

 
   potentially greater capital appreciation and depreciation than obligations
   with shorter maturities and lower yields. The market prices of debt
   securities usually vary, depending upon available yields. An increase in
   interest rates will generally reduce the value of portfolio investments, and
   a decline in interest rates will generally increase the value of portfolio
   investments. The ability of the Fund to achieve its investment objective is
   also dependent on the continuing ability of the issuers of the debt
   securities in which the Fund invests to meet their obligations for the
   payment of interest and principal when due. The Fund's investment program
   permits it to purchase below investment-grade securities. Since investors
   generally perceive that there are greater risks associated with investment in
   lower-quality securities, the yields from such securities normally exceed
   those obtainable from higher-quality securities. However, the principal value
   of lower-rated securities generally will fluctuate more widely than
   higher-quality securities. Lower-quality investments entail a higher risk of
   default-that is, the nonpayment of interest and principal by the issuer than
   higher-quality investments. Such securities are also subject to special
   risks, discussed below. Although the Fund seeks to reduce risk by portfolio
   diversification, credit analysis, and attention to trends in the economy,
   industries and financial markets, such efforts will not eliminate all risk.
   There can, of course, be no assurance that the Fund will achieve its
   investment objective.
 
   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 were investing in higher-quality bonds. High-yield bonds may be
   more susceptible to real or perceived adverse economic conditions than
   investment-grade bonds. A projection of an economic downturn, or higher
   interest rates, for example, could cause a decline in high-yield bond prices
   because the advent of such events could lessen the ability of highly
   leveraged issuers to make principal and interest payments on their debt
   securities. In addition, the secondary trading market for high-yield bonds
   may be less liquid than the market for higher-grade bonds, which can
   adversely affect the ability of a Fund to dispose of its portfolio
   securities. Bonds for which there is only a "thin" market can be more
   difficult to value inasmuch as objective pricing data may be less available
   and judgment may play a greater role in the valuation process.
 
   Fixed income securities in which the Fund may invest include, but are not
   limited to, those described below.
 
  . U.S. Government Obligations Bills, notes, bonds, and other debt securities
   issued by the U.S. Treasury. These are direct obligations of the U.S.
   government and differ mainly in the length of their maturities.
 
  . U.S. Government Agency Securities Issued or guaranteed by U.S.
   government-sponsored enterprises and federal agencies. These include
   securities issued by the Federal National Mortgage Association, Government
   National Mortgage Association, Federal Home Loan Bank, Federal Land Banks,
   Farmers Home Administration, Banks for Cooperatives, Federal Intermediate
   Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business
   Association, and the Tennessee Valley Authority. Some of these securities are
   supported by the full faith and credit of the U.S. Treasury; the remainder
   are supported only by the credit of the instrumentality, which may or may not
   include the right of the issuer to borrow from the Treasury.
 
  . Bank Obligations Certificates of deposit, bankers' acceptances, and other
   short-term debt obligations. Certificates of deposit are short-term
   obligations of commercial banks. A bankers' acceptance is a time draft drawn
   on a commercial bank by a borrower, usually in connection with international
   commercial transactions. Certificates of deposit may have fixed or variable
   rates. The Fund may invest in U.S. banks, foreign branches of U.S. banks,
   U.S. branches of foreign banks, and foreign branches of foreign banks.
 
 

 
  . Short-Term Corporate Debt Securities Outstanding nonconvertible corporate
   debt securities (e.g., bonds and debentures) which have one year or less
   remaining to maturity. Corporate notes may have fixed, variable, or floating
   rates.
 
  . Commercial Paper Short-term promissory notes issued by corporations
   primarily to finance short-term credit needs. Certain notes may have floating
   or variable rates.
 
  . Foreign Government Securities Issued or guaranteed by a foreign government,
   province, instrumentality, political subdivision, or similar unit thereof.
 
  . Savings and Loan Obligations Negotiable certificates of deposit and other
   short-term debt obligations of savings and loan associations.
 
  . Supranational Agencies Securities of certain supranational entities, such as
   the International Development Bank.
 
 
             When-Issued Securities and Forward Commitment Contracts
 
   The price of such securities, which may be expressed in yield terms, is fixed
   at the time the commitment to purchase is made, but delivery and payment take
   place at a later date. Normally, the settlement date occurs within 90 days of
   the purchase for When-Issueds, but may be substantially longer for Forwards.
   During the period between purchase and settlement, no payment is made by the
   Fund to the issuer and no interest accrues to the Fund. The purchase of these
   securities will result in a loss if their value declines prior to the
   settlement date. This could occur, for example, if interest rates increase
   prior to settlement. The longer the period between purchase and settlement,
   the greater the risks are. At the time the Fund makes the commitment to
   purchase these securities, it will record the transaction and reflect the
   value of the security in determining its net asset value. The Fund will cover
   these securities by maintaining cash, liquid, high-grade debt securities, or
   other suitable cover as permitted by the SEC with its custodian bank equal in
   value to commitments for them during the time between the purchase and the
   settlement. Therefore, the longer this period, the longer the period during
   which alternative investment options are not available to the Fund (to the
   extent of the securities used for cover). Such securities either will mature
   or, if necessary, be sold on or before the settlement date.
 
   To the extent the Fund remains fully or almost fully invested (in securities
   with a remaining maturity of more than one year) at the same time it
   purchases these securities, there will be greater fluctuations in the Fund's
   net asset value than if the Fund did not purchase them.
 
 
                           Mortgage-Related Securities
 
   Balanced and Real Estate Funds
 
   Mortgage-related securities in which the Fund may invest include, but are not
   limited to, those described below.
 
  . Mortgage-Backed Securities Mortgage-backed securities are securities
   representing an interest in a pool of mortgages. The mortgages may be of a
   variety of types, including adjustable rate, conventional 30-year fixed rate,
   graduated payment, and 15-year. Principal and interest payments made on the
   mortgages in the underlying mortgage pool are passed through to the Fund.
   This is in contrast to traditional bonds where principal is normally paid
   back at maturity in a lump sum. Unscheduled prepayments of principal shorten
   the securities' weighted average life and may lower their total return. (When
   a mortgage in the underlying mortgage pool is prepaid, an unscheduled
   principal prepayment is passed through to the Fund. This principal is
   returned to the Fund at par. As a result, if a mortgage security were trading
   at a premium, its total return would be lowered by prepayments, and if a
   mortgage security were trading at a discount, its total return would be
   increased by prepayments.) The value of these securities also may change
   because of changes in the market's perception of the creditworthiness of the
   federal agency that issued them. In addition, the mortgage securities market
   in general may be adversely affected by changes in governmental regulation or
   tax policies.
 
  . U.S. Government Agency Mortgage-Backed Securities These are obligations
   issued or guaranteed by the United States government or one of its agencies
   or instrumentalities, such as the Government National
 
 

 
   Mortgage Association ("Ginnie Mae" or "GNMA"), the Federal National Mortgage
   Association ("Fannie Mae" or "FNMA") the Federal Home Loan Mortgage
   Corporation ("Freddie Mac" or "FHLMC"), and the Federal Agricultural Mortgage
   Corporation ("Farmer Mac" or "FAMC"). FNMA, FHLMC, and FAMC obligations are
   not backed by the full faith and credit of the U.S. government as GNMA
   certificates are, but they are supported by the instrumentality's right to
   borrow from the United States Treasury. U.S. Government Agency
   Mortgage-Backed Certificates provide for the pass-through to investors of
   their pro-rata share of monthly payments (including any prepayments) made by
   the individual borrowers on the pooled mortgage loans, net of any fees paid
   to the guarantor of such securities and the servicer of the underlying
   mortgage loans. Each of GNMA, FNMA, FHLMC, and FAMC guarantees timely
   distributions of interest to certificate holders. GNMA and FNMA guarantee
   timely distributions of scheduled principal. FHLMC has in the past guaranteed
   only the ultimate collection of principal of the underlying mortgage loan;
   however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCS) which
   also guarantee timely payment of monthly principal reductions.
 
  . Ginnie Mae Certificates Ginnie Mae is a wholly owned corporate
   instrumentality of the United States within the Department of Housing and
   Urban Development. The National Housing Act of 1934, as amended (the "Housing
   Act"), authorizes Ginnie Mae to guarantee the timely payment of the principal
   of and interest on certificates that are based on and backed by a pool of
   mortgage loans insured by the Federal Housing Administration under the
   Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or
   guaranteed by the Department of Veterans Affairs under the Servicemen's
   Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other
   eligible mortgage loans. The Housing Act provides that the full faith and
   credit of the United States government is pledged to the payment of all
   amounts that may be required to be paid under any guaranty. In order to meet
   its obligations under such guaranty, Ginnie Mae is authorized to borrow from
   the United States Treasury with no limitations as to amount.
 
  . Fannie Mae Certificates Fannie Mae is a federally chartered and privately
   owned corporation organized and existing under the Federal National Mortgage
   Association Charter Act of 1938. FNMA Certificates represent a pro-rata
   interest in a group of mortgage loans purchased by Fannie Mae. FNMA
   guarantees the timely payment of principal and interest on the securities it
   issues. The obligations of FNMA are not backed by the full faith and credit
   of the U.S. government.
 
  . Freddie Mac Certificates Freddie Mac is a corporate instrumentality of the
   United States created pursuant to the Emergency Home Finance Act of 1970, as
   amended (the "FHLMC Act"). Freddie Mac Certificates represent a pro-rata
   interest in a group of mortgage loans (a "Freddie Mac Certificate") purchased
   by Freddie Mac. Freddie Mac guarantees timely payment of interest and
   principal on certain securities it issues and timely payment of interest and
   eventual payment of principal on other securities it issues. The obligations
   of Freddie Mac are obligations solely of Freddie Mac and are not backed by
   the full faith and credit of the U.S. government.
 
  . Farmer Mac Certificates Farmer Mac is a federally chartered instrumentality
   of the United States established by Title VIII of the Farm Credit Act of
   1971, as amended ("Charter Act"). Farmer Mac was chartered primarily to
   attract new capital for financing of agricultural real estate by making a
   secondary market in certain qualified agricultural real estate loans. Farmer
   Mac provides guarantees of timely payment of principal and interest on
   securities representing interests in, or obligations backed by, pools of
   mortgages secured by first liens on agricultural real estate ("Farmer Mac
   Certificates"). Similar to Fannie Mae and Freddie Mac, Farmer Mac
   Certificates are not supported by the full faith and credit of the U.S.
   government; rather, Farmer Mac may borrow from the U.S. Treasury to meet its
   guaranty obligations.
 
   As discussed above, prepayments on the underlying mortgages and their effect
   upon the rate of return of a mortgage-backed security, is the principal
   investment risk for a purchaser of such securities, like the Fund. Over time,
   any pool of mortgages will experience prepayments due to a variety of
   factors, including (1) sales of the underlying homes (including
   foreclosures), (2) refinancings of the underlying mortgages, and (3)
   increased amortization by the mortgagee. These factors, in turn, depend upon
   general economic factors, such as level of interest rates and economic
   growth. Thus, investors normally expect prepayment rates to increase during
   periods of strong economic growth or declining interest rates, and to
   decrease in recessions and rising
 
 

 
   interest rate environments. Accordingly, the life of the mortgage-backed
   security is likely to be substantially shorter than the stated maturity of
   the mortgages in the underlying pool. Because of such variation in prepayment
   rates, it is not possible to predict the life of a particular mortgage-backed
   security, but FHA statistics indicate that 25- to 30-year single family
   dwelling mortgages have an average life of approximately 12 years. The
   majority of Ginnie Mae Certificates are backed by mortgages of this type,
   and, accordingly, the generally accepted practice treats Ginnie Mae
   Certificates as 30-year securities which prepay in full in the 12th year.
   FNMA and Freddie Mac Certificates may have differing prepayment
   characteristics.
 
   Fixed rate mortgage-backed securities bear a stated "coupon rate" which
   represents the effective mortgage rate at the time of issuance, less certain
   fees to GNMA, FNMA and FHLMC for providing the guarantee, and the issuer for
   assembling the pool and for passing through monthly payments of interest and
   principal.
 
   Payments to holders of mortgage-backed securities consist of the monthly
   distributions of interest and principal less the applicable fees. The actual
   yield to be earned by a holder of mortgage-backed securities is calculated by
   dividing interest payments by the purchase price paid for the mortgage-backed
   securities (which may be at a premium or a discount from the face value of
   the certificate).
 
   Monthly distributions of interest, as contrasted to semiannual distributions
   which are common for other fixed interest investments, have the effect of
   compounding and thereby raising the effective annual yield earned on
   mortgage-backed securities. Because of the variation in the life of the pools
   of mortgages which back various mortgage-backed securities, and because it is
   impossible to anticipate the rate of interest at which future principal
   payments may be reinvested, the actual yield earned from a portfolio of
   mortgage-backed securities will differ significantly from the yield estimated
   by using an assumption of a certain life for each mortgage-backed security
   included in such a portfolio as described above.
 
  . Collateralized Mortgage Obligations (CMOs) CMOs are bonds that are
   collateralized by whole loan mortgages or mortgage pass-through securities.
   The bonds issued in a CMO deal are divided into groups, and each group of
   bonds is referred to as a "tranche." Under the traditional CMO structure, the
   cash flows generated by the mortgages or mortgage pass-through securities in
   the collateral pool are used to first pay interest and then pay principal to
   the CMO bondholders. The bonds issued under a CMO structure are retired
   sequentially as opposed to the pro-rata return of principal found in
   traditional pass-through obligations. Subject to the various provisions of
   individual CMO issues, the cash flow generated by the underlying collateral
   (to the extent it exceeds the amount required to pay the stated interest) is
   used to retire the bonds. Under the CMO structure, the repayment of principal
   among the different tranches is prioritized in accordance with the terms of
   the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified
   in the prospectus for the issuance, would initially receive all principal
   payments. When that tranche of bonds is retired, the next tranche, or
   tranches, in the sequence, as specified in the prospectus, receive all of the
   principal payments until they are retired. The sequential retirement of bond
   groups continues until the last tranche, or group of bonds, is retired.
   Accordingly, the CMO structure allows the issuer to use cash flows of long
   maturity, monthly-pay collateral to formulate securities with short,
   intermediate and long final maturities and expected average lives.
 
   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.
 
 

 
  . U.S. Government Agency Multiclass Pass-Through Securities Unlike CMOs, U.S.
   Government Agency Multiclass Pass-Through Securities, which include FNMA
   Guaranteed REMIC Pass-Through Certificates and FHLMC Multi-Class Mortgage
   Participation Certificates, are ownership interests in a pool of Mortgage
   Assets. Unless the context indicates otherwise, all references herein to CMOs
   include multiclass pass-through securities.
 
  . Multi-Class Residential Mortgage Securities Such securities represent
   interests in pools of mortgage loans to residential home buyers made by
   commercial banks, savings and loan associations or other financial
   institutions. Unlike GNMA, FNMA and FHLMC securities, the payment of
   principal and interest on Multi-Class Residential Mortgage Securities is not
   guaranteed by the U.S. government or any of its agencies. Accordingly, yields
   on Multi-Class Residential Mortgage Securities have been historically higher
   than the yields on U.S. government mortgage securities. However, the risk of
   loss due to default on such instruments is higher since they are not
   guaranteed by the U.S. government or its agencies. Additionally, pools of
   such securities may be divided into senior or subordinated segments. Although
   subordinated mortgage securities may have a higher yield than senior mortgage
   securities, the risk of loss of principal is greater because losses on the
   underlying mortgage loans must be borne by persons holding subordinated
   securities before those holding senior mortgage securities.
 
  . Privately Issued Mortgage-Backed Certificates These are pass-through
   certificates issued by non-governmental issuers. Pools of conventional
   residential mortgage loans created by such issuers generally offer a higher
   rate of interest than government and government-related pools because there
   are no direct or indirect government guarantees of payment. Timely payment of
   interest and principal of these pools is, however, generally supported by
   various forms of insurance or guarantees, including individual loan, title,
   pool and hazard insurance. The insurance and guarantees are issued by
   government entities, private insurance or the mortgage poolers. Such
   insurance and guarantees and the creditworthiness of the issuers thereof will
   be considered in determining whether a mortgage-related security meets the
   Fund's quality standards. The Fund may buy mortgage-related securities
   without insurance or guarantees if through an examination of the loan
   experience and practices of the poolers, the investment manager determines
   that the securities meet the Fund's quality standards.
 
  . Stripped Mortgage-Backed Securities These instruments are a type of
   potentially high-risk derivative. They 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. IOs and POs are usually structured as tranches of a CMO.
   Stripped 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 Code, POs may generate taxable income from the
   current accrual of original issue discount, without a corresponding
   distribution of cash to the Fund.
 
   The cash flows and yields on IO and PO classes are extremely sensitive to the
   rate of principal payments (including prepayments) on the related underlying
   mortgage assets. In the case of IOs, prepayments affect the amount, but not
   the timing, of cash flows provided to the investor. In contrast, prepayments
   on the mortgage pool affect the timing, but not the amount, of cash flows
   received by investors in POs. For example, a rapid or slow rate of principal
   payments may have a material adverse effect on the prices of IOs or POs,
   respectively. If the underlying mortgage assets experience greater than
   anticipated prepayments of principal, an investor may fail to fully recoup
   its initial investment in an IO class of a stripped mortgage-backed security,
   even if the IO class is rated AAA or Aaa or is derived from a full faith and
   credit obligation. Conversely, if the underlying mortgage assets experience
   slower than anticipated prepayments of principal, the price on a PO class
   will be affected more severely than would be the case with a traditional
   mortgage-backed security.
 
   
   The staff of the SEC 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 or PO backed by fixed rate mortgages is liquid 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 nongovernment-issued IOs and POs not backed by fixed or adjustable rate
   mortgages as illiquid unless and until the SEC staff modifies its position.
    
 
 
                             Asset-Backed Securities
 
   The credit quality of most asset-backed securities depends primarily on the
   credit quality of the assets underlying such securities, how well the entity
   issuing the security is insulated from the credit risk of the originator or
   any other affiliated entities and the amount and quality of any credit
   support provided to the securities. The rate of principal payment on
   asset-backed securities generally depends on the rate of principal payments
   received on the underlying assets which in turn may be affected by a variety
   of economic and other factors. As a result, the yield on any asset-backed
   security is difficult to predict with precision and actual yield to maturity
   may be more or less than the anticipated yield to maturity. Asset-backed
   securities may be classified as pass-through certificates or collateralized
   obligations.
 
   Pass-through certificates are asset-backed securities which represent an
   undivided fractional ownership interest in an underlying pool of assets.
   Pass-through certificates usually provide for payments of principal and
   interest received to be passed through to their holders, usually after
   deduction for certain costs and expenses incurred in administering the pool.
 
   Because pass-through certificates represent an ownership interest in the
   underlying assets, the holders thereof bear directly the risk of any defaults
   by the obligors on the underlying assets not covered by any credit support.
   See "Types of Credit Support."
 
   Asset-backed securities issued in the form of debt instruments, also known as
   collateralized obligations, are generally issued as the debt of a special
   purpose entity organized solely for the purpose of owning such assets and
   issuing such debt. Such assets are most often trade, credit card or
   automobile receivables. The assets collateralizing such asset-backed
   securities are pledged to a trustee or custodian for the benefit of the
   holders thereof. Such issuers generally hold no assets other than those
   underlying the asset-backed securities and any credit support provided. As a
   result, although payments on such asset-backed securities are obligations of
   the issuers, in the event of defaults on the underlying assets not covered by
   any credit support (see "Types of Credit Support"), the issuing entities are
   unlikely to have sufficient assets to satisfy their obligations on the
   related asset-backed securities.
 
 
                            Real Estate and REIT Risk
 
   Primarily Real Estate Fund (but also any other Fund investing in REITs)
   Investors in the Fund may experience many of the same risks involved with
   investing in real estate directly. These risks include: declines in real
   estate values, risks related to local or general economic conditions,
   particularly lack of demand, overbuilding and increased competition,
   increases in property taxes and operating expenses, changes in zoning laws,
   heavy cash flow dependency, possible lack of availability of mortgage funds,
   obsolescence, losses due to natural disasters, condemnation of properties,
   regulatory limitations on rents and fluctuations in rental income, variations
   in market rental rates, and possible environmental liabilities. Real Estate
   Investment Trusts ("REITs") may own real estate properties (Equity REITs) and
   be subject to these risks directly, or may make or purchase mortgages
   (Mortgage REITs) and be subject to these risks indirectly through underlying
   construction, development, and long-term mortgage loans that may default or
   have payment problems.
 
   Equity REITs can be affected by rising interest rates that may cause
   investors to demand a high annual yield from future distributions which, in
   turn, could decrease the market prices for the REITs. In addition, rising
   interest rates also increase the costs of obtaining financing for real estate
   projects. Since many real estate
 
 

 
   projects are dependent upon receiving financing, this could cause the value
   of the Equity REITs in which the Fund invests to decline.
 
   Mortgage REITs may hold mortgages that the mortgagors elect to prepay during
   periods of declining interest rates which may diminish the yield on such
   REITs. In addition, borrowers may not be able to repay mortgages when due
   which could have a negative effect on the Fund.
 
   Some REITs have relatively small market capitalizations which could increase
   their volatility. REITs tend to be dependent upon specialized management
   skills and have limited diversification so they are subject to risks inherent
   in operating and financing a limited number of properties. In addition, when
   the Fund invests in REITs, a shareholder will bear his proportionate share of
   fund expenses and, indirectly bear similar expenses of the REITs. REITs
   depend generally on their ability to generate cash flow to make distributions
   to shareholders. In addition, both equity and mortgage REITs are subject to
   the risks of failing to qualify for tax-free status of income under the Code
   or failing to maintain exemption from the 1940 Act.
 
 
 
 PORTFOLIO MANAGEMENT PRACTICES
 -------------------------------------------------------------------------------
 
                         Lending of Portfolio Securities
 
   Securities loans are made to broker-dealers or institutional investors or
   other persons, pursuant to agreements requiring that the loans be
   continuously secured by collateral at least equal at all times to the value
   of the securities lent, marked to market on a daily basis. The collateral
   received will consist of cash, U.S. government securities, letters of credit
   or such other collateral as may be permitted under its investment program.
   While the securities are being lent, the Fund will continue to receive the
   equivalent of the interest or dividends paid by the issuer on the securities,
   as well as interest on the investment of the collateral or a fee from the
   borrower. The Fund has a right to call each loan and obtain the securities,
   within such period of time which coincides with the normal settlement period
   for purchases and sales of such securities in the respective markets. The
   Fund will not have the right to vote on securities while they are being lent,
   but it will call a loan in anticipation of any important vote. The 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.
 
 
                         Interfund Borrowing and Lending
 
   The Fund is a party to an exemptive order received from the SEC on December
   8, 1998, that permits it to borrow money from and/or lend money to other
   funds in the T. Rowe Price complex ("Price Funds"). All loans are set at an
   interest rate between the rate charged on overnight repurchase agreements and
   short-term bank loans. All loans are subject to numerous conditions designed
   to ensure fair and equitable treatment of all participating funds. The
   program is subject to the oversight and periodic review of the Boards of
   Directors of the Price Funds.
 
 
                              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 S&P, P1 by Moody's, 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 (1) the underlying securities are of the type (excluding
   maturity limitations) which the Fund's investment guidelines would allow it
   to purchase directly, (2) 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 (3) payment for the underlying security is made only upon
   physical delivery or evidence of book-entry transfer to the account of the
   custodian or a bank acting as agent. In the event of a bankruptcy or other
   default of a seller of a repurchase agreement, the Fund could experience both
   delays in liquidating the underlying security and losses, including: (a)
   possible decline in the value of the underlying security during the period
   while the Fund seeks to enforce its rights thereto; (b) possible subnormal
   levels of income and lack of access to income during this period; and (c)
   expenses of enforcing its rights.
 
 
                          Reverse Repurchase Agreements
 
   Although the Fund has no current intention of engaging in reverse repurchase
   agreements, the Fund reserves the right to do so. Reverse repurchase
   agreements are ordinary repurchase agreements in which a Fund is the seller
   of, rather than the investor in, securities, and agrees to repurchase them at
   an agreed upon time and price. Use of a reverse repurchase agreement may be
   preferable to a regular sale and later repurchase of the securities because
   it avoids certain market risks and transaction costs. A reverse repurchase
   agreement may be viewed as a type of borrowing by the Fund, subject to
   Investment Restriction (1). (See "Investment Restrictions.")
 
 
                              Money Market Reserves
 
   It is expected that the Fund will invest its cash reserves primarily in one
   or more money market funds established for the exclusive use of the T. Rowe
   Price family of mutual funds and other clients of T. Rowe Price and
   Price-Fleming. Currently, two such money market funds are in
   operation-Reserve Investment Fund ("RIF") and Government Reserve Investment
   Fund ("GRF"), each a series of the Reserve Investment Funds, Inc. Additional
   series may be created in the future. These funds were created and operate
   under an Exemptive Order issued by the SEC (Investment Company Act Release
   No. IC-22770, July 29, 1997).
 
   Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act
   governing money market funds. The RIF invests at least 95% of its total
   assets in prime money market instruments receiving the highest credit rating.
   The GRF invests primarily in a portfolio of U.S. government-backed
   securities, primarily U.S. Treasuries, and repurchase agreements thereon.
 
   The RIF and GRF provide a very efficient means of managing the cash reserves
   of the Fund. While neither RIF or GRF pay an advisory fee to the Investment
   Manager, they will incur other expenses. However, the RIF and GRF are
   expected by T. Rowe Price to operate at very low expense ratios. The Fund
   will only invest in RIF or GRF to the extent it is consistent with its
   objective and program.
 
   Neither fund is insured or guaranteed by the U.S. government, and there is no
   assurance they will maintain a stable net asset value of $1.00 per share.
 
   All Funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds
 
 
                                     Options
 
   Options are a type of potentially high-risk derivative.
 
 
                          Writing Covered Call Options
 
   The Fund may write (sell) American or European style "covered" call options
   and purchase options to close out options previously written by the Fund. In
   writing covered call options, the Fund expects to generate additional premium
   income which should serve to enhance the Fund's total return and reduce the
   effect of any price decline of the security or currency involved in the
   option. Covered call options will generally be written on securities or
   currencies which, in T. Rowe Price's opinion, are not expected to have any
   major price increases or moves in the near future but which, over the long
   term, are deemed to be attractive investments for the Fund.
 
   A call option gives the holder (buyer) the "right to purchase" a security or
   currency at a specified price (the exercise price) at expiration of the
   option (European style) or at any time until a certain date (the expiration
   date) (American style). So long as the obligation of the writer of a call
   option continues, he may be assigned
 
 

 
   an exercise notice by the broker-dealer through whom such option was sold,
   requiring him to deliver the underlying security or currency against payment
   of the exercise price. This obligation terminates upon the expiration of the
   call option, or such earlier time at which the writer effects a closing
   purchase transaction by repurchasing an option identical to that previously
   sold. To secure his obligation to deliver the underlying security or currency
   in the case of a call option, a writer is required to deposit in escrow the
   underlying security or currency or other assets in accordance with the rules
   of a clearing corporation.
 
   
   The Fund generally will write only covered call options. This means that the
   Fund will either 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. From time to time, the Fund will write a call option that is not
   covered as indicated above but where the Fund will establish and maintain
   with its custodian for the term of the option, an account consisting of cash,
   U.S. government securities, other liquid high-grade debt obligations, or
   other suitable cover as permitted by the SEC having a value equal to the
   fluctuating market value of the optioned securities or currencies. While such
   an option would be "covered" with sufficient collateral to satisfy SEC
   prohibitions on issuing senior securities, this type of strategy would expose
   the Fund to the risks of writing uncovered options.
 
   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
   generally 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. If the Fund
   writes an uncovered option as described above, it will bear the risk of
   having to purchase the security subject to the option at a price higher than
   the exercise price of the option. As the price of a security could appreciate
   substantially, the Fund's loss could be significant.    
 
   The premium received is the market value of an option. The premium the Fund
   will receive from writing a call option will reflect, among other things, the
   current market price of the underlying security or currency, the relationship
   of the exercise price to such market price, the historical price volatility
   of the underlying security or currency, and the length of the option period.
   Once the decision to write a call option has been made, T. Rowe Price, in
   determining whether a particular call option should be written on a
   particular security or currency, will consider the reasonableness of the
   anticipated premium and the likelihood that a liquid secondary market will
   exist for those options. The premium received by the Fund for writing covered
   call options will be recorded as a liability of the Fund. This liability will
   be adjusted daily to the option's current market value, which will be the
   latest sale price at the time at which the net asset value per share of the
   Fund is computed (close of the New York Stock Exchange), or, in the absence
   of such sale, the latest asked price. The option will be terminated upon
   expiration of the option, the purchase of an identical option in a closing
   transaction, or delivery of the underlying security or currency upon the
   exercise of the option.
 
   Closing transactions will be effected in order to realize a profit on an
   outstanding call option, to prevent an underlying security or currency from
   being called, or, to permit the sale of the underlying security or currency.
   Furthermore, effecting a closing transaction will permit the Fund to write
   another call option on the underlying security or currency with either a
   different exercise price or expiration date or both. If the Fund desires to
   sell a particular security or currency from its portfolio on which it has
   written a call option, or purchased a put option, it will seek to effect a
   closing transaction prior to, or concurrently with, the sale of the security
   or currency. There is, of course, no assurance that the Fund will be able to
   effect such closing
 
 

 
   transactions at favorable prices. If the Fund cannot enter into such a
   transaction, it may be required to hold a security or currency that it might
   otherwise have sold. When the Fund writes a covered call option, it runs the
   risk of not being able to participate in the appreciation of the underlying
   securities or currencies above the exercise price, as well as the risk of
   being required to hold on to securities or currencies that are depreciating
   in value. This could result in higher transaction costs. The Fund will pay
   transaction costs in connection with the writing of options to close out
   previously written options. Such transaction costs are normally higher than
   those applicable to purchases and sales of portfolio securities.
 
   Call options written by the Fund will normally have expiration dates of less
   than nine months from the date written. The exercise price of the options may
   be below, equal to, or above the current market values of the underlying
   securities or currencies at the time the options are written. From time to
   time, the Fund may purchase an underlying security or currency for delivery
   in accordance with an exercise notice of a call option assigned to it, rather
   than delivering such security or currency from its portfolio. In such cases,
   additional costs may be incurred.
 
   The Fund will realize a profit or loss from a closing purchase transaction if
   the cost of the transaction is less or more than the premium received from
   the writing of the option. Because increases in the market price of a call
   option will generally reflect increases in the market price of the underlying
   security or currency, any loss resulting from the repurchase of a call option
   is likely to be offset in whole or in part by appreciation of the underlying
   security or currency owned by the Fund.
 
   The Fund will not write a covered call option if, as a result, the aggregate
   market value of all portfolio securities or currencies covering written call
   or put options exceeds 25% of the market value of the Fund's net assets. In
   calculating the 25% limit, the Fund will offset, against the value of assets
   covering written calls and puts, the value of purchased calls and puts on
   identical securities or currencies with identical maturity dates.
 
 
                           Writing Covered Put Options
 
   The Fund may write American or European style covered put options and
   purchase options to close out options previously written by the Fund. A put
   option gives the purchaser of the option the right to sell, and the writer
   (seller) has the obligation to buy, the underlying security or currency at
   the exercise price during the option period (American style) or at the
   expiration of the option (European style). So long as the obligation of the
   writer continues, he may be assigned an exercise notice by the broker-dealer
   through whom such option was sold, requiring him to make payment to the
   exercise price against delivery of the underlying security or currency. The
   operation of put options in other respects, including their related risks and
   rewards, is substantially identical to that of call options.
 
   The Fund would write put options only on a covered basis, which means that
   the Fund would maintain in a segregated account cash, U.S. government
   securities, other liquid high-grade debt obligations, or other suitable cover
   as determined by the SEC, in an amount not less than the exercise price or
   the Fund will own an option to sell the underlying security or currency
   subject to the option having an exercise price equal to or greater than the
   exercise price of the "covered" option at all times while the put option is
   outstanding. (The rules of a clearing corporation currently require that such
   assets be deposited in escrow to secure payment of the exercise price.)
 
   The Fund would generally write covered put options in circumstances where T.
   Rowe Price wishes to purchase the underlying security or currency for the
   Fund's portfolio at a price lower than the current market price of the
   security or currency. In such event the Fund would write a put option at an
   exercise price which, reduced by the premium received on the option, reflects
   the lower price it is willing to pay. Since the Fund would also receive
   interest on debt securities or currencies maintained to cover the exercise
   price of the option, this technique could be used to enhance current return
   during periods of market uncertainty. The risk in such a transaction would be
   that the market price of the underlying security or currency would decline
   below the exercise price less the premiums received. Such a decline could be
   substantial and result in a significant loss to the Fund. In addition, the
   Fund, because it does not own the specific securities or currencies which it
   may be required to purchase in exercise of the put, cannot benefit from
   appreciation, if any, with respect to such specific securities or currencies.
 
 

 
   The Fund will not write a covered put option if, as a result, the aggregate
   market value of all portfolio securities or currencies covering put or call
   options exceeds 25% of the market value of the Fund's net assets. In
   calculating the 25% limit, the Fund will offset, against the value of assets
   covering written puts and calls, the value of purchased puts and calls on
   identical securities or currencies with identical maturity dates.
 
 
                             Purchasing Put Options
 
   The Fund may purchase American or European style put options. As the holder
   of a put option, the Fund has the right to sell the underlying security or
   currency at the exercise price at any time during the option period (American
   style) or at the expiration of the option (European style). The Fund may
   enter into closing sale transactions with respect to such options, exercise
   them or permit them to expire. The Fund may purchase put options for
   defensive purposes in order to protect against an anticipated decline in the
   value of its securities or currencies. An example of such use of put options
   is provided next.
 
   The Fund may purchase a put option on an underlying security or currency (a
   "protective put") owned by the Fund as a defensive technique in order to
   protect against an anticipated decline in the value of the security or
   currency. Such hedge protection is provided only during the life of the put
   option when the Fund, as the holder of the put option, is able to sell the
   underlying security or currency at the put exercise price regardless of any
   decline in the underlying security's market price or currency's exchange
   value. For example, a put option may be purchased in order to protect
   unrealized appreciation of a security or currency where T. Rowe Price deems
   it desirable to continue to hold the security or currency because of tax
   considerations. The premium paid for the put option and any transaction costs
   would reduce any capital gain otherwise available for distribution when the
   security or currency is eventually sold.
 
   The Fund may also purchase put options at a time when the Fund does not own
   the underlying security or currency. By purchasing put options on a security
   or currency it does not own, the Fund seeks to benefit from a decline in the
   market price of the underlying security or currency. If the put option is not
   sold when it has remaining value, and if the market price of the underlying
   security or currency remains equal to or greater than the exercise price
   during the life of the put option, the Fund will lose its entire investment
   in the put option. In order for the purchase of a put option to be
   profitable, the market price of the underlying security or currency must
   decline sufficiently below the exercise price to cover the premium and
   transaction costs, unless the put option is sold in a closing sale
   transaction.
 
   The Fund will not commit more than 5% of its assets to premiums when
   purchasing put and call options. The premium paid by the Fund when purchasing
   a put option will be recorded as an asset of the Fund. This asset will be
   adjusted daily to the option's current market value, which will be the latest
   sale price at the time at which the net asset value per share of the Fund is
   computed (close of New York Stock Exchange), or, in the absence of such sale,
   the latest bid price. This asset will be terminated upon expiration of the
   option, the selling (writing) of an identical option in a closing
   transaction, or the delivery of the underlying security or currency upon the
   exercise of the option.
 
 
                             Purchasing Call Options
 
   The Fund may purchase American or European style call options. As the holder
   of a call option, the Fund has the right to purchase the underlying security
   or currency at the exercise price at any time during the option period
   (American style) or at the expiration of the option (European style). The
   Fund may enter into closing sale transactions with respect to such options,
   exercise them or permit them to expire. The Fund may purchase call options
   for the purpose of increasing its current return or avoiding tax consequences
   which could reduce its current return. The Fund may also purchase call
   options in order to acquire the underlying securities or currencies. Examples
   of such uses of call options are provided next.
 
   Call options may be purchased by the Fund for the purpose of acquiring the
   underlying securities or currencies for its portfolio. Utilized in this
   fashion, the purchase of call options enables the Fund to acquire the
   securities or currencies at the exercise price of the call option plus the
   premium paid. At times the net cost of acquiring securities or currencies in
   this manner may be less than the cost of acquiring the securities or
   currencies directly. This technique may also be useful to the Fund in
   purchasing a large block of securities or currencies that would be more
   difficult to acquire by direct market purchases. So long as it holds such a
   call
 
 

 
   option rather than the underlying security or currency itself, the Fund is
   partially protected from any unexpected decline in the market price of the
   underlying security or currency and in such event could allow the call option
   to expire, incurring a loss only to the extent of the premium paid for the
   option.
 
   The Fund will not commit more than 5% of its assets to premiums when
   purchasing call and put options. The Fund may also purchase call options on
   underlying securities or currencies it owns in order to protect unrealized
   gains on call options previously written by it. A call option would be
   purchased for this purpose where tax considerations make it inadvisable to
   realize such gains through a closing purchase transaction. Call options may
   also be purchased at times to avoid realizing losses.
 
 
                        Dealer (Over-the-Counter) Options
 
   The Fund may engage in transactions involving dealer options. Certain risks
   are specific to dealer options. While the Fund would look to a clearing
   corporation to exercise exchange-traded options, if the Fund were to purchase
   a dealer option, it would rely on the dealer from whom it purchased the
   option to perform if the option were exercised. Failure by the dealer to do
   so would result in the loss of the premium paid by the Fund as well as loss
   of the expected benefit of the transaction.
 
   Exchange-traded options generally have a continuous liquid market while
   dealer options have none. Consequently, the Fund will generally be able to
   realize the value of a dealer option it has purchased only by exercising it
   or reselling it to the dealer who issued it. Similarly, when the Fund writes
   a dealer option, it generally will be able to close out the option prior to
   its expiration only by entering into a closing purchase transaction with the
   dealer to which the Fund originally wrote the option. While the Fund will
   seek to enter into dealer options only with dealers who will agree to and
   which are expected to be capable of entering into closing transactions with
   the Fund, there can be no assurance that the Fund will be able to liquidate a
   dealer option at a favorable price at any time prior to expiration. Until the
   Fund, as a covered dealer call option writer, is able to effect a closing
   purchase transaction, it will not be able to liquidate securities (or other
   assets) or currencies used as cover until the option expires or is exercised.
   In the event of insolvency of the contra party, the Fund may be unable to
   liquidate a dealer option. With respect to options written by the Fund, the
   inability to enter into a closing transaction may result in material losses
   to the Fund. For example, since the Fund must maintain a secured position
   with respect to any call option on a security it writes, the Fund may not
   sell the assets which it has segregated to secure the position while it is
   obligated under the option. This requirement may impair a Fund's ability to
   sell portfolio securities or currencies at a time when such sale might be
   advantageous.
 
   The Staff of the SEC has taken the position that purchased dealer options and
   the assets used to secure the written dealer options are illiquid securities.
   The Fund may treat the cover used for written Over-the-Counter ("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.
 
   (Equity Index 500, Extended Equity Market Index, and Total Equity Market
   Index Funds)
 
 
                                     Options
 
   Options are a type of potentially high-risk derivative.
 
   The only option activity the Funds currently may engage in is the purchase of
   S&P 500 call options for the Equity Index 500 Fund, or the purchases of call
   options on any indices that may be consistent with the investment programs
   for the Extended Equity Market Index and Total Equity Market Index Funds.
   Such activity is subject to the same risks described above under "Purchasing
   Call Options." However, the Funds reserve the right to engage in other
   options activity.
 
 

 
   All Funds
 
 
                                Futures Contracts
 
   Futures contracts are a type of potentially high-risk derivative.
 
   Transactions in Futures
 
   The Fund may enter into futures contracts including stock index, interest
   rate, and currency futures ("futures" or "futures contracts").
 
   The New Era Fund may also enter into futures contracts on commodities related
   to the types of companies in which it invests, such as oil and gold futures.
   The Equity Index 500, Extended Equity Market Index, and Total Equity Market
   Index Funds may only enter into stock index futures which are appropriate for
   their investment programs to provide an efficient means of maintaining
   liquidity while being invested in the market, to facilitate trading, or to
   reduce transaction costs. They will not use futures for hedging purposes.
   Otherwise the nature of such futures and the regulatory limitations and risks
   to which they are subject are the same as those described below.
 
   Stock index futures contracts may be used to provide a hedge for a portion of
   the Fund's portfolio, as a cash management tool, or as an efficient way for
   T. Rowe Price to implement either an increase or decrease in portfolio market
   exposure in response to changing market conditions. The Fund may purchase or
   sell futures contracts with respect to any stock index. Nevertheless, to
   hedge the Fund's portfolio successfully, the Fund must sell futures contacts
   with respect to indices or subindices whose movements will have a significant
   correlation with movements in the prices of the Fund's portfolio securities.
 
   Interest rate or currency futures contracts may be used as a hedge against
   changes in prevailing levels of interest rates or currency exchange rates in
   order to establish more definitely the effective return on securities or
   currencies held or intended to be acquired by the Fund. In this regard, the
   Fund could sell interest rate or currency futures as an offset against the
   effect of expected increases in interest rates or currency exchange rates and
   purchase such futures as an offset against the effect of expected declines in
   interest rates or currency exchange rates.
 
   The Fund will enter into futures contracts which are traded on national or
   foreign futures exchanges, and are standardized as to maturity date and
   underlying financial instrument. Futures exchanges and trading in the United
   States are regulated under the Commodity Exchange Act by the CFTC. 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
   If the Fund purchases or sells futures contracts or related options which do
   not qualify as bona fide hedging under applicable CFTC rules, the aggregate
   initial margin deposits and premium required to establish those positions
   cannot exceed 5% of the liquidation value of the Fund after taking into
   account unrealized profits and unrealized losses on any such contracts it has
   entered into; provided, however, that in the case of an option that is
   in-the-money at the time of purchase, the in-the-money amount may be excluded
   in calculating the 5% limitation. For purposes of this policy, options on
   futures contracts and foreign currency options traded on a commodities
   exchange will be considered "related options." This policy may be modified by
   the Board of Directors/Trustees without a shareholder vote and does not limit
   the percentage of the Fund's assets at risk to 5%.
 
   In instances involving the purchase of futures contracts or the writing of
   call or put options thereon by the Fund, an amount of cash, liquid assets, or
   other suitable cover as permitted by the SEC, equal to the market value of
   the futures contracts and options thereon (less any related margin deposits),
   will be identified by the Fund to cover the position, or alternative cover
   (such as owning an offsetting position) will be employed. Assets used as
   cover or held in an identified account cannot be sold while the position in
   the corresponding option or future is open, unless they are replaced with
   similar assets. As a result, the commitment of a large portion of a Fund's
   assets to cover or identified accounts could impede portfolio management or
   the Fund's ability to meet redemption requests or other current obligations.
 
 

 
   If the CFTC or other regulatory authorities adopt different (including less
   stringent) or additional restrictions, the Fund would comply with such new
   restrictions.
 
   Trading in Futures Contracts
   A futures contract provides for the future sale by one party and purchase by
   another party of a specified amount of a specific financial instrument (e.g.,
   units of a stock index) for a specified price, date, time and place
   designated at the time the contract is made. Brokerage fees are incurred when
   a futures contract is bought or sold and margin deposits must be maintained.
   Entering into a contract to buy is commonly referred to as buying or
   purchasing a contract or holding a long position. Entering into a contract to
   sell is commonly referred to as selling a contract or holding a short
   position.
 
   Unlike when the Fund purchases or sells a security, no price would be paid or
   received by the Fund upon the purchase or sale of a futures contract. Upon
   entering into a futures contract, and to maintain the Fund's open positions
   in futures contracts, the Fund would be required to deposit with its
   custodian in a segregated account in the name of the futures broker an amount
   of cash, or liquid assets known as "initial margin." The margin required for
   a particular futures contract is set by the exchange on which the contract is
   traded, and may be significantly modified from time to time by the exchange
   during the term of the contract. Futures contracts are customarily purchased
   and sold on margins that may range upward from less than 5% of the value of
   the contract being traded.
 
   If the price of an open futures contract changes (by increase in the case of
   a sale or by decrease in the case of a purchase) so that the loss on the
   futures contract reaches a point at which the margin on deposit does not
   satisfy margin requirements, the broker will require an increase in the
   margin. However, if the value of a position increases because of favorable
   price changes in the futures contract so that the margin deposit exceeds the
   required margin, the broker will pay the excess to the Fund.
 
   These subsequent payments, called "variation margin," to and from the futures
   broker, are made on a daily basis as the price of the underlying assets
   fluctuate, making the long and short positions in the futures contract more
   or less valuable, a process known as "marking to market."
 
   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 S&P's 500 Stock Index is made up of 500 selected common
   stocks, most of which are listed on the New York Stock Exchange. The S&P 500
   Index assigns relative weightings to the common stocks included in the Index,
   and the Index fluctuates with changes in the market values of those common
   stocks. In the case of futures contracts on the S&P 500 Index, the contracts
   are to buy or sell 250 units. Thus, if the value of the S&P 500 Index were
   $150, one contract would be worth $37,500 (250 units x $150). The stock index
   futures contract specifies that no delivery of the actual stocks 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 250 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 $1,000 (250 units x gain of $4). If the Fund
   enters into a futures contract to sell 250 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 $500 (250 units x loss of $2).
 
 

 
               Special Risks of Transactions in Futures Contracts
 
  . Volatility and Leverage The prices of futures contracts are volatile and are
   influenced, among other things, by actual and anticipated changes in the
   market and interest rates, which in turn are affected by fiscal and monetary
   policies and national and international political and economic events.
 
   Most United States futures exchanges limit the amount of fluctuation
   permitted in futures contract prices during a single trading day. The daily
   limit establishes the maximum amount that the price of a futures contract may
   vary either up or down from the previous day's settlement price at the end of
   a trading session. Once the daily limit has been reached in a particular type
   of futures contract, no trades may be made on that day at a price beyond that
   limit. The daily limit governs only price movement during a particular
   trading day and therefore does not limit potential losses, because the limit
   may prevent the liquidation of unfavorable positions. Futures contract prices
   have occasionally moved to the daily limit for several consecutive trading
   days with little or no trading, thereby preventing prompt liquidation of
   futures positions and subjecting some futures traders to substantial losses.
 
   Margin deposits required on futures trading are low. As a result, a
   relatively small price movement in a futures contract may result in immediate
   and substantial loss, as well as gain, to the investor. For example, if at
   the time of purchase, 10% of the value of the futures contract is deposited
   as margin, a subsequent 10% decrease in the value of the futures contract
   would result in a total loss of the margin deposit, before any deduction for
   the transaction costs, if the account were then closed out. A 15% decrease
   would result in a loss equal to 150% of the original margin deposit, if the
   contract were closed out. Thus, a purchase or sale of a futures contract may
   result in losses in excess of the amount invested in the futures contract.
 
  . Liquidity The Fund may elect to close some or all of its futures positions
   at any time prior to their expiration. The Fund would do so to reduce
   exposure represented by long futures positions or short futures positions.
   The Fund may close its positions by taking opposite positions which would
   operate to terminate the Fund's position in the futures contracts. Final
   determinations of variation margin would then be made, additional cash would
   be required to be paid by or released to the Fund, and the Fund would realize
   a loss or a gain.
 
   Futures contracts may be closed out only on the exchange or board of trade
   where the contracts were initially traded. Although the Fund intends to
   purchase or sell futures contracts only on exchanges or boards of trade where
   there appears to be an active market, there is no assurance that a liquid
   market on an exchange or board of trade will exist for any particular
   contract at any particular time. In such event, it might not be possible to
   close a futures contract, and in the event of adverse price movements, the
   Fund would continue to be required to make daily cash payments of variation
   margin. However, in the event futures contracts have been used to hedge the
   underlying instruments, the Fund would continue to hold the underlying
   instruments subject to the hedge until the futures contracts could be
   terminated. In such circumstances, an increase in the price of underlying
   instruments, if any, might partially or completely offset losses on the
   futures contract. However, as described next, there is no guarantee that the
   price of the underlying instruments will, in fact, correlate with the price
   movements in the futures contract and thus provide an offset to losses on a
   futures contract.
 
  . Hedging Risk A decision of whether, when, and how to hedge involves skill
   and judgment, and even a well-conceived hedge may be unsuccessful to some
   degree because of unexpected market behavior, market or interest rate trends.
   There are several risks in connection with the use by the Fund of futures
   contracts as a hedging device. One risk arises because of the imperfect
   correlation between movements in the prices of the futures contracts and
   movements in the prices of the underlying instruments which are the subject
   of the hedge. T. Rowe Price will, however, attempt to reduce this risk by
   entering into futures contracts whose movements, in its judgment, will have a
   significant correlation with movements in the prices of the Fund's underlying
   instruments sought to be hedged.
 
   Successful use of futures contracts by the Fund for hedging purposes is also
   subject to T. Rowe Price's ability to correctly predict movements in the
   direction of the market. It is possible that, when the Fund has sold futures
   to hedge its portfolio against a decline in the market, the index, indices,
   or instruments underlying futures might advance and the value of the
   underlying instruments held in the Fund's portfolio might decline.
 
 

 
   If this were to occur, the Fund would lose money on the futures and also
   would experience a decline in value in its underlying instruments. However,
   while this might occur to a certain degree, T. Rowe Price believes that over
   time the value of the Fund's portfolio will tend to move in the same
   direction as the market indices used to hedge the portfolio. It is also
   possible that, if the Fund were to hedge against the possibility of a decline
   in the market (adversely affecting the underlying instruments held in its
   portfolio) and prices instead increased, the Fund would lose part or all of
   the benefit of increased value of those underlying instruments that it has
   hedged, because it would have offsetting losses in its futures positions. In
   addition, in such situations, if the Fund had insufficient cash, it might
   have to sell underlying instruments to meet daily variation margin
   requirements. Such sales of underlying instruments might be, but would not
   necessarily be, at increased prices (which would reflect the rising market).
   The Fund might have to sell underlying instruments at a time when it would be
   disadvantageous to do so.
 
   In addition to the possibility that there might be an imperfect correlation,
   or no correlation at all, between price movements in the futures contracts
   and the portion of the portfolio being hedged, the price movements of futures
   contracts might not correlate perfectly with price movements in the
   underlying instruments due to certain market distortions. First, all
   participants in the futures market are subject to margin deposit and
   maintenance requirements. Rather than meeting additional margin deposit
   requirements, investors might close futures contracts through offsetting
   transactions, which could distort the normal relationship between the
   underlying instruments and futures markets. Second, the margin requirements
   in the futures market are less onerous than margin requirements in the
   securities markets and, as a result, the futures market might attract more
   speculators than the securities markets do. Increased participation by
   speculators in the futures market might also cause temporary price
   distortions. Due to the possibility of price distortion in the futures market
   and also because of imperfect correlation between price movements in the
   underlying instruments and movements in the prices of futures contracts, even
   a correct forecast of general market trends by T. Rowe Price might not result
   in a successful hedging transaction over a very short time period.
 
 
                          Options on Futures Contracts
 
   The Fund may purchase and sell options on the same types of futures in which
   it may invest.
 
   Options (another type of potentially high-risk derivative) on futures are
   similar to options on underlying instruments except that options on futures
   give the purchaser the right, in return for the premium paid, to assume a
   position in a futures contract (a long position if the option is a call and a
   short position if the option is a put), rather than to purchase or sell the
   futures contract, at a specified exercise price at any time during the period
   of the option. Upon exercise of the option, the delivery of the futures
   position by the writer of the option to the holder of the option will be
   accompanied by the delivery of the accumulated balance in the writer's
   futures margin account which represents the amount by which the market price
   of the futures contract, at exercise, exceeds (in the case of a call) or is
   less than (in the case of a put) the exercise price of the option on the
   futures contract. Purchasers of options who fail to exercise their options
   prior to the exercise date suffer a loss of the premium paid.
 
   As an alternative to writing or purchasing call and put options on stock
   index futures, the Fund may write or purchase call and put options on
   financial 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
   nondiscriminatory manner.
 
 
          Special Risks of Transactions in Options on Futures Contracts
 
   The risks described under "Special Risks in Transactions on Futures
   Contracts" are substantially the same as the risks of using options on
   futures. If the Fund were to write an option on a futures contract, it would
   be required to deposit and maintain initial and variation margin in the same
   manner as a regular futures contract. 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: (1) there may be
   insufficient trading interest in certain options; (2) restrictions may be
   imposed by an exchange on opening transactions or closing transactions or
   both; (3) trading halts, suspensions or other restrictions may be imposed
   with respect to particular classes or series of options, or underlying
   instruments; (4) unusual or unforeseen circumstances may interrupt normal
   operations on an exchange; (5) the facilities of an exchange or a clearing
   corporation may not at all times be adequate to handle current trading
   volume; or (6) one or more exchanges could, for economic or other reasons,
   decide or be compelled at some future date to discontinue the trading of
   options (or a particular class or series of options), in which event the
   secondary market on that exchange (or in the class or series of options)
   would cease to exist, although outstanding options on the exchange that had
   been issued by a clearing corporation as a result of trades on that exchange
   would continue to be exercisable in accordance with their terms. There is no
   assurance that higher than anticipated trading activity or other unforeseen
   events might not, at times, render certain of the facilities of any of the
   clearing corporations inadequate, and thereby result in the institution by an
   exchange of special procedures which may interfere with the timely execution
   of customers' orders.
 
 
                    Additional Futures and Options Contracts
 
   Although the Fund has no current intention of engaging in futures or options
   transactions other than those described above, it reserves the right to do
   so. Such futures and options trading might involve risks which differ from
   those involved in the futures and options described above.
 
 
                           Foreign Futures and Options
 
   Participation in foreign futures and foreign options transactions involves
   the execution and clearing of trades on or subject to the rules of a foreign
   board of trade. Neither the National Futures Association nor any domestic
   exchange regulates activities of any foreign boards of trade, including the
   execution, delivery and clearing of transactions, or has the power to compel
   enforcement of the rules of a foreign board of trade or any applicable
   foreign law. This is true even if the exchange is formally linked to a
   domestic market so that a position taken on the market may be liquidated by a
   transaction on another market. Moreover, such laws or regulations will vary
   depending on the foreign country in which the foreign futures or foreign
   options transaction occurs. For these reasons, when the Fund trades foreign
   futures or foreign options contracts, it may not be afforded certain of the
   protective measures provided by the Commodity Exchange Act, the CFTC's
   regulations and the rules of the National Futures Association and any
   domestic exchange, including the right to use reparations proceedings before
   the CFTC and arbitration proceedings provided by the National Futures
   Association or any domestic futures exchange. In particular, funds received
   from the Fund for foreign futures or foreign options transactions may not be
   provided the same protections as funds received in respect of transactions on
   United States futures exchanges. In addition, the price of any foreign
   futures or foreign options contract and, therefore, the potential profit and
   loss thereon may be affected by any variance in the foreign exchange rate
   between the time the Fund's order is placed and the time it is liquidated,
   offset or exercised.
 
   All Funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds
 
 
                          Foreign Currency Transactions
 
   A forward foreign currency exchange contract involves an obligation to
   purchase or sell a specific currency at a future date, which may be any fixed
   number of days from the date of the contract agreed upon by the parties, at a
   price set at the time of the contract. These contracts are principally traded
   in the interbank market conducted directly between currency traders (usually
   large, commercial banks) and their customers. A forward contract generally
   has no deposit requirement, and no commissions are charged at any stage for
   trades.
 
   The Fund may enter into forward contracts for a variety of purposes in
   connection with the management of the foreign securities portion of its
   portfolio. The Fund's use of such contracts would include, but not be limited
   to, the following:
 
 

 
   First, when the Fund enters into a contract for the purchase or sale of a
   security denominated in a foreign currency, it may desire to "lock in" the
   U.S. dollar price of the security. By entering into a forward contract for
   the purchase or sale, for a fixed amount of dollars, of the amount of foreign
   currency involved in the underlying security transactions, the Fund will be
   able to protect itself against a possible loss resulting from an adverse
   change in the relationship between the U.S. dollar and the subject foreign
   currency during the period between the date the security is purchased or sold
   and the date on which payment is made or received.
 
   Second, when T. Rowe Price believes that one currency may experience a
   substantial movement against another currency, including the U.S. dollar, it
   may enter into a forward contract to sell or buy the amount of the former
   foreign currency, approximating the value of some or all of the Fund's
   portfolio securities denominated in such foreign currency. Alternatively,
   where appropriate, the Fund may hedge all or part of its foreign currency
   exposure through the use of a basket of currencies or a proxy currency where
   such currency or currencies act as an effective proxy for other currencies.
   In such a case, the Fund may enter into a forward contract where the amount
   of the foreign currency to be sold exceeds the value of the securities
   denominated in such currency. The use of this basket hedging technique may be
   more efficient and economical than entering into separate forward contracts
   for each currency held in the Fund. The precise matching of the forward
   contract amounts and the value of the securities involved will not generally
   be possible since the future value of such securities in foreign currencies
   will change as a consequence of market movements in the value of those
   securities between the date the forward contract is entered into and the date
   it matures. The projection of short-term currency market movement is
   extremely difficult, and the successful execution of a short-term hedging
   strategy is highly uncertain. Under normal circumstances, consideration of
   the prospect for currency parties will be incorporated into the longer term
   investment decisions made with regard to overall diversification strategies.
   However, T. Rowe Price believes that it is important to have the flexibility
   to enter into such forward contracts when it determines that the best
   interests of the Fund will be served.
 
   The Fund may enter into forward contacts for any other purpose consistent
   with the Fund's investment objective and program. However, the Fund will not
   enter into a forward contract, or maintain exposure to any such contract(s),
   if the amount of foreign currency required to be delivered thereunder would
   exceed the Fund's holdings of liquid, high-grade debt securities, currency
   available for cover of the forward contract(s) or other suitable cover as
   permitted by the SEC. In determining the amount to be delivered under a
   contract, the Fund may net offsetting positions.
 
   At the maturity of a forward contract, the Fund may sell the portfolio
   security and make delivery of the foreign currency, or it may retain the
   security and either extend the maturity of the forward contract (by "rolling"
   that contract forward) or may initiate a new forward contract.
 
   If the Fund retains the portfolio security and engages in an offsetting
   transaction, the Fund will incur a gain or a loss (as described below) to the
   extent that there has been movement in forward contract prices. If the Fund
   engages in an offsetting transaction, it may subsequently enter into a new
   forward contract to sell the foreign currency. Should forward prices decline
   during the period between the Fund's entering into a forward contract for the
   sale of a foreign currency and the date it enters into an offsetting contract
   for the purchase of the foreign currency, the Fund will realize a gain to the
   extent the price of the currency it has agreed to sell exceeds the price of
   the currency it has agreed to purchase. Should forward prices increase, the
   Fund will suffer a loss to the extent of the price of the currency it has
   agreed to purchase exceeds the price of the currency it has agreed to sell.
 
   The Fund's dealing in forward foreign currency exchange contracts will
   generally be limited to the transactions described above. However, the Fund
   reserves the right to enter into forward foreign currency contracts for
   different purposes and under different circumstances. Of course, the Fund is
   not required to enter into forward contracts with regard to its foreign
   currency-denominated securities and will not do so unless deemed appropriate
   by T. Rowe Price. It also should be realized that this method of hedging
   against a decline in the value of a currency does not eliminate fluctuations
   in the underlying prices of the securities. It simply establishes a rate of
   exchange at a future date. Additionally, although such contracts tend to
   minimize the risk of loss due to a decline in the value of the hedged
   currency, at the same time, they tend to limit any potential gain which might
   result from an increase in the value of that currency.
 
 

 
   
   Although the Fund values its assets daily in terms of U.S. dollars, it does
   not intend to convert its holdings of foreign currencies into U.S. dollars on
   a daily basis. It will do so from time to time, and there are costs
   associated with 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
 
   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. 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 losses, if the security covering the option was held for
   more than 12 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. Tax regulations could be issued limiting 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.
 
   As a result of the "Taxpayer Relief Act of 1997," entering into certain
   options, futures contracts, or forward contracts may result in the
   "constructive sale" of offsetting stocks or debt securities of the Fund.
 
 
 
 INVESTMENT RESTRICTIONS
 -------------------------------------------------------------------------------
   Fundamental policies may not be changed without the approval of the lesser of
   (1) 67% of the Fund's shares present at a meeting of shareholders if the
   holders of more than 50% of the outstanding shares are present in person or
   by proxy or (2) more than 50% of a Fund's outstanding shares. Other
   restrictions in the form of operating policies are subject to change by the
   Fund's Board of Directors/Trustees without shareholder approval. Any
   investment restriction which involves a maximum percentage of securities or
   assets shall not be considered to be violated unless an excess over the
   percentage occurs immediately after, and is caused by, an acquisition of
   securities or assets of, or borrowings by, the Fund. Calculation of the
   Fund's total assets for compliance with any of the following fundamental or
   operating policies or any other investment restrictions set forth in the
   Fund's prospectus or Statement of Additional Information will not include
   cash collateral held in connection with securities lending activities.
 
 
                              Fundamental Policies
 
   As a matter of fundamental policy, the Fund may not:
 
   (1) Borrowing Borrow money except that the Fund may (i) borrow for
       non-leveraging, temporary or emergency purposes; and (ii) engage in
       reverse repurchase agreements and make other investments or engage in
       other transactions, which may involve a borrowing, in a manner consistent
       with the Fund's investment objective and program, provided that the
       combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value
       of the Fund's total assets (including the amount borrowed) less
       liabilities (other than borrowings) or such other percentage permitted by
       law. Any borrowings which come to exceed this amount will be reduced in
       accordance with applicable law. 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) (a)
       Industry Concentration (All Funds except Health Sciences, Financial
       Services, and Real Estate Funds) Purchase the securities of any issuer
       if, as a result, more than 25% of the value of the Fund's total assets
       would be invested in the securities of issuers having their principal
       business activities in the same industry;
 
       (b)
       Industry Concentration (Health Sciences, Financial Services, and Real
       Estate Funds) Purchase the securities of any issuer if, as a result, more
       than 25% of the value of the Fund's total assets would be invested in the
       securities of issuers having their principal business activities in the
       same industry; provided, however, that (i) the Health Sciences Fund will
       invest more than 25% of its total assets in the health sciences industry
       as defined in the Fund's prospectus; (ii) the Financial Services Fund
       will invest more than 25% of its total assets in the financial services
       industry as defined in the Fund's prospectus; (iii) the Real Estate Fund
       will invest more than 25% of its total assets in the real estate industry
       as defined in the Fund's prospectus.
 
   (4) Loans Make loans, although the Fund may (i) lend portfolio securities and
       participate in an interfund lending program with other Price Funds
       provided that no such loan may be made if, as a result, the aggregate of
       such loans would exceed 33/1//\\/3/\\% of the value of the Fund's total
       assets; (ii) purchase money market securities and enter into repurchase
       agreements; and (iii) acquire publicly distributed or privately placed
       debt securities and purchase debt;
 
   
   (5) Percent Limit on Assets Invested in Any One Issuer Purchase a security
       if, as a result, with respect to 75% of the value of its total assets,
       more than 5% of the value of the Fund's total assets would be invested in
       the securities of a single issuer, except securities issued or guaranteed
       by the U.S. government or any of its agencies or instrumentalities;
 
   (6) Percent Limit on Share Ownership of Any One Issuer 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, including limited partnership
       interests therein, 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 securities of
       companies engaged in the real estate business);
 
   (8) Senior Securities Issue senior securities except in compliance with the
       1940 Act; 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 1933 Act 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 restriction (2), the Fund does not consider
       currency contracts or hybrid investments to be commodities.
 
       For purposes of investment restriction (3), U.S., state or local
       governments, or related agencies or instrumentalities, are not considered
       an industry. Industries are determined by reference to the
       classifications of industries set forth in the Fund's semiannual and
       annual reports. It is the position of the Staff of the SEC that foreign
       governments are industries for purposes of this restriction.
 
       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 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 if, as a result, more
       than 15% of its net assets would be invested in such securities;
 
   (5) Investment Companies Purchase securities of open-end or closed-end
       investment companies except (i) in compliance with the 1940 Act; or (ii)
       securities of the Reserve Investment or Government Reserve Investment
       Funds;
 
   (6) Margin Purchase securities on margin, except (i) for use of short-term
       credit necessary for clearance of purchases of portfolio securities and
       (ii) it may make margin deposits in connection with futures contracts or
       other permissible investments;
 
   (7) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any
       security owned by the Fund as security for indebtedness except as may be
       necessary in connection with permissible borrowings or investments and
       then such mortgaging, pledging or hypothecating may not exceed
       33/1//\\/3/\\% of the Fund's total assets at the time of borrowing or
       investment;
 
   (8) Oil and Gas Programs Purchase participations or other direct interests
       in, or enter into leases with respect to oil, gas, or other mineral
       exploration or development programs if, as a result thereof, more than 5%
       of the value of the total assets of the Fund would be invested in such
       programs;
 
   (9) Options, etc. Invest in puts, calls, straddles, spreads, or any
       combination thereof, except to the extent permitted by the prospectus and
       Statement of Additional Information;
 
   (10) Short Sales Effect short sales of securities; or
 
   (11) Warrants Invest in warrants if, as a result thereof, more than 10% of
       the value of the net assets of the Fund would be invested in warrants.
 
   For Blue Chip Growth, Capital Opportunity, Diversified Small-Cap Growth,
   Financial Services, Health Sciences, Media & Telecommunications, Mid-Cap
   Value, Real Estate, and Value Funds:
 
   Notwithstanding anything in the above fundamental and operating restrictions
   to the contrary, the Fund may invest all of its assets in a single investment
   company or a series thereof in connection with a "master-feeder" arrangement.
   Such an investment would be made where the Fund (a "Feeder"), and one or more
   other Funds with the same investment objective and program as the Fund,
   sought to accomplish its investment objective and program by investing all of
   its assets in the shares of another investment company (the "Master"). The
   Master would, in turn, have the same investment objective and program as the
   Fund. The Fund would invest in this manner in an effort to achieve the
   economies of scale associated with having a Master fund make investments in
   portfolio companies on behalf of a number of Feeder funds.
 
 
 
 MANAGEMENT OF THE FUNDS
 -------------------------------------------------------------------------------
   The officers and directors/trustees of the Fund are listed below. Unless
   otherwise noted, the address of each is 100 East Pratt Street, Baltimore,
   Maryland 21202. Except as indicated, each has been an employee of T. Rowe
   Price for more than five years. In the list below, the Fund's
   directors/trustees who are considered "interested
 
 

 
   persons" of T. Rowe Price as defined under Section 2(a)(19) of the 1940 Act
   are noted with an asterisk (*). These directors/trustees are referred to as
   inside directors by virtue of their officership, directorship, and/or
   employment with T. Rowe Price.
 
   All Funds
 
 
                       Independent Directors/Trustees/(a)/
 
   DONALD W. DICK, JR., 1/27/43, Principal, EuroCapital Advisors, LLC, an
   acquisition and management advisory firm; formerly (5/89-6/95) Principal,
   Overseas Partners, Inc., a financial investment firm; formerly  (6/65-3/89)
   Director and Vice President; Consumer Products Division, McCormick & Company,
   Inc., international food processors; Director, Waverly, Inc., Baltimore,
   Maryland; Address: 925 Cleveland Street, #177, Greenville, South Carolina
   29601
 
   
   DAVID K. FAGIN, 4/9/38, Chairman and Chief Executive Officer, Western
   Exploration and Development, Ltd.; Director Golden Star Resources Ltd. and
   Miranda Mining Development Corporation; formerly (7/91-     9/97) Chairman,
   Chief Executive Officer, Golden Star Resources Ltd.; (1986-7/91) President,
   Chief Operating Officer and Director, Homestake Mining Company; Address: 1700
   Lincoln Street, Suite 4710, Denver, Colorado 80203    
 
   HANNE M. MERRIMAN, 11/16/41, Retail business consultant; formerly President
   and Chief Operating Officer (1991-92), Nan Duskin, Inc., a women's specialty
   store, Director (1984-90) and Chairman (1989-90) Federal Reserve Bank of
   Richmond, and President and Chief Executive Officer (1988-89), Honeybee,
   Inc., a division of Spiegel, Inc.; Director, Central Illinois Public Service
   Company, CIPSCO Incorporated, Finlay Enterprises, Inc., The Rouse Company,
   State Farm Mutual Automobile Insurance Company and USAir Group, Inc.;
   Address: 3201 New Mexico Avenue, N.W., Suite 350, Washington, D.C. 20016
 
   
   HUBERT D. VOS, 8/2/33, Owner/President, Stonington Capital Corporation, a
   private investment company; Address: 1114 State Street, Suite 247, P.O. Box
   90409, Santa Barbara, California 93190-0409    
 
   PAUL M. WYTHES, 6/23/33, Founding General Partner, Sutter Hill Ventures, a
   venture capital limited partnership, providing equity capital to young high
   technology companies throughout the United States; Director, Teltone
   Corporation, Interventional Technologies Inc. and Stuart Medical, Inc.;
   Address: 755 Page Mill Road, Suite A200, Palo Alto, California 94304-1005
 
   
  (a) Unless otherwise indicated, the Independent Directors/Trustees have been
     at their respective companies for at least five years.    
 
 
                                    Officers
 
   HENRY H. HOPKINS, 12/23/42, Vice President-Vice President, Price-Fleming and
   T. Rowe Price Retirement Plan Services, Inc.; Director and Managing Director,
   T. Rowe Price; Vice President and Director, T. Rowe Price Investment
   Services, Inc., T. Rowe Price Services, Inc. and T. Rowe Price Trust Company
 
   PATRICIA S. LIPPERT, 1/12/53, Secretary-Assistant Vice President, T. Rowe
   Price and T. Rowe Price Investment Services, Inc.
 
   CARMEN F. DEYESU, 8/1/41, Treasurer-Vice President, T. Rowe Price, T. Rowe
   Price Services, Inc., and T. Rowe Price Trust Company
 
   
   DAVID S. MIDDLETON, 1/18/56, Controller-Vice President, T. Rowe Price and T.
   Rowe Price Trust Company
 
   J. JEFFREY LANG, 1/10/62, Assistant Vice President-Assistant Vice President,
   T. Rowe Price; Vice President, T. Rowe Price Trust Company    
 
   INGRID I. VORDEMBERGE, 9/27/35, Assistant Vice President-Employee, T. Rowe
   Price
 
   Balanced Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst    
 
 

 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Chairman of the Board -Vice Chairman of the Board,
   Managing Director, and Director, T. Rowe Price; Chairman of the Board, T.
   Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director and Vice President -Chairman of the Board
   and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
   Officer, and Managing Director, T. Rowe Price; Vice President and Director,
   T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
   
 
   RICHARD T. WHITNEY, 5/7/58, President -Managing Director, T. Rowe Price; Vice
   President, Price-Fleming and T. Rowe Price Trust Company; Chartered Financial
   Analyst
 
 
 
   STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price
   Retirement Plan Services, Inc.    
 
 
 
   ANDREW M. BROOKS, 2/16/56, Vice President -Vice President, T. Rowe Price
 
 
   
 
   RAYMOND A. MILLS, PHD, 12/3/60, Vice President -Assistant Vice President, T.
   Rowe Price; formerly a Principal Systems Engineer at TASC, Inc.
 
 
 
   EDMUND M. NOTZON, 10/1/45, Vice President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
 
   DONALD J. PETERS, 7/3/59, Vice President -Vice President, T. Rowe Price;
   formerly portfolio manager, Geewax Terker and Company
 
   
 
 
   MARK J. VASELKIV, 7/22/58, Vice President -Vice President, T. Rowe Price    
 
   Blue Chip Growth Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   LARRY J. PUGLIA, 8/25/60, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
 
   JILL L. HAUSER, 6/23/58, Vice President -Vice President, T. Rowe Price
 
 
   
 
   SEEMA R. HINGORANI, 1/21/69, Vice President -Assistant Vice President, T.
   Rowe Price; formerly Associate Equity Analyst, Donaldson, Lufkin & Jenrehe
    
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
   
 
   STEPHEN C. JANSEN, 12/12/68, Vice President -Assistant Vice President, T.
   Rowe Price; formerly an Investment Analyst at Schroder & Co.    
 
 
   
 
   KRIS H. JENNER, M.D., 2/5/62, Vice President -Vice President, T. Rowe Price;
   formerly with the Laboratory of Biological Cancer, The Brigham & Women's
   Hospital, Harvard Medical School    
 
 

 
 
   
 
   ROBERT W. SHARPS, 6/10/71, Vice President -Assistant Vice President, T. Rowe
   Price; formerly Senior Consultant, KPMG Peat Marwick; Chartered Financial
   Analyst    
 
 
 
   ROBERT W. SMITH, 4/11/61, Vice President -Managing Director, T. Rowe Price;
   Vice President, Price-Fleming
 
 
 
   WILLIAM J. STROMBERG, 3/10/60, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
   Capital Appreciation Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Trustee -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Trustee and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Chairman of the Board -Chairman of the Board and
   Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
   Officer, and Managing Director, T. Rowe Price; Vice President and Director,
   T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
 
   RICHARD P. HOWARD, 9/16/46, President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   ARTHUR B. CECIL III, 9/15/42, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   CHARLES M. OBER, 4/20/50, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Vice President -Director and Managing Director, T.
   Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
   Capital Opportunity Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Director and President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Executive Vice President -Vice President, T. Rowe
   Price
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
 
   LARRY J. PUGLIA, 8/25/60, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   ROBERT W. SHARPS, 6/10/71, Vice President -Assistant Vice President, T. Rowe
   Price; formerly Senior Consultant, KPMG Peat Marwick; Chartered Financial
   Analyst    
 
 
 
   BRIAN D. STANSKY, 10/14/63, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 

 
   Diversified Small-Cap Growth Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
   
 
   RICHARD T. WHITNEY, 5/7/58, President -Managing Director, T. Rowe Price; Vice
   President, Price-Fleming and T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
 
   KRISTEN F. CULP, 9/28/62, Vice President -Vice President, T. Rowe Price and
   T. Rowe Price Trust Company
 
 
 
   DONALD J. PETERS, 7/3/59, Vice President -Vice President, T. Rowe Price;
   formerly portfolio manager, Geewax Terker and Company
 
 
   
 
   PAUL J. WOJCIK, 11/28/70, Vice President -Assistant Vice President, T. Rowe
   Price; formerly Senior Programmer/Analyst, Fidelity Investments; Chartered
   Financial Analyst    
 
   Dividend Growth Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   WILLIAM J. STROMBERG, 3/10/60, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Executive Vice President -Director and Managing
   Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company;
   Chartered Financial Analyst    
 
 
 
   ARTHUR B. CECIL III, 9/15/42, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
   
 
   MICHAEL W. HOLTON, 9/25/68, Vice President -Vice President, T. Rowe Price;
   formerly Research Analyst at Bowles, Hollowell, Conner and Company; Chartered
   Financial Analyst    
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
 
   DAVID M. LEE, 11/13/62, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst; formerly Marketing Representative at IBM
 
 
 
   DONALD J. PETERS, 7/3/59, Vice President -Vice President, T. Rowe Price;
   formerly portfolio manager, Geewax Terker and Company
 
 
 
   LARRY J. PUGLIA, 8/25/60, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   DAVID J. WALLACK, 7/2/60, Vice President -Vice President, T. Rowe Price
 
 

 
   Equity Income Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Trustee -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Trustee and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Trustee -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, President -Director and Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst
 
 
 
   STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price
   Retirement Plan Services, Inc.    
 
 
 
   ANDREW M. BROOKS, 2/16/56, Vice President -Vice President, T. Rowe Price
 
 
 
   ARTHUR B. CECIL III, 9/15/42, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   GIRI DEVULAPALLY, 11/18/67, Vice President -Employee, T. Rowe Price; formerly
   Senior Consultant, Anderson Consulting
 
 
 
   RICHARD P. HOWARD, 9/16/46, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   WILLIAM J. STROMBERG, 3/10/60, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
   
 
 
   MARK J. VASELKIV, 7/22/58, Vice President -Vice President, T. Rowe Price    
 
   Equity Index 500, Extended Equity Market Index, and Total Market Index Funds
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
   
 
   RICHARD T. WHITNEY, 5/7/58, President -Managing Director, T. Rowe Price; Vice
   President, Price-Fleming and T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
 
 
   KRISTEN F. CULP, 9/28/62, Executive Vice President -Vice President, T. Rowe
   Price and T. Rowe Price Trust Company
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
 
   WENDY R. DIFFENBAUGH, 10/2/53, Vice President -Assistant Vice President, T.
   Rowe Price
 
 
   
 
   RAYMOND A. MILLS, PHD, 12/3/60, Vice President -Assistant Vice President, T.
   Rowe Price; formerly a Principal Systems Engineer at TASC, Inc.    
 
 
 
   MARY C. MUNOZ, 12/2/62, Vice President -Assistant Vice President, T. Rowe
   Price
 
 
 
   DONALD J. PETERS, 7/3/59, Vice President -Vice President, T. Rowe Price;
   formerly portfolio manager, Geewax Terker and Company
 
 

 
 
   
 
   PAUL J. WOJCIK, 11/28/70, Vice President -Assistant Vice President, T. Rowe
   Price; formerly Senior Programmer/Analyst, Fidelity Investments; Chartered
   Financial Analyst    
 
   Financial Services Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Chairman of the Board -Chairman of the Board and
   Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
   Officer, and Managing Director, T. Rowe Price; Vice President and Director,
   T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
 
   LARRY J. PUGLIA, 8/25/60, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
   
 
 
   STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price
   Retirement Plan Services, Inc.    
 
 
   
 
   ANNA M. DOPKIN, 9/5/67, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1991, Analyst, Goldman Sachs; Chartered Financial
   Analyst    
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
 
   ROBERT J. MARCOTTE, 3/6/62, Vice President -Vice President, T. Rowe Price
 
 
   
 
   ROBERT W. SHARPS, 6/10/71, Vice President -Assistant Vice President, T. Rowe
   Price; formerly Senior Consultant, KPMG Peat Marwick; Chartered Financial
   Analyst    
 
 
 
   WILLIAM J. STROMBERG, 3/10/60, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
 
 
   SUSAN J. KLEIN, 4/18/50, Assistant Vice President -Employee, T. Rowe Price
 
   Growth & Income Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Chairman of the Board -Vice Chairman of the Board,
   Managing Director, and Director, T. Rowe Price; Chairman of the Board, T.
   Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst
 
 
 
   STEPHEN W. BOESEL, 12/28/44, President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company and T. Rowe Price Retirement Plan
   Services, Inc.    
 
 
 
   ANDREW M. BROOKS, 2/16/56, Vice President -Vice President, T. Rowe Price
 
 
 
   ARTHUR B. CECIL III, 9/15/42, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   KARA M. CHESEBY, 10/9/63, Vice President -Vice President, T. Rowe Price;
   formerly Vice President, Legg Mason Wood Walker; Chartered Financial Analysis
 
 
 
   DAVID M. LEE, 11/13/62, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst; formerly Marketing Representative at IBM
 
 

 
 
 
   GREGORY A. MCCRICKARD, 10/19/58, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst
 
 
 
   LARRY J. PUGLIA, 8/25/60, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Vice President -Director and Managing Director, T.
   Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
 
 
   ROBERT W. SMITH, 4/11/61, Vice President -Managing Director, T. Rowe Price;
   Vice President, Price-Fleming
 
   
 
 
   MARK J. VASELKIV, 7/22/58, Vice President -Vice President, T. Rowe Price    
 
 
 
   DAVID J. WALLACK, 7/2/60, Vice President -Vice President, T. Rowe Price
 
 
   
 
   RICHARD T. WHITNEY, 5/7/58, Vice President -Managing Director, T. Rowe Price;
   Vice President, Price-Fleming and T. Rowe Price Trust Company; Chartered
   Financial Analyst    
 
   Growth Stock Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Chairman of the Board -Chairman of the Board and
   Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
   Officer, and Managing Director, T. Rowe Price; Vice President and Director,
   T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
 
   ROBERT W. SMITH, 4/11/61, President -Managing Director, T. Rowe Price; Vice
   President, Price-Fleming
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
 
   JILL L. HAUSER, 6/23/58, Vice President -Vice President, T. Rowe Price
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   D. JAMES PREY III, 11/26/59, Vice President -Vice President, T. Rowe Price
 
 
 
   LARRY J. PUGLIA, 8/25/60, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   CAROL G. BARTHA, 1/4/42, Assistant Vice President -Employee, T. Rowe Price
 
   Health Sciences Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Director and President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 

 
 
 
   BRIAN D. STANSKY, 10/14/63, Executive Vice President -Vice President, T. Rowe
   Price; Chartered Financial Analyst
 
 
   
 
   KRIS H. JENNER, M.D., 2/5/62, Vice President -Vice President, T. Rowe Price;
   formerly with the Laboratory of Biological Cancer, The Brigham & Women's
   Hospital, Harvard Medical School    
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   CHARLES G. PEPIN, 4/23/66, Vice President -Vice President, T. Rowe Price
 
 
 
   D. JAMES PREY III, 11/26/59, Vice President -Vice President, T. Rowe Price
 
 
 
   DARRELL M. RILEY, 2/18/58, Vice President -Vice President, T. Rowe Price
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Vice President -Director and Managing Director, T.
   Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
   Media & Telecommunications Fund
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Chairman of the Board -Vice Chairman of the Board,
   Managing Director, and Director, T. Rowe Price; Chairman of the Board, T.
   Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   BRIAN D. STANSKY, 10/14/63, President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   CHARLES A. MORRIS, 1/3/63, Executive Vice President -Managing Director, T.
   Rowe Price; Chartered Financial Analyst
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
   
 
   SEEMA R. HINGORANI, 1/21/69, Vice President -Assistant Vice President, T.
   Rowe Price; formerly Associate Equity Analyst, Donaldson, Lufkin & Jenrehe
    
 
 
 
   D. JAMES PREY III, 11/26/59, Vice President -Vice President, T. Rowe Price
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Vice President -Vice President, T. Rowe Price
 
   Mid-Cap Equity Growth Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Chairman of the Board -Vice Chairman of the Board,
   Managing Director, and Director, T. Rowe Price; Chairman of the Board, T.
   Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director and President -Chairman of the Board and
   Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
   Officer, and Managing Director, T. Rowe Price; Vice President and Director,
   T. Rowe Price Trust Company; Chartered Financial Analyst    
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Executive Vice President -Managing Director,
   T. Rowe Price; Chartered Financial Analyst
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
   
 
   ANNA M. DOPKIN, 9/5/67, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1991, Analyst, Goldman Sachs; Chartered Financial
   Analyst    
 
 

 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
 
   ROBERT J. MARCOTTE, 3/6/62, Vice President -Vice President, T. Rowe Price
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Vice President -Vice President, T. Rowe Price
 
   Mid-Cap Growth Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Chairman of the Board -Vice Chairman of the Board,
   Managing Director, and Director, T. Rowe Price; Chairman of the Board, T.
   Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
   
 
   ANNA M. DOPKIN, 9/5/67, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1991, Analyst, Goldman Sachs; Chartered Financial
   Analyst    
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
 
   ROBERT J. MARCOTTE, 3/6/62, Vice President -Vice President, T. Rowe Price
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Vice President -Vice President, T. Rowe Price
 
   Mid-Cap Value Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   GREGORY A. MCCRICKARD, 10/19/58, President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   PRESTON G. ATHEY, 7/17/49, Vice President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   HUGH M. EVANS III, 5/17/66, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   MARCY L. FISHER, 8/5/59, Vice President -Vice President, T. Rowe Price
 
 

 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Vice President -Director and Managing Director, T.
   Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
 
   
 
   LAUREN A. ROMEO, 9/20/67, Vice President -Assistant Vice President, T. Rowe
   Price; Chartered Financial Analyst    
 
 
 
   DAVID J. WALLACK, 7/2/60, Vice President -Vice President, T. Rowe Price
 
   New America Growth Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Trustee and President -Director and Managing
   Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Trustee and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Trustee -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Executive Vice President -Managing Director,
   T. Rowe Price; Chartered Financial Analyst
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
 
   KARA M. CHESEBY, 10/9/63, Vice President -Vice President, T. Rowe Price;
   formerly Vice President, Legg Mason Wood Walker; Chartered Financial Analysis
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
   
 
   SEEMA R. HINGORANI, 1/21/69, Vice President -Assistant Vice President, T.
   Rowe Price; formerly Associate Equity Analyst, Donaldson, Lufkin & Jenrehe
    
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
 
   CHARLES G. PEPIN, 4/23/66, Vice President -Vice President, T. Rowe Price
 
 
 
   BRIAN D. STANSKY, 10/14/63, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Vice President -Vice President, T. Rowe Price
 
   New Era Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   CHARLES M. OBER, 4/20/50, President -Vice President, T. Rowe Price; Chartered
   Financial Analyst
 
 
 
   DAVID J. WALLACK, 7/2/60, Executive Vice President -Vice President, T. Rowe
   Price
 
 
 
   HUGH M. EVANS III, 5/17/66, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   RICHARD P. HOWARD, 9/16/46, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 

 
 
 
   DAVID M. LEE, 11/13/62, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst; formerly Marketing Representative at IBM
 
 
 
   ROBERT J. MARCOTTE, 3/6/62, Vice President -Vice President, T. Rowe Price
 
 
   
 
   GEORGE A. ROCHE, 7/6/41, Vice President -President, Director, Chairman of the
   Board, and Managing Director, T. Rowe Price; Director, Price-Fleming and T.
   Rowe Price Retirement Plan Services, Inc.    
 
   New Horizons Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Director and President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   PRESTON G. ATHEY, 7/17/49, Vice President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
 
   BRIAN W.H. BERGHUIS, 12/12/58, Vice President -Managing Director, T. Rowe
   Price; Chartered Financial Analyst
 
 
   
 
   ANNA M. DOPKIN, 9/5/67, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1991, Analyst, Goldman Sachs; Chartered Financial
   Analyst    
 
 
 
   MARCY L. FISHER, 8/5/59, Vice President -Vice President, T. Rowe Price
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
 
   JILL L. HAUSER, 6/23/58, Vice President -Vice President, T. Rowe Price
 
 
   
 
   THOMAS J. HUBER, 9/23/66, Vice President -Vice President, T. Rowe Price;
   formerly a Corporate Banking Officer with NationsBank; Chartered Financial
   Analyst    
 
 
   
 
   KRIS H. JENNER, M.D., 2/5/62, Vice President -Vice President, T. Rowe Price;
   formerly with the Laboratory of Biological Cancer, The Brigham & Women's
   Hospital, Harvard Medical School    
 
 
   
 
   JOSEPH M. MILANO, 9/14/72, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1994 Research Assistant, Brookings Institution    
 
 
 
   CHARLES A. MORRIS, 1/3/63, Vice President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   CHARLES G. PEPIN, 4/23/66, Vice President -Vice President, T. Rowe Price
 
 
 
   DARRELL M. RILEY, 2/18/58, Vice President -Vice President, T. Rowe Price
 
 
 
   MARK R. SCHLARBAUM, 12/23/69, Vice President -Vice President, T. Rowe Price
 
 
   
 
   MICHAEL F. SOLA, 7/21/69, Vice President -Vice President, T. Rowe Price;
   formerly Systems Analyst/ Programmer at SRA Corporation; Chartered Financial
   Analyst    
 
 
 
   BRIAN D. STANSKY, 10/14/63, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   JOHN F. WAKEMAN, 11/25/62, Vice President -Vice President, T. Rowe Price
 
 
 
   FRANCIES W. HAWKS, 2/2/44, Assistant Vice President -Assistant Vice
   President, T. Rowe Price
 
 

 
   Real Estate Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and
   Managing Director, T. Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   WILLIAM J. STROMBERG, 3/10/60, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   DAVID M. LEE, 11/13/62, Executive Vice President -Vice President, T. Rowe
   Price; Chartered Financial Analyst; formerly Marketing Representative at IBM
 
   
 
 
   STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price
   Retirement Plan Services, Inc.    
 
 
   
 
   ANNA M. DOPKIN, 9/5/67, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1991, Analyst, Goldman Sachs; Chartered Financial
   Analyst    
 
 
 
   CHARLES M. OBER, 4/20/50, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, Vice President -Director and Managing Director, T.
   Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst    
 
   Science & Technology Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Chairman of the Board -Director and Managing
   Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   CHARLES A. MORRIS, 1/3/63, President -Managing Director, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   MARC L. BAYLIN, 11/17/67, Vice President -Vice President, T. Rowe Price;
   formerly financial analyst, Rausher Pierce Refsnes; Chartered Financial
   Analyst
 
 
 
   MARCY L. FISHER, 8/5/59, Vice President -Vice President, T. Rowe Price
 
 
 
   ROBERT N. GENSLER, 10/18/57, Vice President -Vice President, T. Rowe Price
 
 
   
 
   STEPHEN C. JANSEN, 12/12/68, Vice President -Assistant Vice President, T.
   Rowe Price; formerly an Investment Analyst at Schroder & Co.    
 
 
 
   JILL L. HAUSER, 6/23/58, Vice President -Vice President, T. Rowe Price
 
 
 
   D. JAMES PREY III, 11/26/59, Vice President -Vice President, T. Rowe Price
 
 
   
 
   MICHAEL F. SOLA, 7/21/69, Vice President -Vice President, T. Rowe Price;
   formerly Systems Analyst/ Programmer at SRA Corporation; Chartered Financial
   Analyst    
 
 
 
   BRIAN D. STANSKY, 10/14/63, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 

 
   Small-Cap Stock Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Chairman of the Board -Director and Managing
   Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   GREGORY A. MCCRICKARD, 10/19/58, President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   PRESTON G. ATHEY, 7/17/49, Vice President -Managing Director, T. Rowe Price;
   Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   HUGH M. EVANS III, 5/17/66, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   MARCY L. FISHER, 8/5/59, Vice President -Vice President, T. Rowe Price
 
   
 
 
   JAMES A.C. KENNEDY, 8/17/53, Vice President -Director and Managing Director,
   T. Rowe Price; Chartered Financial Analyst    
 
 
   
 
   JOSEPH M. MILANO, 9/14/72, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1994 Research Assistant, Brookings Institution    
 
 
 
   CHARLES G. PEPIN, 4/23/66, Vice President -Vice President, T. Rowe Price
 
 
   
 
   LAUREN A. ROMEO, 9/20/67, Vice President -Assistant Vice President, T. Rowe
   Price; Chartered Financial Analyst    
 
 
 
   BRIAN D. STANSKY, 10/14/63, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
   
 
   RICHARD T. WHITNEY, 5/7/58, Vice President -Managing Director, T. Rowe Price;
   Vice President, Price-Fleming and T. Rowe Price Trust Company; Chartered
   Financial Analyst    
 
   Small-Cap Value Fund
 
 
 
  *  JOHN H. LAPORTE, JR., 7/26/45, Chairman of the Board -Director and Managing
   Director, T. Rowe Price; Chartered Financial Analyst
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
 
   PRESTON G. ATHEY, 7/17/49, President -Managing Director, T. Rowe Price; Vice
   President, T. Rowe Price Trust Company; Chartered Financial Analyst
 
 
 
   HUGH M. EVANS III, 5/17/66, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   ROBERT J. MARCOTTE, 3/6/62, Vice President -Vice President, T. Rowe Price
 
 
 
   GREGORY A. MCCRICKARD, 10/19/58, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst
 
 

 
 
   
 
   JOSEPH M. MILANO, 9/14/72, Vice President -Assistant Vice President, T. Rowe
   Price; formerly 1996-1994 Research Assistant, Brookings Institution    
 
 
   
 
   LAUREN A. ROMEO, 9/20/67, Vice President -Assistant Vice President, T. Rowe
   Price; Chartered Financial Analyst    
 
 
 
   FRANCIES W. HAWKS, 2/2/44, Assistant Vice President -Assistant Vice
   President, T. Rowe Price
 
   Value Fund
 
   
 
 
  *  JAMES A.C. KENNEDY, 8/17/53, Director -Director and Managing Director, T.
   Rowe Price; Chartered Financial Analyst    
 
 
   
 
  *  JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
   Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board,
   T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T.
   Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President,
   and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and
   General Re Corporation    
 
 
   
 
  *  M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director,
   Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
   Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
   Trust Company; Chartered Financial Analyst    
 
 
   
 
   BRIAN C. ROGERS, 6/27/55, President -Director and Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
   Analyst
 
 
 
   STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe
   Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price
   Retirement Plan Services, Inc.    
 
 
 
   KARA M. CHESEBY, 10/9/63, Vice President -Vice President, T. Rowe Price;
   formerly Vice President, Legg Mason Wood Walker; Chartered Financial Analysis
 
 
 
   STEPHANIE C. CLANCY, 12/19/64, Vice President -Vice President, T. Rowe Price
 
 
 
   RICHARD P. HOWARD, 9/16/46, Vice President -Vice President, T. Rowe Price;
   Chartered Financial Analyst
 
 
 
   ROBERT W. SMITH, 4/11/61, Vice President -Managing Director, T. Rowe Price;
   Vice President, Price-Fleming
 
 
 
   DAVID J. WALLACK, 7/2/60, Vice President -Vice President, T. Rowe Price
 
 
                               Compensation Table
 
   The Funds do not pay pension or retirement benefits to their officers or
   directors/trustees. Also, any director/ trustee of a Fund who is an officer
   or employee of T. Rowe Price or Price-Fleming does not receive any
   remuneration from the Fund.
 


Name of Person,                   Aggregate Compensation from                   Total Compensation from Fund and
Position                          Fund(a)                                       Fund Complex Paid to Directors/ Trustees(b)
- --------------------------------  --------------------------------------------                                  -----------
- --------------------------------------------------------------------------------
                                                                                --------------------------------------
                                                                                ----------------------------------------------------
                                                                          
Balanced Fund
Donald W. Dick, Jr., Director                                      $1,529                                               $82,000
David K. Fagin, Director                                            1,919                                                65,000
Hanne M. Merriman, Director                                         1,919                                                65,000
Hubert D. Vos, Director                                             1,919                                                66,000
Paul M. Wythes, Director                                            1,529                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund
Donald W. Dick, Jr., Director                                      $2,119                                               $82,000
David K. Fagin, Director                                            2,956                                                65,000
Hanne M. Merriman, Director                                         2,956                                                65,000
Hubert D. Vos, Director                                             2,956                                                66,000
Paul M. Wythes, Director                                            2,119                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund
Donald W. Dick, Jr., Director                                      $1,396                                               $82,000
David K. Fagin, Director                                            1,690                                                65,000
Hanne M. Merriman, Director                                         1,690                                                65,000
Hubert D. Vos, Director                                             1,690                                                66,000
Paul M. Wythes, Director                                            1,396                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Opportunity Fund
Donald W. Dick, Jr., Director                                      $1,057                                               $82,000
David K. Fagin, Director                                            1,089                                                65,000
Hanne M. Merriman, Director                                         1,089                                                65,000
Hubert D. Vos, Director                                             1,089                                                66,000
Paul M. Wythes, Director                                            1,057                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Small-Cap Growth Fund
Donald W. Dick, Jr., Director                                      $1,040                                               $82,000
David K. Fagin, Director                                            1,057                                                65,000
Hanne M. Merriman, Director                                         1,057                                                65,000
Hubert D. Vos, Director                                             1,057                                                66,000
Paul M. Wythes, Director                                            1,037                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend Growth Fund
Donald W. Dick, Jr., Director                                      $1,378                                               $82,000
David K. Fagin, Director                                            1,657                                                65,000
Hanne M. Merriman, Director                                         1,657                                                65,000
Hubert D. Vos, Director                                             1,657                                                66,000
Paul M. Wythes, Director                                            1,378                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund
Donald W. Dick, Jr., Trustee                                       $5,901                                               $82,000
David K. Fagin, Trustee                                             9,017                                                65,000
Hanne M. Merriman, Trustee                                          9,017                                                65,000
Hubert D. Vos, Trustee                                              9,017                                                66,000
Paul M. Wythes, Trustee                                             5,901                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Index 500 Fund
Donald W. Dick, Jr., Director                                      $1,908                                               $82,000
David K. Fagin, Director                                            2,584                                                65,000
Hanne M. Merriman, Director                                         2,584                                                65,000
Hubert D. Vos, Director                                             2,584                                                66,000
Paul M. Wythes, Director                                            1,908                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Extended Equity Market Index Fund
Donald W. Dick, Jr., Director                                        $914                                               $82,000
David K. Fagin, Director                                              920                                                65,000
Hanne M. Merriman, Director                                           920                                                65,000
Hubert D. Vos, Director                                               920                                                66,000
Paul M. Wythes, Director                                              914                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services Fund
Donald W. Dick, Jr., Director                                      $1,037                                               $82,000
David K. Fagin, Director                                            1,049                                                65,000
Hanne M. Merriman, Director                                         1,049                                                65,000
Hubert D. Vos, Director                                             1,049                                                66,000
Paul M. Wythes, Director                                            1,037                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund
Donald W. Dick, Jr., Director                                      $2,298                                               $82,000
David K. Fagin, Director                                            3,276                                                65,000
Hanne M. Merriman, Director                                         3,276                                                65,000
Hubert D. Vos, Director                                             3,276                                                66,000
Paul M. Wythes, Director                                            2,298                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Stock Fund
Donald W. Dick, Jr., Director                                      $2,609                                               $82,000
David K. Fagin, Director                                            3,825                                                65,000
Hanne M. Merriman, Director                                         3,825                                                65,000
Hubert D. Vos, Director                                             3,825                                                66,000
Paul M. Wythes, Director                                            2,609                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund
Donald W. Dick, Jr., Director                                      $1,025                                               $82,000
David K. Fagin, Director                                            1,037                                                65,000
Hanne M. Merriman, Director                                         1,037                                                65,000
Hubert D. Vos, Director                                             1,037                                                66,000
Paul M. Wythes, Director                                            1,025                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Media & Telecommunications Fund
Donald W. Dick, Jr., Director                                      $1,044                                               $82,000
David K. Fagin, Director                                            1,045                                                65,000
Hanne M. Merriman, Director                                         1,045                                                65,000
Hubert D. Vos, Director                                             1,045                                                66,000
Paul M. Wythes, Director                                            1,044                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Growth Fund
Donald W. Dick, Jr., Director                                      $1,095                                               $82,000
David K. Fagin, Director                                            1,157                                                65,000
Hanne M. Merriman, Director                                         1,157                                                65,000
Hubert D. Vos, Director                                             1,157                                                66,000
Paul M. Wythes, Director                                            1,095                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
Donald W. Dick, Jr., Director                                      $1,874                                               $82,000
David K. Fagin, Director                                            2,525                                                65,000
Hanne M. Merriman, Director                                         2,525                                                65,000
Hubert D. Vos, Director                                             2,525                                                66,000
Paul M. Wythes, Director                                            1,874                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
Donald W. Dick, Jr., Director                                      $1,046                                               $82,000
David K. Fagin, Director                                            1,073                                                65,000
Hanne M. Merriman, Director                                         1,073                                                65,000
Hubert D. Vos, Director                                             1,073                                                66,000
Paul M. Wythes, Director                                            1,046                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
New America Growth Fund
Donald W. Dick, Jr., Trustee                                       $1,694                                               $82,000
David K. Fagin, Trustee                                             2,211                                                65,000
Hanne M. Merriman, Trustee                                          2,211                                                65,000
Hubert D. Vos, Trustee                                              2,211                                                66,000
Paul M. Wythes, Trustee                                             1,694                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
New Era Fund
Donald W. Dick, Jr., Director                                      $1,481                                               $82,000
David K. Fagin, Director                                            1,840                                                65,000
Hanne M. Merriman, Director                                         1,840                                                65,000
Hubert D. Vos, Director                                             1,840                                                66,000
Paul M. Wythes, Director                                            1,481                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
New Horizons Fund
Donald W. Dick, Jr., Director                                      $2,829                                               $82,000
David K. Fagin, Director                                            4,216                                                65,000
Hanne M. Merriman, Director                                         4,216                                                65,000
Hubert D. Vos, Director                                             4,216                                                66,000
Paul M. Wythes, Director                                            2,829                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Fund
Donald W. Dick, Jr., Director                                      $1,023                                               $82,000
David K. Fagin, Director                                            1,032                                                65,000
Hanne M. Merriman, Director                                         1,032                                                65,000
Hubert D. Vos, Director                                             1,032                                                66,000
Paul M. Wythes, Director                                            1,023                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Science & Technology Fund
Donald W. Dick, Jr., Director                                      $2,323                                               $82,000
David K. Fagin, Director                                            3,321                                                65,000
Hanne M. Merriman, Director                                         3,321                                                65,000
Hubert D. Vos, Director                                             3,321                                                66,000
Paul M. Wythes, Director                                            2,323                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Stock Fund
Donald W. Dick, Jr., Director                                      $1,369                                               $82,000
David K. Fagin, Director                                            1,638                                                65,000
Hanne M. Merriman, Director                                         1,638                                                65,000
Hubert D. Vos, Director                                             1,638                                                66,000
Paul M. Wythes, Director                                            1,369                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Fund
Donald W. Dick, Jr., Director                                      $1,722                                               $82,000
David K. Fagin, Director                                            2,266                                                65,000
Hanne M. Merriman, Director                                         2,266                                                65,000
Hubert D. Vos, Director                                             2,266                                                66,000
Paul M. Wythes, Director                                            1,722                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Market Equity Index Fund
Donald W. Dick, Jr., Director                                        $920                                               $82,000
David K. Fagin, Director                                              927                                                65,000
Hanne M. Merriman, Director                                           927                                                65,000
Hubert D. Vos, Director                                               927                                                66,000
Paul M. Wythes, Director                                              920                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund
Donald W. Dick, Jr., Director                                      $1,282                                               $82,000
David K. Fagin, Director                                            1,489                                                65,000
Hanne M. Merriman, Director                                         1,489                                                65,000
Hubert D. Vos, Director                                             1,489                                                66,000
Paul M. Wythes, Director                                            1,282                                                80,000
- ------------------------------------------------------------------------------------------------------------------------------------

 
 
 
 

 
 
 

 
 
 

 
 
 

 
 (a) Amounts in this column are based on accrued compensation for calendar
   year 1998.
 
   
 (b) Amounts in this column are based on compensation received from January
   1, 1998, to December 31, 1998. The T. Rowe Price complex included 87 funds
   as of December 31, 1998.    
 
 
 
   All Funds
 
   The Fund's Executive Committee, consisting of the Fund's interested
   directors/trustees, has been authorized by its respective Board of
   Directors/Trustees to exercise all powers of the Board to manage the Funds in
   the intervals between meetings of the Board, except the powers prohibited by
   statute from being delegated.
 
 
 
 PRINCIPAL HOLDERS OF SECURITIES
 -------------------------------------------------------------------------------
   As of the date of the prospectus, the officers and directors/trustees of the
   Fund, as a group, owned less than 1% of the outstanding shares of the Fund.
 
   
   As of April 1, 1999, the following shareholders beneficially owned more than
   5% of the outstanding shares of the Fund:
 
   Balanced Fund: T. Rowe Price Retirement Plan Services Inc., Fred Meyer Inc.
   401k Sav Plan Fred Plan #105054, New Business Group Conv Asset #68, P.O. Box
   17215, Baltimore, Maryland 21297-1215;    
 
 

 
   
   Blue Chip Growth Fund: T. Rowe Price Retirement Plan Services TR Blue Chip
   Growth Fund, Attn.: Asset Reconciliations, P.O. Box 17215, Baltimore,
   Maryland 21297-1215; Fidelity Investments Institutional Operations Co., FIIOC
   as Agent for Merck & Co. Inc. #83169, 100 Magellan Way (KW1C), Covington,
   Kentucky 41015-1999;
 
   Financial Services Fund: T. Rowe Price Retirement Plan Services Inc., New
   Business Group for #117, P.O. Box 17215, Baltimore, Maryland 21297-1215;
 
   Health Sciences Fund: T. Rowe Price Retirement Plan Services Inc. Co. Omnibus
   Plan #Omni Plan Installation Team for #114, P.O. Box 17215, Baltimore,
   Maryland 21297-1215;
 
   Mid-Cap Equity Growth Fund: Atlantic Trust Company NA, Attn.: Nominee
   Account, 100 Federal Street, 37th Floor, Boston, Massachusetts 02110-1802; St
   Joe Co. Salaried Pension Plan, 1650 Prudential Drive, Ste. 400, Jacksonville,
   Florida 32207-8166; Pell Rudman Trust Co. NA, Nominee Acct., Attn.: Mutual
   Funds, 100 Federal St., 37th Fl., Boston Massachusetts 02110-1802; Roland &
   Company c/o Mercantile Bank of St. Louis Trust Securities Unit 17-1, P.O. Box
   387, St. Louis, Missouri 63166-0387; Trustmark National Bank TR FBO Various
   Accounts-RR 248 Capital St., Jackson, Mississippi 39201-2503;
 
   New Horizons Fund: The City of New York Deferred Compensation Plan, IRC
   Section 457 Plan, 40 Rector St., 3rd Fl., New York, New York 10006-1705;
 
   Small-Cap Stock Fund: Sigler & Co. C F Smithsonian Int. Wellington Trust Co.
   RD 79866-77, Chase Manhattan Bank, Attn.: Hazel Drinkard, 770 Broadway, 10th
   Fl., New York, New York 10003-9522;    
 
   Blue Chip Growth, Growth & Income, Growth Stock, Mid-Cap Value, New Era, and
   New Horizons Funds: Pirateline & Co., FBO Spectrum Growth Fund Acct., Attn.:
   Mark White, State Street Bank & Trust Co., 1776 Heritage Drive-4W, North
   Quincy, Massachusetts 02171-2197;
 
   
   Dividend Growth, Mid-Cap Growth, New Era, Science & Technology, Small-Cap
   Stock, and Value Funds: Charles Schwab & Co. Inc., Reinvest. Account, Attn.:
   Mutual Fund Dept., 101 Montgomery St., San Francisco, California 94104-4122;
 
   Growth & Income and Science & Technology Funds: Manulife Financial USA, 200
   Bloor St East NT3, Toronto, Ontario Canada M4WIE5, Attn.: Rosie Chuck,
   Pension Accounting.    
 
 
 
 INVESTMENT MANAGEMENT SERVICES
 -------------------------------------------------------------------------------
   Services
   Under the Management Agreement, T. Rowe Price provides the Fund with
   discretionary investment services. Specifically, T. Rowe Price is responsible
   for supervising and directing the investments of the Fund in accordance with
   the Fund's investment objectives, program, and restrictions as provided in
   its prospectus and this Statement of Additional Information. T. Rowe Price is
   also responsible for effecting all security transactions on behalf of the
   Fund, including the negotiation of commissions and the allocation of
   principal business and portfolio brokerage. In addition to these services, T.
   Rowe Price provides the Fund with certain corporate administrative services,
   including: maintaining the Fund's corporate existence and corporate records;
   registering and qualifying Fund shares under federal laws; monitoring the
   financial, accounting, and administrative functions of the Fund; maintaining
   liaison with the agents employed by the Fund such as the Fund's custodian and
   transfer agent; assisting the Fund in the coordination of such agents'
   activities; and permitting T. Rowe Price's employees to serve as officers,
   directors/trustees, and committee members of the Fund without cost to the
   Fund.
 
   The Management Agreement also provides that T. Rowe Price, its
   directors/trustees, officers, employees, and certain other persons performing
   specific functions for the Fund will only be liable to the Fund for losses
   resulting from willful misfeasance, bad faith, gross negligence, or reckless
   disregard of duty.
 
 

 
   All Funds except Equity Index 500, Extended Equity Market Index, Total Equity
   Market Index, and Mid-Cap Equity Growth Funds
 
   Management Fee
   The Fund pays T. Rowe Price a fee ("Fee") which consists of two components: a
   Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee").
   The Fee is paid monthly to T. Rowe Price on the first business day of the
   next succeeding calendar month and is calculated as described below.
 
   The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee
   accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee
   Accrual for any particular day is computed by multiplying the Price Funds'
   group fee accrual as determined below ("Daily Price Funds' Group Fee
   Accrual") by the ratio of the Price 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  0.360%  Next $2 billion   0.310%  Next $16
                                                                                                                     billion
                                                         ---------------------------------------------------------------------------
                                                         0.450%  Next $1 billion   0.350%  Next $2 billion   0.305%  Next $30
                                                                                                                     billion
                                                         ---------------------------------------------------------------------------
                                                         0.420%  Next $1 billion   0.340%  Next $5 billion   0.300%  Next $40
                                                                                                                     billion
                                                         ---------------------------------------------------------------------------
                                                         0.390%  Next $1 billion   0.330%  Next $10 billion  0.295%  Thereafter
                                                         ---------------------------------------------------------------------------
                                                         0.370%  Next $1 billion   0.320%  Next $10 billion

    
 
 
 
   For the purpose of calculating the Group Fee, the Price Funds include all the
   mutual funds distributed by Investment Services, (excluding the T. Rowe Price
   Spectrum Funds, and any institutional, index, or private label mutual funds).
   For the purpose of calculating the Daily Price Funds' Group Fee Accrual for
   any particular day, the net assets of each Price Fund are determined in
   accordance with the Funds' prospectus as of the close of business on the
   previous business day on which the Fund was open for business.
 
   The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee
   accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee
   Accrual for any particular day is computed by multiplying the fraction of one
   (1) over the number of calendar days in the year by the individual Fund Fee
   Rate and multiplying this product by the net assets of the Fund for that day,
   as determined in accordance with the Fund's prospectus as of the close of
   business on the previous business day on which the Fund was open for
   business. The individual fund fees are listed in the following chart:
   


                                                                  
Balanced Fund                                                              0.15%
Blue Chip Growth Fund                                                      0.30%
Capital Appreciation Fund                                                  0.30%
Capital Opportunity Fund                                                   0.35%
Diversified Small-Cap Growth Fund                                          0.35%
Dividend Growth Fund                                                       0.20%
Equity Income Fund                                                         0.25%
Financial Services Fund                                                    0.35%
Growth & Income Fund                                                       0.25%
Growth Stock Fund                                                          0.25%
Health Sciences Fund                                                       0.35%
Media & Telecommunications Fund                                            0.35%
Mid-Cap Growth Fund                                                        0.35%
Mid-Cap Value Fund                                                         0.35%
New America Growth Fund                                                    0.35%
New Era Fund                                                               0.25%
New Horizons Fund                                                          0.35%
Real Estate Fund                                                           0.30%
Small-Cap Stock 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                               1998            1997             1996
                       ----                               ----            ----             ----
                                                                            
Balanced                                              $ 6,809,000     $ 5,317,000      $ 3,765,000
Blue Chip Growth                                       19,869,000       8,706,000        1,924,000
Capital Appreciation                                    3,939,000       3,861,000        4,218,000
Capital Opportunity                                       991,000         899,000          890,000
Diversified Small-Cap Growth                              325,000          81,000              (a)
Dividend Growth                                         5,482,000       2,659,000          754,000
Equity Income                                          77,394,000      60,406,000       37,762,000
Equity Index 500                                        4,169,000       2,516,000          925,000
Extended Equity Market Index                                    0             (a)              (a)
Financial Services                                      1,582,000         636,000              (b)
Growth & Income                                        20,258,000      17,390,000       12,048,000
Growth Stock                                           25,573,000      22,078,000       17,848,000
Health Sciences                                         1,926,000       1,811,000          750,000
Media & Telecommunications ( c)                         1,301,000       1,783,000        3,056,000
Mid-Cap Equity Growth                                     633,000         117,000              (b)
Mid-Cap Growth                                         16,692,000       8,533,000        4,390,000
Mid-Cap Value                                           1,596,000         728,000           22,000
New America Growth                                     12,703,000      10,541,000        8,648,000
New Era                                                 7,211,000       9,144,000        7,559,000
New Horizons                                           33,743,000      31,439,000       25,875,000
Real Estate                                                   (b)             (b)              (a)
Science & Technology                                   24,865,000      24,246,000       19,792,000
Small-Cap Stock                                         7,791,000       4,405,000        2,619,000
Small-Cap Value                                        13,021,000      11,594,000        8,187,000
Total Equity Market Index                                       0             (a)              (a)
Value                                                   5,176,000       2,597,000          748,000
- -----------------------------------------------------------------------------------------------------

 
 
  (a) Prior to commencement of operations.
 
  (b) Due to each Fund's expense limitation in effect at that time, no
     management fees were paid by the Funds to T. Rowe Price.
 
  (c) Fees listed were paid under this Fund's previous management
     agreement, prior to becoming an open-end mutual fund.
 
 
 
   The Management Agreement between the Fund and T. Rowe Price provides that the
   Fund will bear all expenses of its operations not specifically assumed by T.
   Rowe Price.
 
 

 
   For Capital Opportunity, Diversified Small-Cap Growth, Dividend Growth,
   Equity Index 500, Financial Services, Health Sciences, Mid-Cap Equity Growth,
   Mid-Cap Value, Real Estate, and Value Funds
 
   The following chart sets forth expense ratio limitations and the periods for
   which they are effective. For each, T. Rowe Price has agreed to bear any Fund
   expenses which would cause the Fund's ratio of expenses to average net assets
   to exceed the indicated percentage limitations. The expenses borne by T. Rowe
   Price are subject to reimbursement by the Fund through the indicated
   reimbursement date, provided no reimbursement will be made if it would result
   in the Fund's expense ratio exceeding its applicable limitation.
 


                                                                                         Expense       Reimbursement
                             Fund                                 Limitation Period      -------       -------------
                             ----                                 -----------------       Ratio            Date
                                                                                          -----            ----
                                                                                        Limitation
                                                                                        ----------
                                                                                           
                                                                January 1, 1999 -
Diversified Small-Cap Growth(a)                                 December 31, 2000         1.25%     December 31, 2002
                                                                January 1, 1998 -
Equity Index 500(b)                                             December 31, 1999         0.40%     December 31, 2001
                                                                September 30, 1996 -
Financial Services                                              December 31, 1998         1.25%     December 31, 2000
                                                                December 31, 1995 -
Health Sciences                                                 December 31, 1997         1.35%     December 31, 1999
                                                                July 31, 1996 -
Mid-Cap Equity Growth                                           December 31, 1997         0.85%     December 31, 1999
                                                                June 28, 1996 -
Mid-Cap Value                                                   December 31, 1997         1.25%     December 31, 1999
Real Estate                                                     October 31, 1997 -        1.00%     December 31, 2001
                                                                December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------

 
 
 (a) The Diversified Small-Cap Growth Fund previously operated under a
   1.25% limitation that expired December 31, 1998. The reimbursement
   period for this limitation extends through December 31, 2000.
 
 (b) The Equity Index 500 Fund previously operated under a 0.40% limitation
   that expired December 31, 1997. The reimbursement period for this
   limitation extends through December 31, 1999.
 
 
 
   Each of the above-referenced Fund's Management Agreement also provides that
   one or more additional expense limitations periods (of the same or different
   time periods) may be implemented after the expiration of the current expense
   limitation, and that with respect to any such additional limitation period,
   the Fund may reimburse T. Rowe Price, provided the reimbursement does not
   result in the Fund's aggregate expenses exceeding the additional expense
   limitation.
 
   
   Pursuant to Capital Opportunity Fund's expense limitation that expired on
   December 31, 1996, $72,000 of previously unaccrued management fees and
   expenses were repaid for the year ended December 31, 1998. Additionally,
   $22,000 of management fees were permanently waived as of December 31, 1998.
 
   Pursuant to the Diversified Small-Cap Growth Fund's current expense
   limitation, $146,000 of management fees were not accrued for the year ended
   December 31, 1998.    
 
   Pursuant to the Equity Index 500 Fund's previous expenses limitation,
   $283,000 of management fees were not accrued by the Fund for the year ended
   December 31, 1997. Additionally, $370,000 of unaccrued 1996 management fees
   are subject to reimbursement through December 31, 1999.
 
   Pursuant to the Financial Services Fund's current expense limitation, $24,000
   of management fees were not accrued by the Fund for the year ended December
   31, 1997 and $26,000 of unaccrued fees and expenses are subject to
   reimbursement through December 31, 2000.
 
   
   Pursuant to the Mid-Cap Equity Growth Fund's current expense limitation,
   $84,000 of previously unaccrued management fees were repaid by the Fund for
   the year ended December 31, 1998, and $32,000 remains unaccrued from prior
   periods and subject to reimbursement through December 31, 1999.    
 
   Pursuant to the Mid-Cap Value Fund's current expense limitation, $71,000 of
   previously unaccrued management fees were repaid by the Fund for the year
   ended December 31, 1997 and $7,000 remains subject to reimbursement through
   December 31, 1999.
 
 

 
   Pursuant to the Real Estate Fund's current expense limitation, $5,000 of
   management fees were not accrued by the Fund for the year ended December 31,
   1997, and $18,000 of other expenses were borne by the Manager.
 
 
                                 Management Fee
 
   Equity Index 500 Fund
   The Fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.20% of the average daily net asset value of the Fund.
 
   Extended Equity Market Index and Total Equity Market Index Funds
   Each Fund pays T. Rowe Price an annual all-inclusive fee in monthly
   installments of 0.40% of the average daily net assets of the Fund.
 
   Mid-Cap Equity Growth Fund
   The Fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.60% of the average daily net asset value of the Fund.
 
   Blue Chip Growth, Equity Income, Growth & Income, Growth Stock, Mid-Cap
   Value, New Era, and New Horizons Funds
 
   T. Rowe Price Spectrum Fund, Inc.
   The Funds listed above are a party to a Special Servicing Agreement
   ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum
   Fund"), T. Rowe Price, 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").
 
   Each 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 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.
 
   
   Management Related Services
   As noted above, 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.
 
   T. Rowe Price Services, Inc., a wholly owned subsidiary of T. Rowe Price,
   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. Additionally, T. Rowe Price, under a separate
   agreement with the Funds, provides accounting services to the Funds.
 
   The Funds paid the expenses shown in the following table for the fiscal year
   ended December 31, 1998, to T. Rowe Price and its affiliates.    
 
 

 


                             Transfer Agent and     Retirement     Accounting
           Fund             Shareholder Services  Subaccounting     Services
           ----             --------------------     Services       --------
                                                     --------
                                                         
Balanced                        $   536,000        $ 2,857,000      $ 94,000
Blue Chip Growth                  4,052,000          2,953,000        62,000
Capital Appreciation                780,000          1,150,000        87,000
Capital Opportunity                 290,000             23,000        62,000
Diversified Small-Cap
Growth                              246,000                  -        62,000
Dividend Growth                   1,411,248            171,000        67,000
Equity Income                    10,397,000         11,031,000        87,000
Equity Index 500                  1,568,000          2,766,000        63,000
Extended Equity Market
Index                                35,000                  -        55,000
Financial Services                  530,000             77,000        62,000
Growth & Income                   3,062,000          2,502,000        87,000
Growth Stock                      2,868,000          2,853,000       108,000
Health Sciences                     743,000             69,000        62,000
Media & Telecommunications          354,000              5,000        62,000
Mid-Cap Equity Growth                 8,000                  -        62,000
Mid-Cap Growth                    2,348,000          1,589,000        62,000
Mid-Cap Value                       557,000             18,000        62,000
New America Growth                1,421,000          2,655,000        72,000
New Era                           1,279,000            240,000        74,000
New Horizons                      3,798,000          4,300,000        97,000
Real Estate                         127,000                  -        62,000
Science & Technology              5,076,000          2,136,000        72,000
Small-Cap Stock                   1,342,000            142,000        87,000
Small-Cap Value                   1,404,000          1,593,000        62,000
Total Equity Market Index            72,000                  -        55,000
Value                             1,157,000            327,000        62,000

 
 
 
   All Funds
 
 
 DISTRIBUTOR FOR THE FUNDS
 -------------------------------------------------------------------------------
   Investment Services, a Maryland corporation formed in 1980 as a wholly owned
   subsidiary of T. Rowe Price, serves as 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: necessary state
   filings; preparing, setting in type, printing, and mailing its prospectuses
   and reports to shareholders; and issuing its shares, including expenses of
   confirming purchase orders.
 
   The Underwriting Agreement provides that Investment Services will pay all
   fees and expenses in connection with: printing and distributing prospectuses
   and reports for use in offering and selling Fund shares; preparing, setting
   in type, printing, and mailing all sales literature and advertising;
   Investment Services'
 
 

 
   federal and state registrations as a broker-dealer; and offering and selling
   shares, except for those fees and expenses specifically assumed by the Fund.
   Investment Services' expenses are paid by T. Rowe Price.
 
   Investment Services acts as the agent of the Fund in connection with the sale
   of its shares in the various states in which Investment Services is qualified
   as a broker-dealer. Under the Underwriting Agreement, Investment Services
   accepts orders for Fund shares at net asset value. No sales charges are paid
   by investors or the Fund.
 
   All Funds
 
 
 CUSTODIAN
 -------------------------------------------------------------------------------
   State Street Bank and Trust Company is the custodian for the Fund's U.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. State Street Bank's main office is at 225 Franklin Street,
   Boston, Massachusetts 02110.
 
   The Fund (other than Equity Index 500, Extended Equity Market Index, and
   Total Equity Market Index Funds) 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 in accordance with regulations under the 1940 Act. The
   address for The Chase Manhattan Bank, N.A., London is Woolgate House, Coleman
   Street, London, EC2P 2HD, England.
 
 
   
 SHAREHOLDER SERVICES BY OUTSIDE PARTIES
 -------------------------------------------------------------------------------
   The Fund from time to time may enter into agreements with outside parties
   through which shareholders hold Fund shares. The shares would be held by such
   parties in omnibus accounts. The agreements would provide for payments by the
   Fund to the outside party for shareholder services provided to shareholders
   in the omnibus accounts.    
 
 
 
 CODE OF ETHICS
 -------------------------------------------------------------------------------
   The Fund's investment adviser (T. Rowe Price) has a written Code of Ethics
   which requires all employees to obtain prior clearance before engaging in
   personal securities transactions. In addition, all employees must report
   their personal securities transactions within 10 days of their execution.
   Employees will not be permitted to effect transactions in a security: if
   there are pending client orders in the security; the security has been
   purchased or sold by a client within seven calendar days; the security is
   being considered for purchase for a client; a change has occurred in T. Rowe
   Price's rating of the security within seven calendar days prior to the date
   of the proposed transaction; or the security is subject to internal trading
   restrictions. In addition, employees are prohibited from profiting from
   short-term trading (e.g., purchases and sales involving the same security
   within 60 days). Any material violation of the Code of Ethics is reported to
   the Board of the Fund. The Board also reviews the administration of the Code
   of Ethics on an annual basis.
 
 

 
 PORTFOLIO TRANSACTIONS
 -------------------------------------------------------------------------------
   Investment or Brokerage Discretion
   Decisions with respect to the purchase and sale of portfolio securities on
   behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also
   responsible for implementing these decisions, including the negotiation of
   commissions and the allocation of portfolio brokerage and principal business.
 
 
                      How Brokers and Dealers Are Selected
 
   Equity Securities
   
   In purchasing and selling equity 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, their expertise in
   particular markets 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 services.    
 
   Fixed Income Securities
   Fixed income securities are generally purchased from the issuer or a primary
   market-maker acting as principal for the securities on a net basis, with no
   brokerage commission being paid by the client although the price usually
   includes an undisclosed compensation. Transactions placed through dealers
   serving as primary market-makers reflect the spread between the bid and asked
   prices. Securities may also be purchased from underwriters at prices which
   include underwriting fees.
 
   With respect to equity and fixed income securities, T. Rowe Price may effect
   principal transactions on behalf of the Fund with a broker or dealer who
   furnishes brokerage and/or research services, designate any such broker or
   dealer to receive selling concessions, discounts or other allowances, or
   otherwise deal with any such broker or dealer in connection with the
   acquisition of securities in underwritings. T. Rowe Price may receive
   research services in connection with brokerage transactions, including
   designations in a fixed price offerings.
 
 
 How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions
                                      Paid
 
   
   On a continuing basis, T. Rowe Price seeks to determine what levels of
   commission rates are reasonable in the marketplace for transactions executed
   on behalf of the Fund. In evaluating the reasonableness of commission rates,
   T. Rowe Price considers: (a) historical commission rates; (b) rates which
   other institutional investors are paying, based on available public
   information; (c) rates quoted by brokers and dealers; (d) the size of a
   particular transaction, in terms of the number of shares, dollar amount, and
   number of clients involved; (e) the complexity of a particular transaction in
   terms of both execution and settlement; (f) the level and type of business
   done with a particular firm over a period of time; and (g) the extent to
   which the broker or dealer has capital at risk in the transaction.    
 
 
       Descriptions of Research Services Received From Brokers and Dealers
 
   T. Rowe Price receives a wide range of research services from brokers and
   dealers. These services include information on the economy, industries,
   groups of securities, individual companies, statistical information,
   accounting and tax law interpretations, political developments, legal
   developments affecting portfolio securities, technical market action, pricing
   and appraisal services, credit analysis, risk measurement analysis,
   performance analysis and analysis of corporate responsibility issues. These
   services provide both domestic and international perspective. Research
   services are received primarily in the form of written reports, computer
   generated services, telephone contacts and personal meetings with security
   analysts. In addition, such services may be provided in the form of meetings
   arranged with corporate and industry spokespersons,
 
 

 
   economists, academicians and government representatives. In some cases,
   research services are generated by third parties but are provided to T. Rowe
   Price by or through broker-dealers.
 
   Research services received from brokers and dealers are supplemental to T.
   Rowe Price's own research effort and, when utilized, are subject to internal
   analysis before being incorporated by T. Rowe Price into its investment
   process. As a practical matter, it would not be possible for T. Rowe Price's
   Equity Research Division to generate all of the information presently
   provided by brokers and dealers. T. Rowe Price pays cash for certain research
   services received from external sources. T. Rowe Price also allocates
   brokerage for research services which are available for cash. While receipt
   of research services from brokerage firms has not reduced T. Rowe Price's
   normal research activities, the expenses of T. Rowe Price could be materially
   increased if it attempted to generate such additional information through its
   own staff. To the extent that research services of value are provided by
   brokers or dealers, T. Rowe Price may be relieved of expenses which it might
   otherwise bear.
 
   T. Rowe Price has a policy of not allocating brokerage business in return for
   products or services other than brokerage or research services. In accordance
   with the provisions of Section 28(e) of the Securities Exchange Act of 1934,
   T. Rowe Price may from time to time receive services and products which serve
   both research and non-research functions. In such event, T. Rowe Price makes
   a good faith determination of the anticipated research and non-research use
   of the product or service and allocates brokerage only with respect to the
   research component.
 
 
              Commissions to Brokers Who Furnish Research Services
 
   Certain brokers and dealers who provide quality brokerage and execution
   services also furnish research services to T. Rowe Price. With regard to the
   payment of brokerage commissions, T. Rowe Price has adopted a brokerage
   allocation policy embodying the concepts of Section 28(e) of the Securities
   Exchange Act of 1934, which permits an investment adviser to cause an account
   to pay commission rates in excess of those another broker or dealer would
   have charged for effecting the same transaction, if the adviser determines in
   good faith that the commission paid is reasonable in relation to the value of
   the brokerage and research services provided. The determination may be viewed
   in terms of either the particular transaction involved or the overall
   responsibilities of the adviser with respect to the accounts over which it
   exercises investment discretion. Accordingly, while T. Rowe Price cannot
   readily determine the extent to which commission rates or net prices charged
   by broker-dealers reflect the value of their research services, T. Rowe Price
   would expect to assess the reasonableness of commissions in light of the
   total brokerage and research services provided by each particular broker. T.
   Rowe Price may receive research, as defined in Section 28(e), in connection
   with selling concessions and designations in fixed price offerings in which
   the Funds participate.
 
 
                         Internal Allocation Procedures
 
   T. Rowe Price has a policy of not precommitting a specific amount of business
   to any broker or dealer over any specific time period. Historically, the
   majority of brokerage placement has been determined by the needs of a
   specific transaction such as market-making, availability of a buyer or seller
   of a particular security, or specialized execution skills. However, T. Rowe
   Price does have an internal brokerage allocation procedure for that portion
   of its discretionary client brokerage business where special needs do not
   exist, or where the business may be allocated among several brokers or
   dealers which are able to meet the needs of the transaction.
 
   Each year, T. Rowe Price assesses the contribution of the brokerage and
   research services provided by brokers or dealers, and attempts to allocate a
   portion of its brokerage business in response to these assessments. Research
   analysts, counselors, various investment committees, and the Trading
   Department each seek to evaluate the brokerage and research services they
   receive from brokers or dealers and make judgments as to the level of
   business which would recognize such services. In addition, brokers or dealers
   sometimes suggest a level of business they would like to receive in return
   for the various brokerage and research services they provide. Actual
   brokerage received by any firm may be less than the suggested allocations but
   can, and often does, exceed the suggestions, because the total business is
   allocated on the basis of all the considerations described above. In no case
   is a broker or dealer excluded from receiving business from T. Rowe Price
   because it has not been identified as providing research services.
 
 

 
                                  Miscellaneous
 
   T. Rowe Price's brokerage allocation policy is consistently applied to all
   its fully discretionary accounts, which represent a substantial majority of
   all assets under management. Research services furnished by brokers or
   dealers through which T. Rowe Price effects securities transactions may be
   used in servicing all accounts (including non-Fund accounts) managed by T.
   Rowe Price. Conversely, research services received from brokers or dealers
   which execute transactions for the Fund are not necessarily used by T. Rowe
   Price exclusively in connection with the management of the Fund.
 
   From time to time, orders for clients may be placed through a computerized
   transaction network.
 
   The Fund does not allocate business to any broker-dealer on the basis of its
   sales of the Fund's shares. However, this does not mean that broker-dealers
   who purchase Fund shares for their clients will not receive business from the
   Fund.
 
   Some of T. Rowe Price's other clients have investment objectives and programs
   similar to those of the Fund. T. Rowe Price may occasionally make
   recommendations to other clients which result in their purchasing or selling
   securities simultaneously with the Fund. As a result, the demand for
   securities being purchased or the supply of securities being sold may
   increase, and this could have an adverse effect on the price of those
   securities. It is T. Rowe Price's policy not to favor one client over another
   in making recommendations or in placing orders. T. Rowe Price frequently
   follows the practice of grouping orders of various clients for execution
   which generally results in lower commission rates being attained. In certain
   cases, where the aggregate order is executed in a series of transactions at
   various prices on a given day, each participating client's proportionate
   share of such order reflects the average price paid or received with respect
   to the total order. T. Rowe Price has established a general investment policy
   that it will ordinarily not make additional purchases of a common stock of a
   company for its clients (including the T. Rowe Price Funds) if, as a result
   of such purchases, 10% or more of the outstanding common stock of such
   company would be held by its clients in the aggregate.
 
   
   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.    
 
 
                            Trade Allocation Policies
 
   T. Rowe Price has developed written trade allocation guidelines for its
   Equity, Municipal, and Taxable Fixed Income Trading Desks. Generally, when
   the amount of securities available in a public offering or the secondary
   market is insufficient to satisfy the volume or price requirements for the
   participating client portfolios, the guidelines require a pro-rata allocation
   based upon the amounts initially requested by each portfolio manager. In
   allocating trades made on combined basis, the Trading Desks seek to achieve
   the same net unit price of the securities for each participating client.
   Because a pro-rata allocation may not always adequately accommodate all facts
   and circumstances, the guidelines provide for exceptions to allocate trades
   on an adjusted, pro-rata basis. Examples of where adjustments may be made
   include: (i) reallocations to recognize the efforts of a portfolio manager in
   negotiating a transaction or a private placement; (ii) reallocations to
   eliminate deminimis positions; (iii) priority for accounts with specialized
   investment policies and objectives; and (iv) reallocations in light of a
   participating portfolio's characteristics (e.g., industry or issuer
   concentration, duration, and credit exposure).
 
 
                  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, from time to time, T. Rowe Price may place orders for the
   Fund's portfolio transactions with broker-dealer affiliates of Robert Fleming
   Holdings Limited ("Robert Fleming" or "Flemings"), an affiliate of
   Price-Fleming. Robert Fleming, through Copthall    
 
 

 
   
   Overseas Limited, a wholly owned subsidiary, owns 25% of the common stock of
   Price-Fleming. Fifty percent of the common stock of Price-Fleming 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
   Jardine Fleming Group Limited ("JFG"). JFG is owned by Robert Fleming.    
 
   The Board of Directors/Trustees of the Fund has authorized T. Rowe Price to
   utilize certain affiliates of Robert Fleming and JFG in the capacity of
   broker in connection with the execution of the Fund's portfolio transactions.
   Other affiliates of Robert Fleming Holding and JFG also may be used. Although
   it does not believe that the Fund's use of these brokers would be subject to
   Section 17(e) of the 1940 Act, 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 1998, 1997, and 1996, 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.
 
   


                                     1998                1997                1996
            Fund              Commissions   %     Commissions   %     Commissions    %
            ----              -----------   -     -----------   -     -----------    -
                                                                 
Balanced                      $1,050,595    4.6%  $ 1,276,793   9.7%  $   292,325   13.0%
Blue Chip Growth               5,418,392   43.0%    2,567,926  54.2%      748,661   34.6%
Capital Appreciation           1,630,383   45.7%    1,734,274  35.4%      886,009   46.6%
Capital Opportunity              355,413   32.6%      506,307  43.4%      764,518   38.7%
Diversified Small-Cap Growth      94,322    0.5%      107,676     0           (a)    (a)
Dividend Growth                1,936,978   59.4%    1,620,702  42.3%      478,131   28.6%
Equity Income                  6,883,655   35.2%    8,137,149  59.3%    6,912,071   59.2%
Equity Index 500                 258,633    0.5%      150,827   0.0%       37,146    0.0%
Extended Equity Market Index      27,382    0.2%          (a)   (a)           (a)    (a)
Financial Services               756,976    2.0%      839,766   3.2%       60,862      0
Growth & Income                2,272,536   28.4%    2,971,378  29.1%    1,874,214   42.7%
Growth Stock                   8,459,575   42.0%    5,523,460  53.9%    5,630,241   48.7%
Health Sciences                  333,803   54.8%    1,040,908  31.2%    1,488,623   20.4%
Media & Telecommunications       740,649    9.1%      357,871  26.8%    1,659,735   15.0%
Mid-Cap Equity Growth            255,381   29.4%      140,756  21.9%       24,079   12.0%
Mid-Cap Growth                 5,757,447   34.8%    4,686,813  32.3%    3,149,050   27.9%
Mid-Cap Value                    391,302   46.7%      364,072  36.4%       92,359   17.0%
New America Growth             4,150,396   14.2%    3,220,413  26.6%    1,344,080   31.6%
New Era                        1,871,968   57.9%    3,029,701  43.0%    2,500,868   45.2%
New Horizons                   8,448,650    5.0%   10,028,310  10.3%   15,900,960    6.5%
Real Estate                      162,606   13.8%       35,421   0.8%          (a)    (a)
Science & Technology           4,348,665   31.3%    4,421,394  33.3%    5,713,825   39.1%
Small-Cap Stock                1,829,514   20.7%    1,742,106   8.3%    1,044,665    5.5%
Small-Cap Value                1,488,300   32.1%    2,503,146  19.1%    1,289,012   31.8%
Total Market Equity Index         28,271    0.2%          (a)   (a)           (a)    (a)
Value                          1,876,931   75.7%    1,200,103  66.0%      780,033   57.4%
- ------------------------------------------------------------------------------------------

 
    
 
 (a) Prior to commencement of operations.
 
 
 
 

 
   On December 31, 1998, the Balanced Fund held common stock of J.P. Morgan with
   a value of $2,257,000. The Fund also held a bond of Lehman Brothers Holding,
   with a value of $1,625,000. The Fund also held a GMAC MTN valued at $81,000.
   In 1997, J.P. Morgan, Lehman Brothers Holding, and GMAC were among the Fund's
   regular brokers or dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Blue Chip Growth Fund held common stock of Chase
   Manhattan with a value of $21,900,000, and a Morgan Stanley MTN valued at
   $5,005,000. In 1997, Chase Manhattan and Morgan Stanley were among the Fund's
   regular brokers or dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Equity Income Fund held common stock of the
   following regular brokers or dealers of the Fund: Bankers Trust -
   $106,816,000; Chase Manhattan - $109,500,000; J.P. Morgan - $101,588,000; and
   Morgan Stanley (MTN) - $36,035,000. In 1997, Bankers Trust, Chase Manhattan,
   J.P. Morgan, and Morgan Stanley were among the Fund's regular brokers or
   dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Equity Index 500 Fund held common stock of the
   following regular brokers or dealers of the Fund: Bankers Trust - $2,742,000;
   Citicorp - $14,318,000; Chase Manhattan - $11,498,000; J.P. Morgan -
   $4,961,000; and Merrill Lynch - $6,041,000. In 1997, Bankers Trust, Citicorp,
   Chase Manhattan, J.P. Morgan, and Merrill Lynch were among the Fund's regular
   brokers or dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Financial Services Fund held common stock of the
   following regular brokers or dealers of the Fund: Chase Manhattan -
   $3,832,000; First Chicago NBD - $1,670,000; Morgan Stanley - $1,035,000; and
   Nations Bank Montgomery - $2,372,000. In 1997, Chase Manhattan, First Chicago
   NBD, Morgan Stanley, and NationsBank Montgomery were among the Fund's regular
   brokers or dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Growth and Income Fund held common stock or the
   following regular brokers or dealers of the Fund: Chase Manhattan -
   $49,275,000; and Citicorp - $31,176,000. In 1997, Chase Manhattan and
   Citicorp were among the Fund's regular brokers or dealers as defined in Rule
   10b-1 under the 1940 Act.
 
   On December 31, 1998, the Growth Stock Fund held common stock of Mellon Bank
   valued at $19,703,000. In 1997, Mellon Bank was among the Fund's regular
   brokers or dealers as defined in Rule 10b-1 under the 1940 Act.
 
   On December 31, 1998, the Growth & Income and Small-Cap Value Funds held
   Morgan Stanley Group MTN, both valued at $10,010,000, respectively. In 1997,
   The Morgan Stanley Group was among the Funds' regular brokers or dealers as
   defined in Rule 10b-1 under the 1940 Act.
 
   The portfolio turnover rate for each Fund for the years ended 1998, 1997, and
   1996, was as follows:
   


            Fund                  1998           1997          1996
            ----                  ----           ----          ----
                                                   
Balanced                          12.5%          15.5%          22.3%
Blue Chip Growth                  34.5%          23.7%          26.3%
Capital Appreciation              52.6%          48.3%          44.2%
Capital Opportunity               73.8%          85.0%         107.3%
Diversified Small-Cap Growth      39.8%          13.4%           (b)
Dividend Growth                   37.3%          39.1%          43.1%
Equity Income                     22.6%          23.9%          25.0%
Equity Index 500                   4.7%           0.7%           1.3%
Extended Equity Market Index      28.7%           (b)            (b)
Financial Services                46.8%          46.0%           5.6%(a)
Growth & Income                   20.5%          15.7%          13.5%
Growth Stock                      54.8%          40.9%          49.0%
- ---------------------------------------------------------------------------
Health Sciences                   85.7%         104.4%         133.1%
Media & Telecommunications        48.9%          38.6%         102.9%
Mid-Cap Equity Growth             52.8%          41.0%          31.3%(a)
Mid-Cap Growth                    46.7%          42.6%          38.1%
Mid-Cap Value                     32.0%          16.0%           3.9%(a)
New America Growth                45.6%          43.2%          36.7%
New Era                           23.1%          27.5%          28.6%
New Horizons                      41.2%          45.2%          41.4%
Real Estate                       56.8%           8.4%           (b)
Science & Technology             108.9%         133.9%         125.6%
Small-Cap Stock                   25.9%          22.9%          31.1%
Small-Cap Value                   17.3%          14.6%          15.2%
Total Equity Market Index          1.9%           (b)            (b)
Value                             72.1%          67.2%          68.0%
- ---------------------------------------------------------------------------

 
    
 
 
 

 
    (a) Annualized.
    (b) Prior to commencement of operations.
 
 
   All Funds
 
 
 PRICING OF SECURITIES
 -------------------------------------------------------------------------------
   Equity securities listed or regularly traded on a securities exchange are
   valued at the last quoted sales price at the time the valuations are made. A
   security that is listed or traded on more than one exchange is valued at the
   quotation on the exchange determined to be the primary market for such
   security. Listed securities not traded on a particular day and securities
   regularly traded in the over-the-counter market are valued at the mean of the
   latest bid and asked prices. Other equity securities are valued at a price
   within the limits of the latest bid and asked prices deemed by the Board of
   Directors/Trustees, or by persons delegated by the Board, best to reflect
   fair value.
 
   Debt securities are generally traded in the over-the-counter market and are
   valued at a price deemed best to reflect fair value as quoted by dealers who
   make markets in these securities or by an independent pricing service.
   Short-term debt securities are valued at their amortized cost in local
   currency which, when combined with accrued interest, approximates fair value.
 
   Investments in mutual funds are valued at the closing net asset value per
   share of the mutual fund on the day of valuation. In the absence of a last
   sale price, purchased and written options are valued at the mean of the
   latest bid and asked prices, respectively.
 
   For the purposes of determining the Fund's net asset value per share, the
   U.S. dollar value of all assets and liabilities initially expressed in
   foreign currencies is determined by using the mean of the bid and offer
   prices of such currencies against U.S. dollars quoted by a major bank.
 
   Assets and liabilities for which the above valuation procedures are
   inappropriate or are deemed not to reflect fair value, are stated at fair
   value as determined in good faith by or under the supervision of the officers
   of the Fund, as authorized by the Board of Directors/Trustees.
 
 

 
   All Funds
 
 
 NET ASSET VALUE PER SHARE
 -------------------------------------------------------------------------------
   The purchase and redemption price of the Fund's shares is equal to the Fund's
   net asset value per share or share price. The Fund determines its net asset
   value per share by subtracting its liabilities (including accrued expenses
   and dividends payable) from its total assets (the market value of the
   securities the Fund holds plus cash and other assets, including income
   accrued but not yet received) and dividing the result by the total number of
   shares outstanding. The net asset value per share of the Fund is normally
   calculated as of the close of trading on the New York Stock Exchange ("NYSE")
   every day the NYSE is open for trading. The NYSE is closed on the following
   days: New Year's Day, Dr. Martin Luther King, Jr. Holiday, Presidents' Day,
   Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
   Christmas Day.
 
   Determination of net asset value (and the offering, sale redemption and
   repurchase of shares) for the Fund may be suspended at times (a) during which
   the NYSE is closed, other than customary weekend and holiday closings, (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 SEC (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 capital gain distributions, final
   quarterly dividend (Balanced, Dividend Growth, Equity Income, Equity Index
   500, Growth & Income, Mid-Cap Value, Real Estate, Total Equity Market Index,
   and Value Funds) and annual dividend (other funds), if any, will be
   reinvested on the reinvestment date using the NAV per share of that date. The
   reinvestment date normally precedes the payment date by one day, although the
   exact timing is subject to change and can be as great as 10 days.    
 
 
 
 TAX STATUS
 -------------------------------------------------------------------------------
   The Fund intends to qualify as a "regulated investment company" under
   Subchapter M of the Code.
 
   A portion of the dividends paid by the Fund may be eligible for the
   dividends-received deduction for corporate shareholders. For tax purposes, it
   does not make any difference whether dividends and capital gain distributions
   are paid in cash or in additional shares. The Fund must declare dividends by
   December 31 of each year equal to at least 98% of ordinary income (as of
   December 31) and capital gains (as of October 31) in order to avoid a federal
   excise tax and distribute within 12 months 100% of ordinary income and
   capital gains as of December 31 to avoid a federal income tax.
 
   At the time of your purchase, the Fund's net asset value may reflect
   undistributed capital gains or net unrealized appreciation of securities held
   by the Fund. A subsequent distribution to you of such amounts, although
   constituting a return of your investment, would be taxable as a capital gain
   distribution. For federal income tax purposes, the Fund is permitted to carry
   forward its net realized capital losses, if any, for eight years and realize
   net capital gains up to the amount of such losses without being required to
   pay taxes on, or distribute, such gains.
 
   If, in any taxable year, the Fund should not qualify as a regulated
   investment company under the code: (i) the Fund would be taxed at normal
   corporate rates on the entire amount of its taxable income, if any, without
   deduction for dividends or other distributions to shareholders; and (ii) the
   Fund's distributions to the extent
 
 

 
   made out of the Fund's current or accumulated earnings and profits would be
   taxable to shareholders as ordinary dividends (regardless of whether they
   would otherwise have been considered capital gain dividends).
 
 
                        Taxation of Foreign Shareholders
 
   The Code provides that dividends from net income will be subject to U.S. tax.
   For shareholders who are not engaged in a business in the U.S., this tax
   would be imposed at the rate of 30% upon the gross amount of the dividends in
   the absence of a Tax Treaty providing for a reduced rate or exemption from
   U.S. taxation. Distributions of net long-term capital gains realized by the
   Fund are not subject to tax unless the foreign shareholder is a nonresident
   alien individual who was physically present in the U.S. during the tax year
   for more than 182 days.
 
   All Funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds
 
   To the extent the Fund invests in foreign securities, the following would
   apply:
 
 
                      Passive Foreign Investment Companies
 
   The Fund may purchase the securities of certain foreign investment funds or
   trusts called passive foreign investment companies. Such trusts have been the
   only or primary way to invest in certain countries. In addition to bearing
   their proportionate share of the trust's expenses (management fees and
   operating expenses), shareholders will also indirectly bear similar expenses
   of such trusts. Capital gains on the sale of such holdings are considered
   ordinary income regardless of how long the fund held its investment. 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 are distributed to shareholders.
 
   To avoid such tax and interest, the Fund intends to treat these securities as
   sold on the last day of its fiscal year and recognize any gains for tax
   purposes at that time; deductions for losses are allowable only to the extent
   of any gains resulting from these deemed sales for prior taxable years. Such
   gains and losses will be treated as ordinary income. The Fund will be
   required to distribute any resulting income even though it has not sold the
   security and received cash to pay such distributions.
 
 
                        Foreign Currency Gains and Losses
 
   Foreign currency gains and losses, including the portion of gain or loss on
   the sale of debt securities attributable to foreign exchange rate
   fluctuations, are taxable as ordinary income. If the net effect of these
   transactions is a gain, the ordinary income dividend paid by the Fund will be
   increased. If the result is a loss, the income dividend paid by the Fund will
   be decreased, or to the extent such dividend has already been paid, it may be
   classified as a return of capital. Adjustments to reflect these gains and
   losses will be made at the end of the Fund's taxable year.
 
   All Funds
 
 
 INVESTMENT PERFORMANCE
 -------------------------------------------------------------------------------
 
                            Total Return Performance
 
   The Fund's calculation of total return performance includes the reinvestment
   of all capital gain distributions and income dividends for the period or
   periods indicated, without regard to tax consequences to a shareholder in the
   Fund. Total return is calculated as the percentage change between the
   beginning value of a static account in the Fund and the ending value of that
   account measured by the then current net asset value, including all shares
   acquired through reinvestment of income and capital gain 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     Inception
                         -----     ------     -------     -------     ---------
                         Ended      Ended      Ended     Inception      Date
                         -----      -----      -----     ---------      ----
                        12/31/98  12/31/98    12/31/98    12/31/98
                        --------  --------    --------    --------
                                                      
S & P 500                28.57%    193.88%    479.58%        --       --
Dow Jones Industrial
Average                  18.13     173.37     461.09         --       --
CPI                       1.86      12.69      36.35         --       --
 
Balanced Fund            15.97      93.34     272.43     39,476.74%   12/31/39
Blue Chip Growth Fund    28.84     191.85      --           233.66    06/30/93
Capital Appreciation
Fund                      5.77      82.67     236.86        368.43    06/30/86
Capital Opportunity
Fund                     14.70      --         --           137.12    11/30/94
Diversified Small-Cap
Growth Fund               3.58      --         --            10.94    06/30/97
Dividend Growth Fund     15.04     153.83      --           203.08    12/30/92
Equity Income Fund        9.23     136.14     311.08        657.46    10/31/85
Equity Index 500Fund     28.31     189.73      --           340.45    03/30/90
Financial Services
Fund                     11.55      --         --            78.91    09/30/96
Growth & Income Fund      9.96     123.11     305.26        775.45    12/21/82
Growth Stock Fund        27.41     159.31     410.12     27,314.35    04/11/50
Health Sciences Fund     22.37      --         --            85.22    12/29/95
Media &
Telecommunications
Fund(a)                  35.14     150.08      --           143.62    10/13/93
Mid-Cap Equity Growth
Fund                     21.45      --         --            66.93    07/31/96
Mid-Cap Growth Fund      22.00     154.76      --           300.52    06/30/92
Mid-Cap Value Fund        1.39      --         --            49.88    06/28/96
New America Growth
Fund                     17.89     128.88     481.06        745.27    09/30/85
New Era Fund             -9.88      57.81     141.73      1,699.80    01/20/69
New Horizons Fund         6.25     112.81     398.70      7,747.35    06/03/60
Real Estate Fund        -14.86      --         --            -8.20    10/31/97
Science & Technology
Fund                     42.35     197.84     876.95        791.98    09/30/87
Small-Cap Stock Fund     -3.46     101.67     257.15     29,036.31    06/01/56
Small-Cap Value Fund    -12.47      77.88     272.68        258.45    06/30/88
Value Fund                6.85      --         --           155.90    09/30/94
- --------------------------------------------------------------------------------

 
    
 
 
 (a) Figures based on performance as a closed-end investment company traded
   on the New York Stock Exchange.
 
 

 
 
   


                   Average Annual Compound Rates of Return
                         1 Yr.     5 Yrs.     10 Yrs.     % Since    Inception
                         -----     ------     -------     -------    ---------
                         Ended      Ended      Ended     Inception     Date
                         -----      -----      -----     ---------     ----
                        12/31/98  12/31/98    12/31/98   12/31/98
                        --------  --------    --------   --------
                                                     
S & P 500                28.57%    24.06%      19.21%     --             --
Dow Jones Industrial
Average                  18.13     22.28       18.82      --             --
CPI                       1.86      2.42        3.15      --             --
 
Balanced Fund            15.97     14.09       14.05      10.67%     12/31/39
Blue Chip Growth Fund    28.84     23.89       --         24.48      06/30/93
Capital Appreciation
Fund                      5.77     12.81       12.91      13.15      06/30/86
Capital Opportunity
Fund                     14.70     --          --         23.54      11/30/94
Diversified Small-Cap
Growth Fund               3.58     --          --          7.14      06/30/97
Dividend Growth Fund     15.04     20.48       --         20.29      12/30/92
Equity Income Fund        9.23     18.75       15.18      16.62      10/31/85
Equity Index 500 Fund    28.31     23.71       --         18.45      03/30/90
Financial Services
Fund                     11.55     --          --         29.48      09/30/96
Growth & Income Fund      9.96     17.41       15.02      14.50      12/21/82
Growth Stock Fund        27.41     20.99       17.70      12.21      04/11/50
Health Sciences Fund     22.37     --          --         22.76      12/29/95
Media &
Telecommunications
Fund(a)                  35.14     20.12       --         18.62      10/13/93
Mid-Cap Equity Growth
Fund                     21.45     --          --         23.60      07/31/96
Mid-Cap Growth Fund      22.00     20.57       --         23.79      06/30/92
Mid-Cap Value Fund        1.39     --          --         17.49      06/28/96
New America Growth
Fund                     17.89     18.01       19.24      17.48      09/30/85
New Era Fund             -9.88      9.55        9.23      10.13      01/20/69
New Horizons Fund         6.25     16.31       17.43      11.97      06/03/60
Real Estate Fund        -14.86     --          --         -7.07      10/31/97
Science & Technology
Fund                     42.35     24.39       25.60      21.47      09/30/87
Small-Cap Stock Fund     -3.46     15.06       13.58      14.25      06/01/56
Small-Cap Value Fund    -12.47     12.21       14.06      12.92      06/30/88
Value Fund                6.85     --          --         24.73      09/30/94
- -------------------------------------------------------------------------------

 
    
 
 
 (a) Figures based on performance as a closed-end investment company traded
   on the New York Stock Exchange.
 
 
 
 
                         Outside Sources of Information
 
   From time to time, in reports and promotional literature: (1) the Fund's
   total return performance, ranking, or any other measure of the Fund's
   performance may be compared to any one or combination of the following: (a) a
   broad-based index; (b) other groups of mutual funds, including T. Rowe Price
   Funds, tracked by independent research firms ranking entities, or financial
   publications; (c) indices of securities comparable to those in which the Fund
   invests; (2) the Consumer Price Index (or any other measure for inflation,
   government statistics, such as GNP may be used to illustrate investment
   attributes of the Fund or the general economic, business, investment, or
   financial environment in which the Fund operates; (3) various financial,
   economic and market statistics developed by brokers, dealers and other
   persons may be used to illustrate
 
 

 
   aspects of the Fund's performance; (4) the effect of tax-deferred compounding
   on the Fund's investment returns, or on returns in general in both qualified
   and nonqualified retirement plans or any other tax advantage product, may be
   illustrated by graphs, charts, etc.; and (5) the sectors or industries in
   which the Fund invests may be compared to relevant indices or surveys in
   order to evaluate the Fund's historical performance or current or potential
   value with respect to the particular industry or sector.
 
 
                               Other Publications
 
   From time to time, in newsletters and other publications issued by Investment
   Services, T. Rowe Price mutual fund portfolio managers may discuss economic,
   financial and political developments in the U.S. and abroad and how these
   conditions have affected or may affect securities prices or the Fund;
   individual securities within the Fund's portfolio; and their philosophy
   regarding the selection of individual stocks, including why specific stocks
   have been added, removed or excluded from the Fund's portfolio.
 
 
                           Other Features and Benefits
 
   The Fund is a member of the T. Rowe Price family of Funds and may help
   investors achieve various long-term investment goals, which include, but are
   not limited to, investing money for retirement, saving for a down payment on
   a home, or paying college costs. To explain how the Fund could be used to
   assist investors in planning for these goals and to illustrate basic
   principles of investing, various worksheets and guides prepared by T. Rowe
   Price and/or Investment Services may be made available.
 
 
                       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
   and which may often be used in combination. A sales charge (or "load") can be
   charged at the time the fund is purchased (front-end load) or at the time of
   redemption (back-end load). Front-end loads are charged on the total amount
   invested. Back-end loads or "redemption fees" are charged either on the
   amount originally invested or on the amount redeemed. 12b-1 plans allow for
   the payment of marketing and sales expenses from fund assets. These expenses
   are usually computed daily as a fixed percentage of assets.
 
   The Fund is a no-load fund which imposes no sales charges or 12b-1 fees.
   No-load funds are generally sold directly to the public without the use of
   commissioned sales representatives. This means that 100% of your purchase is
   invested for you.
 
 
                               Redemptions in Kind
 
   In the unlikely event a shareholder were to receive an in kind redemption of
   portfolio securities of the Fund, brokerage fees could be incurred by the
   shareholder in a subsequent sale of such securities.
 
 
                     Issuance of Fund Shares for Securities
 
   Transactions involving issuance of Fund shares for securities or assets other
   than cash will be limited to (1) bona fide reorganizations; (2) statutory
   mergers; or (3) other acquisitions of portfolio securities that: (a) meet the
   investment objective and policies of the Fund; (b) are acquired for
   investment and not for resale except in accordance with applicable law; (c)
   have a value that is readily ascertainable via listing on or trading in a
   recognized United States or international exchange or market; and (d) are not
   illiquid.
 
   Balanced Fund
 
   On August 31, 1992, the T. Rowe Price Balanced Fund acquired substantially
   all of the assets of the Axe-Houghton Fund B, a series of Axe-Houghton Funds,
   Inc. As a result of this acquisition, the SEC requires that the historical
   performance information of the Balanced Fund be based on the performance of
   Fund B. Therefore, all performance information of the Balanced Fund prior to
   September 1, 1992, reflects the performance of Fund B and investment managers
   other than T. Rowe Price. Performance information after August 31, 1992,
   reflects the combined assets of the Balanced Fund and Fund B.
 
 

 
   Media & Telecommunications Fund
 
   On July 28, 1997, the Fund converted its status from a closed-end fund to an
   open-end mutual fund. Prior to the conversion the Fund was known as New Age
   Media Fund, Inc.
 
   Small-Cap Stock Fund
 
   Effective May 1, 1997, the Fund's name was changed from the T. Rowe Price OTC
   Fund to the T. Rowe Price Small-Cap Stock Fund.
 
   Equity Index 500 Fund
 
   Effective January 30, 1998, the Fund's name was changed from T. Rowe Price
   Equity Index Fund to the T. Rowe Price Equity Index 500 Fund.
 
   All Funds except Capital Appreciation, Equity Income and New America Growth
   Funds
 
 
 CAPITAL STOCK
 -------------------------------------------------------------------------------
   The Fund's Charter authorizes the Board of Directors/Trustees to classify and
   reclassify any and all shares which are then unissued, including unissued
   shares of capital stock into any number of classes or series, each class or
   series consisting of such number of shares and having such designations, such
   powers, preferences, rights, qualifications, limitations, and restrictions,
   as shall be determined by the Board subject to the Investment Company Act and
   other applicable law. The shares of any such additional classes or series
   might therefore differ from the shares of the present class and series of
   capital stock and from each other as to preferences, conversions or other
   rights, voting powers, restrictions, limitations as to dividends,
   qualifications or terms or conditions of redemption, subject to applicable
   law, and might thus be superior or inferior to the capital stock or to other
   classes or series in various characteristics. The Board of Directors/Trustees
   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/Trustees 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/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 directors/trustees
   unless and until such time as less than a majority of the directors/ trustees
   holding office have been elected by shareholders, at which time the
   directors/trustees then in office will call a shareholders' meeting for the
   election of directors/trustees. Except as set forth above, the directors/
   trustees shall continue to hold office and may appoint successor
   directors/trustees. Voting rights are not cumulative, so that the holders of
   more than 50% of the shares voting in the election of directors/trustees can,
   if they choose to do so, elect all the directors/trustees of the Fund, in
   which event the holders of the remaining shares will be unable to elect any
   person as a director/trustee. 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 1940
   Act.
 
   Capital Appreciation, Equity Income, and New America Growth Funds
 
 
 ORGANIZATION OF THE FUNDS
 -------------------------------------------------------------------------------
   
   For tax and business reasons, the Funds were organized as Massachusetts
   Business Trusts, and are registered with the SEC under the 1940 Act as
   diversified, open-end investment companies, commonly known as "mutual fund."
    
 
   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 1940 Act, holders of record of not less than two-thirds
   of the outstanding shares of the Fund may remove a trustee by a vote cast in
   person or by proxy at a meeting called for that purpose. Except as set forth
   above, the trustees shall continue to hold office and may appoint successor
   trustees. Voting rights are not cumulative, so that the holders of more than
   50% of the shares voting in the election of trustees can, if they choose to
   do so, elect all the trustees of the Trust, in which event the holders of the
   remaining shares will be unable to elect any person as a trustee. No
   amendments may be made to the Declaration of Trust without the affirmative
   vote of a majority of the outstanding shares of the Trust.
 
   Shares have no preemptive or conversion rights; the right of redemption and
   the privilege of exchange are described in the prospectus. Shares are fully
   paid and nonassesable, except as set forth below. The Trust may be terminated
   (i) upon the sale of its assets to another diversified, open-end management
   investment company, if approved by the vote of the holders of two-thirds of
   the outstanding shares of the Trust, or (ii) upon liquidation and
   distribution of the assets of the Trust, if approved by the vote of the
   holders of a majority of the outstanding shares of the Trust. If not so
   terminated, the Trust will continue indefinitely.
 
   Under Massachusetts law, shareholders could, under certain circumstances, be
   held personally liable for the obligations of the Fund. However, the
   Declaration of Trust disclaims shareholder liability for acts or obligations
   of the Fund and requires that notice of such disclaimer be given in each
   agreement, obligation or instrument entered into or executed by the Fund or a
   Trustee. The Declaration of Trust provides for indemnification from Fund
   property for all losses and expenses of any shareholder held personally
   liable for the obligations of the Fund. Thus, the risk of a shareholder
   incurring financial loss on account of shareholder liability is limited to
   circumstances in which the Fund itself would be unable to meet its
   obligations, a possibility which T. Rowe Price believes is remote. Upon
   payment of any liability incurred by the Fund, the shareholders of the Fund
   paying such liability will be entitled to reimbursement from the general
   assets of the Fund. The Trustees intend to conduct the operations of the Fund
   is such a way so as to avoid, as far as possible, ultimate liability of the
   shareholders for liabilities of such Fund.
 
 

 
   All Funds
 
 
 FEDERAL REGISTRATION OF SHARES
 -------------------------------------------------------------------------------
   The Fund's shares are registered for sale under the 1933 Act. Registration of
   the Fund's shares is not required under any state law, but the Fund is
   required to make certain filings with and pay fees to the states in order to
   sell its shares in the states.
 
 
 
 LEGAL COUNSEL
 -------------------------------------------------------------------------------
   Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New
   York, New York 10022-9998, is legal counsel to the Fund.
 
 
 
 INDEPENDENT ACCOUNTANTS
 -------------------------------------------------------------------------------
   PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore,
   Maryland 21201, are the independent accountants to the Funds.
 
   The financial statements of the Funds for the year ended December 31, 1998,
   and the report of independent accountants are included in the Fund's Annual
   Report for the year ended December 31, 1998. The audited financial statements
   of T. Rowe Price Extended Equity Market Index Fund, Inc., and T. Rowe Price
   Total Equity Market Index Fund, Inc., for the period January 30,1998
   (commencement of operations) to December 31, 1998, are included in their
   Annual Reports for the period ended December 31, 1998. 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, 1998, are incorporated into
   this Statement of Additional Information by reference:
 
   


                          ANNUAL REPORT REFERENCES:
 
                                CAPITAL       EQUITY     NEW AMERICA  NEW ERA
                                APPRECIATION  INDEX 500  GROWTH       -------
                                ------------  ---------  ------
                                                          
Report of Independent
Accountants                          27          28          20         21
Statement of Net Assets,
December 31, 1998                  13-20        3-21        11-14      11-15
Statement of Operations, year
ended
December 31, 1998                    21          22          15         16
Statement of Changes in Net
Assets, years ended
December 31, 1998 and December
31, 1997                             22          23          16         17
Notes to Financial Statements,
December 31, 1998                  23-26        24-27       17-19      18-20
Financial Highlights                 12           2          10         10

 
    
 
 
 

 
   


                                     SMALL-CAP  MEDIA &           DIVIDEND  EQUITY
                                     STOCK      TELECOMMUNICATIONSGROWTH    INCOME
                                     -----               ---------------    ------
                                                                
Report of Independent Accountants       27             19            23        24
Statement of Net Assets, December
31, 1998                               12-21         11-13         10-17     10-17
Statement of Operations, year ended
December 31, 1998                       22             14            18        18
Statement of Changes in Net Assets,
years ended
December 31, 1998 and December 31,
1997                                    23             15            19        19
Notes to Financial Statements,
December 31, 1998                      24-26         16-18         20-22     20-23
Financial Highlights                    11             10            9         9

 
    
 
 
   


                                   VALUE    CAPITAL      FINANCIAL   MID-CAP
                                   -----    OPPORTUNITY  SERVICES    VALUE
                                            -----------  --------    -----
                                                         
Report of Independent Accountants    21         22           20          24
Statement of Net Assets, December
31, 1998                            9-15       12-16       12-14       11-17
Statement of Operations, year
ended
December 31, 1998                    16         17           15          18
Statement of Changes in Net
Assets, years ended
December 31, 1998 and December
31, 1997                             17         18           16          19
Notes to Financial Statements,
December 31, 1998                   18-20      19-21       17-19       20-23
Financial Highlights                  8         11           11          10

 
    
 
 
   


                                  SCIENCE &   BLUE CHIP   GROWTH &   HEALTH
                                  TECHNOLOGY  GROWTH      INCOME     SCIENCES
                                  ----------  ------      ------     --------
                                                         
Report of Independent                                                   2
Accountants                           20          27         23         0
Statement of Net Assets,
December 31, 1998                   11-14       13-20       9-16      11-14
Statement of Operations, year
ended
December 31, 1998                     15          21         17         15
Statement of Changes in Net
Assets, years ended
December 31, 1998 and December
31, 1997                              16          22         18         16
Notes to Financial Statements,
December 31, 1998                   17-19       23-26       19-22     17-19
Financial Highlights                  10          12          8         10

 
    
 
 
   


                                       BALANCED  NEW       GROWTH    MID-CAP
                                       --------  HORIZONS  STOCK     GROWTH
                                                 --------  -----     ------
                                                         
                                                    3
Report of Independent Accountants         48        0         24        24
                                                    1
                                                    1
Portfolio of Investments, December                  -
31, 1998                                11-40       22      11-17     12-17
Statement of Assets and Liabilities,                2
December 31, 1998                         41        3         18        18
Statement of Operations, year ended                 2
December 31, 1998                         42        4         19        19
Statement of Changes in Net Assets,
years ended
December 31, 1998 and December 31,                  2
1997                                      43        5         20        20
Notes to Financial Statements,                     26-
December 31, 1998                       44-47       29      21-23     21-23
                                                    1
Financial Highlights                      10        0         10        11

 
    
 
 
 
 

 
   
    
   


                                                       MID-CAP
                                                       EQUITY GROWTH
                                                       -------------
                                                    
Report of Independent Accountants                           15
Statement of Net Assets, December 31, 1998                 8-10
Statement of Operations, year ended December 31, 1998       11
Statement of Changes in Net Assets, years ended
December 31, 1998 and December 31, 1997                     12
Notes to Financial Statements, December 31, 1998           13-14
Financial Highlights                                         7

 
    
 
 


                                                        SMALL-CAP
                                                        VALUE
                                                        -----
                                                     
Report of Independent Accountants                           28
Portfolio of Investments, December 31, 1998               11-21
Statement of Assets and Liabilities, December 31, 1998      22
Statement of Operations, year ended December 31, 1998       23
Statement of Changes in Net Assets, years ended
December 31, 1998 and December 31, 1997                     24
Notes to Financial Statements, December 31, 1998          25-27
Financial Highlights                                        10

 
 
 
   


                                                       DIVERSIFIED
                                                       SMALL-CAP
                                                       GROWTH
                                                       ------
                                                    
Report of Independent Accountants                           28
Statement of Net Assets, year ended December 31, 1998     11-22
Statement of Operations, year ended December 31, 1998       23
Statement of Changes in Net Assets, years ended
December 31, 1998 and June 20, 1997 (commencement of
operations) to December 31, 1998                            24
Notes to Financial Statements, December 31, 1998          25-27
Financial Highlights                                        10

 
    
 
 
   


                                                       REAL ESTATE
                                                       -----------
                                                    
Report of Independent Accountants                          18
Statement of Net Assets, year ended December 31, 1998     10-12
Statement of Operations, year ended December 31, 1998      13
Statement of Changes in Net Assets, years ended
December 31, 1998 and October 31, 1997 (commencement
of operations) to December 31, 1998                        14
Notes to Financial Statements, December 31, 1998          15-17
Financial Highlights                                        9

 
    
 
 
 
 

 
   


                                                        EXTENDED EQUITY
                                                        MARKET INDEX
                                                        ------------
                                                     
Report of Independent Accountants                              42
Portfolio of Investments, December 31, 1998                   3-35
Statement of Assets and Liabilities, December 31, 1998         36
Statement of Operations, January 30, 1998
(commencement of operations) to December 31, 1998              37
Statement of Changes in Net Assets, January 30, 1998
(commencement of operations) to December 31, 1998              38
Notes to Financial Statements, December 31, 1998             39-41
Financial Highlights                                           2

 
    
 
 
   


                                                       TOTAL MARKET
                                                       EQUITY INDEX
                                                       ------------
                                                    
Report of Independent Accountants                            38
Statement of Net Assets, December 31, 1998                  3-32
Statement of Operations, January 30, 1998
(commencement of operations) to December 31, 1998            33
Statement of Changes in Net Assets, January 30, 1998
(commencement of operations) to December 31, 1998            34
Notes to Financial Statements, December 31, 1998           35-37
Financial Highlights                                         2

 
    
 
 
 
 
 RATINGS OF CORPORATE DEBT SECURITIES
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                       Moody's Investors Service, Inc.    
 
   Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
   smallest degree of investment risk and are generally referred to as "gilt
   edge."
 
   Aa-Bonds rated Aa are judged to be of high quality by all standards. Together
   with the Aaa group they comprise what are generally know as high-grade bonds.
 
   A-Bonds rated A possess many favorable investment attributes and are to be
   considered as upper medium-grade obligations.
 
   Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they
   are neither highly protected nor poorly secured. Interest payments and
   principal security appear adequate for the present but certain protective
   elements may be lacking or may be characteristically unreliable over any
   great length of time. Such bonds lack outstanding investment characteristics
   and in fact have speculative characteristics as well.
 
   Ba-Bonds rated Ba are judged to have speculative elements: their futures
   cannot be considered as well assured. Often the protection of interest and
   principal payments may be very moderate and thereby not well safeguarded
   during both good and bad times over the future. Uncertainty of position
   characterize bonds in this class.
 
   B-Bonds rated B generally lack the characteristics of a desirable investment.
   Assurance of interest and principal payments or of maintenance of other terms
   of the contract over any long period of time may be small.
 
 

 
   Caa-Bonds rated Caa are of poor standing. Such issues may be in default or
   there may be present elements of danger with respect to principal or
   interest.
 
   Ca-Bonds rated Ca represent obligations which are speculative in a high
   degree. Such issues are often in default or have other marked short-comings.
 
   C-Bonds rated C represent the lowest-rated, and have extremely poor prospects
   of attaining investment standing.
 
 
                          Standard & Poor's Corporation
 
   AAA-This is the highest rating assigned by Standard & Poor's to a debt
   obligation and indicates an extremely strong capacity to pay principal and
   interest.
 
   AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to
   pay principal and interest is very strong.
 
   A-Bonds rated A have a strong capacity to pay principal and interest,
   although they are somewhat more susceptible to the adverse effects of changes
   in circumstances and economic conditions.
 
   BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
   principal and interest. Whereas they normally exhibit adequate protection
   parameters, adverse economic conditions or changing circumstances are more
   likely to lead to a weakened capacity to pay principal and interest for bonds
   in this category than for bonds in the A category.
 
   BB, B, CCC, CC, C-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 IBCA, Inc.
 
   AAA-High grade, broadly marketable, suitable for investment by trustees and
   fiduciary institutions, and liable to but slight market fluctuation other
   than through changes in the money rate. The prime feature of a "AAA" bond is
   the showing of earnings several times or many times interest requirements for
   such stability of applicable interest that safety is beyond reasonable
   question whenever changes occur in conditions. Other features may enter, such
   as wide margin of protection through collateral, security or direct lien on
   specific property. Sinking funds or voluntary reduction of debt by call or
   purchase or often factors, while guarantee or assumption by parties other
   than the original debtor may influence their rating.
 
   AA-Of safety virtually beyond question and readily salable. Their merits are
   not greatly unlike those of "AAA" class but a bond so rated may be junior
   though of strong lien, or the margin of safety is less strikingly broad. The
   issue may be the obligation of a small company, strongly secured, but
   influenced as to rating by the lesser financial power of the enterprise and
   more local type of market.
 
   A-Bonds rated A are considered to be investment grade and of high credit
   quality. The obligor's ability to pay interest and repay principal is
   considered to be strong, but may be more vulnerable to adverse changes in
   economic conditions and circumstances than bonds with higher ratings.
 
   BBB-Bonds rated BBB are considered to be investment grade and of satisfactory
   credit quality. The obligor's ability to pay interest and repay principal is
   considered to be adequate. Adverse changes in economic conditions ad
   circumstances, however, are more likely to have adverse impact on these
   bonds, and therefore impair timely payment. The likelihood that the ratings
   of these bonds will fall below investment grade is higher than for bonds with
   higher ratings.
 
   BB, B, CCC, CC, and C are regarded on balance as predominantly speculative
   with respect to the issuer's capacity to repay interest and repay principal
   in accordance with the terms of the obligation for bond issues
 
 

 
   not in default. BB indicates the lowest degree of speculation and C the
   highest degree of speculation. The rating takes into consideration special
   features of the issue, its relationship to other obligations of the issuer,
   and the current and prospective financial condition and operating performance
   of the issuer.